“I don’t meet competition, I just crush it” said Charles Revson, but as the Indian Telecom battle going on, it’s likely that a few players will get crushed. Yes, it’s about the hyper competition that is going on in the Indian telecom market.
India is the fastest growing telecom market in the world, having approximately 52 crore mobile users, account to more than 50% of the population and the expert forecasts show that by 2014, the number of mobile users will rise to 100 crores. India being a very attractive market in terms of its population and ever growing educated middle class, and potential unexplored rural market, apart from some strong existing players, more and more new entrants have been entering the market. As the competition is getting intensified, Michael Porter’s all the forces have become active, in the telecom industry, right from industry competition, new entrants, bargaining power of suppliers, bargaining power of customers, Threat of substitution. Well, as the number of phone users growing day by day, new entrants see the opportunity and have been entering the market and also giving tough competition to the early birds. As the competition intensifies the companies have started to bombard the market with offers like cheap connections, lower call rates and various other mixed offers to attract customers, and the biggest beneficiary of this intensified competition is the customer, the Indian mass have been benefiting from the offers offered by these companies. Competition is good for any industry; monopoly is bad, because it will affect common people.
But what is going on now is something very interesting, blistering growth has attracted new players like Japan's NTT DoCoMo Inc which formed a joint venture with Tata Teleservices Ltd. in June and sparked a race to the bottom over prices as companies rush to grab market share. The price war triggered by these new entrants have resulted in hyper competition, the price cut is huge and unimaginable, the call charges were dropped as low as 1p/sec, later MTNL’s MTN offered ½ p/sec, and companies like Virgin,Reliance offered 20p/min, now the last one to join the price war is Tata Do co mo offering 1p/6 sec (call charges, though similar but may vary from place to place).
Indian consumers at least have a reason to smile, despite the increased food inflation, that the telephone bills have come down drastically. But see what the companies are going through right now. The four month old price war has hit margins at a time when Indian telecom companies have little scope for cost-cutting, Macquarie Securities analysts said in a report. They maintain that the "price cut contagion" is likely to spread from retail rates to corporate, wireless data, international roaming and SMS rates as well. Midst of the price war, government has decided to rise the spectrum charge to 50% for the existing players recently.
The kind of price war that’s going on may lead to heavy losses and can badly affect the whole telecom industry, at least now, TRAI, our Telecom Regulatory Authority of India and Department of Telecom can intervene, not to control the market, but to take some measures to curb new entrants from triggering such kind of price war in the future. A price war that analysts say could turn India's telecom boom into a financial bust.
You may say, millions of people are benefiting from the low call charges, and price war is good, and after all who cares about the telecom companies. But the point is, we are part of a large system, an economy, a complex structure of sub-systems, where one sub-system gets affected the whole system is affected. You must be aware of such a price war that went on in the Aviation sector, which resulted in heavy losses for Airlines and companies were asking for bail out packages from the government. The telecom game that is going on now may result in a disaster; if the companies incur losses, this will badly affect the telecom sector and economy as a whole. Ultimately, government has to come up with bail out packages to save the sector, because the concern is not only about these companies which are pillars of the telecom sector but also about the thousands of employees working in these companies and the number of units like the intermediaries, suppliers, distributors etc. associated with the industry.
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