Is India’s mobile telephony market maturing? | Mint
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Business News/ Opinion / Online-views/  Is India’s mobile telephony market maturing?

Is India’s mobile telephony market maturing?

Is India’s mobile telephony market maturing?


Recent moves by some telcos, led by market leader Bharti Airtel to increase rates, by as much as 20% in some cases, would seem to suggest so. There’s the cynical view that Bharti can do this because its most profitable market is Delhi where the scarcity of spectrum has kept competition at bay which, in turn, gives a telco a bit of what’s called pricing power, but look beyond this cynicism and all the signs of a mature market are there.

That it has taken around 500 active mobile phone connections to get there says something about the depth of the Indian market. Let’s review the evolution of the mobile telephony market in India. Between 1994 and 1999, the market saw little competition, grew at a snail’s pace, and boasted extremely high rates as companies that had agreed to pay unrealistic licence fees to the government tried to recover what they could from customers.

The move to a revenue sharing arrangement with the government in 1999 resulted in the first growth spurt although it didn’t mean sharply lower rates. Most telcos sought to make the most of it and had India’s then competition watch-dog been a bit proactive, it could have well hauled up a few for behaving like a cartel.

The entry of Reliance Infocomm (now Reliance Communications) changed that. The telco embarked on a price war; others followed suit, and the growth that this engendered lasted till 2009 (through various phases). Since then, growth has slowed. Sacrificing lower profitability for higher profits (in absolute terms) makes sense when it’s possible for companies to play what is called the volumes game. When it isn’t they have to start focussing on higher profitability. The move towards this has also been accelerated by the huge amounts telcos have spent on spectrum. There are other signs of maturity in the telecom market as well: it is now possible for customers to switch telcos without switching numbers; and a hierarchy seems to be emerging in the market with telcos offering voice services (2G) at the lower end, and those offering voice and data services (3G) at the higher end.

Higher rates will, apart from increasing the amount of money a telco makes on every call, also encourage price conscious customers to change telcos and pick a price player. This will reduce the pressure on spectrum and infrastructure at the telco’s back-end. That could explain why the stock markets cheered the move.

If profitable growth is no longer possible, then profits clearly matter more than growth.

(R Sukumar is editor, Mint)

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Published: 25 Jul 2011, 01:24 AM IST
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