The consolidation in India’s telecom industry that witnessed the merger of Vodafone India and Idea Cellular shows no sign of abating. Reliance Communications, the original disruptor dating back to 2002, has finally filed for bankruptcy. Market leaders Vodafone Idea Ltd and Bharti Airtel Ltd, after merging their towers businesses, are now preparing to combine their fibre assets in an effort to conserve their energies and their finances. Both companies are bleeding: Bharti’s profits for the latest quarter were down 72% year-on-year, while Vodafone Idea’s losses are widening with every passing quarter. Adding to the woes of existing service providers is the emerging challenge from non-telecom competitors. After WhatsApp and Skype crashed their party for individual customer services, now companies such as Google, Amazon and Facebook are offering advanced enterprise communications solutions. In the face of falling average revenue per user and the cost of servicing huge levels of debt, India’s once-robust telecom services industry is witnessing rapid concentration. Nor is the present wave of consolidation done yet. Soon enough, the coupling of direct competitors will give way to mergers and acquisitions of companies that can help incumbents expand its service offerings.
The consolidation process follows the pattern seen in other markets where fragmentation had a severe impact on the financial health of companies. Following a recent wave of mergers in Europe, most major markets, including the UK, the Netherlands, Germany, Austria, Ireland and Denmark, now have either three or four competitors. Paradoxically, though, while the regulator’s concern in these markets has been to ensure that this concentration doesn’t lead to the usual increase in prices for users, in India, prices have been on a steeply downward spiral. The behaviour is atypical. In a 2018 study titled, Evaluating Market Consolidation In Mobile Communications, researchers Christos Genakos, Tommaso Valletti and Frank Verboven looked at the experience of 33 countries between 2002 and 2014, and found that increased market concentration in the mobile industry potentially generates an important trade-off. While a merger increases prices, investment per operator also goes up.
In India, over the last two years, the latter has been in clear evidence though prices have gone in the opposite direction. How long they will stay that course, though, is debatable. If the market becomes even more consolidated between the top two players, the customer could find her party finally ending. The entry of a new competitor in a mature industry is often to the advantage of customers and, indeed, the price and data war triggered by Reliance Jio Infocomm Ltd achieved just that. But with the steady erosion in profitability and revenue, under-pressure incumbents are now beginning to pull back. For starters, the earlier bonanza of lifetime free plans is over. Vitally, both Vodafone Idea and Bharti have signalled that they aren’t going to be in any hurry to invest in the high-speed fifth-generation networks. That’s a real pity. Already in the UK, BT Group is planning to roll out commercial 5G products in the next 18 months, while Deutsche Telekom is testing a 5G service in Berlin. For the world’s fastest growing telecom market, being made to wait for the latest technology is a damper.