Mobile Communications

Indian Telecoms Industry: The Inevitable Consolidation

The Indian telecom industry ranks second in the world if you consider the total number of telephone users (both mobile and fixed phones). In fact, the annual total revenue for last year stood at USD 33,350 million. And it’s having an unmistakable positive impact on the country’s overall economy, while the mobile industry alone has contributed US$ 400 billion to India’s gross domestic product (GDP) in 2014.

India has been an evolving story for some time now. And the telecom industry has been through one wave of consolidation already. It now seems that another wave is imminent.

The First Wave of Consolidation

While everybody was busy talking about Facebook taking over WhatsApp in a deal worth $19 billion, change was silently creeping into the Indian telecom industry. This was a definite firm step towards market consolidation.

Vodafone was given the opportunity to take over its minority stake in the Indian unit so that it could have more control over the venture. This deal was worth Rs.10,142 crore, which is equivalent to more than $10 billion. There were also reports that the mighty Tata Group, a key player in the Indian telecom business, might exit the sector altogether.

A Second Wave of Consolidation

The market is now ready for the second wave of consolidation. But there’s a difference between these two waves. And many believe this is going to have an even bigger impact on the industry.

In the first round of consolidation, we saw companies such as Idea Cellular, NTT DoCoMo, and Telecommunications Corp of Dubai investing in Indian firms like Spice Communications, Swan Telecom and Tata Teleservices to become more competitive. Now the second round of consolidation is all set to saturate the market with just the top players playing catch-up.

What Is Happening

The Indian telecom industry has traditionally been a monopoly of the state run department of telecommunications. This department, however, opened its doors and invited private companies in a couple of decades back. That was a huge change. What followed was a boom, unseen before in the Indian telecom sector. Both foreign and domestic companies entered the market and went directly to the public. The consumers of course loved it as there were finally plenty of options. Stores and mini-shops opened everywhere employing thousands of people, even in remote rural areas. The turnover soared.

A few of these companies got acquired quickly but others kept going forward, often with problems because of the huge cost of staying in business, increasing competition, contracting margins, and declining voice revenues. This meant the smaller companies started to re-think their strategies.

The Facebook-WhatsApp deal was a bolt because it meant that the SMS or messaging revenues would fall further. This area used to give companies high margins. But with Skype and Viber around, voice call revenues were falling too. The impact of this has been felt globally, including India.

What Is Going to Change Next

Many firms are going to go off the industry map in this new consolidation phase. For instance, Bharti Airtel has announced that it is taking over Loop Mobile for $700 million. Loop is among the oldest telecom businesses in the country, but is now operational in Mumbai only. With this takeover, Bharti wants to establish itself firmly in the Mumbai market and overtake Vodafone. As Sayan Chatterjee, Business Manager Airtel, Post-Paid Connections, put it: “Three million subscribers of Loop in Mumbai are going to join our four million subscribers. This will make us number one in the city”.

Striking back, Vodafone is also in talks with Tata Teleservices to take over its business. While interestingly, Tata Teleservices is in talks with some other companies as well, to sell off its telecom stake.

Another firm that is keen to sell off is Videocon Telecommunications. It is looking for a larger rival. It has also been reported that the state run companies MTNL and BSNL might merge soon.

Now investments are pouring in from companies such as Reliance Industries. Reliance is reportedly keen to pump in $30 billion after it received assurances from the new government’s telecom minister that the focus is going to be firmly on quality and domestic manufacturing. This is likely to build confidence, and bring in other investments.

In the next few years we are probably going to see many alliances in the mobile payment, business intelligence and social media space as well. The upcoming 1800 MHz and 800 MHz auctions will give a much needed push for 4G data services in India.

After this phase of consolidation, it seems like the number of large operators is going to come down from the 12 now to about six or seven. And the ones that are going to survive are obviously the businesses with the deepest pockets. This means the market is likely to become a lot more concentrated.

Some firms are taking a different route though. Customer acquisition is not their priority. There is no blind competition here. These telecom players are instead focusing on highlighting their value credentials among their subscribers. Anurag Hira, a marketing and advertising manager, feels that “It’s a real consumers’ market now, as companies are clamoring to show who is offering the best value. It’s not just about being the cheapest or offering the best deals”.

The Impact of New Technologies

There has been a big shift in how consumers are using their mobiles. Telecom businesses need to face up to these challenges from firms like Google, Microsoft and Apple as well as Cloud & Big Data startups. Services like Mobile Payments and Internet TV are good. But telecom businesses will have to look at new revenue opportunities to keep their operations going.

Sure enough, customers aren’t going to have as many options in future after this consolidation. But there will be more stability, better network coverage, and improved infrastructure. And all in all, it does seem likely it’s going to work out in favor of the customer.


Niladri Bose is a Post Graduate in Mass Communication and former journalist. Niladri writes on economic issues, and also on social, political and Internet trends


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Niladri Bose

Niladri Bose is a Post Graduate in Mass Communication and former journalist. Niladri writes on economic issue, and also on social, political and Internet trends.

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