STRATEGIC ANALYSIS OF

TELECOMMUNICATIONS
INDUSTRY

Ankur Maheshwari 2015B5A40688H

Saurabh Patil 2016A4PS0368H

Siddhant Kataria 2016A1PS0627H

Himadri Mukherjee 2016ABPS0585H

Udit Singh 2016A1PS0657H

Parth Mahajan 2016A2PS0580H

The telecommunications sector comprises companies that make communication possible on a

global scale, whether it is through the phone or the Internet, through airwaves or cables, through
wires or wirelessly. These companies created the infrastructure that allows data in words, voice,
audio or video to be sent anywhere in the world. The largest companies in the sector are wireless
operators, satellite companies, cable companies and Internet service providers .

.The evolution of the telecommunications industry in the India centers on five main factors.
Wireless Internet is quickly becoming the industry’s future, and its popularity is consistently
increasing revenue. Also, an expansion of high-speed, fiber-based networks is expected. In addition
to these elements, a shortage of airwaves has caused a consolidation within the industry.

Furthermore, this industry has experienced a shift in focus from voice calls to video and data. There
is increasing demand for speedier data connectivity, higher resolution, quicker video streaming and
ample multimedia applications.

Segments Within the Telecommunications Sector:-

The telecommunications sector consists of three basic sub-sectors: telecom equipment (the largest),
telecom services (next largest) and wireless communication. The major segments within these sub-
sectors are:

● wireless communications
● communications equipment
● processing systems and products
● long-distance carriers
● domestic telecom services
● foreign telecom services
● diversified communication services

The smallest, but fastest growing, area within the sector is wireless communications, as more and
more communications and computing shift to mobile devices. Looking forward, the sector's biggest
challenge is to keep up with people's demand for faster connections as they consume and create
content, which requires significant capital expenditures. Companies that can meet these needs
thrive.
Market Size:-
The mobile industry is expected to create a total economic value of Rs 14 trillion (US$ 217.37
billion) by the year 2020. It would generate around 3 million direct job opportunities and 2 million
indirect jobs during this period@. India’s smartphone market grew 14 per cent year-on-year to a
total of 124 million shipments in 2017.%
Rise in mobile-phone penetration and decline in data costs will add 500 million new internet users
in India over the next five years, creating opportunities for new businesses. The monthly data usage
per smartphone in India is expected to increase from 3.9 GB in 2017 to 18 GB by 2023.

Investment/Major development:-
With daily increasing subscriber base, there have been a lot of investments and developments in the
sector. The industry has attracted FDI worth US$ 30.08 billion during the period April 2000 to
December 2017, according to the data released by Department of Industrial Policy and Promotion
(DIPP).
Some of the developments in the recent past are:

● During the first quarter of 2018, India became the world’s fastest-growing market for
mobile applications.
● Finnish telecommunication company Nokia, is going to collaborate with Indian telecom
companies Bharti Airtel and BSNL to work on the roadmap for development of 5G
technology and creating a conducive ecosystem for 5G in India.
● India telecommunication companies will be investing US$ 20 billion over the next two
years for expansion of network and operations, stated Mr Akhil Gupta, Vice Chairman,
Bharti Enterprise.

Government Initiatives:-
The government has fast-tracked reforms in the telecom sector and continues to be proactive in
providing room for growth for telecom companies. Some of the other major initiatives taken by the
government are as follows:

● The Government of India is soon going to come out with a new National Telecom Policy
2018 in lieu of rapid technological advancement in the sector over the past few years. The
policy has envisaged attracting investments worth US$ 100 billion in the sector by 2022.
● The Government of India is working to digitally connect the rural and remote regions in the
country and has decided a new affordable tariff structure with the principle of more you use,
less you pay. The changes will soon be reflected in tariff changes by service providers in the
country.
INDUSTRY STRATEGY ANALYSIS:-
( FIVE FORCE MODEL)
There are 3 main factors determining the intensity of
competition:-
Note:

● Airtel has acquired Telenor India in May 2018 and is in process of

acquiring Tata Teleservices.

● On 31 August 2018, Vodafone and Idea merged to form the world's

second-largest telecommunications company, and the largest in India
and officially known as Vodafone Idea Limited.

● Reliance Communications and its subsidiaries plan to exit their state of

insolvency and reduce their debt of 46,000 crore rupees by selling
physical assets such as towers and fiber optic networks, as well as part
of its bandwidth, to Reliance Jio.

● Reliance jio subscriber as of July 2018 as announced on Reliance jio

AGM

➢ Rivalry between existing firms:-

○ Industrial Growth-
 Based on the above graph which shows us the performance of the S&P BSE
TELECOM index which contains all the major players of the telecom industry in
Indian market, we can conclude that in the last 5 years there has been a steady
growth in this sector but the amount of growth is not that significant .
As the growth in the industry is very slow and steady so as a result the incumbent
firms can only grow if they compete by trying to snatch each others market share
and there will be aggressive competition leading to push the price more closer to
marginal cost.

○ Concentration and balance of Competitors-

Top telecom industries in India:- (Mobile network operators)
The above pie chart shows that there are 3 private companies (Airtel,Idea,Reliance) and 1
government owned company (BSNL) which are the major industry players and have significant
market share in the sector. These firms occupy the more than 70% of the market share giving
indication towards the Oligopolistic market structure where Airtel, Vodafone & Idea, RCOM enjoy
the major power over the price determination of the telecom services to be provided.Thus these
firms implicitly cooperate with each other to avoid destructive price competition.

○ Degree of Differentiation & Switching Costs-

Customers’ low switching cost and price sensitivity are increasing competition among players as
there is hardly any product differentiation because the advancement of the industry takes place
which enables each company to make investments in future growth at the same rate and all things
boil down to the effective. Cost management of the firms in the industry which has given rise to
price war competition in the recent past which has been further aggravated by the new entrant JIO
in the market.

[http://trak.in/wp-content/uploads/2017/03/4G-Plan-Comparison.jpg]

○ Ratio of Fixed costs to variable costs-Fixed Cost:

The industry suffers from high fixed costs and fast technology obsolescence.
The service providers also incur expenses in procuring licenses and laying
down network infrastructure. To garner these expenses, it becomes essential
to have adequate capacity utilization. It takes tremendous capital to build a
cellular network, backhaul and operations center. Operating a cellular carrier
requires specific human resources, with specialized skills. It requires a field
force to install and maintain the physical assets, a training division, a support
group and web experts to build a reliable website. These human resources are
 in limited supply and are expensive. Thus, increasing subscribers’ base
becomes very important. This also furthers the competitive stakes.

○ Excess Capacity and Exit Barriers -

THREAT OF NEW ENTRANTS:
1. Economies of Scale
● Telecommunications business is a highly capital intensive business and India has
the least operating margins which has intensified after introduction of Reliance Jio
in the indian market. Jio being a new player in the market, had to invest in creation
of its own VoLTE infrastructure. The capital investment was of nearly 1 lakh crore
rupees from 2010 till 2015. Old operators such as AIRTEL, IDEA and VODAFONE still
use 2G-GSM/CDMA infrastructure to provide services. The old operators are
currently in the process of changing their networks to VoLTE since its efficiency is
higher. AIRTEL has announced 250 thousand crore rupees investment plan in tower
infrastructure.

● India has the one of the lowest cost to buy new sim-cards i.e. Rs 10 or nearly 15
cents. Operators’ monthly average revenue per user (ARPU) has declined by 42 per
cent even as telecom subscribers in the country have increased 28 per cent in 2018.
ARPU was Rs 131 in Sep 2016 but has fallen to Rs 76.04 in March 2018. This is one
of the key metric for telecom profitability. New operators must have technical know
how to efficiently run telecom network near to its operating margin and also have
financial strength to withstand negative cash flows for at least 10 years which
includes investment in infrastructure and branding through discounts.
2. First mover advantage
● Mobile numbers have been linked with each and every financial product available to
the common man. Having a mobile number is necessary to avail any government
subsidy, opening a bank account, availing insurance, etc in India. Mobile Number
Portability has made it easy for customers to change their operator without
changing the phone number which has removed the First Mover Advantage from
the Industry.

3. Access to channels and Distribution

● A telecom company that wishes to offer services in any of the 22 telecom circles in
India must purchase a Unified Access Services (UAS) license to operate that circle.
Licences are awarded by auctions. The UAS, introduced in November 2003, is valid
 for a period of 20 years, which can be extended by an additional 10 years once per
licence per circle. A new telecom policy announced by the government in 2011,
delinked spectrum from licences. As a result, when an operator renews its licence it
must also pay separately for spectrum.
Base Price for Spectrum: 1800 MHz - Rs 3,300 Crore, 700 MHz - Rs 6,500 Crore
Therefore, a new operator must have deep pocket and financial strength to
purchase and finance spectrum in India.

4. Legal Barriers
● Any company/operator can participate in the Spectrum Auction and compete to
earn the license to provide services in 22 telecom regions of India.
BARGAINING POWER OF BUYERS :
The Bargaining Power of Buyers, one of the forces in Porter’s Five Forces Industry Analysis
Framework, refers to the pressure that customers/consumers can put on businesses to get them to
provide higher quality products, better customer service, and/or lower prices.
It is important to keep in mind that the bargaining power of buyers analysis is conducted from the
perspective of the seller (the company). The bargaining power of buyers would refer to
customers/consumers who use the products/services of the company.

Determining Factors: Bargaining Power of Buyers

There are four major factors when determining the bargaining power of buyers:
1. Number of buyers relative to suppliers: If the number of buyers is small relative to that of
suppliers, the buyer’s power will be stronger.
2. Dependence of a buyer’s purchase on a particular supplier: If a buyer is able to get
similar products/services from other suppliers, buyers depend less on a particular supplier.
Therefore, the power of the buyer would be greater.
3. Switching costs: If there are not many alternative suppliers available, the cost of switching
is high. Therefore, buyer power would be low
4. Backward Integration: If the buyer is able to integrate or merge suppliers, the buyer has
greater bargaining power over the existing suppliers.

Determining Factors: Bargaining Power of Buyers (TELECOM INDUSTRY)

Price wars:
The switching costs being low, the Indian market is highly value-driven and price sensitive, and
telecom companies are in continuous pressure to deliver new services while improving customer
experience and loyalty. The service providers’ priority is to add maximum number of subscribers
per month and retain the existing user base. The preferred strategy among all competitors is to offer
lower prices coupled with more value added services. This has a damaging effect on the bottom line
for the industry as whole, leading to commoditization of the market with decreasing individual
market capitalization and makes the industry unattractive for the entrant.

High degree of Imitation, lowering switching costs:

There is almost no differentiation among the service providers regarding basic services, and even
any innovations in value added services are quickly copied. So, it is very easy for the users to
change their service providers and the industry operates with minimal customer loyalty. This makes
the industry rivalry most prominent.

Switching Costs :
The market can be divided into household and industrial consumers. Additionally, they can be
differentiated as either prepaid or postpaid users. In case of post-paid users, customers exercise
certain degree of loyalty because of high switching costs. Also, the industrial users have customized
offerings from service providers that bind them. For household customers, TRAI’s recommendation
on MPN (Mobile Number Portability) has made it all the more important for the companies to
charge lower tariffs besides providing better services to retain subscribers.

Churn Rate: It is defined as the rate at which customers leave a provider for a competitor. Largely
due to fierce competition, the telecom industry boasts - or, rather, suffers – from the highest
customer churn rate of any industry, with a monthly churn of 1.9-2.1%. Strong brand name
marketing and service quality tends to mitigate churn to some extent.

Bargaining power of buyers:

Buyers’ threat of backward integration and industry’s threat of forward integration are nil.
However, contribution to quality and cost, along with buyer’s profitability, plays a good part in
determining buyer’s bargaining powers.

With increased choice of telecom products and services, the bargaining power of buyers is
rising. Let's face it; telephone and data services do not vary much, regardless of which
companies are selling them. For the most part, basic services are treated as a commodity.
This translates into customers seeking low prices from companies that offer reliable
service. At the same time, buyer power can vary somewhat between market segments.
While switching costs are relatively low for residential telecom customers, they can get
higher for larger business customers, especially those that rely more on customized
products and services.

Bargaining Power Of Suppliers:

The supplier for the telecom industry includes:
a) Network Infrastructure provider
b) Information technology support
c) Passive infrastructure providers
d) Telecom equipment manufacturers-including handset manufacturers

On analyzing the industry, it is evident that infrastructure suppliers wield intermediate

degrees of bargaining power over the service providers because of necessity of
infrastructural support like network towers, high-tech broadband switching equipment,
fiber-optic cables, mobile handset and billing software. The number of suppliers is few,
substitutes are rare, and contribution of these supplies to cost and quality are huge. Thus,
although suppliers do not have a scope of forward integration, the high switching cost for
the telecom industry provides great bargaining power to suppliers. But, here too, shared
tower infrastructure has brought forth a transformation. Silicon chip manufacturers (for
processors, memory chips, etc), sub-contractors and employees also act as suppliers to
this industry. Due to heavy competition among chip manufacturers, their bargaining power
is essentially low. But there is medium switching cost for telecom vendors since changing
their hardware would lead to additional cost in modifying their architecture. Also, the
switching to different set of hardware support involves modification in design architecture
at the service providers’ end and this entails some costs. The suppliers’ side also faces
the pressing issue of dearth of talented and skilled manpower, and this curtails the
capabilities to innovate and strengthen the bargaining power for suppliers.

REMARKS:
At first glance, it might look like telecom equipment suppliers have considerable bargaining
power over telecom operators. Indeed, without high-tech broadband switching equipment,
fiber-optic cables, mobile handsets and billing software, telecom operators would not be
able to do the job of transmitting voice and data from place to place. But there are actually
a number of large equipment makers around. There are enough vendors, arguably, to
dilute bargaining power. The limited pool of talented managers and engineers, especially
those well versed in the latest technologies, places companies in a weak position in terms
of hiring and salaries.

Threat of substitutes:
The potential major substitutes for the telecom industry are as follows:
-VOIP (Skype, Messenger etc.)
-Online Chat
-Email
-Satellite phones

Additionally, products and services from non-traditional telecom industries such as Cable
TV and satellite operators are laying their own direct lines into homes, offering broadband
internet services. Railways and energy utility companies are utilizing their vast
infrastructural installations to support high-capacity telecom network alongside rail-tracks,
pipeline networks, and electricity transmission lines. Many ISPs (Internet Service
Providers) are offering "internet telephony" at low prices. For service providers skillfully
managing their transition from voice to data services, internet messengers such as Skype,
Google Voice and Chat pose a threat.

Unlicensed frequency options (ex: Wi-Fi, UWB, Walkie Talkie) also compete alongside.
But, the issue of security, reliability and flexibility associated with mobile telephony, along
with switching costs associated with substitutes, still make mobiles a preferred choice.
Satellite options incur higher operating costs and the technology is not promoted by
government due to security considerations.
SPACE MATRIX of VODAFONE
BCG MATRIX FOR IDEA-
 Companies Market Industry Quadrant
Share Growth

Grasim Industries Ltd. 21% 3%-4% CASH COWS

Ultratech Cement 20% 12% STARS

Aditya Birla Chemicals Ltd. 3% CASH COWS

Essel Mining and industries 4% DOGS

Ltd.

Idea Cellular 14% QUESTION

MARK

Aditya Birla Minacs 14% QUESTION

MARK

Aditya Birla Retail Ltd. 15%-20% QUESTION

MARK
BCG MATRIX FOR AIRTEL-
 Companies Market Share Industry Growth Quadrant

Bharti Airtel 20% 12%-15% STARS

Bharti Infratel 40% 20% STARS

Bharti Reality Ltd. - 30% QUESTION MARK

Field Fresh Food 10%(UK) 30%-40% QUESTION MARK

Beetel Teletech Ltd. 30% 20% STARS

Bharti Walmart - 15%-20% QUESTION MARK

Bharti Retail - 15%-20% QUESTION MARK

Bharti AXA Life Insurance 1.3% 13%-14% QUESTION MARK

BCG Matrix For Reliance Communication
STARS: These are high growth products which have a large market share in fast
growing industries. In case of reliance Communications its FWT services can be
called stars since they have a share of 21% of the market and are growing at the rate
of 9%. This service contributes 18% of total revenues and justifiably accounts for a
large percentage of total investment. Continuous investments should be undertaken
by the company to expand market share of WLL services because this could lead to
them becoming cash cows for the company in the future.

CASH COWS: These are the products which are leaders in markets which are
slow growing but the company has a large share of the market. As a result these
products generate large amounts of cash and profits but because of the slow rate of
growth of the market investments in these products should be kept low. These
products are the foundation for a company and provide the cash required to turn
question marks into market leaders. In context of Reliance its cellular services are
growing at 4% p.a., are the cash cow which form the foundation of the company.

DOGS: These are the products in which the company has a small share in a slow
growing market. As a result their contribution to overall revenues is limited and they
can turn into cash traps because of money tied up in a business which has limited
potential. Therefore the company should be beware of expensive turnaround plans
and should try to divest in these products. In case of reliance its fixed line services
can be called the dog for the company.
QUESTION MARKS: These are the products that are growing rapidly and
thus consume large amounts of cash, but because they have a low market share they
don‘t generate much cash. But if proactive measures are not undertaken to increase
the market share they degenerate into dogs after years of cash consumption.
Therefore the company should aim at either investing heavily to increase market
share or sell off to generate whatever cash it can. In case of Reliance there are a
number of products which can be put into this category for example ISPs and LPCs
and WLL PCOs. A major limitation of this model is that it assumes market growth
rate to be the only factor of industry attractiveness and relative market share to be the
only indicator of competitive advantage. Therefore it ignores the strategy where a
business might use a ―dog‖ to gain a competitive advantage in other business units.
REFERENCES:-
1. https://www.investopedia.com/ask/answers/070815/what-telecommunications-
sector.asp#ixzz5Px24F3fd
2. https://www.ibef.org/industry/telecommunications.aspx
3. https://economictimes.indiatimes.com/marketstats/exchange-NSE,pageno-1,pid-
1006,sectorid-57,sectorname-Telecommunications,sortby-marketcap,sortorder-
desc.cms
4. https://www.bseindia.com/sensexview/IndicesWatch_weight.aspx?iname=TELCOM
&index_Code=96 -
5. https://en.wikipedia.org/wiki/List_of_telecom_companies_in_India
6. The Industry Handbook: The Telecommunications Industry
https://www.investopedia.com/features/industryhandbook/telecom.asp#ixzz5QElML
r3O
7. https://ideasmakemarket.com/2013/08/aug-entry6-analysis-of-the-indian-
telecommunication-industry-the-changing-forces.html