Industry Analysis / Porter’s 5 Forces:-
Threat of New Entrants: The PSUs will however continue to retain their dominant position. This is on account of high capital investments required in setting up a nationwide network. As a result, the private sector players will have to rely on key business centers and pockets of high urbanization for their growth.
High capital investments, well-established players who have a nationwide network, license fee, continuously evolving technology and lowest tariffs in the world.
After a failure of not one but two rounds of spectrum auction, the regulator has proposed a slashing of the reserve rates for the upcoming auction. However the same has questioned by the DoT panel. The operators are in desperate need for spectrum. In addition to this the prices for the upcoming license renewal would also be decided on the basis of the auction price. Therefore the operators are keen that the reserve prices be slashed. However, whether this happens or not, remains to be seen.
Access to optical fibre network
Declining ARPU
Government and legal barriers
Retaliation by established producers
Capital Requirements
The cost of active equipment is estimated to be 40 percent of the telecom operator's total capex, while the balance is accounted for by passive infrastructure.Bharti has invested close to Rs. 230 billion to create the cellular infrastructure with 45,000 towers across the country. Typically, a ground based tower costs Rs. 25-30 lakh. A roof-based tower can be built for Rs.13-14 lakh.Cost of maintaining one tower (active + passive) is estimated at Rs. 60,000-65,000 per month.If tower is rented then monthly rent of Rs. 40,000-45,000 for active network. The monthly outflow of a TSP would be close to Rs. 80,000-85,000 per tower per month. However, the recent announcement made by BSNL about leasing its towers will help both the older and newer players to penetrate into new markets.This factor makes the telecom industry moderately attractive for the new players and investors.
Declining ARPU
The market is maturing and new classes of consumers are mostly rural and their ARPU is well below $5 (probably $3-3.5). So, managing bottom-lines at such low levels of revenue per user will prove to be a challenge for new entrant
Access To Optical Fibre Network
The largest optical fibre has been built by the incumbent operator BSNL who is also the long distance operator.The private sector players such as Bharti and Reliance have also constructed optical fibre cable network connecting mainly cities and towns but their presence is very limited in the rural areas and difficult terrains.It is fairly difficult and cost- ineffective for new entrants to lay down optical fibre connecting remote places as well.
Retaliation By Established Players
Also known as Incumbent Wrath signifies the leverage the players in the market commands. The incumbents grow because of an established network presence, a brand that consumers are aware of and sheer economies of scale.Mobile termination charge which one operator pays to the other when the customer of the former uses the roaming charges of the latter. This is 30 paise a minute charge as of today. This is charged to the consumer as the cost of roaming. With an all India footprint (or 80% coverage), the incumbents effectively do not have to pay termination charges.The incumbents have either been pocketing the termination charges or passing them to consumers “no roaming charge” kind of schemes. This factor makes the industry unattractive for the new entrants and investors. The existing Telecom players might begin to bundle broadband, voice, wireless, video and other emerging technologies together, as well as a variety of value added content, in an effort to remain competitive, offer seamless services and attract more customers, at a cheaper price (incumbent wrath
Spectrum Availability:
Despite technological changes that reduce the demand for spectrum, availability of spectrum continues to be a constraint. In order to allocate spectrum amongst competing service providers, auctions are often used. It is here that the government’s regulatory powers come into play. Moreover, there are always issues of interoperability with changing bandwidth and thus seamless integration of various services becomes a major issue. Thus, spectrum availability poses a huge barrier to entry, increasing the industry attractiveness.
Power of Suppliers: Improved competitive scenario and commoditization of telecom services has led to reduced bargaining power for services providers. The suppliers bargaining power has increased influence on the profitability of the company. Increase in the bargaining power of the supplier will lead to a decrease in profits or increase in the price of the end product(Buyer).

There is a price war happening between the different mobile operators, so even the suppliers are chosen carefully so that they do not drag down the profitability of the company .So the suppliers have less bargaining power in this industry.

Mobile Tower Companies
SIM cards
Mobile phone handsets
Mobile Tower companies in India

There are two types of tower companies in India
Telecos owned tower companies
Independently telecom tower companies (ITTC)
Less Bargaining power because of more number of suppliers
Little or no forward Integration
Sim Card Manufacturers

Sim card for the mobile operators are mostly produced in India and some are imported.
The mobile operators doesn’t always procure the sim card from a single supplier to avoid any delays.
The Bargaining power of suppliers is less
There is little or no threat of forward integration .

Power of Buyers: Increasing choice and one of the lowest tariffs in the world have made the cellular services in India an attractive proposition for the average consumer. The mobile penetration levels in urban areas have already crossed 100%. Therefore the main driver for future growth would be the rural areas where wireless tele-density is around 40.23%.
Buyers’ Price Sensitivity
(High)
Cost of product relative to total cost (High)
Product differentiation (High)
Competition between buyers (?)
Size and concentration of buyers relative to products (high)
Buyers’ switching cost (low)
Buyers’ information (High)
Buyers’ ability to backward integrate (low)
Buyers in Telecom industry generally land in two categories: Individual and Enterprise Customers like IT companies, Banks etc. There are ample number of telecom providers in the market with big product variance and cheaper prices which gives buyer many options to select operators and thus have a large bargaining leverage.
Cost of product relative to total cost
Telecom products e.g. Voice calls, 3g etc cost 100% of the total cost of service and buyers are more sensible to pricing.

Product differentiation
Airtel, Relience,Idea and all other companies have similar prices for similar products and less likely for any one to maintain product differentiation and hence buyers have the option to switch over.
Competition between buyer
The individual buyers don’t have any competition among themselves but enterprise customers like IT or banks do have. Enterprise customers generate major part of the revenues for any telecom companies like Relience, Airtel or Idea which means higher buyer power. But this is not significant for the newbie or the one who deals with individual customers

Size and concentration of buyers relative to products
960.9 Million of individual telecom subscribers as on May, 2012. Big size and low concentration of consumption per individual gives lower leverage to buyer power.
Enterprise customers – Big size and big concentration of consumption accrues high buyer power
Together we can say its moderate buyer power in terms of size and concentration.
Buyers’ switching cost
Low switching cost. Low new connection cost. With MNP, switching has become more easier. TRAI expected that the subscriber has to pay not more than Rs. 200. Some of the operators have estimated the charges can be as low as Rs. 20.
Mobile Number Portability requests increased from 50.16 million subscribers at the end of May 2012 to 54.33 million at the end of June 2012. 4.16 million requests for the month of June itself
Meaning Low switching cost and high buyer power.
Buyers’ information
Buyers information regarding the availability of other options has become high
Increased social networking, high advertisements through TV, hoardings, banners and word of mouth, buyers are well informed about the substitute products with better offerings urban as well as rural areas.
Means high buyer power
Buyers’ ability to backward integrate
Not much intermediaries between the producer and the consumers. High Investment required for backward integration.
Less likely to have backward integration and hence low buyer power

Availability of Substitutes: The potential major substitutes for the telecom industry are as follows:
-VOIP (Skype, Messenger etc.)
-Online Chat
-Email
-Satellite phones
Mobile phone companies in India are unlikely to face a serious threat from free calling apps or instant messaging platforms such as WhatsApp, Line, Viber or WeChat in the immediate future, in contrast with developed markets and most other countries in Asia, where these applications are hurting the profits of telecom operators. Instant messaging apps are growing exponentially in India and revenue from SMS has shown a marginal dip for all operators. In April, free chat apps officially overtook SMS in popularity globally. Yet, why is the Indian market different? The primary case is India’s unique business model. About 96% of India’s 900 million mobile connections are on pre-paid. To use either the free calling platforms that use IP platforms to route their calls, or to avail free instant messaging apps, customers must first buy a data plan. Be it a daily, weekly or monthly data plan, this is close to what mobile phone companies were making by selling SMS packs. Admittedly, a customer buying a data plan may send out a lot more messages using a ‘free’ instant messaging platform like WhatsApp or Viber, and while the potential revenue loss (if these messages had been sent using the SMS platform instead) for the operator may be significant, the real revenue loss is not high. Since over-the-top apps (OTT) are free to use once the customers buys a data plan, it would also be incorrect to assume that each message sent on Line or Whatsapp translates to the loss of revenues for traditional SMS. Second, unlike most global markets, SMS accounts for less than 5% of the total revenues of all major operators in the country, while for some telcos, this figure is as low as 2-3%. In comparison, SMS contributes 43% of the telcos’ sales in the Philippines, 23% in Indonesia, 18% in Singapore and 14.3% in Malaysia. Therefore, the prospects of free instant messaging apps cannibalising SMS revenues is yet to become a major threat in India. Put simply, OTT is only additional new messaging and not cannibalized SMS. Mobile phone operators like Reliance Communications Ltd have countered the threat by offering flat rate bundles to their customers for Whatsapp use. Critically, to buy a data plan and use free calling or instant messaging apps, customers need to own a smartphone. According to a recent Nielsen report titled ‘The smartphone adoption gap in Asia Pacific’, India has one of the lowest smartphone penetrations amongst leading economies, as only 18% of its mobile base use such devices. In comparison, leading European countries and the US all have over 60% smartphone penetration, and closer home in Asia, China boasts of 71% smartphone usage, while the corresponding figures for Malaysia is 80%, and both Singapore and Hong Kong have 87% smartphone adoption. Free instant messaging apps may eat into the telco’s sales, but less than a fifth of India’s mobile customers have access to devices to utilize and exploit this platform. The actual base is even smaller as not all of the 18% mobile subscribers who own a smartphone have it in combination with a mobile data plan. The same factors which help Indian telcos mitigate threat from instant messaging or OTT platforms also helps them mimimize losses when it comes to free calling apps such as Viber and Skype which are extremely popular in the West and developed Asian markets such as Singapore and Hong Kong. Unlike these locations, Indian operators do not offer large or unlimited data plans, and according to a recent study by Credit Suisse, ‘free’ voice call on these IP platforms costs roughly half a regular voice call based on the amount of data consumed. Besides, Indian consumers also face a major disadvantage when using these free IP platforms for voice as the quality is poorer than regular cellular calls even when both users are on 3G networks. Worse, India’s 3G networks coverage is patchy even in metros and large cities and is virtually non-existent beyond these places. “IP calls we tried on a 3G network in Mumbai used up 450 KB of data per minute, for each user. Using the average revenue per MB reported by Bharti/Idea (at 32p/MB—which incidentally is close to the rate implied in the popular Rs.103/300MB 3G plans), we calculate that a one minute VoIP call on Line works out to 30p/min—split evenly between the two parties. This comes at a 52% discount to the outgoing call rate of 62p/min implied in Bharti’s voice RPM,” Credit Suisse analysts Sunil Tirumalai and Chunky Shah wrote in a 16 September research note. Their report titled, ‘Free VoIP: How ‘Free’ is it really?’, further added: “We found the VoIP call quality significantly poorer than regular cellular calls, including issues around: latency (of around 1 second), noticeable ‘blank spots’ during the conversation, and frequent call set up failures leading to repeated attempts. All the above parameters were worse on a 2G network compared to 3G.” Another constraint for Indian consumers, be it instant messaging apps for free IP calls, is that cross-platform usage is not possible, thus severely limiting the utility of the service to a few contacts in the customer’s contacts list, point out Tirumalai and Shah. For mobile phone companies in India, while legacy issues, poor infrastructure as well as poor smartphone penetration may offer a temporary reprieve, their failure to wake up and smell the coffee could turn out to be a deadly weakness inspite of overall strength. Falling smartphone prices make India the fastest growing market for these devices. Hike, an OTT app from Bharti-SoftBank allows its users to send free messages to people in their contract list who are not on this platform, breaking the traditional barrier most of these apps face, not just in India, but globally too. Reliance Industries Ltd’s upcoming pan-India 4G will enable the company to offer video services on its networks, similar to that of Skype, at very low rates. Following the migration to unified licence, smaller operators may also launch internet telephony and disrupt revenue streams of larger players, forcing them to follow suit.
This has resulted into people shifting away from operator provided services like SMS and other value added services. Although the government had previously mentioned that they are not looking at regulating OTT (Over The Top) players, as per Economic Times, TRAI now wants to get an idea of these OTT apps and how they fulfill consumers’ needs as well as how operators get affected by their presence. This revised stand must be an effect of increased pressure from telcos like Bharti Airtel, Vodafone India and Idea Cellular who complain that OTT players are free riding on their network infrastructure which costs billions of dollars to set up.According to data from a research firm Ovum, telecom operators lost around Rs 4,700 crore in SMS revenues in 2012. This loss was expected to increase to Rs 18,671 crore in 2013. But these numbers are not the real way to look at it. SMS accounts for not more than 5% revenues of major telecom operators in India. These numbers might be even less for other carriers. As more people start using these mobile data dependant apps, consumption of data increases and so does the revenue through data bundles. This, in part, fills the draughting SMS revenue stream that mobile operators are complaining about. When it comes to ‘free voice calls’ through apps like Viber, the price for data consumption for each VoIP call is half of what it costs for a normal voice call but the quality of voice isn’t half as good in comparison. Neither the 3G data networks are so widespread in the country for consumers to make a switch from normal voice calls to VoIP calls completely.
Competitive Rivalry: Competition has intensified with the entry of new cellular players in circles. Reduced tariffs have hurt all operators. Rivalry among competing firms:
The Hirschman-Herfindahl Index (HHI) for the Indian telecom industry stands at 1421.29 which indicate a highly contestable but oligopolic industry. Moreover, the concentration of top four firms at 66% also confirms this hypothesis.
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 subscriber 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.
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.
Strategic stakes:
We see players in this market are the ones typically considering big business powerhouses in India (Bharti Airtel, Reliance), and they branch out into other industries as well. These increase strategic stakes for the players. The tele-density is very less in rural India and this presents an untapped potential for the service providers once the urban market has started maturing. Migration to the new market requires more upfront investments and thus hard cash availability with the providers becomes essential. Moreover, it is always profitable to have the first mover advantage as it provides the opportunity to garner certain premium in pricing for services.

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.