Case - Telecom Sector in India from monopolistic to duoploy

1. Telecom Sector in India – Evolving Market Structure
We have all studied types of market in an economy:
▪ Perfect competition
▪ Monopoly
▪ Monopolistic Competition
▪ Oligopoly
▪ Duopoly
From time to time we have been loaded with examples relating to the above
competitions. Indian Railway is an example of a monopoly – where there is
just one seller. Likewise, there are a plethora of other examples falling in
the rest of the competitions.
But the telecom sector in India is one such sector that has gone through a
number of competitions in the country. From emerging of the telecom
sector in India to its growth and maturity, it has experienced almost
everything.
5 years from now, the telecom sector in India will be given as an example
that explains (almost) all kinds of competition in a single sector.
Early Days of Telecom Sector in India –
It’s not like the telecom sector in India was flooded by telecom operators.
Everything starts with a minimal approach and when a particular sector is
carefully developed and nurtured that’s the time other players start to show
up.
The telecom sector in India started in 1851 when the first operation
landlines were laid by the government nearby Calcutta. In 1881 telephone
services were introduced in India and telephone services were merged with
the postal system in 1883.

2. Department of Telecommunications (DOT) was established which was an
exclusive provider of domestic and long-distance service that would be its
own regulator (separate from the postal system).
Indian Radio Telegraph Company was established in 1923 and after
independence, all the foreign telecommunication companies started
entering India from time to time.
Early days of the telecom sector in India had 2 wholly-owned government
companies – Videsh Sanchar Nigam Limited (VNSL) for international
telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for
metropolitan areas in 1986.
During the 1990s the opening up of the economy led to the benefits of the
telecom industry. In 1994 National Telecom Policy (NTP was formulated
which was the first attempt to give a comprehensive roadmap for the
telecom sector in India.
Telecom Regulatory Authority of India (TRAI) was established in 1997. It
was formed to act as a regulator to facilitate the growth of the telecom
sector in India. Early days of the telecom sector didn’t have many players
because the government was just nurturing and preparing the
telecommunication ground for other players to operate within the limits set
by the authorities.
Summing up, the economy witnessed only a few players in the sector
during its early days. While there was not much of the competition, Indians
were also slowly moving towards fixed-line connections to broadband and
mobile phone connections.
Post-Independence Scenario –
So, the ground was set, authorities and regulations were established. All
that was needed was more players to enter the telecom sector in India and
uplift the telecommunication sector of the country.

3. The telecom sector in India can be divided into 2 segments – Fixed service
provider (FSPs) and Cellular services. State operators (BSNL & MTNL)
account for almost 90% of the revenues from basic services.
Wireless subscriber base skyrocketed from 33.69 million in 2004 to 62.57
million in 2005. Making it difficult for the existing players to take care of
these huge numbers.
The wireless technology used in India is System for Mobile Communications
(GSM) and Code Division Multiple Access (CDMA).
Post-independence scenario witnessed around 9 GSM and 5 CDMA
operators providing mobile services in 10 telecommunication circles and 4
metro cities, covering more than 2000 towns in India.
Slowly and gradually telecom sector in India diversified its portfolio and
extended to internet, broadband (wireless and fixed), cable TV, SMS, IPTV,
soft switches and many more.
The post-independence era (the late 90s – 2000s) witnessed a number of
players entering the market after the government established various
norms and regulations that are vital to run the sector.
▪ State-owned companies – BSNL & MTNL
▪ Privately owned Indian companies – Reliance Infocomm & Tata
Teleservices.
▪ Foreign companies like – Hutchison-Essar, BPL Mobile, Bharti Tele-
Ventures, Idea Cellular, Escotel Spice Communications, Uninor, Aircel, MTS,
Etisalat, Videocon, S-Tel and many more.
From not many sellers in the market, India was flooded with a plethora of
options to choose from. Before Reliance Infocomm disrupted the market,
the telecom sector in India was a monopolistic competition.

4. New entrants had basically low barriers, all they had to do was to be a
deep-pocketed brand and come up with an offering loaded with offers,
discounts, and affordable tariffs and everything else would follow.
The Government Broadband Policy aimed at 9 million broadband
connections and 18 million internet connections in 2007. During that time,
the telecom sector in India contributed approx. 1% of India’s GDP.
The telecom sector in India had only 54.6 million telephone subscribers in
2003, the same number increased to 429.7 million at the end of March
2009 and then to 562 million as on October 31st, 2009. The increase is
entirely due to a humongous jump in wireless connection at CAGR of 60%
per annum in 2004. The telecom sector in India is the 2nd largest wireless
network globally with 525.1 million wireless connections.
Too Many Players, Too Many Complexities –
If you are well aware of the types of competitions in an economy, then you
must also be aware that there is a saturation point of growth. Once a
market reaches its saturation point, it tends to decline.
After witnessing a plethora of players in the telecom sector in India, there
was a point when new entrants found it quite difficult to make a difference
and gain the market share.
Tariffs were almost the same because all the major players formed a
coalition where they decided what will be the optimal number of tariffs so
that all the telecom giants are able to gain with it.
There was a time when (and if) 1GB data limit was exhausted, recharging
it was quite expensive. Thus, all of us used to use the data wisely because
the cost of recharging was quite high, be it any telecom operator.

5. Everything was going fine till the time another major giant entered the
telecom sector in India and actually disrupted everything. This is the time
when the monopolistic competition started witnessing a crack in a coalition.
Who Is the Disruptor Then?
When all of us were stuck with Airtel, Vodafone, Idea, BSNL, MTNL, and
others that offered a range of services that was a bit costly (especially
internet services), Reliance JIO entered the telecom sector in India like a
savage and disruptor.
Everything was the same. JIO was also just another telecom giant that was
able to enter the market because it was deep-pocketed and backed up by
Mukesh Ambani!
Reliance JIO entered with a bang and surprised all of us. Users of Reliance
JIO not only enjoyed free unlimited calls (to any network), but they also
surfed the internet without being concerned about data limits.
Internet was made free, calling/texting was made free. The telecom sector
in India witnessed a revolution. While other players charged hefty amounts
on recharges, Reliance JIO was the most affordable of all.
Initially, telecom giants didn’t care much about it but slowly and gradually
problems emerged. Almost every telecom company started to lose its
market share to Reliance JIO.
Telenor (formally known as Uninor) and others after realizing that they will
not be able to survive much, exited the market.
Not only declining userbase but increasing adjusted gross revenue (AGR)
made the telecom game even more difficult. Major telecom giants like
Airtel, Vodafone Idea, Reliance Communications, Tata Teleservices

6. & Aircel together have to pay around INR 75,802 cr to the
government of India as their pending dues.
Another major disruption happened when Vodafone and Idea both merged
their businesses in India. After losing their market share, and increasing
debts, the 2 of them joined hands and instead of competing against one
another, they decided to compete against Airtel and JIO.
Present Scenario of Telecom Sector in India –
After a series of disruptions, mergers and a number of telecom players
exiting the market, India now has 3 major players in the telecom sector.
Vodafone Idea, Bharti Airtel and Reliance JIO. Once the sector had
more than 10 players is now operating with just 3 players!
In fact, Vodafone has expressed its concerns about repaying the debts and
clearly announced that after paying the outstanding amount against
Vodafone, it might not be able to operate and might exit the Indian market.
Vodafone, Idea and Bharti Airtel once reported record-breaking userbase
has now shrunk like a crushed paper ball and it seems impossible for them
to compete against Reliance JIO.
Rise of Duopoly in Telecom Sector in India –
After Vodafone being vulnerable, the risk of a duopoly in the sector is higher
than before according to analysts. In all, as many as 15 entities owe the
government INR 1.47 lakh crores in unpaid license fee and another INR
55,054 crore in outstanding spectrum usage charges.
Telecom in India exhibits that the change is humongous. Nothing is
constant, and disruption is everywhere. If an existing company cannot be
an innovator as well as a disruptor, some other company will definitely
overtake it leaving no space for other players to stand up once again.