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If there is one sector that is definitely over-crowded in India it is the Telecom space. From Tata to Aircel, from Vodafone to Reliance- all are locking horns against each other for a share of the Indian Subscriber pie. And in doing so they are taking the competition to a whole new level. A level of competition that can be fatal to them and the entire industry.

The phenomenon that’s taking place is also termed as Hyper-competition . 

“Often a characteristic of new markets and industries, hypercompetition occurs when technologies or offerings are so new that standards and rules are in flux, resulting in competitive advantages that cannot be sustained. In response, companies must constantly compete in price or quality, or innovate in supply chain management, new value creation, or have enough financial capital to outlast other competitors.” (Wiki)

Usually in an extremely competitive market, hyper-competition is started by a company which is new or has not much to lose but a lot to gain.

Background

The telecom business requires huge infra-structures and you don’t start generating profits from Day 1, in most cases not even after the first years. It is a business which takes time to bear the fruits. First the company has to recover the Infrastructural costs and then it can think about profits.

With behemoths like Vodafone, Airtel, Tata, Aircel and Reliance already finding it hard to feel comfy, it would be suicidal for a new entrant into the space. Isn’t it? Well, not quite so !

Enter the Spoiler

Japan’s NTT DoCoMo   wanted to enter into the emerging markets and thought India would be a great place to bet on. It collaborated with Tata Teleservices and launched the Tata DoCoMo . Now, DoCoMo was new, it had to fight with mighty Goliaths like Vodafone  and Airtel . It has to do something drastic which would get it some attention and shake the biggies. And what did it do? As it says in its tagline- it did the new. DoCoMo triggered off a tariff war which the biggies couldn’t help but enter into as well.

This war was triggered by the Tata Teleservices. DoCoMo was launched with its introduction of the Pay per second and Pay per character SMS services. Indicom came out with a cracker of a plan – the pay per call Plan. Virgin mobile followed. Suddenly, it had left the biggies Airtel, Vodafone & Reliance dumbfound.

Since it’s inception, DoCoMo has launched the ‘Pay per Second’ and ‘Pay per character’ talk and SMS plans respectively. These have been quite warmly received by the consumers. The only problem as of now has been it’s terrible network. This will soon change as DoCoMo will share the BSNL towers to increase it’s network connectivity and handle the traffic better.

Let’s see how each of the Players are fighting it out in this battle

Airtel & Vodafone

As if losing the MTN deal  wasn’t enough!!! Sunil Mittal must be saying these exact words to himself.

Both Vodafone and Airtel haven’t in the past been too keen on offering cheap tariffs to customers. Almost with a kind of snobbery they pretended to be catering to customers who valued quality network and value added services over cheap tariff plans. I must say that they succeeded too. But, now the game’s changed and they are changing for sure.

Vodafone & Airtel both has been forced to reduce and reconsider it’s tariff plans.

Indicom  & Virgin 

Tata Indicom took the war to a level further. It introduced the ‘Pay per Call’ plan. Whether you talk for 1 or 10 minutes, you pay Re 1. This plan has definitely caught on with the customers. But, how profitable is it for Tata Tele is another question.

Virgin is offering super attractive plans which talk of STD @ 1Paise/min.

Reliance -- RCom 

Reliance recently launched it’s 50P/min call tariffs in response to the war taking place.

Aircel

Aircel , which started with its services from the state of Tamil Nadu is slowly grabbing market share all across India. Thanks to it’s expansion plans and marketing.

Aircel has come up with it’s 1-2-3 tariff plans and seems to be getting a good response.

The Issue of Number Portability 

Something that will act as a fuel to fire is the number portability policy. Once it gets a go ahead it will intensify the war.

Basically number portability allows you to change your service providers without changing your number. This is a much needed change in the Telecom sector. Many a times we forego attractive plans by other service providers just because we don’t want to change our phone numbers.

Once number portability  comes in, the consumer won’t think twice before switching service providers. Only the telco with the best network, best services and cheapest tariff plans will be able to retain customers. Which is a great thing for the consumers.

Is this Hyper-competition good for the Telecom Industry ?

Well, it is good to see great telecom companies from all over the world like Virgin, NTT Docomo and Vodafone flocking to India and making the competition tougher but at the end of the day what’s important is profitability in a business.

This break-neck competition to increase volumes at any cost can prove to be extremely harmful. The new tariff plans will erode the margins of the companies, even leading to losses. The companies will not have any choice but to take part in the price battle because otherwise they would simply close down.

Who will win?

Ya, the million dollar question. Whoever wins the war would have done the following things right-

• The Indian urban market is 80-90 % penetrated. The winner would try to reach penetration levels of 70% in the rural markets as well. Because that’s where the new & first time subscribers are.
• Would build a strong and vast network. In the fight to reduce tariffs the companies have to bear in mind the aspect of network quality too. You can’t give a plan to a customer having 1 paise/min STD but, without any network. Just doesn’t work. (This will also strengthen the first point about penetration.)
• 3G. Basically the ability to embrace new technologies fastest will be of huge importance.
• Profitability. Irrespective of anything the companies have to ensure a positive balance sheet and generate cash-flow.

 It would be extremely interesting to observe how things unfold and take a course in the future. These situations aren’t seen everyday and in the Indian Telecom Industry it is definitely the first of this magnitude.

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