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Pricing Power of Indian Telcos

Autor:   •  October 31, 2018  •  Research Paper  •  371 Words (2 Pages)  •  596 Views

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PRICING POWER OF TELCOS

The Indian telecommunications service industry has traditionally been strained by intense competition with the presence of more than ten players, keeping the pricing power of the industry participants under check, thereby limiting the profitability potential. In addition, the rising cost of spectrum and high capex requirements in meeting service levels and rolling out data services, have made it difficult for the relatively small to medium players to generate steady cash flows.

Over the last few months, the industry has witnessed many transactions which have driven consolidation in the industry. Further, if the merger talks of Vodafone India Limited and Idea Cellular Limited, and Telenor India with one of the major telco fructify, the industry would be left with five private players along with the state-owned telco – down from a total of more than ten telcos a year ago. Compared to other geographies, India has been one of the most competitive markets. For instance, the Chinese telecom industry, which is much larger in terms of subscribers, has only three players. Thus, the ongoing consolidation in India has a positive potential, nevertheless, in the medium term the pricing pressure is expected to continue. Consolidation would result in operational synergies and scale benefits to the players, namely, reducing overlapping costs such as network expansion and marketing, improving spectrum efficiency, enhancing product portfolio, and giving better bargaining power to the vendors. Nevertheless, the competitive intensity of the industry is expected to continue to remain high. The launch of free services by Reliance Jio has exerted pressure on the operating metrics of all telcos, wherein both voice and data ARPUs and realizations have slipped. Despite consolidation, the competition is unlikely to abate, in the medium term, given the presence of dominant players with sizeable spectrum holdings and financial resources.

With regard to the telecom towers industry, the consolidation drive is expected to be marginally negative. Merger of operations of the telcos would make some tenancies redundant, which would be curtailed. In addition, fresh tenancy additions may be lower than it would have been had there been a larger number of operators. Further, growth in the scale of the operators would improve their pricing power, allowing them to negotiate lower rentals with the tower companies

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