PORTERS FIVE FORCES ANALYSIS

FOR THE TELECOM INDUSTRY IN

INDIA

Prepared By
Akash Agamya
Great Lakes Institute of
Management

Introduction

India has a total of 960.9 Million telecom subscribers, comprising

of 929.37 mobile subscribers & 31.53 wire-line subscribers.
The Indian teledensity now stands at 79.28%.

Rank in world in network size

Teledensity (per hundred populations)

3rd
79.28

Telephone connections (In Million)

Fixed

929.37

Mobile

31.53

Total

960.9

Introduction
Group Company Wise % Market Share (Subscribers) as of July 2012

Operator Wise % Growth as of July 2012

Airtel
Vodafon
e
7% 1% 1% 0%
10%

28%

IDEA
BSNL
Aircel

14%

Uninor

17%

23%

Videoco
n
MTNL
Loop
All India

0
0
0

0.80% 0.78%

0.43%

0.39%

-7.50%

-4.92%

0.00%

0
0
0
0
0
0
0
0

-1.69%
-2.37%

Introduction

With the connections now growing at a faster pace in rural areas

as compared to urban the rural teledensity will grow from the
current value of 40% to 50%.

Porters Five Forces

Competitors Analysis - High

Concentration Market Share and
Structure
Financial Analysis Past, Present, Future
Global Presence and Marketing Network
Future Prospects
Overall Analysis

Competitors Analysis

Concentration Market Share

More than 15 players in the market.
Airtel, Vodafone, Idea and RCOM itself captures more than 75%

Competitors Analysis

Market Structure (2012)

Average revenue per user for big players is around Rs. 110
Rs. 120
Reliance has lesser ARPU because major of its subscribers are
low end customers
Revenue
Consumer
ARPU
Market share Market share
AIRTEL

29.1%

19.8%

114.2

Reliance

8.2 %

16.7%

45.2

IDEA

15%

12.3%

114.9

Competitors Analysis

Concentration Market Share and

Structure
Telecom
Revenue Growth Analysis
operator
AIRTEL

Increased mobility revenue(9% CAGR) due to

increasing traffic(7.9% CAGR) at stable ARPM;
Bhartis revenue will also be helped by African
revenues expected to grow at 30.9% CAGR

RCOM

RCOM, which has been struggling with the KPIs and

subscriber quality, is expected to grow at
4.5% CAGR over FY11 to FY14E driven by a 5.9%
CAGR in traffic to 445.4 billion minutes and a
stable ARPM of ~ 45 paisa.

IDEA

Increased mobility revenue(18.5% CAGR) due to

increasing traffic(17.7% CAGR) at stable ARPM

Competitors Analysis
Financials Past,
Present, Future

OPERAT
OR

EBITDA margin analysis

AIRTEL

For Bharti Airtel, African

operations are expected to see a
significant margin expansion from
25.0% to 30.9% due to various
cost saving initiatives like BPO, IT
and network management
outsourcing, passive
infrastructure sharing, etc.
undertaken by the company

RELIANC
E

EBITDA margin for Reliance

Communication to improve to
31.9% in FY14 from 29.5% in
FY11 on account of reduced
network rollout costs.

IDEA

For Idea Cellular, EBITDA margins

are expected to improve to 24.1%
in

Competitors Analysis

Global Presence and Marketing Network

Existing telecom companies are coming up with continuous
growth strategy due to high competition.
AIRTEL

Mobile and fixed wireless services (GSM) 23

telecom circles

RCOM

Reliance Communications has IP-enabled connectivity

infrastructure comprising over 150,000 kilometers of
fiber optic cable systems in India, the US, Europe,
Middle East, and the Asia Pacific region

IDEA

Has a customer base of over 17 million, IDEA Cellular

has operations in Delhi, Maharashtra,Goa, Gujarat,
Andhra Pradesh, Madhya Pradesh, Chattisgarh,
Uttaranchal, Haryana, UP West,
Himachal Pradesh and Kerala.

Competitors Analysis

Future Prospects
AIRTEL

Airtel plans to set up 3000 more towers to enhance

their
rural coverage and will now focus on rural and
semi-urban areas

RCOM

Peak investment phase is over. RCOM continues to

be free cash flow positive and this trend to continue
in succeeding years. RCOM not only reliant on
wireless business and also vying the massive
opportunity with DTH and
expansion of
Enterprise/IDC

IDEA

Idea also plans to enter rural and neglected circles

as a strategy to gain subscribers. It also plans for
smaller base transmission stations that will mean
lesser infrastructure requirements and expenses and
independent tower operation. Along with its plan to
go for a national long distance license, it will also

Competitors Analysis

Overall Analysis
Telecom sector is one of the fastest growing sectors. This is due to
strong competition that has brought down tariffs and simplification of
policy environment that has promoted healthy competition amongst
various players
The government has eased the rules regarding inter circle and intra
circle mergers. This has led to a slew of mergers and acquisitions in the
recent past
As the sector is moving closer to maturity, further consolidation is a
reality and this will lead to the survival of more profitable players in this
segment
Infrastructure equipment cost is down to a fraction of what prevailed
just a few years ago operators can plan better expansion plan now
Increased viability for the operators to expand to semi-urban and rural
markets. Hence, competition in this market would increase.

Buyer Power High

Buyers Price
Sensitivity
(High)

Cost of product relative to total

cost (High)
Product differentiation (High)
Competition between buyers (?)

Relative Bargaining Power

(High)

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.

Buyer Power Analysis

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.

[Ref: http://im.tech2.in.com/gallery/2012/may/3gplans_311641209465.jpg]

Buyer Power Analysis

Competition between buyer

The individual buyers dont 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.

Buyer Power Analysis

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

Buyer Power Analysis

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

Suppliers Power - Low

Price Sensitivity

Bargaining Power

(Low)

(Low)

Cost of product relative to total

cost (Low)
Product differentiation (Low)
Competition between
suppliers(High)

Size and concentration of

suppliers relative to products
(Low)
Buyers switching cost (Low)
Buyers information (High)
Suppliers ability to forward
integrate (Low)

Suppliers Power Analysis

Suppliers for the Telecom Operators

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.
1.Mobile Tower Companies
2.SIM cards
3.Mobile phone handsets

Suppliers Power Analysis

Mobile Tower companies in India

There are two types of tower companies in India
1.Telecos owned tower companies
2.Independently telecom tower companies (ITTC)
Share
Others

ITTC; 28%
Telecos Owned
ITTC
Telecos Owned; 72%

3.20%

Aster Infrastructure Limited (Aster)

0.30%

India Telecom Infra Limited (ITIL)

0.30%

Tower Vision India Limited (TVIL)

0.90%

American Tower Company Limited (ATC)

Share

2.30%

GTL Infrastructure Limited (GTL)

9.50%

Bharti Infratel Limited (BIL)

9.70%

Viom Networks Limited (Viom)

11.20%

Reliance Infratel Limited (RITL)

15.20%

Bharat Sanchar Nigam Limited (BSNL)

15.20%

Indus Towers Limited (ITL)

32.20%

Suppliers Power Analysis

List of Mobile Operator and their Tower Services.
Operator

Tower Service

Bharti

BIL/ITL

Reliance

RITL

Vodafone

ITL

BSNL

MTNL, BSNL and Others

Idea

ITL

Tata

Viom

Less Bargaining power because of more number of suppliers

Little or no forward Integration

Suppliers Power Analysis

Sim Card Manufacturers

Sim card for the mobile operators are mostly produced in India
and some are imported.
The mobile operators doesnt 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 .

Suppliers Power Analysis

Mobile Phone handsets

Two types of mobile phones are genereally used. (CDMA & GSM).
The leading CDMA phone manufacturers are Samsung, Blackberry, ZTE, Motorola ,
Spice e.t.c
Top 4 leading Mobile phone manufacturer(GSM & CDMA) in India (2011-12)

Company

Share

Nokia

39%

Samsung

17.2%

Micromax

6.9%

Black Berry

5.9%

Bargaining power of suppliers are less.

Little or no threat of Forward integration.

Threat of Substitutes Moderate

Buyer Propensity To Substitute
Relative Prices
Performance Of Substitute

Threat of Substitutes

Buyer Propensity to Substitute

Internet subscriber base increasing in India by 18.06% ,
compared to 10.60% for GSM/CDMA services.
Representations from the industry and from within the DoT to
open up Net telephony.
If allowed, this will open up Indias domestic voice market to all
operators which have an unified access services license such
as Reliance Infotel and Aircel to offer voice services along with
data to its consumers.
Dot also contemplating allowing operators without a unified
access license, which includes broadband and Internet
companies such as Google and Skype to offer telephony
services for international calling and PC-to-PC domestic calls.

Threat of Substitutes

Relative Prices
Internet Telephony eating into the revenue of GSM/CDMA
telephony.
Flat/ fixed rate revenues from internet services cannibalization of revenues from GSM/CDMA services.

Performance of Substitute
Voice quality is an issue with internet telephony.
Internet voice services also currently limited due to regulatory
road blocks.

Threat Of Entry - Low

Threat of entry
Access to optical fibre network
Declining ARPU
Government and legal barriers
Retaliation by established producers

Threat Of Entry

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.1314 lakh.
Cost of maintaining one tower (active + passive) is estimated at Rs. 60,00065,000 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

Threat Of Entry

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.

Threat Of Entry

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)

Threat Of Entry
Government And Legal Barriers
Private operators will have to enter into an arrangement with fixed-service
providers within a circle for traffic between long-distance and short-distance
charging centres.
Seven years time frame set for rollout of network, spread over four phases.
Any shortfall in network coverage would result in encashment and forfeiture of
bank guarantee of that phase.
Private operators to pay one-time entry fee of Rs.25 million plus a Financial Bank
Guarantee (FBG) of Rs.200 million. The revenue sharing agreement would be to
the extent of 6%.
Private operators allowed to set up landing facilities that access submarine
cables and use excess bandwidth available.
No industrial license required for setting up manufacturing units for telecom
equipment.
100% Foreign Direct Investment (FDI) is allowed through automatic route for
manufacturing of telecom equipments.
Moderate threat entry based on Government Policies.

Final Verdict LOW

HIGH

THREAT OF
SUBSTITUT
E

THREAT OF
SUBSTITUT
ES

THREAT OF
ENTRY

BUYER
POWER

SUPPLIER
POWER

INDUSTRY
RIVALRY