Cutting the Cellular Pie in India

Attempt the Indian Startups Quiz
Last Date: 30th Aug 2006

It is no less than a bloodbath that is happening in the Indian cellular phone service provider scene. With about 5 players namely BSNL (the state owned enterprise), Airtel, Hutch, Tata and Reliance, who can truly boast of nationwide coverage and umpteen local providers, the fight that is on to garner the maximum number of cellular subscribers is only getting intense.

Two things are distinctly adding fuel to the raging fire and driving competition to dizzying levels.
  • India is credited with being the world's fastest growing cellular subscriber market
The Indian cellular service subscriber base especially on the GSM front has been swelling by about 3-4 million new customers every single month and has touched 82.4 million in July 2006. With this kind of a spectaular growth, it is a story of the golden egg laying hen that is surrounded by a host of farmers ready to grab the egg as it comes out.

The customers are equally finicky about the service they get and will not hesitate to switch given the slightest incentive. Quite understandable considering the economics of the market that is booming and teeming with players offering every service that you could name.

One of my professors was mentioning that it takes roughly about 2 years for a cellular company to extract all the cost investment that goes into acquiring a new customer. That set me thinking on whether the fact holds true in a volatile market like India that will surely not see stability anywhere in the near future. My take on the matter, given the fact that customer loyalties in India last just till the customer faces the slightest disruption of services, is that the large volumes that keep getting churned out in the market every day, more than offset the need for a hefty two years to recover investment costs on a new customer. The concept of the need for two years might eventually come to dictate the market dynamics of the mobile services market once the markets have stabilized and the companies get a chance to tone down their frequent 'at-war-rhetorics'
  • Technology driven industry + Highly tech savvy consumers = High volatility
Mobile companies in India are also one of the most technology focused companies anywhere in the world. With highly technology savvy consumers biting at their heels, Indian cellular companies are introducing newer and newer gizmos with ever more features and services packed into each device to satiate the Indian market. Airtel that dished out a $1 billion contract to Ericsson to setup new wireless facilities across the country is just one example.

Another thing to be observed here is that the Indian mobile market consists of about 85% of youth in the age bracket of 18 to 35 who just want the best that technology offers them. This keeps the mobile cos on their toes.

New Technologies
I can only imagine how the competition can drive the market nuts with a host of new technologies that are pervading the market. Consider WiFi and WiMax that allow citywide and district wide wireless Internet services to be operated. With Internet enabled phones, it won't be long before customers could access the Internet via these phones and maybe make a VOIP call to their friend halfway across the world and still incur only the data charges that their local cellular company levies on them. It definitely looks like a threat to cellular companies. The same can be iteratively applied to the local market and you suddenly have a market where cellular companies are no more cellular companies but wireless Internet providers who just have been left high and dry because no person wants to use their call routing services when the Internet can do it for them at a fraction of a cost.

Even the SMS model might dramatically collapse if people decide sending an email from one's mobile to another person who will definitely have access to his mail box over his Internet enabled phone makes more sense than a SMS. What if a company comes out with a killer app that marries off Email and SMS to inherit the best of both worlds. Quite scary if I am the head honcho of a cellular company.

I can only see two possibilities. Either the bloodbath goes into hyper mode and players get gobbled up by the big fish. Or the smaller fry just find the model unsustainable economically and quit the market giving more room for the other players to stretch out. Classic marketing principles would definitely win at the end though the path towards that point would be ridden with big time corporate foresights that might either send a company spiraling towards glory or towards a not-so glorious downfall, making up for some interesting case studies at the B-schools across the globe. 'Cellularizing' one sixth of the world's population is sure to resemble an action paked Bollywood movie

Technorati Tags: , , , , , , , , , , , , , ,

Photo Courtesy: Hindu Business Line