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Indian Telecom Industry-

Porters 5 Force model

By- Sukanya Roy Chowdhury & Abhirup Roy

Choudhury


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A BRIEF

OVERVIEW OF

TELECOM

INDUSTRY ININDIA


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Indian Telecom sector, like any other industrial sector in

the country, has gone through many phases of growth

and diversification

It has started its journey from telegraphic and

telephonic systems in the 19th century.

The field of telephonic communication has now

expanded to make use of advanced technologies like

GSM, CDMA, and WLL to the great 3G Technology in

mobile phones

Day by day, both the Public Players and the Private

Players are putting in their resources and efforts to

improve the telecommunication technology so as to give

the maximum to their customers


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The Indian telecom sector can be broadly classified intoFixed Line Telephony and mobile telephony

The major players of the telecom sector are experiencing a

fierce competition in both the segments. The major

players like BSNL, MTNL, VSNL in the fixed line andAirtel, Vodafone, Idea, Tata, Reliance in the mobile

segment are coming up with new tariffs and discount

schemes to gain the competitive advantage

Traditional telephones have been replaced by the codeless

and the wireless instruments. Mobile phone providers

have also come up with GPRS-enabled multimedia

messaging, Internet surfing, and mobile-commerce


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Along with improvement in telecom services, there is

also an improvement in manufacturing. In thebeginning, there were only the Siemens handsets in

India but now a whole series of new handsets, such as

Nokia's latest N-series, Sony Ericsson's W-series,

Touch screen and advanced technological handsets

are gaining popularity

The value added services provided by the mobile

service operators contribute more than 10% of the

telecom industry

Bharti Airtel has the largest customer base total

revenue followed by Vodafone and Reliance


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Porters 5 Force

Model- What isit???


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Porters Five (5) Forces

Analysis is used to identify

competitive opportunities and

attractiveness in any industryor market

Michael Porter (Harvard,

Competitive Strategy 1980)

developed the so called 5 FiveForces Analysis model to

better identify factors that

shape the character of

competition, to assess the

structural attractiveness andbusiness value of any industry

and to pinpoint strengths and

weaknesses in a company.


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The 5 Force


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Force-1 THREAT OF

NEW ENTRANTS

(FEATURES)


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BARRIERS TO ENTRY

Economies of scale

High initial investments and fixed costs

Brand loyalty of customers

Protected intellectual property like patents, licenses etc

Scarcity of important resources, e.g. qualified expert staff,

Access to raw materials is controlled by existing players

Distribution channels are controlled by existing players,

Existing players have close customer relations, e.g. from

long-term service contractsGovernment policy


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IN CONTEXT OF

INDIAN TELECOMINDUSTRY.


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The Indian telecom market is expected to grow three fold by 2012 &

market size over US $ 8 billion. Moreover the government has set a target

of 20 million broadband connections by 2010. The National Telecom Policy 1999 targets tele-density at 15 per cent by

2010. This will entail an investment of US $ 40- 50 billion over the next 6-

8 years

The National Telecom Policy 1999 targets tele-density at 15 per cent by

2010. This will entail an investment of US $ 40- 50 billion over the next 6-8 years. There is an immense opportunity for DTH in the Indian market

which is almost 10 times compared to the developed countries like the US

and Europe. For every channel there is a scope for broadcasting it in at

least ten different languages

It is expected that by the year 2010 there will be over 500

million subscribers in the Indian telecom market. Cellular

subscriber base is projected to grow at a CAGR

(Compounded Annual Growth Rate) of 48 per cent &

expected to reach 88 million in 2012


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Over 150% growth in telecom services is projected in 5

years. India will require large investments in networkinfrastructure & India expected to be fasted growing

telecom market in the world. Since the project expected to

reach 30-40% per year 250 subscribers by 2009- 2010.Total

estimate of investment opportunity of USS 22 billion

expected over the next five years

74% to 100% FDI permitted for various telecom services.

FIPB approval required for foreign investment exceeding

49% in all telecom services

100% FDI permitted in telecom equipment manufacturing

on automatic approval basis


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Force-2 INTENSITY OF RIVALRY

AMONG EXISTING COMPETITORS

(FEATURES)


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COMPETITION BETWEEN EXISTING PLAYERS IS LIKELY

TO BE HIGH WHEN:

There are many players of about the same size,

Players have similar strategies

There is not much differentiation between players andtheir products, hence, there is much price competition

Low market growth rates

Barriers for exit are high

High storage costs or highly perishableproducts

Low switching costs


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IN CONTEXT OF



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EXISTING PLAYERS IN THE MARKET

Operator Subscriber Base Market Share

Bharti Airtel 146,293,078 21.34%

Reliance Communication 119,351,438 17.37%

Vodafone 118,038,438 17.08%

Tata Teleservices 80,817,298 11.47%

BSNL 80,739,935 11.31%Idea 76,023,551 10.84%

Aircel 47,519,629 6.64%

Unitech 13,748,300 1.05%

Sistema 7,121,765 0.86%

MTNL 5,342,039 0.81%

Loop 3,009,445 0.45%

Videocon 5,616,152 0.43%

Stel 1,867,060 0.22%

HFCL Infotel 1,132,477 0.13%

All India 706,620,605 100.00%


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An Example of Competitive Rivalry (Between

Tata indicom prepaid & Aircel)

Operators Tata Indicom Aircel

MRP of the RCV

(Rs.)

325 249

Admin fees (Rs.) 194.65 146.91

Talk Time (Rs.) 100 0

Service Tax (Rs.) 30.35 22.41

Validity (Days) 30 30


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Force-3 BARGAINING

POWER OF THE BUYER(FEATURES)


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Monopsony-a market in which there are

many suppliers & one buyers.

Buyers are powerful if Example

Buyers are concentrated- there are a

few buyers with significant market

share

DOD purchase from defense

contractors

Buyers purchases a significant

proportion of output-distribution of

purchases or if the product is

standardized.

Circuit City & Sears large retail

market provides power over

appliance manufacturer

Buyers possess a credible backward

integration threat-can threaten to buy

producing firm or rival.

Large auto manufacturers purchases

of tires


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Buyers are weak if Example

Producers threaten forward

integration-producers can take over

own distribution /retailing

Movie-producing companies have

integrated forward to acquire theaters

Significant buyer switching costs-

products not standardized & buyer

cannot easily switch to another

product.

IBMs 360 system strategy in the

1960s

Buyers are fragmented (many,

different )- no buyer has any

particu

lar influ

ence on produ

ct orprice

Most consumer products

Producers supply critical portions of

buyers input distribution of

purchases

Intels relationship with PC

manufacturers


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IN CONTEXT OF



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Telecommunications industry consumers possess significant leverage

Their most threatening capability is the ability to switch to an alternative

provider at little, or no cost. If local call rates are too "pricey" they will quicklyloose clients, market share and revenue

Secondly, buyers are extremely well informed as to prices offered by

alternative providers. Marketing for long-distance service is intense. Frequent

telemarketing, TV advertising, celebrity endorsements, billboards, radio and

bulk mail inform consumers of the various long-distance rates and services that

are available. Consumers are very informed as to pricing structure and are

unlikely to withstand rates that deviate too far from the lowest possible rate

Although consumers possess significant leverage, telecom providers are

fortunate in that the product they offer is virtually a necessity

Usage may vary but every developed area will employ these services regardless

of the cost. This is why the government is so involved in protecting theconsumer

Additionally, telecom providers have an extremely large pool of consumers to

target. The impact of loosing a few clients is relatively insignificant considering

the billions they still have the opportunity to acquire


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146,293,078

119,351,438

118,038,438

80,817,298

80,739,935

76,023,551

47,519,629

13,748,300 7,121,765

5,342,039

3,009,445

5,616,152

1,867,060

1,132,477

Subscriber Base

Bharti Airtel

Reliance Communication

Vodafone

ata eleser ices

BSNL

Idea

Aircel

nitech

Sistema

MTNL

Loop

Videocon

Stel

HFCL Infotel


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21%

17%

17%

11%

11%

11%

7%2%

1%

1%

0%

1%

0%

0%

MARKET SHARE

Bharti Airtel

Reliance Communication

Vodafone

Tata Teleservices

BSNL

Idea

Aircel

Unitech

Sistema

MTNL

Loop

Videocon

Stel

HFCL Infotel


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FORCE-4 BARGAINING

POWER OF SUPPLIERS(FEATURES)


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Suppliers are powerful if Example

Credible forward integration threat

by suppliers

Baxter International, manufacturer of

hospital supplies, acquired American

Hospital Supply, a distributor

Suppliers concentrated Drug industry relationship to hospital

Significant cost to switch suppliersMicrosofts relationship with PC

manufacturers

Customers powerfulBoycott of grocery stores selling

non-union picked grapes


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Suppliers are weak if Example

Many competitive suppliers- product

is standardized

Tire industry relationship to

automobile manufacturer

Purchase commodity products Grocery store brand label products

Credible backward integration threat

by purchasers

Timber producers relationship[ to

paper mills

Concentrated purchasers Garment industry relationship tomajor departmental stores

Customers weak Travel agent relationship to airliners


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SUPPLIER BARGAINING POWER IS LIKELY TO BE

HIGH WHEN:

The market is dominated by a few large suppliers rather than afragmented source of supply

There are no substitutes for the particular input

The suppliers customers are fragmented, so their bargaining power islow

The switching costs from one supplier to another are high,There is the possibility of the supplier integrating forwards in order toobtain higher prices and margins. This threat is especially high when:

The buying industry has a higher profitability than the supplyingindustry

Forward integration provides economies of scale for the supplier

The buying industry hinders the supplying industry in theirdevelopment (e.g. reluctance to accept new releases of products)

The buying industry has low barriers to entry


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IN CONTEXT OF



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The primary suppliers to the telecommunications

industry would include fiber optics providers,

hardware suppliers and employees.

The suppliers possess minimal leverage. Many of the

hardware and fiber optics providers have been

integrated either through acquisitions, alliances orcooperatives

The labor force is unionized and there are periodic

labor disruptions within the organizations

Many of the jobs available do not require

"extraordinary" skills and therefore most of their

labor force may be easily acquired or replaced


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Force-5 THE THREAT OF

SUBSTITUTE PRODUCTS

(FEATURES)


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Similarly to the threat of new

entrants, the treat of substitutes is

determined by factors like

Brand loyalty of customers

Close customer relationships Switching costs for customers

The relative price for performance of substitutes

Current trends


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IN CONTEXT OFINDIAN

TELECOM

INDUSTRY.


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Internet telephone is emerging as a best option because it ischeaper and video as an added advantage.

As we can see that use of internet in our country is on

growing rate.

47

19

5.73

6.1

11.83

6

MARKET SHARE ( % )

BSNL

MTNL

BHARTI AIRT L

RELIANCE

ISP SIFY

VSNL


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As there are many tools which can be accessedthrough internet like video conferencing other

important tool is talking through internet for Google

talk, face book etc

Internet is cheaper medium of communication andone can have many facilities by getting connected to

the world through the internet

Use of postal services

Use of walky-talkies


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OUR

ANALYSIS


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Forces Implications

THREAT OF NEW ENTRANTS High

INTENSITY OF RIVALRY

AMONG COMPETITORSHigh

BARGAINING POWER OF THE

CONSUMERHigh

BARGAINING POWER OF THE

SUPPLIERS Low

THREAT OF SUBSTITUTES High


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