Telecom market heading towards duopoly

Indian telecom market is turning duopolistic after Reliance Jio has garnered additional strength with the decision to acquire Reliance Communications’ assets. Bharti Airtel and RJio are set for a prolonged battle of supremacy in one of the world’s fastest-growing telecom markets as Idea-Vodafone combine still seem at least a year away from a full-fledged operational merger.

“The market is turning duopolistic with just two major players. It will take at least 12-18 months for the entire Idea-Vodafone integration to come through and for them to optimise their resources, work like a single entity and be competitive. By then the market would have turned significantly,” says Jayanth Kolla, founder and partner at technology research firm Convergence Catalyst.

Already, in the last one year, RJio has garnered 14 per cent revenue market share and 160 million subscribers. And the numbers are going up every month, making survival difficult for weaker players.

“The moment they (RJio) achieve the critical mass of 300-350 million, they will be able to dictate terms and drive away competition barring Airtel and a very weak Idea-Vodafone,” he adds.

With RJio signing definitive binding agreements with RCom for buying spectrum, towers, fibre and media convergence node, it will have more access to the 800 MHz and 900 MHz spectrum, considered the best to deploy 4G and 2G, respectively. RJio would have 496.75 MHz of spectrum in these bands as compared to 368 MHz for Bharti Airtel and 283 MHz for Vodafone-Idea.

“Idea-Vodafone have to act much more aggressively than before as RJio now has unprecedented access to RCom’s assets like optical fibre criss-crossing the country and 43,000 towers where they can set up antennae now besides spectrum in the efficient 800 MHz band,” Kolla points out.

Moreover, dual branding could also be a challenge for Vodafone-Idea combine. While the companies have said both the brands would be retained, the strategy may make it difficult to fight the well-entrenched brand Airtel or popular RJio. “Lack of a merged brand may impact consumer acquisition,” says Kolla. The telecom industry has already seen the number of players reduce from 13 in FY 2013 to seven in FY 2018. Hetal Gandhi, Director, Crisil Research, says further reduction in the number of players and consolidation would bring India at par with global norms. “We believe this would improve pricing power of players in an industry which has the lowest ARPUs when compared to its peers.”

“It will also help improve returns for the industry over the long run and hence go a long way in improving credit profiles of players assuming other things remain constant,” she added.

Harsh Jagnani, Vice-President and sector head – Corporate Ratings at ICRA, agrees that reduction in the number of players will give better bargaining power and tariff control to operators. “This will improve their financials, which should get reflected in the long run.”

However, BK Syngal, telecom consultant and former CMD of VSNL (now Tata Communications), has a word of caution. He says a duopolistic market will be disastrous for consumers as well as public sector firms BSNL and MTNL. “In countries like the US, there is no government entity and there is a strong sector regulator and a very strong competition law. It is a mature market. This is not the case in India.”

In such a scenario, duopoly-like situation here can lead to cartelisation by the dominant players.

“And if that happens, consumer will be the loser,” he adds.