Life at IIM Lucknow IPMX

One Year Full Time MBA Program at IIM Lucknow

Unfulfilled demand

In the growing telecom market, we are currently witnessing intense price war among leading operators. The competition in the telecom space initially was about access to large customer base and later on it switched to providing wide varieties of VAS. This was then followed by price war when new player pitched in to the battle. Some of these players timed their entry just before 3G/4G spectrum allocation. Giants like Bharti Airtel, reliance, Tata Tel and Vodafone focused heavily on winning spectrum in their planned network circle, while new players started eating up their market share in every possible way. These biggies in fact were in no mood to get into price war, however, they don’t have any option as they want to retain their market share. It is very much essential to retain customers since they want to launch 3G/ 4G services to this customer base first. They have paid huge license fee and are under high pressure to start earning from the first year itself. In fact, the spending on 3G/ 4G and impact of price war has made Vodafone group to cut the value of its Indian arm by $3.2 billion.

Once number portability starts then customers will find it easier to switch from one operator to another. Customer retention is very important for all of these operators. Under 3G/4G spectrum it is data service which is a major source of income to operators. Operators are crafting their strategy to roll out high end data based VAS to their customer base.
On the other hand the voice communication need of the consumers is not fully met by most of the operators. When we did a survey for our academic project, we found that still basic voice communication plays an important role because of huge potential rural market. According to Gartner India at present have more than 660 million subscribers and estimate that it should grow to 993 million by 2010 with penetration reaching 82%. So there is a clear gap in what people want and what firms in the industry perceive to be important for consumers.
But according to PricewaterhouseCoopers’ analysis aggregate EBITDA margin for core voice services is decreasing. It dropped from 33.3% in year 2003 to 29.5% in year 2009. It is largely because of drastic fall in the call services price due to tight competition. In spite of growing market in to rural area operators are still targeting some of the lucrative circles and making every effort to snatch the share from competitors through price cut.
So it is important for operators to equally focus on voice services even after commercial launch of 3G/4G specific services for three reasons. First it ensures a critical mass of consumer base to launch 3G/4G specific service in a cost effective way. Secondly, call service is the basic feature sought after by every individual so focus into growing part of the market is important. Last but not least, consumers are willing to switch to better serving operator once number portability is in place this helps operators to gain market with least effort.


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This entry was posted on August 7, 2010 by in Consulting.
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