India's Big Three

Raghu Gopal / CCS Insight
24 Jan 2018

Last week it was reported that the merger between Vodafone India and Idea Cellular will be completed in April 2018. By any standards, this is a major market development. The two operators will combine to have more than 400 million subscribers, surpassing the current Indian market leader Bharti Airtel, which currently has 285 million customers. The combined entity wouldn't just be the largest wireless operator in India, but also the second largest in the world, behind China Mobile, which has 880 million subscribers.

But the changes keep coming. Bharti Airtel will be absorbing the customers of Telenor India and Tata Teleservices. Bharti Airtel may have started 2018 with 285 million subscribers, but it could end the year with almost 400 million, challenging Vodafone for the top spot in the market and becoming the third-largest wireless operator worldwide.

Perhaps the most intriguing consolidation news was the announcement in late December 2017 from Reliance Industries, owner of Reliance Jio, that it would acquire Reliance Communications from the Reliance Anil Dhirubhai Ambani Group. There's an acrimonious family history here involving two brothers who control these companies, but the siblings have settled on a deal that means Jio will gain almost 70 million subscribers, as well as spectrum, towers and fiber to build out its network. The agreement would bring Jio's total to 210 million customers, an amazing figure considering two years ago it had none.

India currently has 1.2 billion wireless subscriptions and after the mergers are finalized, the top three operators will take almost 85% of the market. By all accounts, this is an oligopoly and a big shift from five years ago, when the three leading wireless players controlled only 50%. But regardless of consolidation, pricing power will continue to elude the operators.

Fierce price-wars among operators are a perennial theme in India. Despite attempts by wireless operators to change the nature of the market, India is almost exclusively made up of prepaid customers and average revenue per user is less than $3 per month.

In 2017, the Indian telecom industry weathered one of its most turbulent years.

Fortunately, it looks like 2018 will be more stable, as we expect price-wars to ease and revenue from customers to rise. We believe there'll be three private companies and one state-run agency, Bharat Sanchar Nigam Limited, which will fight it out in the telecom space at the end of the year. The top three private players will instead focus on data. This is clearly where the market is headed: mobile data consumption in India exceeded the combined usage of the US and China in 2017, and we expect this trend to continue in 2018.

Another important market development is the Indian government's National Telecom Policy 2018, which is set to be implemented later in the year. This is intended to usher the country into the next decade of technological advances, addressing opportunities in areas such as the Internet of things as well as driverless cars.

The largest initiative in 2018 is expected to be the Digital India program, a major campaign to bring most government services online and thereby connecting most of the nation's 1.3 billion citizens to the Internet. It could give operators a big boost.

Raghu Gopal has more than 20 years' research and operational experience.

This article originally appeared on CCS Insight

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