Even as India continues to be one of the most crowded telecom markets in the world, much has changed in terms of its market concentration and dynamics over the past few years, to the extent that it can no longer be termed hypercompetitive. A significant level of consolidation has already been achieved in the industry, a fact that is reflected in the subscriber and revenue market shares of the three heavyweights in the sector.

Bharti Airtel, Vodafone India and Idea Cellular are the current wireless market leaders, in that order, in terms of subscriptions as well as revenues. Together, they accounted for about 58 per cent of the total wireless subscriber market as of end-December 2014, as per data provided by the Telecom Regulatory Authority of India. If the fourth largest telecom player (in terms of subscribers), Reliance Communications (RCOM) is added to this list, the four operators would account for 70 per cent of the wireless market. The remaining 30 per cent is held by seven operators, comprising incumbents like Bharat Sanchar Nigam Limited (BSNL) and Tata Teleservices Limited (TTSL) as well as relatively new (and smaller) players. Of late, however, RCOM has seen its consumer loyalty wane, which has led to a reduction in its market share as well as its position in the pecking order. The majority of RCOM’s outgoing subscribers have been picked up by Idea Cellular.

Significant market consolidation can also be noticed in the revenue market share, which again remains highly concentrated among Airtel, Vodafone and Idea. As of September 2014, the trio held 72 per cent of the country’s wireless revenue market (calculated on the basis of circle-wise adjusted gross revenue). RCOM, meanwhile, has not been able to keep pace in terms of revenue growth and was at sixth position as of September 2014, reporting lower revenues than BSNL and TTSL.

While Airtel, Vodafone and Idea have always been among the market leaders, several developments in the past few years have led to a clear widening of the gap between the big three and the rest of the industry, a trend that is continuing. The three incumbents have emerged stronger as their rivals have failed to put up stiff competition or keep pace with the changes in the sector. Meanwhile, smaller players, despite being backed by big business conglomerates, are still charting their growth plots.

Highly competitive to highly concentrated

The combined subscriber market share of Airtel, Vodafone and Idea witnessed a jump of about 10 percentage points between 2012 and 2015. It was during this period that the Indian telecom sector experienced one of its most testing times because of policy and regulatory uncertainty and economic instability.

The market heavyweights have been able to strengthen their positions following the hypercompetition phase, even though the industry at large is yet to make a full recovery. The cancellation of controversial telecom licences in February 2012 proved to be a significant growth driver for the trio and led to some level of indirect consolidation in the market. The exit of some players and the downsizing of operations by others in the majority of the telecom circles resulted in the market consolidating around a few players at the circle level. The circle-wise subscriber figures as of December 2014 highlight that despite the presence of 13 players, over 50 per cent of the market share is held by the trio in the majority of circles (16 out of 22). In circles like Gujarat, Maharashtra and West Bengal, they account for about 65 per cent of the total number of subscribers.

The government has already undertaken two rounds of auctions to reallocate the vacated spectrum following the cancellation of licences, but the high cost has discouraged new operators from acquiring pan-Indian spectrum. This, in turn, has resulted in an increase in the collective market share of the top three players in circles that have witnessed operator exits. For instance, the number of operators in the Punjab circle came down from 15 at the end of 2011 to eight at the end of 2014, which strengthened the market position of the top three in the circle, with their collective market share increasing from around 48 per cent in December 2011 to about 60 per cent in December 2014.

The scenario in terms of revenue market share is no different, with Airtel, Vodafone and Idea together accounting for over 70 per cent of this share in 13 circles as of September 2014. Individually, Airtel has the dominant position in 12 circles with a revenue market share of more than 30 per cent. In three of these circles, it controls half the market in terms of revenue. Similarly, Vodafone has a dominant position in six and Idea in four circles, where each controls over one-third of the market.

Operational and financial strength

The aforementioned numbers clearly suggest that the market is slowly getting polarised towards the three operators. Such a trend seems to be justified, keeping in mind their performance over the past few years on several parameters, both operationally and financially. Idea, in particular, has continued to register a growth in profits, quarter after quarter, even while several other operators (including Airtel) register dwindling bottom lines.

The operational and financial performances of once-formidable competitors like RCOM, TTSL and BSNL have been on a continuous downslide in recent years, and they have proved to be no match for the big three. Airtel, Vodafone and Idea together account for the majority (more than 80 per cent) of wireless earnings before interest, taxes, depreciation and amortisation, but less than half of the estimated industry debt. Saddled with a debt of Rs 200 billion, TTSL is likely to exit the telecom business, while BSNL and Mahanagar Telephone Nigam Limited have pinned their hopes on a bailout from the centre.

Mobile number portability (MNP) that was expected to create a level playing field has also favoured the incumbents. Contrary to industry assumption that smaller players would be the biggest beneficiaries, larger operators too gained customers in significant numbers. Idea, for instance, has been a consistent performer on the MNP chart, maintaining its leadership position in terms of overall MNP net additions for over three and a half years.

As per data from the Ministry of Communications and IT, RCOM, TTSL and Aircel were among the top net losers in terms of MNP subscribers as of October 2014, having faced a net loss of 7.8 million, 5.3 million and 3.6 million respectively. On the other hand, Idea’s net subscriber gain at the end of October 2014 stood at over 12.5 million while Vodafone and Airtel gained over 10.4 million and 5 million subscribers respectively.

Emerging MNP trends have highlighted the fact that quality rather than price is the prime consideration for customers. A stronger brand value, superior network quality, and differentiated products have worked in favour of bigger players, who have attracted customers from rival networks. The same factors have led to a higher subscriber churn among the big three.

Over 90 per cent of the total subscriber base for Airtel (96.32 per cent), Vodafone (94.62 per cent) and Idea (101.09 per cent) comprised active users as of end-December 2014. The majority are high quality subscribers, which translates into higher ARPUs than their peers’. For instance, during the quarter ended December 2014, Airtel’s ARPU stood at Rs 202 and Idea’s at Rs 179, as against Rs 142 for RCOM and Rs 101 for Uninor.

Moreover, the big three are well equipped with 3G networks that are currently underutilised and have significant future potential. Approval for 3G intra-circle roaming agreements last year was a positive step that helped them achieve an almost ubiquitous 3G coverage across the country. To bring in synergies, they are already sharing tower assets through a joint venture, Indus Towers. A proposal for sharing optical fibre on similar lines is also being considered.

The successful conclusion of the upcoming spectrum auction is also likely to significantly increase the spectrum holding of the trio. These companies  were the most active during the previous auction in early 2014, despite the high spectrum prices. This indicates that they had the investment capabilities and the intent to further strengthen and consolidate their market positions. Airtel, Vodafone and Idea together secured 67 per cent of the 1800 MHz spectrum that was sold during the February 2014 auction.

Pricing power has already started returning to operators. The past two years have seen multiple rounds of tariff hikes for the voice and data segments, a trend that is likely to gain momentum going forward. Users value superior network coverage, particularly for data services, and have been receptive to tariffs heading upwards, as indicated by the growing number of data users on operator networks. Between December 2013 and December 2014, data subscribers for the big three were also on the rise, indicating tremendous year-on-year growth. 3G subscriber numbers grew by 92.3 per cent on Airtel’s network while on Idea’s, they grew by 120.8 per cent during this period.

Gradual recovery of smaller players

As of now, the balance seems to be tilted in favour of the incumbents. Considering the current scenario, the concentration of market share in a few hands is set to continue in the coming quarters. However, presuming this to mean the end of competition would be too premature.

The smaller players whose licences were cancelled three years ago are now getting back on track, with Telewings Communications being one of the most promising among the new crop. It has broken even in all its six circles of operations and recorded the fourth highest net additions in the industry in December 2014, after Airtel, Vodafone and Idea. In addition, Telenor’s acquisition of the entire stake in its Indian venture is a reflection of the operator’s commitment and confidence in the sector’s potential.

Videocon, another ambitious player, is reportedly attracting significant interest from investors looking to leverage the telecom sector’s potential. As per reports, a Mexican company and an Indian telecom operator have evinced interest in buying a 49 per cent stake in the company but the parent group is awaiting the conclusion of the upcoming spectrum auction as well as more clarity on the merger and acquisition (M&A) front. The sector is likely to witness greater activity once the government revisits the M&A norms and makes them favourable for operators. Clarity on spectrum sharing and trading will further improve the country’s competitive landscape.

Aircel has been on the lookout for a partner that can turn its business around. The company leads in several regional markets, including Tamil Nadu. Sistema Shyam TeleServices Limited could also explore the M&A route to better establish itself in the Indian market. If any deals go through, collaboration among regional leaders could give stiff competition to the big three.

RCOM could get back in the competitive fray in the medium term, given that it is pulling out all the stops to pare its debt and push business growth. It recently decided to call off its decade-long cold war with the Mukesh Ambani-led Reliance Industries Limited to enter into several profitable infrastructure sharing deals with the former’s broadband venture, Reliance Jio Infocomm Limited.

RCOM already has close to 97 per cent subscribers that are active on its network. However, its lower share of premium subscribers affects its ARPUs. The operator also continues to struggle with a huge amount of debt, which stood at Rs 367.67 billion as of December 2014.

Conclusion

This is just the beginning of the data revolution in India. As of September 2014, the country had 235.7 million wireless internet users against a total of 930.2 million mobile users. This leaves enough room for other operators to participate in the market and ride the data wave. The competition in the data space is unlikely to be price led and will probably be based on customer experience and service quality.

Going forward, the competitive landscape of India is set to change. Operators who survive will surely be those with deep pockets and astute strategies. In the short term, however, the industry will continue to see the big three fight each other for the top spot.