Volume 14, Number 1 Article by Radhika B, Shivakumar B G March, 2002
A Fourth Cellular Operator? :
The cellular industry in India is expected to mature in a few years. Considering that India is a third world market, the penetration levels of cell phones cannot be expected to be more than 10-15%. To achieve this penetration rate, services have to be made affordable to the masses and this can be achieved only through increased competition. As a measure of increasing competition the regulatory framework has permitted the entry of four players in a circle. Given that some of the existing players have not yet broken even, the question of the viability of four players comes up. In this award winning student essay, Radhika and Shivakumar attempt to answer the questions: Is there room for four players to operate in the Indian market? Are the licenses for the fourth player worth the entry fee that the bidders have paid? Why have the players bid for the fourth license?
A study of the evolution of the cellular industry in Bangalore was undertaken; and analyses and projections were made to predict the consequences of the entry of the third and fourth operators. The insights obtained through this analysis may be applicable to other parts of India. A techno-economic evaluation of the cellular business coupled with the likely market share scenarios was done to arrive at a range of values for the new entrants.
The findings of the study indicate that there is no real room for four players to operate because of the high break even point in terms of the number of subscribers required, given the low average revenue per user (ARPU) in India and the market size based on the forecast. If the market shares of the four players are unequal, the consequence will be that while the small players will have unutilised spectrum, the bigger players will face a scarcity of spectrum. This imbalance could be covered by acquisitions though this is not permitted currently. It also emerges from the analysis that the dominant driver for fourth cellular operators who have acquired the license may be strategic reasons: for instance, a presence in some key areas may be necessary to compete nationally.
Reprint No 02102
