EVOLUTION OF TELECOM INDUSTRY1

The 19th century

Telecommunication first came to India with the installation of a telegraph line in Calcutta by the East India Company
in 1850. Its use, however was limited to official purposes only and was not in the reaches of the common public.
As for telephones, in line with the invention of telephone by Alexander graham Bell in 1876 (whose company is today
a world leader in the Industry- The American Telephone & Telegraph Company (AT&T)), the first telephone exchange
came up in India in 1882.

The Post-Independence Era

Telecom service in India started in the private sector first. In 1947 India had a mere 7330 telegraph offices and 321
telephone exchanges, while the number of telephones was 38,155 (of which 2166 were private) in a nation of more
than 36 crores (DoT Publications).Many systems were installed and operated by princely states. It was the expected
independence that propelled the opening of public call offices in cities and important towns. However to truly judge
the telecommunication development of a country, one must look at the number of telephones. As on January 1, 1951,
of the 74.8 million telephones in the world, a mere 160,000 were in India while half of the total were in the United
States. This was one of the major reasons for its international dominance in communication technology at that time.
The low numbers are merely a reflection of the backwardness of the Indian economy. Also the government has
prioritized the postal department over the telecommunication department. Reforms were a need of the hour. Most
private companies were gradually nationalized with further led to stagnation of growth.

Reforms

The first reform in the department began with the formation of Department of Telecom under Ministry of Telecom in
1985 by the Rajiv Gandhi government.
A major change however came with the liberalization of the sector that happened in the 1990’s and declaration of the
National Telecom Policy (NTP) in 1994.
NTP:

The economic policy of 1991 aimed at targeting attracting foreign direct investment to further the growth objective.
NTP was a part of the same policy. Its objectives were:
1. Provide telephone on demand by 1997.
2. Provide telephone to all villages by 1997.
3. Provide one PCO/ 500 persons urban areas by 1997.
4. Provide all internationally available value added services in India.
5. Provide Telecom services at reasonable and affordable prices.
6. Provide telecom services on world standard.
7. Provide machinery for removing consumer complaints, dispute resolution etc.

Telecom Regulatory Authority of India (TRAI)

In line with the NTP in 1994, GoI formed the TRAI in January 1997. By then many operators were in a position to offer
telecommunication services. Many private operators had been issued letters of intent to provide basic services.

It was in this scenario that the need for a statutory regulatory body for the efficient and smooth functioning of Telecom
services was felt. To strengthen investor’s confidence, ensure fair competition and increase economic reform, TRAI
was essential.
Functions of TRAI are:

1. Regulate tariff.
2. Adjudicate disputes between service providers and consumers.

1 http://shodhganga.inflibnet.ac.in/jspui/bitstream/10603/127477/8/08_chapter1.pdf
 EXTERNAL MARKET ANALYSIS – TELECOMMUICATION INDUSTRY

PESTEL ANALYSIS

1. GOI guidelines for networking licenses, national radio spectrums, trade barriers, tariff regulations & phone usages
2. Adherence of new technology with government rules
3. Telecom services to fit government safety and privacy regulations
4. National security, Taxation laws and human right issues
POLITICAL 5. Government policies for telecom regulation:
i. National Telecom Policy (1994)
ii. New Telecom Policy (1999)
iii. Telecom Regulatory Authority of India (TRAI)

1. One of the fastest growing economies in the world and Interest rates, inflation and tax benefits
2. Emergence as a leading destination for foreign investments (High % of FDI limit in telecom segment)
3. Rising share of services sector in GDP
ECONOMICAL
4. Rise in incomes leading to higher affordability
5. One of the highest mobile phone penetration rates
6. Fall in mobile phone prices and call charges
1. Fast changing lifestyle and need to stay connected
2. Cusp of digital revolution & GoI initiatives like Digital Literacy mission created a transformative impact on people
SOCIAL 3. Need for partnership with entertainment sector from rising need of services like VoD, Social Media, YouTube etc.
4. Population growth and age distribution factor (Highest % of youth in India)
5. Rise in consumer demands and telecom services in rural areas
1. Lucrative market for global smartphone manufacturers widening internet user base
2. Evolving technological advancements - VAS, OTT, Cloud Computing, Big Data Analytics, VoLTE, IOT, 5G, AI etc.
TECHNOLOGICAL
3. Rising investments in R&D with focus on ground breaking tech to disrupt the market
4. Productivity and efficiency enhancement through 5G, automation and IOT – huge potential in telecom industry
1. International regulation and environmental protection policies
2. Pivotal role in e-waste generation – focus on waste management and minimizing environmental footprints
ENVIRONMENTAL 3. Investments in reducing carbon footprints
4. Radiation exposure based potential health threat through mobile phone usage and health hazards through base
stations and network towers
1. Government legislations - telemarketing, spectrums, base station, privacy etc.
LEGAL
2. Labor and employment laws

PORTER’S FIVE MODEL ANALYSIS

Here we would highlight various factors that promote industry attractiveness based on these above 5 parameters.

1. Lower buyer’s bargaining power: means there is lesser threat of backward integration like Reliance did in
textile industry
2. Low competition among firms: means there is lesser chances of competing strategies like price wars and
therefore, low risk of losing profit margins.
3. High entry barriers: means there are high obstacles for a new firm to enter the industry and theerfore, lesser
number of firms which in turn means lesser competition. Some factors which may act as entry barrier are:
economies of scale, product differentiation, capital investment required, and cost of switching. (not an
exhaustive list)
4. Low supplier’s bargaining power: means there is lesser threat of forward integration.
5. Low threat of substitution: means that the chances that your product would getting substituted by any other
profuct or service. Note that this is different from another company or competitor providing same service/
product

ANALYSIS OF TELECOM INDUSTRY (PRE JIO): ANALYSIS OF TELECOM INDUSTRY (POST JIO):

While studying the industry it must be acknowledged that major While the much of the structure has remained same over the past
disruption in Indian telecom industry has been due to entry of Jio loaded few years, few forces have brought about a change, this includes:
with different service through 4G platform.

Threat of substitues: With growth of smartphones, there has been Threat of substitutes: Due to extremely low priced services being
growth of internet services and applications which have possibility of provided by Jio on account of heavy investment in 4G data services,
providing low cost calling service through VOIP. Also, there are products while the VOIP does not seem in picture now and other application
like Skype. In the pre Jio era, this was a major factor as different providers in a change of wind now seem to be dependent on 4G proliferation
charged for calling services and data costs were quite high. in Indian market now.

Supplier’s bargaining power: the main supplier in the industry includes Competition among firns: Owing to the heavy disruption caused
the infastructure providers like towers, mobile handset manufacturers. by Jio with cheaper services, other firms have retaliated by
Although, telecom sector has substantial dependence on these two consolidation and mergers. This would lead to further high HHI and
industries but they are limited by high costs of switching. thus market is expected to be controlled by few players achieveing
major share and economies of scale
Buyer’s bargaining power: the industry operates in B2C segment and
hence the threat of backward integration is almost zero. However, buyer
has its own say because there are multiple service providers and hence
can influence the industry

Entry Barrier: This can be judged on the basis of : economies of scale 

existing players enjoy a high degree of economies of scale which means
wasy to compete with other firms. For a new entrant, initial investment
particular financing also constitutes a major concern. Further, although
spectrum is limited and is distributed through competitive bidding but
there is always issue of interoperatibility. Also, the industry demands a
high investment in physical assets. These assets are also prone to
redundany if not used properly and with changing technology.

Competition among firms: there is an intense competition in the sector

which is evident from the fact that the new strategies are almost instantly
copied. Although, there are n number of players but major decision
making lies with four players (Jio absent in pre-Jio scenario and Vodafone-
Idea being separate entities). Following is a figure of the market share of
the firms, indicating a very high HHI.

STRATEGIC ANALYSIS OF AIRTEL

Mission: Hunger to win customers for life.

Vision: Our vision is to enrich the lives of our customers. Our obsession is to win customers for life through an
exceptional experience.

Values:
1. Alive: We are alive to the needs of our customers. We act with passion, energy and a can-do attitude to help
our customers realize their dreams. Innovation and an entrepreneurial spirit drive us - if it can’t be done, we’ll
find a way.
2. Inclusive: Airtel is for everyone - we champion diversity, recognizing the breadth and depth of the
communities we serve. We work with them, anticipating, adapting and delivering solutions that enrich their
lives. We do this by having an open mind and embracing change.
3. Respectful: We live the same lives as our customers, sharing the same joys and the same pains. We never
forget that they are why we exist. We act with due humility, always open and honest, to achieve mutual
respect.
SWOT Analysis:
LEVERAGE (STRENGTHS)
Nationwide presence: The nationwide infrastructure
developed by Airtel and the organization networking with
competitor firms has further increase the penetration of Airtel
throughout the nation.
Industry Leader: Airtel leads the telecom industry and
commands a loyal customer base by catering to customer
demands with innovative products as a part of its customer
value proposition and a high brand recall.
Symbiotic relationships: Airtel has strategically managed to
build symbiotic relationships by strategic alliances with other
companies to ensure high stakeholder value and profitability.
Mobile Data Services: 4G Mobile Data services is the major
contributor of revenues for Airtel. The demand of mobile data
is expected to grow in the coming years and this strength can
be leveraged.
High credibility: Airtel has been commanding its position in
the telecom industry since past few decades in several
countries round the globe. Airtel is the third largest telecom
operator in the world and this gives credibility to its brand
name. This helps to attract top notch talent industrywide.
SEIZE (OPPORTUNITIES)
Developing revenues through number portability services:
Airtel can enter into alliances with several phone firms to
ensure steady cash flows through the portability services.
4G VoLTE Services: Airtel should seize the opportunity to
increase its 4G service market share by providing all over India
4G VoLTE services to match its competitor’s customer value
proposition.
Pan-India penetration: Airtel has successfully penetrated into
both the urban and rural markets and has led the industry.
Airtel can seize the opportunity to further develop its
technological prowess to leverage its strength by providing
innovative pan-India services.
Expanding its global operations: Airtel has already marked its
presence as the market leader in several nations throughout
the world, but it can expand its market globally by providing
its leading services in other markets.
IMPROVE (WEAKNESSES)
Highly levered capital structure: Airtel’s capital structure is
highly skewed towards debt. A high debt to equity ratio makes
Airtel vulnerable to decreased capital investments and stock
prices. Low NPV value of acquisitions can worsen the financial
situation.
High monitoring costs: As Airtel has outsourced majority of its
operations to follow the ‘minutes factory' model of low cost
and high volumes but the cost of monitoring the quality of
operations and services delivered by the firms to which it
outsources can cost high.
Turning Around new ventures: Despite several efforts, Airtel
has not been able to streamline the operations of its acquired
firms in the African market and deliver significant value
commensurate to the costs.
4G VoLTE availability: Airtel, unlike its biggest competitor, Jio,
is still struggling to ensure pan India 4G VoLTE availability.
AWARE (THREATS)
Compensation for call drop rates: Telecom regulations ensure
stringent regulations by punishing telecom firms financially
for call drops. This will eat into the revenues of Airtel unless it
updates it services to ensure zero call drops.
Spectrum allocation regulations: In the coming future, the
spectrum allocation regulations may significantly change to
make the private players in the telecom industry unviable.
Price sensitive domestic customer base: Airtel charges a
premium amount on its popular customer services such as
MNP and the Indian customer being price sensitive easily
switches to less expensive brands providing similar services.
This can cause erosion of customer base and brand loyalty.
Price wars: Airtel is engaged in a constant price war with Jio
which is affecting its profitability as the fixed costs of
operations are high.
VRIO Analysis:

Resources Valuable Rare Inimitable Organized Remarks

Tangible
 Marketing and sales     SCA
 Operations – Network integration   CP
 Channel Strategy   CP
 Financial Resources   CP
 Dedicated digital platform for SMEs    TCA
 Geographical and Operational diversification     SCA
 Network Resource (Robust backhaul connectivity     SCA
criss)
 Inbound logistics- equipment vendor – chip level   CP
 Outbound logistics: outsourcing and sound    TCA
distribution
 Market leader     UCA
 Digital content offering    TCA
 Minutes factory model    TCA
Intangible
 Managing Legal Obligations and Regulatory    TCA
 Cash on mobile advantage    TCA
 Cheap capital accessibility    TCA
Capability
 Nationwide penetration    TCA
 Innovation    TCA
 Distribution Strategy    TCA
 Strategic Partnerships     SCA

CP – Competitive Parity | TCA – Temporary Competitive Advantage | UCA – Unused Competitive Advantage | SCA – Sustained Competitive Advantage

Airtel’s SCA over JIO

 Airtel’s geographical and operational diversification combination helped airtel offset the decrease in
revenues in business of mobile.
 Airtel being a market leader always had an advantage that enables it to sustain price wars and competition
much better than its peers (competitors)
 Unlike Vodafone or Idea, Airtel has its own robust backhaul connectivity criss-crossing the country thereby
enabling it to offer better quality services
 In order to bolster the digital content offering and to better compete with Jio, a partnership with Amazon
India was established
o This strategic partnership offered one year Amazon Prime membership to wireless postpaid and V-
Fiber broadband customers
 Airtel's acquisition of Aircel ( Aircel’s 4G airwaves) helped airtel become a pan-India 4G player and has taken
out Reliance jio’s first mover advantage.
 Airtel has completely leveraged the extensive spending on promotions that helped it become a market leader
o Word of mouth is one of the strongest forms
Competition Analysis:

Impact of Jio on Airtel :

The launch of Jio has helped engineer a socio-economic revolution in India. For the first time, millions of Indians are
able to access the internet to register for benefit payments, download school textbooks etc.
  On account of hyper competition brought in by Reliance Jio, the nation's largest operator, Bharti Airtel
endured a solidified net profit drop of 76.5 percent to Rs 343 crore from Rs 1,462 crore a year ago. As the
interconnect charges were also reduced to 6 paise from 14 paise, the market was facing extreme value erosion
and financial stress due to competition, which further worsened the situation.
 With low tariffs(almost free for voice calls ) and data consumption increasing exponentially, smaller
telecommunication operators exited the market and bigger ones such as Vodafone and Idea Cellular had to
merge to compete with Jio.
 In response to Jio, Airtel underwent a transition strategy wherein it became the second 4G network provider
in the country, after predicting dramatic growth of 4G demand with time. It decided to scrap its 3G services
and continue with providing 2G services. Recently, Bharti Airtel launched a Rs 398 prepaid plan under which
a user gets 1.5GB 4G data per day, unlimited voice calling and 90 SMS per day for a total of 70 days. The plan
is launched to basically counter Jio’s Rs 398 plan in which it offers 2GB of data per day - 500MB more than the
one Airtel is offering
 To meet the challenges thrown up by Reliance Jio, which is fast netting low-end subscribers into its 4G network
at a relatively higher ARPU (average revenue per user), Bharti Airtel is exploring launching low-cost Volte (voice
over long-term evolution) smartphones. This way the company can migrate its 200 million 2G subscribers to
4G network. However, unlike Jio, Bharti will not offer any subsidy to the manufacturers. Instead it will partner them
in a manner that subscribers who buy these phones get some cashback incentives which will effectively reduce the
price of the phones.
 Indian telecom sector is going through a change, before there was competition regarding cheaper rates of
voice calls and roaming but now the struggle has shifted over data packs, fastest speed, latest technology and
cheaper rates. The telecom industry directly employed 2.2 million people. New circumstances could lead to
30% job losses in next 12 to18 months due to automation of teleservices to cut costs.
 In partnership with Flipkart, Airtel started providing cashback in the form of coupons whenever a customer
upgraded their smartphones by buying a new 4G smartphone. According to the offer, customers upgrading to
a new 4G smartphone will get an instant cashback benefit worth Rs. 2,000. This benefit will be credited to
customer's My Airtel account in the form of 40 coupons worth Rs. 50 each.
 Airtel has recently adopted a new strategy of reducing the number of customers who buy recharge plans
costing less than Rs.35 per month, particularly those who mostly receive incoming calls or do very small
recharges, for controlling the general and administrative expenses and focus attention on improving services
to better paying users.
 Bharti Airtel, which has been trying to acquire a large share of the 4G subscriber additions, is also using content
through partnerships with Zee, Netflix and Amazon to encourage users to spend more.
Future Strategy Recommendations For Airtel:
1. Airtel should leverage its strong network and brand equity and move towards an integrated cost
leadership/differentiation strategy. Thus monetize from the loyal high value and mid value customer segments
which could lead to higher ARPU and will further free up airtel’s network and ease congestion from the low
value traffic.
2. Tapping onto convergence and multi-play environment to drive CLV and develop a transition for customers
to move from ARPU (Average revenue pe user) to ARPA (Average revenue per account). Multi-play offerings
should include wireless service, telephone, broadband internet service, television services etc. This would
enable Airtel to drive loyalty and build a profitable customer base within family, friends, social networks and
SME’s.
3. Partnering with global OTT giants to leverage the digital entertainment platform and mastering the mVOIP
(mobility of voice over IP) strategy for ARPU gains along with the usage of Direct Carrier Billing as a source of
untapped source of revenue . mVOIP strategy would drive customers for the usage of airtel’s data for calling
instead of external VOIP providers like Skype, WhatsApp etc. DCB is a tool which allows telcos wireless
subscribers to purchase goods and services using their handsets and its cost to be added to monthly phone
bill or deducted from prepaid balance thus providing a seamless experience and a secure payment mechanism.
4. Strategic alliance with global high end mobile phone manufacturers like Apple, Google, Samsung etc. to tap
the premium segment and ensuring customer acquisition with airtel at the time of purchase and further
enhancing a longer CLV.