Case Analysis:

Mobile Telephony In India

DR. VIGHNESWARA SWAMY
The Moot Question
• Would cheaper rates bring more profits?
 Elasticity of Demand
Industry is moving from voice to data
Voice is demand constrained
• • Inelastic demand; limited by time availability
• • No possibility of service differentiation
Data is supply constrained (demand will always outstrip supply)
• • Very elastic demand
• • Increase due to screen size, resolution, data speeds and time spent
• • Consumption will increase; Constrained by budget only ARPU growth
• ARPU will grow because of shift from voice to data – revenue market share will be driven by
data capacity share
 Own-price Elasticity of Demand
• In 2009,
• 10% price rise of mobile phones would reduce the demand by roughly 21%
• Then, price elasticity =
Percentage change in quantity demanded
ED =
Percentage change in price
𝟐𝟏%
𝑬𝒎𝒐𝒃𝒊𝒍𝒆𝒔 = = 𝟐. 𝟏
𝟏𝟎%
 Cross Price Elasticity Between Fixed
Phones and Mobile Phones
Increase in access price of fixed phones = 5%=Py
Quantity demanded of mobiles raised = 0.3% = Qx
Quantity demanded of fixed phones raised = 10.6%
QX / QX QX PY
EXY   
PY / PY PY QX
0.3
𝐸𝑋𝑌 = = 0.06
5

Cross price elasticity of mobiles to fixed phones is positive implying

substitutability.
Law of Demand
• Falling call rates has substantially increased the
subscriber base exponentially

• Call Rates ↓ leads to Subscriber base ↑

Keywords

Elasticity Elastic demand

Elasticity of demand Inelastic demand
Price elasticity of demand Unit elastic demand
Point elasticity of demand Total Revenue
Arc elasticity of demand Marginal Revenue
Income elasticity of demand ARPU
Cross-price elasticity of demand