BSNL AND

VOLATILITY

A Comprehensive study of demand analysis using linear

regression.
Swarnabha Saha

Section F
Group 7

Aniket Kadam 2011392

Antra Verma 2011441
Nitish P Nair 2011412
Patel Dhruvi Subhas 2011414
Swarnabha Saha 2011422
 BSNL, one of Asia’s largest telecommunication firms with a wide variety of telecom services in
India, went from earning profits till 2009 to one of the largest loss-making companies in recent days.[1]
Currently, BSNL is going through rough turbulence and facing significant competition from competitors
like Airtel, Jio & Vodafone Idea. To understand what exactly happened, we need to delve into the
timeline.

BSNL was born in 2000 after highly complex corporatization of the Department of
Telecommunications. With a huge asset base of 50 billion USD and over half a million directly and
indirectly employed staff, BSNL was a pioneer of rural telephony in India.[2] With a mammoth market
share of 55.23% in 2009, it was the first operator to launch 3G services in India with a coverage of 826
cities across the country.[3] Needless to say, BSNL was undoubtedly the mama bear of the woods.
However, with the advent of time as it moved to its elaboration stage as an organization, eventually,
growth became staggered, and finally, a decline was inevitable.

Recent newspaper and online article have been

rightly portraying how things are going abysmally
wrong for BSNL. It has been accumulating losses
exponentially for the last couple of years (Figure 1),
making it more vulnerable to the highly
concentrated market. Issues ranging from poor
service, stiff competition and poor management
have struck BSNL with full magnanimity. We were
highly intrigued by these turns of events and hence
lets analyse it through the lens of regression
analysis and economics.
Figure 1: Figure of Loss [10]

Demand analysis for BSNL using linear

regression revealed that, consumer income,
telephone lines laid by BSNL, and a dummy variable indicating the market entry of Jio shows a positive
correlation with the demand, while Own Price, competitor price, network lines laid by competitors and
smartphone sales have a negative relation.[4]

Prices & Demand

Regression Results for Own Price and Customer Income

  Own Price Customer Income Cross Price

Regression
-0.031 0.118 -0.098
Coefficient

P-value 0.135 0.638 0.0083

Calculated
-0.02 to -0.05 0.02 to 0.03 -0.01 to -0.05
Elasticity

Inference Inelastic Necessity Good Inelastic

Table 1: Regression results for Own price and Customer Income

Calculations of own price and cross-price elasticities revealed their insignificance, i.e., they
appear to be inelastic (Table 2). The Indian Telecom Industry is mostly an oligopolistic market, especially
after the entry of Reliance Jio. Hence the pricing of the products by different competitors is in the same
range. This hints towards a probable collusive pricing behaviour among the market players, validating its
ubiquitous presence while fixing the spectrum price to be auctioned by the Government. It seems like
Game Theory made a guest appearance in our statistical analysis. Further, the pricing changes in this
industry are dynamic & simultaneous, evident from the quick adoption of per-second billing when it was
introduced by Tata Docomo in June 2009.[5] This was evident even in the recent data-driven pricing
revolution set by Reliance Jio. Hence often leaving us incapable of capturing such instantaneous
dynamicity.

Telecom Infrastructure vs Demand

We tried correlating the service aspect of BSNL using some parameters. Since it is challenging to
quantify service, we used the infrastructural capacity enhancement as a measure of service by using the
telecom lines BSNL had laid down over these seven years. The demand for telecom services has paced up
with advancements in technology like IoT, 4G, and 5G and an increase in GDP. This has triggered the
requirement to invest more in the telecommunication sector so that infrastructure can be established in
remotest part of India to cater to this demand. With increasing wireless line penetration in intricate parts
of the country, service providers were able to onboard more and more subscribers on their platform. 

Smartphone sales vs Demand

Telecom Service Provider 4G Launch date in India

Airtel Feb-14

Vodafone Dec-15

Reliance Jio Sep-16

BSNL Mar-20
Table 2: 4G Launch dates of service providers [8]

A fascinating variable of our regression with a negative correlation with BSNL demand were the
smartphones sales in India. As smartphones were introduced to the Indian market, the telecom sector,
which was primarily voice calls driven, shifted gears towards a data driven market and subscribers were
quick to respond to this demand with the launch of 4G. Table 3 here shows launch dates of 4G services in
India by major telecom service providers. The late entry of BSNL has cost it its data-centered smartphone
subscribers (BSNL is India’s 4th least preferred ISP).[6] Further research shows more than 70% of
smartphone users are less than the age of 35 in India, and for this age group, the most desired attribute of
a smartphone is its internet facility, even higher than voice calls.[7] This has caused customers to migrate
from BSNL to other competitors.

Entry of Jio

Finally, our dummy variable, the market entry of Telecom Giant Reliance Jio, contradicting its
name, turned out to be quite a differentiating variable.
 Fig 2: Telecommunication market in India. Left (2015) & Right (2019) [9]

The market comprised of more than 10 service providers in 2015, with a fairly distributed market
share. One fine September of 2016, Jio entered the telecom industry disrupting the whole market by
offering cheap data & free voice calls resulting into many companies shutting down their operations,
while many others resorting to mergers. This led to the formation of an Oligopoly market structure which
is highly concentrated with 4 major players in the market. The 4 firm concentration ratio shifted to 98%
today, from a pre-Jio 70%.

It is clear that BSNL definitely benefited from Jio’s entry as subscribers from smaller players that
couldn’t sustain JIO’s blow were now distributed amongst the top 4 players. This, when backed by our
regression analysis, shows that BSNL’s demand had a direct relationship with the entry of Reliance JIO.
When discussed in terms of Judo Strategy, it sounds like, “Let other competitors wear them down.”
However, the increment in market share came at the cost of increased expenses and reduced revenues,
which, when summed up, paid negative dividends for BSNL.

As we conclude, for a necessity reasonable like telecom service, the oligopoly market structure
has affected the dominant Telecom major of yesterday, to succumb to the dynamic pricing prevailing in
the sector. This, clubbed with low infrastructural spending, late adoption of technology, and of course,
inefficient allocation of resources, coupled with a vicious bureaucratic culture, has led BSNL to its
downfall. Now the question is, will they RESURRECT or PERISH in due course of time?

______________________________________

EXHIBIT
 Regression Analysis – Coefficient and p-values of Variables used

Variable Description Coefficient p-value Source

   
The intercept of the Demand equation 79.396 6.74E-05

PB Price of BSNL (ARPU in Rs) -0.031 0.135 TRAI, CMIE

PA Price of Airtel (ARPU in Rs) -0.098 0.008 TRAI, CMIE

I Consumer Income (in Rs thousands) 0.118 0.638 FRED, THE WORLD BANK

TB Telephone lines of BSNL wireless (in millions) 0.633 1.22E-08 CEIC

TPP Telephone lines of Private players (in millions) -0.215 0.201 CEIC

SS Smartphone Sales (in thousands) -0.231 0.056 Statista

EJ The entry of Jio (Dummy variable) 8.387 0.001926 TRAI

Exibhit 1: Regression Analysis

Exhibit 2: Regression Statistics

References
[1] https://economictimes.indiatimes.com/markets/stocks/earnings/bsnl-recorded-its-first-
loss-since-inception-during-fy10/articleshow/6990071.cms

[2] https://shodhganga.inflibnet.ac.in/bitstream/10603/23870/8/08_chapter3.pdf

[3] https://www.medianama.com/2010/01/223-trais-indian-telecom-report-for-july-sep-
2009/

[4] Exhibit Table 1

[5] https://www.businesstoday.in/magazine/cover-story/biggest-indian-innovation---tata-
docomo/story/205825

[6] https://www.statista.com/statistics/639514/internet-subscribers-by-service-providers-
india/

[7] https://www.statista.com/statistics/1135692/india-smartphone-users-by-age-group/

[8] https://www.thehindubusinessline.com/info-tech/bsnl-looking-to-launch-4g-services-by-
march-1/article30568320.ece

[9] https://www.trai.gov.in/release-publication/reports/telecom-subscriptions-reports

[10] https://www.finnovationz.com/blog/telecom-leader-bsnl-downfall-analysis