Friday, March 11, 2016

Indian Mobile Operator Data Revenue Growth Forecast Gets Lowered

Analysts at Morgan Stanley have dropped estimates of Indian mobile market revenue for 2016 through 2018 by three percent, as the analysts expect competition and profit margin pressure to escalate as Reliance Jio enters the mobile market, and focuses on mobile data pricing and services.

Between 2015 and 2020, mobile industry revenue will grow at a seven percent compound annual growth rate, down from the eight percent previously forecast.

The report by Morgan Stanley said despite double-digit data volume growth, data revenues are now growing in the higher single-digits.

Price competition is a virtually-certain development in any market where big new firms get into the market for the first time, where the technology underpinning the market fundamentally changes, or where deregulation of a former monopoly market happens.

Margin pressure also is characteristic of mature markets as well, when new customers and accounts can only be gotten by taking them from another supplier.

Price competition occurs because it offers a simple value proposition consumers understand: “same product, same features, lower price.”

Some other characteristics often are seen, as well. Established industry ecosystems are disrupted, most often as new suppliers, with better products, better matched to the new value chains, displace legacy suppliers.

Note only what has happened to the legacy telco supplier base over the last several decades. Who are the leading suppliers? What are the lead products? What business problems do the technologies solve? How are those problems different from the legacy “problems.”

Also, industry boundaries also become porous. Market leaders find “companies from outside our industry” have entered, and often become major competitors. Those firms often offer consumers different products that satisfy older needs in a new way.

Three Decades of Telecom Disruption
From 1980
To 2015
Natural monopoly
High margin
Moderate to low margin
Low to moderate adoption
High adoption
Low innovation
High innovation
Stable markets
Unstable markets
Compete on quality
Compete on price
Fixed network dominates
Mobile network dominates
Tightly integrated apps and network
Open network
Voice business model
Internet access, mobile business model
Similar business models globally
Growing diversity of business models
99.999% uptime
99.9% or “good enough” availability
Few lead apps
Many lead apps

The point is that lower profit margins, expected in the wake of Reliance Jio’s market entry, are entirely within the realm of market impact we see in newly-competitive markets.

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