Top 3 Indian Mobile Providers are Going to Take 85% of Small Provider Market Share

Over the next year, Indian mobile operator market share is likely to change significantly, as new price pressure and a shift to mobile data services simultaneously forces operators to make new investments, while shaving gross revenue and profit margins.

“At present 25 percent of the market belongs to the small operators,” said Sunil Bharti Mittal, chairman of Bharti Airtel. He expected at least 85 percent of the market to be divided among the top three telcos by the end of the period.

The issue is “who” those leading operators will be. If Idea Cellular and Vodafone merge, that new entity would emerge as the new market leader, with Bharti Airtel number two, and Reliance Communications likely ranked number three. Beyond that, all eyes are on Reliance Jio, which virtually everyone believes eventually will be a contender at the top of the market.

Source: TRAI

Saying the proposed Reliance Jio Infocomm mobile data rates are “unsustainable,” Airtel has no choice but to respond, a move that will maintain, if not intensify, pricing pressure. As always, that will prove hardest on the smallest providers with the least financial depth.

One important element is that Jio, for example, is able to sustain losses in its mobile business because it throws off so much free cash in its other businesses.

Most market researchers or analysts have a methodology for analyzing the industries and industry segments they follow. Equity analysts always rely heavily on quarterly financial reports. Big consultancies rely on past knowledge gleaned from engagements and executive interviews, as do most  market researchers.

In my own case, history (believe it or not) is a valuable tool. We have seen in the past what happens to fragmented markets when a deep-pocketed firm with brand recognition, and a determination to take short-term losses, does to an established market. Assuming equivalent levels of skill on the part of firm managements, smaller, less well capitalized firms will disappear as the market consolidates.

Price attacks and margin compression, in a scale business, will inevitably drive out those providers with less scale.