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April 24, 2017

For telcos, market leadership is worth bleeding for

The price war for data subscribers has dented the bottom lines of wireless telecom service providers, yet none of them is likely to pull a punch. 

If anything, competition will only heat up further given that market leadership is all-crucial to the business. It offers many advantages once the dust settles, as is borne out by profitability trends across the world. The leader typically commands a premium with higher average revenue per user (ARPU), a larger share of premium subscribers, and relatively lower churn. 

The proposed merger between Idea and Vodafone – which marks the biggest consolidation in the Indian telecom sector – is also part of this quest to strengthen market position, if not leadership, alongside lowering investment needs and costs. 

Given this, CRISIL Research believes the price war in the Rs 1.5 lakh crore wireless telecom market will continue in this fiscal, too, leaving bruised bottom lines. The predicament is interesting given that till late 2015, telcos were not very gung-ho on launching 4G data services. Since then, however, they have aggressively invested in backhaul infrastructure and additional airwaves. And since the middle of 2016, slashing prices to protect turf given the debut of Reliance Jio (RJio)