Telecom Industry In India-transition From Monopoly To Oligopoly 1h2i6

TELECOM INDUSTRY IN INDIA : TRANSITION FROM MONOPOLY TO OLIGOPOLY

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Table of Content Evolution the Beginning……………………………………………………………………………………………………1 Indian market size…………………………………………………………………………………………………………….2 Monopoly………………………………………………………………………………………………………………………..6 Oligopoly…………………………………………………………………………………………………………………………8 Indian Telecom Scenario…………………………………………………………………………………………………10 Bibliography……………………………………………………………………………………………………………………12

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Evolution: The Beginning The Indian telecom industry is more than 165 years old. Tele-communications was introduced in India in the year 1851 when the first operatable land lines was laid by the government near Kolkata. Further, in 1883, telephone services were brought together with the postal system. In 1947, after India attained independence, all international tele-communication companies were nationalized to form the Posts, Telephone and Telegraph (PTT), which was istered by the Ministry of Communication. The telecom industry was entirely under government ownership until 1984. The government set up R&D an autonomous body – Centre for Development of Telematics (C-DOT) in 1984 to build state-of-the-art telecommunication technology to meet the increasing needs of the Indian telecommunication network. The actual evolution of the industry started in 1985 by setting up seperately the Department of Posts and the Department of Telecommunications (DoT). The evolution of the telecom industry can be classified into three distinct phases. Phase I :

Pre-Libralisation Era i.e 1980-89

Phase II:

Post Libralisation Era i.e 1990-99

Phase III:

Post 2000

Until the late 90s the Indian Government held a monopoly on all types of communications –due to the Telegraph Act of 1885, until the industry was liberalized in the early 90’s. It was a government controlled market, Government policies have played a role in structuring the Telecom industry in India. As a result of which the Indian telecom market became of the most liberalized market in the world with private company involvement in almost all of its segment. The New Telecom Policy (NTP-99) provided the much needed push to the growth of this industry and set the inclination for liberalization in the industry.

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India is presently the world’s second largest telecommunications industry and has recorded strong progress in the past decade and half. The Indian mobile economy is mounting quickly and is likely to donate significantly to India’s Gross Domestic Product (GDP). The liberal rules of the Government of India have been helpful along with robust consumer demand in the quick growth in the Indian telecom industry. The government has allowed easy market access to telecom equipment and a rational and practical regulatory outline that has ensured accessibility of telecom services to consumer at cheap prices. The de-regulation of Foreign Direct Investment (FDI) standards has made the industry one of the fastest growing and a top five employment opportunity maker in the country.

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Indian Market Size The Indian tele-communication industry growing 10.3 % per year to reach $ 103.9 billion by 2020. It is motivated by the strong acceptance of data consumption on mobile devices, the total mobile market revenue in India is likely to touch $ 37 billion by 2017. Smartphone subscription in India is anticipated to increase four-fold to 810 million s by 2021, while the total smartphone traffic is expected to grow 15-times to 4.5 exa-bytes (EB) per month by 2021.

India is the second largest mobile subscriber base in the world. As said by Telecom Regulatory Authority of India (TRAI), the entire telecom subscriber base in December 2015 stood at 1.04 bn, out of which 1.01 bn were mobile subscribers and 25.52 mn were wireline subscribers. According to a study by GSM Association (GSMA), smartphones are expected to be the reason behind 2 out of every 3 mobile connections worldwide by 2020, making India the 4th largest smartphone industry. Total number of 4G enabled smartphone shipments in India stood at 13.9 mn units in the quarter ending December 2015, which was greater than 50 % of total shipments, thereby suring number of 3G enabled smartphone shipments for the first time.

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According to GSMA the broadband services base in India is likely to grow to 250 mn connections by 2017. International Data Corporation (IDC) forecasts India to overtake US as the second largest smartphone industry globally by 2017 and to sustain a high growth rate over the next few years as people switch to smartphones and eventually 4G. Regardless of only 5 % increase in mobile connections in 2015, total expenditure on mobile services in India is likely to increase to $ 21.4 billion in 2015, led by 15 % growth in data service expenses. According to estimates by Randstad India the Indian telecom industry is expected to generate 4mn direct and indirect jobs over the next 5 years. The employment chances are expected to be created due to collaboration of government’s efforts to increase penetration in rural areas and the rapid growth in smartphone sales and growing internet usage.

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Investment With day-to-day increase in subscriber base, there have been a lot of investments and expansions in the industry. The industry has attracted FDI worth $ 18.38 bn during the period April 2000 to March 2016, in relation to the data released by Department of Industrial Policy and Promotion (DIPP). Many foreign companies like Xiomi wants to come into collaboration to increase their market in India.

International Comparisons The overall number of telephone subscriptions in the world including both fixed line and cellular industry grew at a Compound Annual Growth Rate (CAGR) of 17.43 % over the period 2000 and 2010.13 A total of more than $ 3,670 bn (6 % of the world’s GDP) was spent on telecommunication services by governments across the world in 2008. India’s expenditure on telecommunication services in 2008 was $ 52 billion. This was 4.3 % of the country’s total GDP. Government’s expenditure on tele-communications in India increased at the rate of 14 % during 2005–08.

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MONOPOLY: A firm is said to enjoy monopoly when, there is a single seller in the market, who sells particular product and has no close substitutes. The main reason behind the monopoly is barriers to entry into the market. Barriers to entry involves major three sources, they are: Monopoly resource: The main ingredient or resource for production in held only by a single firm. Government regulations: The government may provide licenses or exclusive right, only to a single firm to produce goods or services. The production process: A single firm can produce or manufacture product at lower cost than large number of producers.

MONOPOLY RESOURCES: The easiest way to make sure monopoly is established is by owning a key resource .ex: market for water in the small town. If 10 people, who are residents of town have access to working wells, due to increased competition in here price per gallon of water is being increased to marginal cost of pumping an extra gallon of water. But, if there was only one well in the town and people has less or no access to the water then, the owner of the well would enjoy monopoly on water. It is obvious that monopolist have greater market power than the market leader in the competitive market. Though the monopoly arises due to possession of the key resources, but there are less probability of it arising only due to that one factor (key resource).the reason may be: Economies are large, resource now are being owned by many people .because majority of the goods are traded globally, the scope of the market have become wider. Therefore we can find very few firms which possess key resource, and has turned into monopoly

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GOVERNMENT CREATED MONOPOLIES: It arise because the government has given only single person or the firm, permission, to sell or produce in the market. Sometimes monopoly also arises of sheer political clout of would be monopolist. Kings, for instances once had granted licenses to their friends and allies. Now the government permits monopoly keeping in view of the public interest. Patents and copyrights are two major examples that is when the pharmaceutical drug manufacturer discovers a new drug, it can get itself patented to ensure that, their product is not copied in the future. When an author writes a book he /she can get it copyrighted. These laws give producer a monopoly in the market.

Natural monopolies: It is that monopoly that arises due to single firms’ ability to produce goods or services to the entire market at smaller costs than that of the other firms. An example of natural monopoly would be the distribution of water to residents of town, a firm must build a network of pipes across the town. If two are more firms were to compete to provide these service, each firm will have to some amount of fixed cost on the building up of network, thus average total cost will be lower if the firm serves the entire market.

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OLIGOPLOY: An oligopolistic market is where only few seller offer similar or identical products, one of the key feature of oligopolistic market is tension between the cooperation and self-interest. In oligopoly as there are only few firms, each firm must take decision in a rational way, firms must first know that profit depends upon the selling price of the competitors. Hence while taking up any decision, the firm must also look into what effects it might have on the other firms in the market in both short and the long run.

Few key features of oligopoly: Only few sellers are present in the market, i.e. less competitors. There are possibility of few firms selling identical product ,whereas few may sell only differentiated products There is no strong economic barriers for the firms to enter the market, but somewhat difficult to enter. Non price competition is seen in the oligopoly, the competitors will be usually try to prohibit the price war.

Classification of oligopoly: Duopoly: It is a condition where in two companies holds almost all the product or service in the market. Ex; PepsiCo and coco-cola enjoy duopoly in the soft drink market

Pure oligopoly: Pure Oligopoly is where, the firms are manufacturing homogenous product. All the products in the market can act as a substitute perfectly, hence so, called as perfect oligopoly. EX: Vegetables or fruits that are only bring soled by few firms, here there is very less or no chance of product differentiation.

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Differential oligopoly: It is where the similar products, who are manufactured by few manufacturer in the industry, each manufacturer here try to make itself unique from each other by adding up new feature to that particular product, the main objective is to charge extra price than that of competitors. Ex: Automobiles, cigarettes detergents. Factors leading to oligopoly: Any firm, which wants to operate under oligopoly need to invest heavy amount, which in turn acts as a natural barrier for the entry of the firms. Having the hold over the raw material, patent secured by various firms, customers brand loyalty, Mergers and acquisition etc…may also act as a key factor.

Various Models of oligopoly: Cournot’s duopoly model: Here only two manufacturers or sellers are present. It also said that the both players face the negative slope.

Sweezy kinked model: Here for instance if a firm increases its price, where the other players in the market will not follow, and due to its effect the firm loses its business. Whereas if the firm lowers its price the competitors lowers the price and thus gains business.

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Indian scenario - Telecommunication: According to the research by Boneless group in 2012 the market share in telecome industry is as follows: 

Bharti AIRTEL – 24.4%

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Vodafone India – 19.5%

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Reliance – 14.9%

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Idea – 15.3%

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BSNL – 8.2%

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Others – 17.7%

From the above distribution we can conclude that Indian telecom industry is a perfect example of Oligopoly structure. Same is substantiated in following paragraphs. 

Few sellers: We know that in an oligopoly market there will be few sellers with considerable market share. Any new entrant will face huge competition form the existing players. This can be seen in Indian telecom industry.

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Interdependence: In Indian telecom industry firms have constituted an association called Cellular Operators Association of India (COAI) which helps in protecting the common interest of the firms.

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Entry barriers: In Indian telecom industry main barriers for any new entrant would be 

Approval from TRAI

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High start-up cost

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High licence fee

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Patents and copy rights

Eg: Reliance Jio is facing tough competition from existing players. 

Homogeneous products: In case of telecom industry as all company are catering to the same demand all company offers same product which is Homogeneous in nature. It can be seen that players like Airtel, Vodafone offers same products.

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No-price competition: As already discussed, in Oligopoly market competition among players is not restricted to only price but there lies non-price competition also as follows: 1. Network coverage 2. Branding 3. Celebrity endorsement 4. Customer satisfaction etc – It can be seen in case of Airtel and Vodafone there lies heavy non-price competition like for celebrity endorsement and customer satisfaction level.

It can be concluded that current Indian telecom industry is definitely oligopoly in nature. We could see clear transition from Monopoly by Govt run BSNL to Oligopoly which has 4-5 major players.

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Bibliography https://www.ukessays.com/essays/economics/mobile-telecom-industry-in-india-economicsessay.php http://www.ibef.org/industry/telecommunications.aspx https://www.dnb.co.in/IndianTelecomIndustry/OverviewTI.asp Principles of Micro economics - Mawkin

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