Telecommunication Industry The global system of telecommunication touches nearly all of us through complex networks such as telephones, mobile phones and internet-linked PCs. It plays an important role not just in our individual lives but is also a significant contributor to the world economy. In fact, the worldwide revenue for the telecommunication industry was estimated to be $3. 85 trillion in 2008 where the service revenue alone constituted $1. 7 trillion and is expected to touch $2. 7 trillion by 2013.
An expected 11 percent compound annual growth rate at the end of year 2010 for the world telecomm market further demonstrates the importance and potential of this industry.
This project is an attempt to understand the telecomm industry through the means of some key players. The inherent dynamism of this industry and its growing importance have propelled us to take up this topic and we hope to be able to faithfully cover is various facets. We hereby represent a glimpse of the market, players, metrics and strategies that could be explored by us during the course of this project.
Background: Not long ago, this industry was comprised of an elite club of national and regional operators. However with deregulation taking over during the past decade, competition and correspondingly innovation have become the key words. The growth has been in favour of mobile services over the fixed line and internet over voice based communication and though telephone calls continue to be the industry’s biggest revenue generator, high-speed internet access is making its presence felt in a big way.
Players: For the purpose of this project, we intend to look at some of the key players of this industry in the country like Bharti Airtel, Reliance Communications Ltd. , BSNL, Vodafone, Idea Cellular and Tata Docomo. Bharti Airtel is the largest telecom company in India and first mobile phone company in the world to outsource everything except marketing and sales. Reliance Communications, an ADAG group company, is the first company in the country to offer pan-India coverage for both GSM and CDMA services.
Vodafone, the world’s largest mobile telecommunication network company, based on revenue, is now a significant player in India too with the acquisition of Hutch. Idea Cellular, a flagship company of the Aditya Birla group was the first company to launch GPRS/ EDGE while Tata Docomo, the GSM services from TTSL, reinvented the market dynamics with the pay-per-second tariff plans. BSNL, a public sector company, has different considerations than the private players and hence, would also constitute an integral part of our study.
Market: In terms of customers, this industry spans from the residential and small business operators to the major corporate houses to fellow telecomm companies. Each of these segments has its own set of challenges but it is believed that the residential and small business markets are the toughest- With hundreds of players in the market, competitors rely heavily on the cost leadership strategy. The corporate market, on the other hand, is more conscious of quality and reliability and is less price sensitive.
Opportunity for income is also found in providing network connectivity to other telecom companies providing wholesaling circuits to heavy network users like internet service providers and large corporations. In this segment players with far-reaching networks seem to have the greatest advantage. In terms of Porter’s five forces, a brief analysis can be done as follows: 1. Threat of New Entrants: The biggest barrier to entry in this capital-intensive industry is access to finance. To cover high fixed costs, serious contenders typically require a lot of cash. 2. Power of Suppliers.
There are a number of large equipment makers available which dilute bargaining power. However, the limited pool of talented managers and engineers, especially those well versed in the latest technologies, places companies in a weak position. 3. Power of Buyers. With increased choice of telecom products and services, the bargaining power of buyers is rising. This translates into customers seeking low prices from companies that offer reliable service. However, buyer power can vary somewhat between market segments and higher switching costs for larger business customers can reduce their power. . Availability of Substitutes. Products and services from non-traditional telecom industries pose serious substitution threats. Cable TV and satellite operators now compete for buyers and internet telephony, delivered by ISPs and not telecom operators, could take a big bite out of telecom companies’ core voice revenues. 5. Competitive Rivalry. Competition is “cut throat”- competitors must lure customers with lower prices and more exciting services which drives down the profit.
Also, this industry suffers from high exit barriers, mainly due to its specialized equipment which makes liquidation difficult. Key Metrics: Earnings can be a tricky issue when analyzing telecom companies. Many companies have little or no earnings to speak of. Analysts, as a result, are often forced to turn to measures besides price-earnings ratio (P/E) to gauge valuation. Some metrics that can be useful in case of telecomm companies are as follows: EBITDA: EBITDA provides a way for investors to judge the profit performance and operating results of telecom companies which have large capital expenses.
Cash Flow: Cash flow measures how much money is actually flowing through the telecom operator at any given period of time. A telecom company can be recording rising profits year-by-year while its cash flow is ebbing away. Churn Rate: The rate at which customers leave for a competitor. Largely due to fierce competition, the telecom industry suffers the highest customer churn rate of any industry. Average Revenue Per User (ARPU): Used most in the context of a telecom operator’s subscriber base, ARPU sometimes offers a useful measure of growth erformance. ARPU for data services have been slowly increasing. Conclusion: It is hard to avoid the conclusion that size does matter in the telecomm sector. It is an expensive business and contenders need to be large enough besides producing sufficient cash flow to absorb the costs of expanding networks and services that become obsolete seemingly overnight. Transmission systems need to be replaced as frequently as every two years and keeping up with rapid technological change and depreciation can be monumental task, especially for the small operators.
Also, heavy competition in this sector makes survival extremely difficult and players need to adopt innovative strategies to stay afloat- strategies which will be the focus of our attention during the course of this project. References: 1. http://www. economywatch. com/world-industries/telecommunications/world-telecom-industry. html 2. http://www. investopedia. com/features/industryhandbook/telecom. asp 3. http://en. wikipedia. org/wiki/Telecommunication
Cite this Telecom Industry in India
Telecom Industry in India. (2018, May 29). Retrieved from https://graduateway.com/telecom-industry-in-india-essay/