Perils of Hyper Competition

I tend to recall the deliberations through various case studies which played instrumental roles at the management school. Many a times in the marketing sessions there are debates around the topics of healthy competition vs unhealthy competition.

The healthy competition revolves around the products, prices and market places. And this is the right one for the consistent business growth trajectory of the organisations. On the contrary the unhealthy competition considers only price as the parameter to get a foothold in the market place. Eventually this is also often termed as equivalent to buying the market share, as the organisations pay the price by compromising on the profitability.

Around 1995, the Indian mobile communications industry was opened for private participation. Besides one govt.fixed line operator, there were two private mobile operators serving the each metropolitan city markets.

Few years down the line, the circles (states) mobile  communications markets were opened for private participation. Again besides one govt. fixed line operator, there were  two private mobile operators serving each circle (state) markets.

Although the mobile communications tariffs were substantially high as compared to the govt. owned fixed line tariffs, the mobile subscribers base were slowly but steadily increasing. The mobile call rates were high and both outgoing & incoming calls were payable. The industry was operating within the framework of healthy competition.

By this time the market potential of mobile communications had been very well understood by the industry. Also it has been associated with its capital intensive nature making it feasible only for those with deep pockets to venture in this area.

Around 2001, each market i.e. metropolitan cities as well as circles (states) had four mobile operators (one govt & three private operators). Now the competition started building up, as there were now four operators per market which made subscribers acquisitions challenging.

The operators realised that there exists a big untapped market of potential subscribers who till now do not have access to even a single telephone connection (due to non availability of fixed line infrastructure). However, these potential subscribers also may not opt for expensive mobile communications connection due to their low paying capacities.

Due to this typical market condition the mobile operators started lowering of tariffs to grab the large untapped subscribers base. Hereby the era of tariff competition started in the Indian mobile communications industry specially by the new entrants who didn’t want to loose the opportunity to the incumbent operators. The famous ‘Monsoon Hungama’ scheme from one of the new entrant operator (from one of the leading business house) had been unique in its offerings.

Around 2008, more number of operators were added in the already competitive market place. Again the new entrants faced the challenge of garnering the new subscribers. The famous ‘one paisa per second’ tariff plan from one of the new entrant (from another leading business house) completely changed the market dynamics. The incumbent as well as all other operators were left with no other option but to change to new tariff playground from the traditional ‘per minute’ tariff. At this time this was termed as the most innovative tariff plan till date.

The two cases of tariff competition mentioned above were unique in their propositions and did significantly intensified the competition on the mobile communications operators side. At the same time they also fuelled the enormous subscribers growth across the various markets of India.

The subscribers became the king and more sops were in the offing over the years to come. On the revenue side, since tariff competition had become the only way of subscribers acquisition, there was no going back to healthy tariff levels despite moving to the higher technology levels 3G, 4G etc. It is pertinent to note that for serving large subscribers base the operators also invested heavily in the active & passive infrastructure, radio frequency spectrum, manpower etc. This led to increasing operators’ debt levels as well and significantly impacted the profitability. Needless to mention the ripples impacted the business performance of the vendors as well as associated outsourcing service providers.

 

 

 

 

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