Indian telecom space may witness consolidation

The intensifying tariff war among telecommunication players in India is likely to result in consolidation of smaller, regional and startup operators in the telecom space, global research firm Macquarie says.

"This rapid re-basing in pricing by an incumbent (as announced on Monday) will seriously affect and threaten smaller, regional and startup operators, perhaps shortening the period before which industry consolidation inevitably takes place," Macquarie said in its research report.

Anil Ambani led RCom on Monday reduced call rates across the board -- local, roaming and long-distance -- to 50 paise/minute across networks. Earlier in July Tata Docomo had switched to one-paisa-per-second plan for all customers.

Though competitive tariff plans are not new to the Indian wireless market (like cut in Lifetime prepaid fees and gradual decline in the NLD and local voice tariffs), none has been as severe as the one of the three wireless incumbents.

India's tariff plans are among the lowest in the world and competition among mobile operators is set to increase further with operators coming up with price plans to offset those unveiled by their rivals.

In such a scenario, smaller telecom players would be forced to shut shop as they would be unable to keep up with the competitive market forces at play and are likely to eventually sell off their operations to bigger operators, experts believe.

The inevitable competitor responses are likely in a matter of days, in different shape and form, from Bharti Airtel, Vodafone Essar and Idea Cellular, Macquarie said adding that "as a dynamic game of price positioning plays out over at least the next two to three quarters. We cut earnings and target prices across the board..."

"Unlike in the past, when big industry players (for example Bharti and Vodafone) chose to ignore promotional tariff plans by new entrants in a circle, this time they would be forced to retaliate thereby hurting ARPU earned from the existing subscriber base," Macquarie said.

A fall in average revenue per user earned from the existing subscriber base is likely to result in average realisation per minute per subscriber, and thus affecting profitability.

"We believe that the severe tariff cuts that are likely to follow in days to come would create risk for the economic viability of the operations of greenfield players. As a result, bottom-line growth of operator-owned tower companies in the medium to long term is questionable," Macquarie said.