Buyer Power

PORTERS FIVE FORCES ANALYSIS FOR THE TELECOM INDUSTRY IN INDIAPrepared ByAkash AgamyaGreat Lakes Institute of Management

IntroductionIndia has a total of 960.9 Million telecom subscribers, comprising of 929.37 mobile subscribers & 31.53 wire-line subscribers.The Indian teledensity now stands at 79.28%.

Rank in world in network size3rdTeledensity (per hundred populations)79.28Telephone connections (In Million)Fixed929.37Mobile31.53Total960.92IntroductionIntroductionWith the connections now growing at a faster pace in rural areas as compared to urban the rural teledensity will grow from the current value of 40% to 50%.

Porters Five Forces

Competitors Analysis - HighConcentration Market Share and StructureFinancial Analysis Past, Present, FutureGlobal Presence and Marketing NetworkFuture ProspectsOverall Analysis

6Competitors AnalysisConcentration Market ShareMore than 15 players in the market.Airtel, Vodafone, Idea and RCOM itself captures more than 75%

7Competitors AnalysisMarket Structure (2012)Average revenue per user for big players is around Rs. 110 Rs. 120Reliance has lesser ARPU because major of its subscribers are low end customers

Revenue Market shareConsumer Market shareARPUAIRTEL29.1%19.8%114.2Reliance8.2 %16.7%45.2IDEA15%12.3%114.9

8Competitors AnalysisTelecom operatorRevenue Growth AnalysisAIRTELIncreased mobility revenue(9% CAGR) due to increasing traffic(7.9% CAGR) at stable ARPM; Bhartis revenue will also be helped by African revenues expected to grow at 30.9% CAGRRCOMRCOM, which has been struggling with the KPIs and subscriber quality, is expected to grow at4.5% CAGR over FY11 to FY14E driven by a 5.9% CAGR in traffic to 445.4 billion minutes and a stable ARPM of ~ 45 paisa.IDEAIncreased mobility revenue(18.5% CAGR) due to increasing traffic(17.7% CAGR) at stable ARPM

Concentration Market Share and StructureCompetitors Analysis

OPERATOREBITDA margin analysisAIRTELFor Bharti Airtel, African operations are expected to see a significant margin expansion from 25.0% to 30.9% due to various cost saving initiatives like BPO, IT and network management outsourcing, passiveinfrastructure sharing, etc. undertaken by the companyRELIANCEEBITDA margin for Reliance Communication to improve to 31.9% in FY14 from 29.5% in FY11 on account of reduced network rollout costs.IDEAFor Idea Cellular, EBITDA margins are expected to improve to 24.1% inFY14 from 27.7% in FY11, primarily on the back of higher networkutilization. Financials Past, Present, FutureCompetitors AnalysisGlobal Presence and Marketing NetworkExisting telecom companies are coming up with continuous growth strategy due to high competition.

AIRTELMobile and fixed wireless services (GSM) 23 telecom circlesRCOMReliance Communications has IP-enabled connectivity infrastructure comprising over 150,000 kilometers of fiber optic cable systems in India, the US, Europe, Middle East, and the Asia Pacific regionIDEAHas a customer base of over 17 million, IDEA Cellular has operations in Delhi, Maharashtra,Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttaranchal, Haryana, UP West,Himachal Pradesh and Kerala.11Competitors AnalysisFuture Prospects

AIRTELAirtel plans to set up 3000 more towers to enhance theirrural coverage and will now focus on rural andsemi-urban areasRCOMPeak investment phase is over. RCOM continues to be free cash flow positive and this trend to continue in succeeding years. RCOM not only reliant on wireless business and also vying the massive opportunity with DTH and expansion of Enterprise/IDCIDEAIdea also plans to enter rural and neglected circles as a strategy to gain subscribers. It also plans for smaller base transmission stations that will mean lesser infrastructure requirements and expenses and independent tower operation. Along with its plan to go for a national long distance license, it will also look at international long distance in the near future.12Competitors AnalysisOverall AnalysisTelecom sector is one of the fastest growing sectors. This is due to strong competition that has brought down tariffs and simplification of policy environment that has promoted healthy competition amongst various playersThe government has eased the rules regarding inter circle and intra circle mergers. This has led to a slew of mergers and acquisitions in the recent pastAs the sector is moving closer to maturity, further consolidation is a reality and this will lead to the survival of more profitable players in this segmentInfrastructure equipment cost is down to a fraction of what prevailed just a few years ago operators can plan better expansion plan nowIncreased viability for the operators to expand to semi-urban and rural markets. Hence, competition in this market would increase.

13Buyer Power HighBuyers Price Sensitivity (High)Cost of product relative to total cost (High)Product differentiation (High)Competition between buyers (?)Relative Bargaining Power(High)Size and concentration of buyers relative to products (high)Buyers switching cost (low)Buyers information (High)Buyers ability to backward integrate (low)Buyers in Telecom industry generally land in two categories: Individual and Enterprise Customers like IT companies, Banks etc. There are ample number of telecom providers in the market with big product variance and cheaper prices which gives buyer many options to select operators and thus have a large bargaining leverage. Buyer Power AnalysisCost of product relative to total costTelecom products e.g. Voice calls, 3g etc cost 100% of the total cost of service and buyers are more sensible to pricing.

Product differentiationAirtel, Relience,Idea and all other companies have similar prices for similar products and less likely for any one to maintain product differentiation and hence buyers have the option to switch over.

[Ref: http://im.tech2.in.com/gallery/2012/may/3gplans_311641209465.jpg]

Buyer Power AnalysisCompetition between buyerThe individual buyers dont have any competition among themselves but enterprise customers like IT or banks do have. Enterprise customers generate major part of the revenues for any telecom companies like Relience, Airtel or Idea which means higher buyer power. But this is not significant for the newbie or the one who deals with individual customers

Size and concentration of buyers relative to products960.9 Million of individual telecom subscribers as on May, 2012. Big size and low concentration of consumption per individual gives lower leverage to buyer power.Enterprise customers Big size and big concentration of consumption accrues high buyer powerTogether we can say its moderate buyer power in terms of size and concentration.Buyer Power AnalysisBuyers switching costLow switching cost. Low new connection cost. With MNP, switching has become more easier. TRAI expected that the subscriber has to pay not more than Rs. 200. Some of the operators have estimated the charges can be as low as Rs. 20.Mobile Number Portability requests increased from 50.16 million subscribers at the end of May 2012 to 54.33 million at the end of June 2012. 4.16 million requests for the month of June itselfMeaning Low switching cost and high buyer power.Buyers informationBuyers information regarding the availability of other options has become highIncreased social networking, high advertisements through TV, hoardings, banners and word of mouth, buyers are well informed about the substitute products with better offerings urban as well as rural areas.Means high buyer power17Buyer Power AnalysisBuyers ability to backward integrate Not much intermediaries between the producer and the consumers. High Investment required for backward integration.Less likely to have backward integration and hence low buyer power

18Suppliers Power - LowPrice Sensitivity (Low)Cost of product relative to total cost (Low)Product differentiation (Low)Competition between suppliers(High)Bargaining Power(Low)Size and concentration of suppliers relative to products (Low)Buyers switching cost (Low)Buyers information (High)Suppliers ability to forward integrate (Low)19Suppliers Power AnalysisSuppliers for the Telecom Operators

The suppliers bargaining power has increased influence on the profitability of the company. Increase in the bargaining power of the supplier will lead to a decrease in profits or increase in the price of the end product(Buyer).

There is a price war happening between the different mobile operators, so even the suppliers are chosen carefully so that they do not drag down the profitability of the company .So the suppliers have less bargaining power in this industry.

Mobile Tower CompaniesSIM cardsMobile phone handsets20Suppliers Power AnalysisMobile Tower companies in India

There are two types of tower companies in IndiaTelecos owned tower companiesIndependently telecom tower companies (ITTC)21Suppliers Power AnalysisList of Mobile Operator and their Tower Services.

Less Bargaining power because of more number of suppliersLittle or no forward IntegrationOperatorTower ServiceBhartiBIL/ITLRelianceRITLVodafoneITLBSNLMTNL, BSNL and OthersIdeaITLTataViom22Suppliers Power AnalysisSim Card Manufacturers

Sim card for the mobile operators are mostly produced in India and some are imported.The mobile operators doesnt always procure the sim card from a single supplier to avoid any delays.The Bargaining power of suppliers is lessThere is little or no threat of forward integration .23Suppliers Power AnalysisMobile Phone handsetsTwo types of mobile phones are genereally used. (CDMA & GSM).The leading CDMA phone manufacturers are Samsung, Blackberry, ZTE, Motorola , Spice e.t.cTop 4 leading Mobile phone manufacturer(GSM & CDMA) in India (2011-12)

Bargaining power of suppliers are less.Little or no threat of Forward integration.CompanyShareNokia39%Samsung17.2%Micromax6.9%Black Berry5.9%24Threat of Substitutes - ModerateBuyer Propensity To SubstituteRelative PricesPerformance Of Substitute

25Threat of SubstitutesBuyer Propensity to SubstituteInternet subscriber base increasing in India by 18.06% , compared to 10.60% for GSM/CDMA services.Representations from the industry and from within the DoT to open up Net telephony.If allowed, this will open up Indias domestic voice market to all operators which have an unified access services license such as Reliance Infotel and Aircel to offer voice services along with data to its consumers.Dot also contemplating allowing operators without a unified access license, which includes broadband and Internet companies such as Google and Skype to offer telephony services for international calling and PC-to-PC domestic calls.

26Threat of SubstitutesRelative Prices Internet Telephony eating into the revenue of GSM/CDMA telephony.Flat/ fixed rate revenues from internet services - cannibalization of revenues from GSM/CDMA services.

Performance of SubstituteVoice quality is an issue with internet telephony.Internet voice services also currently limited due to regulatory road blocks.

27Threat Of Entry - LowThreat of entryAccess to optical fibre networkDeclining ARPUGovernment and legal barriersRetaliation by established producers

28Threat Of EntryCapital RequirementsThe cost of active equipment is estimated to be 40 percent of the telecom operator's total capex, while the balance is accounted for by passive infrastructure.Bharti has invested close to Rs. 230 billion to create the cellular infrastructure with 45,000 towers across the country. Typically, a ground based tower costs Rs. 25-30 lakh. A roof-based tower can be built for Rs.13-14 lakh.Cost of maintaining one tower (active + passive) is estimated at Rs. 60,000-65,000 per month.If tower is rented then monthly rent of Rs. 40,000-45,000 for active network. The monthly outflow of a TSP would be close to Rs. 80,000-85,000 per tower per month. However, the recent announcement made by BSNL about leasing its towers will help both the older and newer players to penetrate into new markets.This factor makes the telecom industry moderately attractive for the new players and investors

29Threat Of EntryDeclining ARPUThe market is maturing and new classes of consumers are mostly rural and their ARPU is well below $5 (probably $3-3.5). So, managing bottom-lines at such low levels of revenue per user will prove to be a challenge for new entrant

Access To Optical Fibre Network

The largest optical fibre has been built by the incumbent operator BSNL who is also the long distance operator.The private sector players such as Bharti and Reliance have also constructed optical fibre cable network connecting mainly cities and towns but their presence is very limited in the rural areas and difficult terrains.It is fairly difficult and cost- ineffective for new entrants to lay down optical fibre connecting remote places as well.

30Threat Of EntryRetaliation By Established PlayersAlso known as Incumbent Wrath signifies the leverage the players in the market commands. The incumbents grow because of an established network presence, a brand that consumers are aware of and sheer economies of scale.Mobile termination charge which one operator pays to the other when the customer of the former uses the roaming charges of the latter. This is 30 paise a minute charge as of today. This is charged to the consumer as the cost of roaming. With an all India footprint (or 80% coverage), the incumbents effectively do not have to pay termination charges.The incumbents have either been pocketing the termination charges or passing them to consumers no roaming charge kind of schemes. This factor makes the industry unattractive for the new entrants and investors. The existing Telecom players might begin to bundle broadband, voice, wireless, video and other emerging technologies together, as well as a variety of value added content, in an effort to remain competitive, offer seamless services and attract more customers, at a cheaper price (incumbent wrath)

31Threat Of EntryGovernment And Legal Barriers

Private operators will have to enter into an arrangement with fixed-service providers within a circle for traffic between long-distance and short-distance charging centres.Seven years time frame set for rollout of network, spread over four phases. Any shortfall in network coverage would result in encashment and forfeiture of bank guarantee of that phase.Private operators to pay one-time entry fee of Rs.25 million plus a Financial Bank Guarantee (FBG) of Rs.200 million. The revenue sharing agreement would be to the extent of 6%. Private operators allowed to set up landing facilities that access submarine cables and use excess bandwidth available.No industrial license required for setting up manufacturing units for telecom equipment.100% Foreign Direct Investment (FDI) is allowed through automatic route for manufacturing of telecom equipments.Moderate threat entry based on Government Policies.

32Final Verdict -

33Consolidated ElectivesFINANCE ELECTIVES

S.NoCreditCoursesFacultyRemarksTerm 4 13Corporate Finance IIProf. Sanjoy SircarCORE ELECTIVEbasic course - should definitely take it - for minimal amount of finance knowledge for every manager - no idea about teacher23Options, Futures & DerivativesProf.B . Venkateshbasic course - should definitely take it - no idea about teacher33Mangement of Commercial BanksProf. P B Ramanujam no idea - this subject was not there in their time43Fixed Income SecuritiesDr. Surendra Sundararajan no idea - this subject was not there in their time53Money & BankingDr. S.K.Shanthino idea - this subject was not there in their timeTerm 5 (15th Nov to 9th Jan)13Strategic Cost and Profitability ManagementDr. Bala V Balachandran/Prof. HariharanCORE ELECTIVEHariharan good but uncle bala bad - subject worth taking23FSAV I (Financial Statement Analysis and Valuation) Dr Siva NathanCORE ELECTIVEYES -- good subject -- must take subject for MINIMAL amount of finance for a manager -- for marketing majors and basic idea about Finance33Mergers and AcquisitionDr. Narendar RaoNO - Don't take - subject was OK OK , but teacher will make you sleep43International FinanceProf. K.Prameswaransubject OK OK - Not so good teacher53Strategic Financial ManagementProf. Sanjoy SircarCorporate Finance II is a Prerequisite subject good - no idea about teacher61.5Experimantal EconomicsDr. Shyam Sundarteacher not so good - no idea about subject71.5Equity Valuation workshopProf. Raghu Iyerno idea about this at allTerm 6 (10th Jan to 27th Feb)1Investment BankingProf. P B Ramanujam basic course -- good feedback in their batch23FSAV II (Financial Statement Analysis and Valuation)Prof. Shiva SivaramakrishnanMARKETING major Finance minor -- SHOULD TAKE this 3Project & Infrastructure FinancingVFnot enough people taking it - if u wanna shift to CORPORATE FINANCE43InsuranceVFBASIC COURSE53Global Financial StrategyDr. Krishnan Dandapani / VFTo be confirmedvery good course - very good professor - good case studies - must take for FINANCE majors63Ventiure capital & Private EquityPorf. Madhusudanannot in their batch- niche area - specialised subject73EconometricsVFnot in their batch - probably quantitative finance81.5International Accounting StandardsPWC / EYnot suggested - just for building networks with these companies managers93Forensic AccountingProf Ram SriramTo be confirmedABSOLUTE NO NOTerm 7 13Equity ResearchVFniche area23Wealth mangementVFno idea about this at all33Financial ModellingProf. Raghu Iyerpartly tied to Equity Research43Contemprory Industries Finance - Cinema &EntertainmentVF / Industry SpecialistCross Functional with Strategy AreaHOSPITALITY related maybe -- not much idea about this subject53Financial EngineeringVFStats Prerequisiteif Prof Raghu -- only thenMARKETING ELECTIVESS.NoCreditsCourse NameFacultyRemarksTerm 4 13Sales and Distribution ManagementProf. V.K.MurthyCore Electivetake it - wonderful prof - very strongly recommended - case on IBM salesman = best case ever - have to do that case for sure23Brand Management Prof.T.N.SwaminathanCore Electivethey were not really interested in TNS way of teaching - santosh desai was in there time - we can get him as WORKSHOP - he was wonderful teacher for brand management33Services ManagementProf. Ranjan Banerjeedon't know prof. - creating services blueprint - like blueprint in HOSPITALITY - recommended43Business Analytics Ms. Purba RaoSTRONGLY RECOMMENDED - prof very good and knowledgebale - but very boring prof - mandataory for ZS consulting - FOR QUANT ASPECT of marketing - non GAS part of marketing53Integrated Marketing Communication Jayraj Rau/ JWTno idea - they had it as a workshopTerm 5 (15th Nov to 9th Jan)13Strategic Marketing Prof. Nirmal GuptaCore Electivemust have subject for everybody - prof is excellent - 3 years best prof in ISB 21.5Consumer Focussed Product Marketng Dr.Seenu Srinivasanprof is like BALA - everything goes above head - conjoint analysis - good for non GAS marketing / quant aspect of marketing33Consumer BehaviourProf. S. Bharadwajprof was very boring and he makes u sleep - but course material is very good for quant aspect of marketing - for wizkid of marketing must take course43International Marketing Prof. Siva Blasubramanianprof was not very impressive - no idea bout subject53Business 2 Business MarketingProf.T.N.Swaminathangood for B2B marketing - for IT marketing63New Product Development Prof.Sridhar Ramaswamyprof is very good - good subject - need to have interest in this subject - quant aspect of marketing - how will you launch a new product and how will u do research for it - like how shape / colour are imp for new product launchTerm 6 (10th Jan to 27th Feb)13Customer Relationship Management Dr.Tapan K Pandanot great feedback for prof. - subject not as imp as other marketing subjects - good for CRM consultant in IT companies21.5Consumer Focussed Product Marketing Dr.Seenu Srinivasanalready in term 533Strategic Outsourcing Prof.Easwarthey didn't have this subject - bad prof. - bad feedback for prof.43Retailing Management Visting Faculty for Retail consulting in IT industry - only if prof = Sanjay BAHADUR Term 713Markstrat SimulationProf.Eashwarprof bad feedback - not much to learn in subject23Technology Marketing Prof.Arjun ChakrabaorthyVERY IMPORTANT if u wanna get back to IT - very very RECOMMENDED subject - excellent prof33Rural Marketing Prof. Tapan Pandaonly if u have rural marketing interest - don't really bother about it coz companies don't event know about this subject - so FORGET it43Social Media MarketingVisting Faculty not really very important - but a good subject - everybody can easily do it themselves - but nice to have in resume - but in their time faculty was not very impressive

Strategy /Leadership electivesS.NoCreditsCourse NameFacultyTerm 4 (29th Sep to 14th Nov)13NegotiationProf. R.S.VeeravalliCoreall can take this subject - Prof not so good23Compensation Management & Reward ProcessProf. Rajesh Kumarvery good subject - in their time Prof Zubin Mullah was very good33Leadership, Influence and PowerDr. Venkat R. KrishnanProf very demanding , he will make u work very hard - subject very good for real world handling of politics at workplace43Employer Branding Prof. Noel Machadothey didn't have the subject - no idea about the subject53Neuro-linguistic programmingProf. P T Josephthey didn't have the subject - no idea about the subject63Strategic Sourcing & Corporate QualityProf. Rajamanickam not much idea bout the subjectTerm 5 (15th Nov to 9th Jan)13International EntrepreneurshipDr. Ashok VasudevanMust have subject - HIGHLY recommended subject and Prof.23Learning and DevelopmentProf.Veeravallino idea 33Course on Managerial SkillsMr.R.Gopal of TATA Sonsthey didn't have the subject - but they have heard about the prof. and he is very inspiring guy 43Self Learning and ManagementProf.Sriramno idea about subject53Strategy Execution Prof.SriramDON'T take it63Performance ManagementProf.A.G.BalasubramanianTBCno idea73Strategic InnovationProf. Rajam RaviTBCIMPRESSIVE and interesting subject for people who want to go back to IT -- their prof was different and good thats why it was interesting 83Sociology for HRDProf. Noel Machadono ideaTerm 6 (10th Jan to 27th Feb)3Business & SocietyTNSeshan, Vittal and BSRaghavanCoreGo for it13Change ManagementDr.Swaminathangood feedback for subject23Economics of StrategyProf. Sridhargood subject for GAS around - they learnt GAME THEORY - basically for STRATEGY major guys 33New Venture PlanningDr.Tapan Pandagood feedback for Prof 43Course on Military StrategiesCdr.Vasanthey didn't have the subject - take it only if u wanna learn military strategies53International Trade & BusinessDr. Chandran (will be merged with Intl Business Strgy- done by Dr.Vaidyanathan)very good Prof and very good cases - in general very good for GAS around63Doing Business in Middle KingdomDr.Venkat from IIMKreally boring prof -- very bad course material73Upanishads and Transformational LeadershipDr.Venkat R. Krishnanreally couldn't understand the importance of subject -- only foir spiritually inclined - VERY VERY DIFFICULT83Managing the Family BusinessProf.Sriramnot very effective prof -- not very effective course -- not really recommendedTerm 7 ( 28th Feb to 17th April)13International Business Strategy Dr. Vaidyanathan, K.Nfantastic prof - very interesting course23Legal Environment in BusinessVisiting Facultynot recommended33Contemporary Industries -film & entertainmentMr.KandaswamiCross Functionalno idea43Managerial CounselingDr. ISF Irudayarajonly GLOBAL GYAN - sweet prof - only if u want to chillax - subject really not valuable to sell urself53Motivation Theory and EQProf. Lalitha Maheshwaranprof. is good -- teaches communications well which is good for placementsOperations, Information Technology, & EconomicsS.NoCreditsCourse NameFacultyTerm 4 13Supply Chain Modeling and AnalysisProf. Vaidy Jayaramangood for supply chain - u have to be good in numbers - prof also very good23Logistics & SCMProf. Prasad ChakravarthiUSELESS subject - DON'T take it 33Project Management Prof. S Kalyanaramanif u wanna go to IT then leave it coz u can learn easily on net -- but if u wanna take operations then definitely take it coz Prof is good and has lotta knowledge43Strategic operations planningProf. B. NatarajanSubject to facukty availability may be shifted to Term 5AMAZING subject for everybody event if u r not Operations major guy - EXCELLENT Prof - MUST take subject53Services Operations ManagementProf. Vimla Dorairajuno idea Term 5 (15th Nov to 9th Jan)13Enterprise Resources PlanningProf. S Ramanathanonly if u wanna crack interview - only global GYAAN 23Demand Planning and ForecastingDr. Rakesh Singhgood subject for OPERATIONS majors guys - contains only cases33Lean Manufacturing & Process ManagementDr. Rama Shankar only for core manufacturing operations53Business IntelligenceProf. Balasubramaniam Rameshgood subject for IT guys - either take BA or BI Term 6 (10th Jan to 27th Feb)13Technology Management Dr. Sunil RaiUSELESS subject - u can easily learn urself from internetTerm 7 ( 28th Feb to 17th April)13E-CommerceVisiting FacultyDEFINITELY NO NO - only for ecommerce guys - subject doesn't have much to offer

Sheet1Market leaderAIRTELMarket ChallengerReliance, Vodafone, BSNLMaket FollowerTATA, IDEA

Sheet1Airtel-----------PrepaidRelience-----------PrepaidIdea-----------PrepaidMRP(Rs.)DATA USAGEVALIDITYMRP(Rs.)DATA USAGEVALIDITYMRP(Rs.)DATA USAGEVALIDITY2501 GB30 Days2551 GB30 Days2501 GB30 Days4502 GB30 Days4492 GB30 Days4502 GB30 Days1 Rs./min300-plan (std)30 days1 Rs./min (std)330-plan30 days1 Rs./min (std)330-plan30days

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