The Illogically costly 3G Auction Evidently has Strategic Implications for both Bharti and Reliance Communications. B&E does a Snapshot 'dummies guide' Competitive Analysis Primer on The Two
When you speak of rivalry in the Indian telecommunication space, it is hard to imagine a discussion not commencing with a reference to two names – Bharti Airtel and Reliance Communications. The former was the player that pioneered the market, and the latter is credited with being the one that changed the entire dynamics of pricing. Ever since then, their game of one-upmanship in the market place as well as in the lobbying arena has hogged the headlines for years. And it has flared up on a number of occasions – the GSM vs CDMA debate, lobbying with respect to spectrum prices being provided to each other, bidding for MTN, poaching of top executives, et al.
So far, the game changer in the industry had been price, a tool that first was used by RCom with success and one that became almost like an industry norm. Players have gained inch by inch using this ploy through a variety of schemes. But the way ARPUs (average revenue per user) have been on a constant decline, this strategy is now getting limited in its impact; particularly with the entry of newer players, who are taking the price barrier further down.
And for whatever it was worth, 3G was the game-changer that the incumbents were waiting for. After a long and tedious wait, the 3G auction has been completed and the winners announced. And RCom, Bharti and Aircel (unexpected third winner) have led the rest in terms of circles, winning 13 circles each. Clearly, the playing field in the Indian telecom space has been divided again, and it’s time for Bharti and RCom to take their rivalry to a new dimension. The questions that obviously spring up are – what should their strategies be and who would take the advantage in the post-3G scenario?
First, we come to the bidding outcomes, which have left only the government smiling. Spectrum is the kind of a product where price elasticity of demand is just about nonexistent. Consequently, the all India license auction ended up costing Rs.167.5 billion, which was 379% above the original base price of Rs.35 billion, and this is being cited as an over-the-top valuation by many, even considering the credentials of the Indian market. No wonder that even Bharti and Reliance backed off from bidding for pan-India licenses.
So far, the game changer in the industry had been price, a tool that first was used by RCom with success and one that became almost like an industry norm. Players have gained inch by inch using this ploy through a variety of schemes. But the way ARPUs (average revenue per user) have been on a constant decline, this strategy is now getting limited in its impact; particularly with the entry of newer players, who are taking the price barrier further down.
And for whatever it was worth, 3G was the game-changer that the incumbents were waiting for. After a long and tedious wait, the 3G auction has been completed and the winners announced. And RCom, Bharti and Aircel (unexpected third winner) have led the rest in terms of circles, winning 13 circles each. Clearly, the playing field in the Indian telecom space has been divided again, and it’s time for Bharti and RCom to take their rivalry to a new dimension. The questions that obviously spring up are – what should their strategies be and who would take the advantage in the post-3G scenario?
First, we come to the bidding outcomes, which have left only the government smiling. Spectrum is the kind of a product where price elasticity of demand is just about nonexistent. Consequently, the all India license auction ended up costing Rs.167.5 billion, which was 379% above the original base price of Rs.35 billion, and this is being cited as an over-the-top valuation by many, even considering the credentials of the Indian market. No wonder that even Bharti and Reliance backed off from bidding for pan-India licenses.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
