The Indian telecom turf favours only domestic companies. The complete or partial exit of global telecom giants, including AT&T, Orange, Telenor, France Telecom, Maxis and now Vodafone, shows that the Indian pitch does not favour foreign batsmen.

From the complexity of the Indian market to uncertain regulatory environment, a lot of factors have hurt foreign telcos. But the biggest is the Indian customer, who is loyal only to pricing and not to any brand.

Pricing strategy

“As a market, customer acquisition in India in any B2C segment is costly and their retention is even costlier. The customers here are price-sensitive and this characteristic is leveraged by challenger players. It has played out multiple times in the Indian telecom market,” says Jayanth Kolla, founder and partner at tech research firm Convergence Catalyst.

This characteristic of the Indian consumer was used by new entrants in 2007-08 when per-second billing and rock-bottom tariffs were introduced. More recently, Reliance Jio has played on pricing to wean away price-sensitive subscribers from incumbents through freebies, disrupting industry dynamics.

“Whenever challengers come, it gets difficult for incumbents to sustain and grow operations,” he adds. In the past too, with the exception of Hutchison Whampoa and Singtel (through Bharti Airtel), foreign operators have failed to generate profits. In the 1990s, call rates were as high as ₹16 per minute with incoming calls too being charged.

“At that time, mobile telephony failed to scale up in the country due to high licence fee and consequently, unaffordable tariffs,” says BK Syngal, telecom consultant and former CMD of VSNL (now Tata Communications). That led to the exit of MNCs such as AT&T, Sprint and France Telecom.

The second batch of MNCs entered India around 2007 by either acquiring stake in existing operators, like Maxis in Aircel, Vodafone in Hutchison Essar or forged joint ventures with companies that had got spectrum in the 2008 allocation.

“Some of them over-paid for gaining India entry. They should have been more rational,” says Syngal. Vodafone, for instance, bought Hutchison’s stake for $10.9 billion, which was over 16 times the EBITDA of Hutchison Essar. Most importantly, says Kolla, foreign telcos come with a long-term investment strategy and want to implement learning from other markets and grow.

Other factors

“But, unfortunately in India, business and industry have always been reactive – with a short-term vision. Spectrum licences moving from fee to auction is one such move. Companies can’t plan for these events and have to suffer,” he says. The 2G licence cancellation by the Supreme Court in 2010 provided a window of opportunity for MNCs as the court decision curtailed competition and helped stabilise tariff rate.

MNCs such as Telenor, through its Indian unit Uninor, took the opportunity to rationalise operations and became a regional player from a pan-India footprint earlier.

But, with Jio’s launch, Telenor had to vacate that space as well. Telenor is a specialist in building operations in emerging markets. Despite being successfully present in Pakistan and Bangladesh, the company merged its Indian operations with Bharti Airtel as Reliance Jio unleashed a tariff war. Maxis-controlled Aircel too is in the process of merging its operations with Reliance Communications.

And Vodafone India is merging with home-grown Idea and its UK parent will de-consolidate the Indian operations from its balance sheet.

As things stand, these foreign players might never come back to the Indian telecom market. But how well will Indian players continue to bat is something that only time will tell.

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