On this day, when the Bharti-Zain deal has been finally sealed, I will like to propose a hypothesis related to the much-talked-about and inevitable consolidation in the Indian telecom industry. I am of the view, that, given the current scenario, among the bigger players, Idea Cellular will be the first one to cash out or merge with another player within the Indian market.I believe, an Indian telecom player, needs to satisfy either of these 3 conditions, to sustain for medium-long term:
1. Be (comfortably) amongst the top 3 players, in terms of total subscribers
The latest (Feb '10) wireless subscriber figures available show the market share of the various players:
| Vodafone | 17.2% |
| Loop | 0.5% |
| Idea / Spice | 11.0% |
| Bharti | 22.1% |
| Reliance | 17.6% |
| HFCL | 0.1% |
| Sistema | 0.6% |
| Tata | 11.2% |
| Aircel / Dishnet | 6.2% |
| Stel | 0.1% |
| Unitech | 0.6% |
| MTNL | 0.9% |
| BSNL | 11.8% |
Bharti, Vodafone and Reliance satisfy this particular condition.
2. Be consistently amongst the top 3 players, in terms of absolute market share growth
Comparing Feb '10 figures to Mar '09 figures shows the following growth in market share for the various players
| Vodafone | -0.3% |
| Loop | -0.1% |
| Idea / Spice | 0.0% |
| Bharti | -1.9% |
| Reliance | -0.9% |
| HFCL | 0.0% |
| Sistema | 0.4% |
| Tata | 2.2% |
| Aircel / Dishnet | 1.5% |
| Stel | 0.1% |
| Unitech | 0.6% |
| MTNL | -0.3% |
| BSNL | -1.5% |
Tata (Docomo and other operations), Aircel and Unitech (Uninor) satisfy this condition.
3. Be amongst the top 3 players, in terms of percentage increase in market share
Comparing Feb '10 figures to Mar '09 figures shows the following percentage increase in market share for the various players (percentage increase = market share by end-Feb '10 / market share by end-Mar '09)
| Vodafone | 98% |
| Loop | 89% |
| Idea / Spice | 100% |
| Bharti | 92% |
| Reliance | 95% |
| HFCL | 59% |
| Sistema | 368% |
| Tata | 125% |
| Aircel / Dishnet | 131% |
| Stel | infinity |
| Unitech | infinity |
| MTNL | 77% |
| BSNL | 89% |
Stel and Unitech are new players and had not started operations in Mar '09 (hence, the 'infinity' in the table against their names). Leaving these, the players that satisfy this condition are Sistema, Aircel and Tata.
So, as per my view, if any of these conditions are not being satisfied, it makes little sense for the player to remain in the industry. This is especially true when there are 13 players (and more entering as we speak) in a sector that is globally seen to have 4-6 players, on an average.
So, the top contenders for any kind of consolidation are Idea Cellular & BSNL (among the bigger players) and Loop, HFCL & MTNL (among the smaller players). I have kept Stel out of the consideration, since it is a very new player and many of my conditions might not exactly be applicable to it.
Among these 5 firms, BSNL and MTNL are government-owned entities, and given by what we have seen in the Indian context, the maximum that will happen with these companies is - merger of MTNL & BSNL and / or IPO of BSNL.
So, Idea Cellular looks to be the top contender that will be involved in a major consolidation event. Loop and HFCL might get gobbled up by some player on the way.
If one looks at Idea's performance in various circles in the period under consideration (Mar '09 - Feb '10), it's subscriber base has grown by 44% in the 11 months, same as the overall market growth rate. I would have expected it to grow at something above market growth rate, given it is the fifth largest player and someone like Vodafone (having 55% more subscribers than Idea) has grown at 41% in the same period.
Even this growth for Idea has come partly because of entry into newer circles (it was operating in 15 out of the 22 circles in Mar '09 and has since entered the remaining 7 circles).
A look at the market shares and the growth / decline in various circles shows some challenges that the company is facing
| Market share (Feb '10) | Market share change from Mar '09 | |
| Andhra Pradesh | 13.9% | -2.7% |
| Assam | 0.8% | 0.8% |
| Bihar | 8.5% | 4.4% |
| Delhi | 9.2% | -1.8% |
| Gujarat | 17.4% | 1.2% |
| Himachal Pradesh | 5.2% | 1.0% |
| Haryana | 15.3% | -0.6% |
| J & K | 0.7% | 0.7% |
| Karnataka | 7.1% | 0.1% |
| Kerala | 22.2% | -4.4% |
| Kolkata | 2.9% | 2.9% |
| Madhya Pradesh | 23.2% | -1.2% |
| Maharashtra | 21.7% | -2.2% |
| Mumbai | 5.5% | 1.6% |
| North East | 0.3% | 0.3% |
| Orissa | 3.9% | 3.9% |
| Punjab | 16.4% | -0.3% |
| Rajasthan | 7.0% | 1.6% |
| Tamil Nadu | 1.4% | 1.4% |
| U.P.(E) | 8.6% | 1.2% |
| U.P.(W) | 19.3% | -1.7% |
| West Bengal | 2.5% | 2.5% |
1. The company has lost ground in most circles that used to be its major strongholds (e.g. Andhra Pradesh, Kerala, Madhya Pradesh, Maharashtra, U.P. (W))
2. A lot of the major gains have been in circles where operations have recently been launched (e.g. Kolkata, Orissa, Tamil Nadu, West Bengal). It is to be seen how much of this can be sustained going forward.
It has done well in some circles, such as Bihar, Gujarat, Mumbai, Rajasthan, U.P. (E). The growth, though, has mostly come on a much smaller base (except in Gujarat). This has enabled it to sustain it's overall market share in the country at 11.0% in the period under consideration. However, it is not clear how this share will be defended from hereon.
I understand that my analysis has entirely been based on the subscriber numbers and I have not looked at a lot of aspects that are internal. I have started from the assumption that consolidation is inevitable and the pricing pressures, number of subscribers gives a strong first-cut indication about the player conditions and potential future outlook.
I also want to propose, the different scenarios that might become the characteristic of the landmark consolidation event:
Scenario 1: One of the major foreign telecom companies acquiring significant shareholding from promoters (structure will become similar to Uninor). One possibility can also be Telekom Malaysia increasing it's stake.
Scenario 2: A major Indian industry group entering the telecom space through acquisition of a controlling stake
2.1 may be some one who gets a lot of money through selling an existing group company and wants to enter a different sector (e.g. recent diversification by the former Ranbaxy promoters)
OR
2.2 existing groups with diversification / ambitious growth plans (Mahindra? ITC?)
Scenario 3: A player like Tata, after increasing it's market share through organic route, wanting to catapult in the Top 3 through Idea's acquistion
Scenario 4: Idea merging with a smaller player (Aircel?) to retain / enhance it's falling market position.
I will keep an eye on this sector to see how things emerge. It will also be interesting to see, how much of the above was just my imagination, hard at work.
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