Till a year ago, there were almost a dozen players jostling for a piece of the Indian mobile telephony market. Bar a couple of them, most were making losses. Intense competition and high investment requirements ensured that the smaller players remained unprofitable. The market was ripe for consolidation and just waiting for a trigger.
The trigger was the launch of Reliance Industries' Jio last year. Since 2010, Reliance has invested over $20 billion already in building infrastructure, and it had plans for disrupting the industry. It first built a state of the art backbone for launching 4G services, and then came up with a free plan to make all the incumbents run for cover.
Within six months of launch, the Jio effect has seen a record wave of consolidation in the telecom industry. The numero uno in the market, Bharti Airtel, has been snapping up companies and assets to shore up its ammunition for what it clearly expects to be a long-drawn battle. It has picked up four companies and businesses in just over a year, spending roughly $2.54 billion for it.
The current number two player Vodafone, and the number three player, Idea (from the Aditya Birla Group) have decided to merge their operations to create a giant telecom entity, that will probably be bigger than both Airtel and Jio. When the merger finally takes place - it is expected that it will take about a year or so - the new company will have over 400 million subscribers, and revenues of around $12.5 billion.
Meanwhile, Jio in the six months of its launch has already gathered about 120 million subscribers. It is finally charging for its services, but the prices it has set makes it impossible for all but the strongest players to match.
The battle is entering its final stage. The big three - Voda-Idea, Bharti Airtel and Jio - will probably corner close to 80 per cent of the market. The government companies - BSNL and MTNL - will probably remain marginal players. At any rate, they have been losing ground over the past decade. Analysts expect the Anil Ambani-owned Reliance Communications (which has already merged with MTS, and is in the process of merging with Aircel) to become part of Jio itself. Reliance Com has agreements on tower and other infrastructure sharing with Jio already.
Even though the Indian telecom market will finally be left with only four or at best five players, the fight will be far from over. Each of the big three wants to be King of the Hill. Bharti Airtel has been the undisputed numero uno for over a decade and a half, and it is unlikely to give up its position to anyone without a fight. Reliance Jio has already underscored its ambitions to be number one by spending humongous amounts of money, and it plans to spend a lot more in the coming years. Vodafone and Idea are no mean competitors, and the combination will be formidable.
The cover story this issue looks at the strategies the big three are following, and the parameters of the battle.