Market Entry Strategies of Global Telecom Companies in India

On the canvas of the prosperous Indian economy, telecommunication industry maintains a prominent position. Telecommunications were created to integrate countries in a seamless world to blur boundaries created by physical distances. This is precisely the world is going towards at an accelerated pace. In the quest of globalization and expansion, the multinational telecom companies are touching Indian shores. The next pertinent question that arises is why one should enter Indian market? What should be the strategies to enter? Through the study of dynamics of Indian telecom market, I would like to provide some reasonable answers. 1. Why Enter Indian Market? In the early nineties, riding on the wave of economic liberalization and subsequent deregulations, the multinational telecom operators (MTOs) entered into the Indian telecom sector. The sector was at a nascent stage at that time due to lack of technological advancements and prohibitive cost of wireless communication. The average revenue per user (ARPU) had been steadily decreasing in developed countries due to intense competition, saturated markets and other modes of communication. The markets of developing countries had latent demand and were recognized by these MTOs as Underserved market. The major MTOs set their sight on these nations to be their next destination. Drivers for sustainable growth in Indian Market: Demographics: huge population continues to grow Large unmet demand for telephony services Improved and better regulations for operators Decreasing Hardware costs Continuous technological progress Large rural untapped market

2. Market Entry Strategies Indias telecom liberalization was noticed by global investors in 1995 when the government, through the introduction of new telecom policy (NTP), permitted entry of foreign telecom operators through Joint venture route. Some of these global giants included Vodafone, AT&T, Hutchison Whampoa, Telekom Malaysia, and Telestra Australia. The various policy changes also reflected government of India's awareness that the huge funds needed to undertake massive and widespread upgrade of telecom infrastructure in all the three segments of wireline, wireless and data services, would require active participation of private sector.

Market Entry

Startup

Investment in MTO

Greenfield

Majority Stake/Merger

Joint Venture

Greenfield Projects In the telecom sector, infrastructure cost such as high licence fee and the high cost of capital in building networks are major obstacles. These hindrances are major concerns for the investors to develop their infrastructure. But combination of absolute size, growth rate, and future potential have always lured foreign investors. The drivers for Greenfield projects are: The Indian telecom industry has a 74 percent FDI limit in the telecom services segment The government has permitted 100 percent FDI in manufacturing of telecom equipment in India Introduction of a unified access licencing regime for telecom services on a pan-India basis

Investment in MTOs: The Charm of M&A and Joint Venture (JV) To understand some of the predominant objectives of takeovers and JVs in telecom sector, these can be summarized as follows: Acquisition of licences or geographical territory Acquisition of spectrum Access to telecom infrastructure and network Access to customer base to achieve an economies of scale Gaining a brand value Higher operating profit margin

Conclusion There has been almost saturation of demand in the home market of majority of foreign investors where teledensity ranges from 40 percent to 100 percent. On the contrary, the teledensity in Indian market is currently hovering at 14 percent which is enticing. MNP will open up a plethora of opportunities especially for new telecom companies as they can capitalize on the dissatisfied customer base of other operators through their unique and customer-friendly services. The rollout of 3G services this year has earned huge profits not only for telecom operators but also for valueadded services firms and equipment makers. A noteworthy step taken to boost up the auction of 3G spectrum, the Indian government had permitted prospective bidders to call for short-term funds from the domestic market in the country, while allowing refinancing out of external commercial borrowings (ECBs) within a period of 12 months. The telecom commission has agreed on allowing a liberal M&A norms to promote consolidation in Indian telecom market, which augurs well for the industry.