Indian telco industry may see more regulation, consolidation

India's telco market has benefited from years of market competition, but the downsides of this may result in increased government oversight on the industry and possibly consolidation among market players.

India Finance Minister P Chidambaram stated last week that increased market competition has brought mixed results for telecom companies and customers. On the plus side, local call rates are among the cheapest in the world and this has helped in mobile phone sales in the country, he noted during the annual day of the Competition Commission of India (CCI).

Chidambaram added: "Indian firms have evolved a uniquely Indian business model. Large volumes, have of course helped, but those large volumes and the broad reach of communications--a cellphone in almost every hand--would not have been possible if it were not for the low price emerging from the business model."

However, he said there were downsides to the increased competition.

"Quality has suffered. The sector is laden with debt. New players are loathe to enter and some existing ones are threatening to quit. Auction of spectrum has found no bidders in several circles," the minister pointed out.

He said the key is to balance competition between existing players and new entrants, as well as new and old technologies.

"Regulators need to keep in mind the feature this sector has of a natural monopoly, with large up-front fixed costs and low variable costs. Such industries can succumb to ruinous competition, where no player makes enough money to be financially healthy."

This double-edged sword could provoke greater intervention by the CCI, in addition to the Telecoms Authority of India (TRAI). He said that besides the continuing need for regulation to ensure competition, innovation, low rates and better service for customers, there could also be a "fundamental restructuring" of market players.