PORTER’S FIVE FORCES FRAMEWORK

We shall analyze the inherent attractiveness of the Indian Wireless Telecom Industry using Porter’s Five
Forces Model.

3.1. SUPPLIER BARGAINING POWER

(MEDIUM)

 IT Service providers, Passive Infrastructure Providers, Call Centre and Outsourcing companies and
Telecom Network Equipment Manufacturers are the primary suppliers to the Wireless Telecom Industry

 There is large number of suppliers to choose from. Cell phone manufacturers compete intensely among
one another to obtain favorable contracts in which network providers subsidize their phone for the end
consumer.

 Technology to share tower infrastructure and medium cost of switching since changing their hardware
would lead to additional cost in modifying the architecture.

 Large Telecom service providers like Bharti Airtel & Tata Teleservices are significant players in the
telecom tower industry. This further reduces the power that suppliers can levy on them.

3.2. BUYER BARGAINING POWER

(HIGH)

 Recently there have been two developments that have shifted bargaining power on favor of the
consumer:

o Entry of service providers like DOCOMO, Virgin & MTN leading to a radical shift in the performance/
price ratio favor of the consumer.

o DOT announcement that Mobile Number Portability (MNP) shall come into effect from June 2010. This
effectively means that the consumer shall be able to switch service providers with minimal switching cost.

 Intense competition and price sensitivity of buyers also increases the buyer power in this case

 Barring a few value added services like GPRS and 3G based services, there is little besides price to
differentiate between service providers.

3.3. THREAT OF NEW ENTRANTS

(MEDIUM)
 This industry is capital intensive and technology changes rapidly. Expensive network management needs
to be imported. Even though low cost alternative brands such as Huawei are bringing down this cost, it still
remains prohibitively expensive.

 Regulatory procedure: High license fees to be paid upfront and long gestation periods. Recently
allegations were made against TRAI and the Telecom Ministry, of artificially low auction prices.

 Saturating urban market. Growth coming from Rural areas where Payback period can be 10 years.

 New entrants proposing better performance to price ratio has lead to price wars and a dip in the
profitability of large players. Companies try to achieve economies of scale by increasing subscriber base.

 A number of new players such as DOCOMO, MTN & Virgin have recently entered the Indian market.

 Mobile tower sharing and other capital equipment sharing between large players is becoming
increasingly common. This brings down their overall cost structure, and hence increases barriers to entry
for new players.

3.4. THREAT OF SUBSTITUES

(MEDIUM)

 Landline and CDMA are possible substitutes. But market for these is diminishing. VOIP (Skype, Gtalk
etc.), email and social networking sites are other substitutes.

 However, this is unable to match the performance/ price ratio that wireless telephony is able to provide.
Hence, there is no substitute that can replace it completely.

3.5. DEGREE OF RIVALRY

(HIGH)

 Price wards are fierce and have commoditized the market.

 Brand Identity is strong for companies like Vodafone and Airtel. However, customer loyalty is attributed
to customer unwillingness to change his/her phone number.

 With the introduction of number portability in June 2010, this shall no longer hold and customer shall be
more likely to switch cell phone providers on the basis of price and service levels.

 There is very less time to gain from innovation. This is why we see any offer launched by any company
is counter attacked by other companies soon.

 The industry suffers from high exit barriers due to specialized equipment (Network and billing systems).
There are 6-7 players in each region and fixed costs are high.