CCS Insight Answers Questions about Consolidated Market
On 27 June 2017, CCS Insight published its report on the process of consolidation in the Indian telecom sector (see Halcyon Days Ahead for India Telecom Market). The study has provoked a number of comments and questions from many parts of the world. In particular, there has been debate about Tata Teleservices, the presence of Vodafone in India and Apple’s operations in the country. Here, I’ll tackle some of these topics.
Some people have questioned why we deem Bharti Airtel to be the most likely home for Tata Teleservices, and there was much discussion in The Times of India. Findings from our survey of telecom executives revealed that 47 percent of respondents expected Airtel to acquire Tata Teleservices, 21 percent thought state-owned BSNL would be the acquirer and the remainder believed it would be another operator such as Reliance Jio or Reliance Communications.
Here we need to consider the potentially different objectives of shareholders and management. Shareholders are exhausted; they have invested billions of dollars over the years into Tata Teleservices for no return. The operator’s subscribers are falling month on month. NTT DoCoMo has come and gone. However, as demonstrated by its latest deal with Telenor, Bharti Airtel is adept at smooth transactions and it would acquire assets from Tata Teleservices that could help it improve market share and profitability. Huge job losses are a likely outcome, but they seem inevitable.
On the other hand, management will possibly point to Tata Communications (the international data and voice arm of Tata Group) and its successful acquisition of state-owned VSNL. Management may also consider BSNL as a suitable new parent. This transaction is also feasible, but we believe it will only be pursued if a deal can be reached as quickly as with Bharti Airtel. Shareholders cannot continue to support Tata Teleservices indefinitely.
Several questions have been raised about Vodafone’s future: if it becomes market leader after its merger with Idea Cellular, how can it exit India on the grounds of high costs and tough competition? It’s important to highlight that according to our survey, slightly more people believed that Vodafone would be in India in five years than not.
The answer is that Vodafone is highly unlikely to sell its stake in a merged entity in India to a trade buyer. Very few international operators have the strategic desire for India nowadays. The other Indian operators would be prevented from buying Vodafone–Idea Cellular because of market share problems. Once the deal is finalised, the merged company will be a listed entity (Idea Cellular is presently listed), enabling Vodafone to sell its shares in blocks to large institutional investors in the future. Over time — possibly a couple of years — the operator could gradually monetise its shareholding and exit India completely.
Apple in India
Many people were surprised to discover that Apple is currently only the tenth-largest seller of smartphones in India. There have been doubts about whether India is really worth Apple’s effort, given the company’s huge sales and successes in other markets. Will Apple reduce its operations in the country? Our view is, emphatically, no.
As CCS Insight’s chief of research Ben Wood comments, “Apple’s commitment to India is clear. It is one of the world’s fastest-growing markets for smartphones, representing a significant opportunity, even though Apple’s devices are clearly at the top tier of the market. It is often forgotten there is a burgeoning and affluent middle class in India that aspires to owning high-end goods such as the iPhone”.
He also notes, “Apple’s commitment was underlined by Tim Cook’s visit to India last year and his recent meeting with prime minister Narendra Modi in the US, where the Apple CEO confirmed that the company has started production of the iPhone SE at a factory in Bengaluru. This is also the location for Apple’s ‘app accelerator’, where the company is training thousands of iOS developers”.
So rather than scaling down, we anticipate a substantial increase in Apple’s commitment to India in the future.
To download a free copy of our report, please click here.
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