The first of the new entrants to have launched services in India, MTS and Uninor (the Indian operation of Telenor), have made strong starts.
At the end of December 2009, a month after launching services, Uninor had 1.21 million customers. MTS launched services in March 2009 and it had over 3 million customers at the end of the year.
These and other new entrants are expected to enjoy high subscriber growth in the short term, as they expand their footprints in the country. But questions remain over whether this initial boom is indicative of their chances for long-term success in India.
New entrants lack the scale to compete for low-ARPU customers profitably. Most have targeted customers in the bottom segment of the socio-economic pyramid, as mobile penetration in this segment remains low.
Offering competitively priced services is the key to penetrating this segment, and as such the new entrants have adopted aggressive pricing strategies. This segment is also a key growth avenue for incumbent mobile operators, which have quickly responded by offering more competitively priced tariffs.
Large operators not only have the financial strength to weather margin pressures, but they also have better economies of scale - and can therefore offer lower-cost plans. For example, operators with larger subscriber bases generate more on-net calls and earn higher revenues from incoming calls.
Datacom and Etisalat are expected to launch services in India this year. Players such as Idea, Aircel, Loop Mobile and S-Tel are also likely to expand their footprint. This intensified competition will put further downward pressure on tariff levels. Considering that the current levels are of questionable viability for new entrants, they will find it challenging to further reduce their prices.