With the extension of free trial to Mar 2017 and recent announcement of incremental investment of Rs300 bn in the telecom venture, Jio is clearly not pulling any punches. This forces incumbent telcos to speed up 4G rollouts as sunsets on 2G networks which are a drag on the precious spectrum as we head into an era of convergence.
Whilst there are media reports of incumbent telcos considering a merger, we believe that the same is unlikely to fructify given: (a) all three incumbent operators have significant revenue market shares (>19%) and are unlikely to be accommodative of an ownership change, and (b) regulatory spectrum cap would result in the Merged Co relinquishing invaluable spectrum. In such a scenario, a merger amongst the Big 3 is unlikely.
Active Infrastructure / Spectrum sharing could be the way out
In India, Vodafone and Idea are placed at number 2 and number 3 slots respectively and could consider an arrangement to take on Airtel and Jio. Airtel would be hard pressed to collaborate given its dominant market standing and significantly superior spectrum footprint, competitive factors that would make the company unwilling to share its network with rivals.
Frank B, Fieke O and Gijc H, members of the TNO Centre of Behavioural and Societal Sciences, in a Research Paper have said that in a typical oligopolistic telecom market, as per Game Theory, the best case outcome is that of the second largest (Vodafone) and the third largest (Idea) operators sharing their networks. The authors compute that network synergies could result in up to 20% decrease in operating expense for radio access networks (data networks). This is possible if the smaller of the two is willing to cooperate completely with the larger one.
Hopefully, post March-31st prudence will prevail in the Indian Telecom sector and the Government take some impartial decisions in the interest of the Industry.