price wars and consolidation in the telecom sector..!

The entry of new entrants in the telecom sector has taken the competitive intensity to new heights with unprecedented fall in call rates . It has been some kind of a rude shock to existing players who had formed cartels to preserve their interests in an unfair way. This competition will drive innovation in the firms as they will try to come up with value added services in an attempt to have a diversified portfolio of telecom services. The pressure on margins and expectations from the shareholders will bring about greater efficiency which will help to reduce unproductive costs. Its a shining example of the success of liberalization and capitalism.

Moreover, near zero variable cost and high fixed cost enables this industry to achieve economies of scale and as a result the marginal cost of serving an additional customer is very low. Thus the entire operation has become a game of high volumes. But with pressure on margins , increased competitive rivalry may set the ball rolling for mergers and acquisitions whereby bigger players would like to go for hostile takeovers of smaller firms. It should be ensured that Indian telecom sector remains competitive where no single player should be allowed to dictate market prices and trends.