Business Economics

The Indian Mobile Telephony Market

Competition and fall in prices sure does really increase the demand a true witness of this has been the Indian Mobile Service Provider Market. India has come a long way in its tryst with what can be called a revolution in ‘mobile telephony’ Drastic reduction of call rates and handset prices lifted the mobile telephone sector from the red as Indians responded well to the cuts. As demand for mobile services saw a huge rise, the volume expansion was more than counterbalanced the price reduction.

From call rates as high as INR 16/minute in 1995 to as low as INR 1/minute in 2008 and from a subscriber base of 0.03 million in 1995 to 346.9 million in 2008, and now 87.48 crore in July 2013 were the number of telephone subscribers in India . Whereas the Internet subscribers including Internet access by mobile device subscribers increased were at 164.81 million. The data reveals that the customer base has increased many folds.

The Industry went through a wide range of policies changes and also the change in the internal competition policy. Intense competition with 10 to 12 operators in a service area has led to a free-fall in tariffs. However, this has not been matched by an increase in Minutes of Use per connection per month (MoU or data usage), which on the contrary, has been dwindling.

While the revenue growth is declining, driven by inflation, the cost burden of operators continues to increase. Network operating expense of all operators has increased significantly with time. Also, the operators have been incurring additional expenses on account of compliance to regulatory initiatives such as MNP, UCC, subscriber verification and stricter EMF requirements and lawful interception. As a result of being squeezed from all sides, the financial position of operators is under significant stress.

But we can state that the consumer surely gained over the period of time in scope of services and price affordability.

Q1. Explain the concept of price elasticity with the reference to the above case. Kindly support your answer with the Diagrams where necessary.

Q2. Explain the concept of Monopolistic Competition in the reference to the above case study.

1. Exp

Pedagogical Objectives:

• To understand the concept of elasticity of demand and discuss various types of elasticity of demand

• To understand the link between price elasticity of demand, revenue and business decision.