No end to the telecom price war - Views on News from Equitymaster

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No end to the telecom price war

Dec 4, 2009

The Indian telecom sector is a famous success story. In a matter of few years, it has turned the cellular phone from a fancy status symbol to a daily need. Interestingly, there is still a lot of potential to grow the market. After all, only 526 m out of India's 1.2 bn population are telecom users. India's teledensity is still below 50%. Compare that to the nearly saturated telecom markets of the industrialized nations. The past success and the potential market have attracted numerous players to join the fray. As a result, India is now perhaps among the most crowded telecom markets anywhere in the world.

The latest to launch its services is Uninor, a joint venture between Telenor of Norway and Indian real estate firm Unitech. It has recently launched its GSM service across seven circles. That pushes the tally of players in the Indian telecom market to 14. If any player starts a price war in such a crowded market, others have no choice but to follow. That is a familiar script that has played out in the recent days. Now, Uninor is taking the price war to the next level. It is offering plans such as 29 paise per minute and pay less for talking more. In our view, the rampant price war will not do much good for the financials of the telecom companies. But as in all competition, it is the consumer who wins. That certainly seems to be the case for the Indian telecom user, who is now spoilt for choice.

Organised retail staging a comeback
Indian retail was touted as the next success story after the IT and telecom sectors. It is not quite one as yet. In the years leading up to the financial meltdown, several retailers went through rapid expansion. But without vital supplies in place, these companies shut hundreds of stores when the economy slowed. They are now making a cautious comeback.

As per a leading business daily, Reliance Retail, a unit of Reliance Industries, has appointed Gwyn Sundhagul as its new CEO. He was chief marketing officer at Tesco Lotus, Thailand. Four other seniors from the company are set to join him. It may be noted Tesco faced tough competition from pop and mom (kirana) stores in Thailand before it could secure market share. It is a problem organised retail players here in India know all too well. Mr. Sundhagul will certainly be expected to bring that experience to the table. Perhaps that will turn the fortunes of Reliance Retail which has 1,000 stores in 86 cities in India but posted a loss of Rs 2.6 bn last fiscal.

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