The Price of Poor Regulation

Letter from the Editor: Our regulators don't quite understand the implications of almost unrestricted entry on industry rivalry. Or else, they wouldn't allow almost 12-15 players into our telecom circles

Published: Jun 4, 2010

Back in the early eighties, Harvard Business School don Michael Porter created a five forces framework to show how an understanding of industry structure impacted industry profitability. Even today, Porter’s seminal work on Competitive Strategy is a must read for any business school student. Dr. Manesh Shrikant, our dean who taught us strategy at SP Jain Institute in Mumbai knew Porter well from his days at Harvard — and we got more than our fair share of the man’s videos, books and case studies.

When our team, led by Deputy Editor Shishir Prasad and Assistant Editor Rohin Dharmakumar, began researching this edition’s cover story, the idea of gifting a copy of Porter’s tome to the regulators/minders in charge of our mobile telephony industry did cross my mind. Frankly, there’s no kind way to describe the deep mess that we’re headed into. India is still one of the fastest growing wireless markets in the world. The ‘minutes’ factory model that folks like Bharti built has been globally feted. Our telecom tariffs are among the lowest in the world.

Yet today, we’re in uncharted territory. No stock market expert worth his salt is willing to invest in any of the telecom stocks. Over the next 24 months, most telecom companies, except for a couple, will sink into the red. Each of them, including market leader Bharti Airtel, will carry levels of debt that are nothing short of alarming. There’s bound to be job losses on the anvil. There are some who believe the advent of 3G could help turn the tide. But for most part, that remains more hope than reality. In short, the telecom industry is caught in a race to the bottom.

So who killed the golden goose? You’ve got to read our insightful story on page 44 to get a clear picture of the crisis that is about to engulf the sector. One thing’s certain: Our regulators don’t quite understand the implications of almost unrestricted entry on industry rivalry. Or else, they wouldn’t allow almost 12-15 players into our telecom circles. The deadly cocktail — of spectrum shortages, free market pricing and untrammelled entry of new players — will leave the industry players gasping for breath. And if there was any chance of industry consolidation that too appears to have been effectively scuttled by M&A norms that don’t make much sense. A sudden bout of sensible regulation could still save the day, but not without a better understanding of Porter’s framework.

Do send us your comments. And a warm thank you to all those who wrote in to wish us on our First Anniversary!

(This story appears in the 18 June, 2010 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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  • Vinvestor2010

    While your identification of the problem is correct, I disagree with your diagnosis.<br /> Don't you think the primary blame is with those 15 entities who are showing herd behavior and exceptionally poor business judgement?

    on Jun 22, 2010
  • JKV

    If investor implies, fund managers on lunar incentives to give 30% YoY return, yes Telecom Services in India is not the candidate.<br /> Now is the consolidation phase after exponential growth.

    on Jun 12, 2010
  • Anuj Gupta

    Please don't make 'unrestricted entry' as a key scapegoat (as evinced in your sub headline). The problem lies with upfront loading of spectrum charges instead of revenue share arrangements. I am sad to say but this issue and editorial is either very foolish or is paid for by Telecom operators to further crony capitalism. What we need is free markets with free entry and exit and Forbes India has proved to be incapable of grasping even the basic principles of free market which Forbes stands for.

    on Jun 7, 2010
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