The Indian telecom market is in real danger of going into the state of a duopoly, and the government is trying hard to prevent such an outcome. Why? It is bad for the consumers, as it will restrict his/her choices and make the players complacent. But it will be interesting to know why we got ourselves into this state. Did we have choices to prevent such an outcome, or it is natural for markets such as telecom? In this article, I plan to discuss this in detail.
Spectrum Prices
Telecom companies need to spend a large proportion of their earnings (on a yearly basis) to buy spectrum, which is used for generating services. These services translate into revenues, which in turn generate cash flows, and a large proportion of it is reinvested into buying additional assets, and this cycle continues perpetually. The basic problem of the Indian Telecom sector is that the prices of most of such assets (especially spectrum) are regulated by the government. On top of this, the government charges a license fee which is a large percentage of the operator’s top line.
