Mobile operators in a pickle

Every war has a purpose, whether it is to grab a piece of land or a large chunk of market share.
However, in the case of latter, it is quiet likely that every competing company will end up on the losing side. The story of domestic cellular industry seems quite similar in this context.
Cellular operators desire to capture maximum market share led to severe price wars in recent years - a move that brought them on the brink of decreasing profits amid declining mobile density.
Furious competition has dragged the industrys average revenue per user to $2.48, down by nearly three quarters in the past six years. This doesn come as a surprise, considering that pre-paid tariff rates at home are lowest in the region, according to LIRNEasia, a regional ICT policy and regulation think tank.
Poor bottom-line performance can be gauged from the fact that only one telecom player, Ufone, declared a profit in 2008-09, while the rest faced losses, according to PTAs annual report released earlier this year.
Falling profits have finally brought players to negotiation table, according to the documents available with the Competition Commission of Pakistan, which showed how the four top players simultaneously imposed the same amount of charges on balance inquiry services.
And now, latest reports suggest that operators might also consider formally merging with each other. Jon Eddy Abdullah, the CEO of Telenor Pakistan, recently spoke with the Financial Times, about the need for merger and acquisition in the industry to reduce the number of players up to three, from five at present, in order to make the cellular business profitable.
This raises an important question: is the merger plan the right long-term solution?
Reducing the number of players doesn seem to be the in interest of cellular subscribers, since high concentration in the industry will decrease competition.
The number of operators may indeed be limited to three in many economies, as Eddy pointed out. But those are mostly developed economies with relatively less population.
In countries, such as India and Bangladesh, where market dynamics are somewhat similar to Pakistan, the number of mobile operators is either the same or higher than that in Pakistan.
Operators might point out lower tariffs as the basis of consolidation. But the fact that tariffs are lower at home, does not alone support the idea of decreasing the number of operators, since it was the operators own decision to trim down the call rates.
Besides, many other options are available to cellular operators to make their businesses profitable, while avoiding the negative consequences arising from reduced competition.
These include measures such as infrastructure and resource sharing among the players and more focus on outsourcing which can help them achieve operational efficiencies and cost synergies.
Moreover, operators can also rent their infrastructure to other operators. For instance: in far flung areas, where just one operator is located, resources can be shared which can turn a companys asset into a source of income.
Or otherwise, operators can try jacking up the call rates (without emailing and meeting amongst themselves of course) and see who can drive out the competition from the market.
Ultimately, what matters most to 90 million people is an inexpensive call to friends and family. And for that, let the fittest survive.

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AVERAGE MONTHLY PREPAID MOBILE COST *
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($)            Low User    Medium User    High User
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Pakistan          1.9           4.5             9.5
Bangladesh        2.1           5.0            10.9
India             2.5           6.0            12.3
Sri Lanka         3.4           8.7            18.4
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