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Abstract:

It was the year 2006- boom time in the Indian Mobile Industry. Sales were on the rise and operators had been bombarding the public with promotional offers and value added services in order to increase their subscriber base. Though India had a huge number of subscribers, it generated the lowest revenue in the world due to the poverty of masses, high levels of industry specific taxes and inadequate margins due to high levels of competition. The service providers operated using GSM or CDMA technology.

Till 2003, a typical upper middle class household had an annual income of $10,000 to $13,000 and acquiring a GSM handset required $60 while CDMA handsets required about $80 and at times more. In spite of the low income levels, technology was an important criterion for Indians. One in ten Indians had access to safe drinking water but one in three had a color television and one in seven had a cable television.

To generate revenues in such a market, mobile operators had to concentrate on the upper segment of the society and charge a premium pricing. This was the case until the entry of Reliance, India’s largest business house, into the mobile industry in 2003. Reliance entered the mobile market in a massive way through its subsidiary known as Infocomm and targeted the mass market by adopting cost leadership strategy. Though it faced a lot of teething problems in the initial stages, it was able to overcome them all and achieve the second position in the Indian mobile market within a short span of time. The success formula of Infocomm helped by changes in government policy enabled Infocomm’s competitors to adopt a business model similar to that of Infocomm. The higher average revenue per user (ARPU) and economies of scale of GSM technology also enabled the GSM competitors to realise a much higher profit than Infocomm, thus acting as a serious threat to it. Due to this, the parent company of Infocomm planned to enter the GSM segment as well. But it faced government restrictions which would limit its operations. It would also have to incur handset switching costs and infrastructure costs. This left the company in a dilemma about the shift.

The case briefly examines the cost reduction strategies adopted by Infocomm. It also discusses the strategic changes and the feasibility of its GSM venture.