Demand and Supply Analysis of Mobile Services in India

Topics: Supply and demand, Price elasticity of demand, Elasticity Pages: 5 (1575 words) Published: September 11, 2008
India is going through a telecom revolution, especially in the wireless telephony segment. The adoption of mobile telephony remains unparalled in scope, as users from diverse segments increasingly choose to exercise the option of personal mobility. On an average the user base has been adding 4-5 million subscribers per month.

The Mobile subscriber base is growing at a scorching pace in India and it is the “fastest growing mobile market in the world”. The Wireless subscribers have reached to 261.07 million as on 31st March 2008. The penetration level of mobile services is still below 30% in India, hence there is a huge potential for growth in this segment. But the scenario is different in the other countries since their markets are already saturated. This is the reason why global telecom giants are looking towards us. In India, the major players in the market are Bharti-Airtel, Reliance Communications, Vodafone, BSNL, Idea Cellular & Tata teleservices. Apart from them there are other small players like Aircel, Spice, BPL,MTNL, HFCL, Shyam Telelink to name a few. The market share currently enjoyed by the operators is represented in the below figures.

Operator-wise Market Share of GSM Operator-wise Market Share of CDMA service providers as on 31st March 2008 service providers on 31st March 2008

The success of the market can be gauged from the fact that mobile user base has surpassed the PC user base in India and very soon the Indian market will have more mobile users than TV viewers. The growing intensity of competition has led to more services for the end user at lower prices. This has had an effect of stimulating demand and thus increasing the category adoption rate. As more users have been added to the subscriber base, it has led to a further downward pressure on operator costs. This has led to further cost benefits to the end user, fuelling further growth in the subscriber base.

Demand Analysis:
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. Ideally a demand curve is a downward sloping curve as shown below.

This applies directly to mobile services. Few years back the line, the cost of mobile services is high, hence the demand is very low. Once the price came down the demand for mobile services has increased substantially. The table below gives the number of mobile subscribers (Quantity) and the average price variation on yearly basis starting from 1997. Year Quantity(Q)Price(P)


Quantity : Subscriber base in Millions.
Price : Cost per minute in Rupees.
If we plot the above data taking quantity on X-axis and price on Y-axis, the demand curve can be plotted as shown below:

Shift in Demand Curve:
A shift in a demand or supply curve occurs when a good's quantity demanded or supplied changes even though price remains the same. For instance, if the price per minute Rs.2 and the quantity of beer demanded increased from Q1 to Q2, then there would be a shift in the demand for mobile services. Shifts in the demand curve imply that the original demand relationship has changed, meaning that quantity demand is affected by a factor other than price.

In an ideal situation the shift in the curve will be represented as shown above. The demand for mobile services is not only dependent on the price. There will be situations where the price remains constant but the demand goes up. The major factors affecting this shift in demand for mobile services are income level & population of the country. The rising income level of middle class society is...
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