Research

Dialing in on India’s Mobile Market
The Analyst, 2011

India’s rapidly growing mobile market has reached an estimated 900 million accounts, with service in rural areas expected to fuel further growth in a nation with 1.2 billion people, according to global consultancy Deloitte. In a cover story for one of India’s leading business magazines, The Analyst, Professor Hemant Bhargava and Xiahua Wei of the Department of Economics at UC Davis explore the impact of the country’s recently adopted Mobile Number Portability (MNP) policy and how it will change purchasing behavior of mobile subscribers.

Bhargava and Wei believe that the policy is intended to enhance market competition by allowing consumers to switch carriers while maintaining the same phone number and avoiding additional costs. They note that the percentage of customers who discontinue service for mobile operators would increase from 4 percent per month to 6–7 percent. This increase may cause operators to become more competitive by offering consumer incentives, like better service and lower prices.

While the result may be greater efficiency, Bhargava and Wei are skeptical, noting that operators may be more devious about maintaining their customer base through creative switching costs and lock-in effects. And, the long-term effects of the MNP policy could be a disadvantage for smaller companies due to reduced profit margins associated with lower switching costs, and an increase in expenses to retain existing customers.

This could result in industry consolidation and less choice for consumers. For Bhargava and Wei, less consumer choice means less competition—an unintended consequence of a policy that had good intensions.

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