Optimal Number of Mobile Service Providers in India: Trade-Off between Efficiency and Competition

With 225 million subscribers, India has the world’s third largest mobile subscriber base in the world. The Indian mobile industry is also one of the most competitive in the world with 4-7 operators in each service area. A large number of operators bring competition and its associated benefits such as decrease in price and hence corresponding growth of the market. On the other hand in the presence of economies of scale, too many operators may result in inefficient scales and high unit costs. This article analyses the trade-off between competition and economies of scale by estimating the production function for mobile subscribers and traffic carried. Analysis of panel data reveals the existence of economies of scale in the Indian mobile sector. We then derive an upper bound on the optimal number of operators in each license area and discuss policy implications.