In the developed countries, they had an infrastructure for rotary phones, in the developing countries only a few had rotary phones. Then cellphones were invented and soon everyone in the country had access to cellphones. The good news is early entrants into the market could become giants and generate billions of dollars. In India with a population over 1 billion, two of the giants are Vodafone and Idea and in mid March they agreed to a merger which will result in 40% of the market share or 400 million customers. In most sectors, the companies with a 40% market share can set prices, has a loyal customer base and should be able to generate profits. Investors generally vote yes to mergers like this.

The story in India is different, because one of the competitors is Reliance Group’s Jio Infocomm which has a 4G mobile broadband network . Jio is owned by the India’s richest man and he has been offering free services for months. Free means that every cellphone holder in India has examined switching to the Jio network and the competition has to be competitive which sent prices falling making margins thin and profits lower. There maybe a good reason why Reliance is free, the Group could be using the cellphone customer base to cross sell other features; the owner could be upset with the competitors; the owner could be partially acting for the government’s interests (Reliance has infrastructure operations as well as finance and entertainment subsidiaries). Whatever the reason, Reliance has changed the cellphone market in India.

Linking to dividend paying stocks, the ideal for dividends is a monopoly like conditions where prices can be influenced upwards, not set but generally be raised to cover costs and protect margins. In India it was possible to disrupt the cellphone market, which means if the competition has access to capital it can; generally it does not. The ideal dividend stock can help set prices upwards and keeps margins healthy for profits to be made and dividends to be distributed. Change sometimes means new entrants into the market who see those fat margins.

There are more questions than answers, till the next time – to raising questions.