Cellular operators bet on rate cuts to grow

By Ramnath Subbu

MUMBAI, JAN. 21. The cellular phone market in India is in the midst of a churn. The market reportedly grew 94 per cent in calendar year 2000 and touched 31.1 lakh subscribers against 16 lakh subscribers at the beginning of 2000 according to the Cellular Operators' Association of India (COAI).

The basic services provider in the public sector, Mahanagar Telephone Nigam (MTNL), which is the third cellular service licensee in Delhi and Mumbai, last week threw the cellular phone market in a tizzy when it announced its Dolphin cellular service in Delhi at Rs. 1.50 per minute for incoming calls and Rs. 2.70 per minute for outgoing calls. The company will make the services available in Delhi from January 31 and in Mumbai from February 28. MTNL also announced that it would provide only one lakh cellular connections each in the two metros. Not surprisingly, there has been a scramble for registration forms in Delhi.

The other public sector basic services provider, Bharat Sanchar Nigam (BSNL), which was spun off from the Department of Telecommunications (DoT), is to began offering cellular services beginning January 31. It's foray into the cellular market will take place in two phases, with 15 lakh connections projected in the first phase. It will invest Rs. 600 crores in this phase. The company is targeting 25 lakh connections in the second phase at a cost of Rs. 1,000 crores. The services will be launched in Kolkata, Haldia, Patna, Chennai and Hyderabad on January 31. The company is to roll out its wireless in local loop (WLL) services in February in urban areas and in March in rural areas.

It is expected that the entry of WLL based phones and MTNL or BSNL as the third cellular operator in each circle will lead to more intense competition. MTNL and BSNL's cellular services are expected to bring down rates. Also, it will impact the established players in existing circles and break the present duopoly.

With the government decision to let basic operators offer limited WLL-based mobile services along with a cut in revenue sharing rates for the cellular operators, by five percentage points from 17 per cent, fixed line operators will be able to offer mobile services within a restricted area in each circle and this will add to the competition in a dramatic way.

Already, Hutchison promoted Command, in Kolkata has cut rates for incoming calls to Rs. 3 and for outgoing calls to Rs. 6 per minute. Spice Cell, the second operator in Kolkata, has cut its monthly rental to Rs. 475. In Punjab, Spice has dropped its tariff charges by 33 per cent for incoming airtime rates where the user will pay Re. 1 per minute.

Hutchison-Essar Telekom, one of the cellular operators in Delhi, has announced new tariff rates including a cut in incoming and outgoing call rates. This includes a monthly rental of Rs. 395, Rs. 1.60 per minute for incoming calls and Rs. 2.80 for outgoing calls. Another plan includes Rs. 495 monthly rental, Re. 1 per minute for incoming calls and Rs. 3.96 for outgoing calls.

Airtel, part of the Mittal owned Bharati TeleNet and the second cellular operator in Delhi, has announced rentals of Rs. 400 with outgoing calls at Rs. 2.80 and incoming calls at Rs. 1.60 per minute.

It also announced an STD service for customers within Andhra Pradesh (its licence area) whereby a call made from Airtel mobiles to a land link in towns where it is present, will be treated as a local call except for the air time and PSTN charge. Users will pay only a third of the STD charges for 24 towns and cities in AP. By September, it plans to add a further 35 towns.

Among other players, Birla AT&T, which is operational in Pune, is also moving into interior Gujarat. Aircel TN, the cellular licensee for the Tamil Nadu circle, will bid for the Chennai circle once the TRAI invites bids from private players for the fourth licence. It currently provides mobile telephony in Tamil Nadu outside Chennai where the two players are RPG Cellular and Skycell (in which Bharti Telecom has a major stake).

The company is rolling out a Rs. 200 crore expansion drive to spruce up its network in Tamil Nadu by setting up more base stations and adding more towns. BSNL has already announced plans to launch cellular services in Chennai.

Spice Cell, promoted by the BK Modi group, which provides cellular services in Karnataka, Punjab and Kolkata circles is to be merged with the group company Spice Communications. The Modis hold around 45 per cent stake in Spice Cell.

Fascel, operating in the Gujarat circle, had a cellular customer base of 1.5 lakhs in December 2000 and plans to touch three lakhs in 2001. It plans to unveil GPRS and WAP services in phases. While the Hutchison Whampoa group holds 49 per cent in Fascel, the Hinduja group and Kotak Mahindra hold 40 per cent and 11 per cent respectively.

With further tariff cuts almost inevitable, operators on their part, expect lower margins but higher volumes to make up. The tariff cuts would definitely go a long way in expanding the size of the market, that is, the subscriber base and the projections of touching the five crore mark by 2005 now seems a distinct possibility. According to Mr. Asim Ghosh, managing director, Hutchison Max Telecom (India), ``The market will continue to grow especially in an environment of reduced prices. As long as we have a level playing field and there are no cross subsidies to new entrants, we will be able to take on any player.''

But a question that comes up is the ability of the operators to break even, what with tariff cuts and squeezed margins. It is unlikely they will do so as per their projections. Reportedly, till December 2000, the accumulated losses of the cellular phone industry was in the vicinity of Rs. 7,500 crores. While the industry is poised for interesting days ahead, thanks to MTNL and BSNL, now the customer, at least in the cellular phone industry, is king.

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