Cellular operators to focus on quality service

By Ramnath Subbu

MUMBAI, AUG. 19. The recent developments in the Indian cellular phone industry indicate that large scale consolidation is taking place. There are three big players in the industry - Bharti, Hutchison and the Birla-Tata-AT&T-BPL (Batata) consortium and to some extent Escotel.

In the bids for the fourth cellular licence for 17 circles, Bharti bagged eight circles, Escotel four, Hutchison three and Reliance and Birla-AT&T-Tata-BPL combine one each. The fourth round of bids was open only to private players.

There were 40 operators five years ago when cellular operations commenced and today about a dozen players provide the service in this Rs. 5,000 crore industry with five of these controlling 90 per cent (44) of the 51 cellular circles operated by the private companies. The other players are Aircell Digilink and Spice Communications with two circles each and Aircel, Koshika and Shyam Telecom one each.

The cellular phone market grew 94 per cent in 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). In the last 12 months, it grew by around 90 per cent with metros accounting for 73 per cent. According to Mr. Sanjeev Aga, CEO, Birla-Tata-AT&T, ``The industry has been growing at a healthy pace and in the current year also, it will grow at least at the same rate as last year.''

The Department of Telecommunications (DoT) is planning to invite fresh bids for the fourth cellular circle licences in Bihar, Orissa and West Bengal. There were no takers for these circles in the last round of bidding.

While Reliance is the only operator in West Bengal, there are two operators in Orissa and Bihar - Reliance and Usha. But the Usha group defaulted on licence fee payment and the DoT cancelled its licence leaving Reliance the only operator in these States.

What started off as a rate war with operators competing on subscription and airtime rates, it is now focussed more on quality of service and coverage. But the rate war that took place since the beginning of the year has ensured that the customer enjoys rates which are close to if not the lowest in the world. The tariff cuts will ensure expansion of the market, that is, subscriber base and the projections of touching the five crore mark by 2005 now seems a distinct possibility.

``I do not think that the tariffs can go down further. They are already the lowest in the world in dollar terms. Reducing rates too much could impact the profitability of the operators. But in this competitive market, one cannot rule out cuts especially now with the entry of the fourth operator.'' said Mr. Aga.

Birla AT&T, Tata Cellular and RPG Cellcom combine have decided to restructure and refinance the Rs. 2,000 crore debt. Accordingly, the existing debt of each of the three entities would be transferred to the combined entity and common set of terms would be put in place.

The Birla-Tata-AT&T merger boasts of a subscriber base of more than 10 lakhs. Birla-Tata-AT&T (Batata), the new entity emerging from the merger between Birla AT&T Communications (BACL) and Tata Cellular (TCL), has mandated IDBI, Bank of America and Deutsche Bank for restructuring and refinancing outstanding loans of about Rs. 2,000 crores in respect of four existing circles, namely, Gujarat, Maharashtra, Andhra Pradesh and Madhya Pradesh.

The restructuring will bring all the existing lenders of BACL, TCL and RPG Cellcom into one common facility with substantial savings in interest costs. The restructuring will be concluded within three months. BACL and TCL were the first two cellular operators to achieve financial closure in 1997. Birla-Tata-AT&T has drawn up a long term business plan which will be presented to the lenders shortly.

In the last 12 months, its subscriber base grew by 130 per cent as compared to the national average of 90 per cent and 73 per cent for the metros. The company is implementing a Rs. 900 crore capex plan for the four circles which was kicked off in May 2000. It expects to be cash positive during 2002-03 consequent to infusion of fresh equity by sponsors and a smart and continuing improvement in financial performance.

The company announced its intention to merge cellular operations with the BPL group. ``Once we complete the merger of BPL, we will cover 60 per cent of the Indian market. We are fundamentally a cellular company focussed on giving outstanding network quality, coverage and value added services. We will always be among the leading companies to bring in new technologies,'' said Mr. Aga.

Bharti Cellular has come up trumps in the fourth round of bidding and now has a presence across the country and will be operating in 14 circles. The group is looking at merging all the cellular companies into Bharti Cellular and the circles will all be 100 per cent owned. Reportedly, it has initiated talks with its partners in Skycell in which it already holds 40 per cent. The Bharti group is also likely to rename the Skycell venture in the next few days. Following the acquisition of the Kolkata based SpiceCell operation from the BK Modi group, it was renamed Bharti Mobitel.

Hutchison is likely to pick up a significant stake in Aircel Digilink which is owned by the Essar group. Aircel operates cellular services in Rajasthan, Haryana and Uttar Pradesh (East) and is now in dispute over rights for the Punjab circle with DoT. Reportedly, Hutchison has already begun work on consolidating its circles into one merged entity in order to facilitate an initial public offering (IPO) in future.

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