The Hindu Business Line : What is the right cell number?

THE TELECOM REGULATORY Authority of India's recent move to introduce stringent reporting norms on subscriber base by mobile companies is a step in the right direction. In the absence of uniform reporting norms, mobile operators have been using different methodologies to arrive at what is well likely to be an inflated subscriber base. And as this number has significant implications for valuation of companies and spectrum allocation, its integrity assumes considerable importance.

TRAI regulators' proposal has rightly suggested that mobile connections that have not generated revenues for more than 30 days be excluded from the subscriber base. The impact of this proposal will be felt mainly on the number of pre-paid connections, which account for over 70 per cent of the total GSM subscriber base. Since most operators wait 90 days before deleting from their database the pre-paid users who have not recharged, there is considerable scope for double counting as these customers may have switched to another service provider drawn by the attractive deals offered by the fiercely competing operators. Recent studies show that the monthly churn among Indian GSM subscribers at 7-8 per cent over the past two years is significantly higher than the 2-3 per cent for the Asia-Pacific region (including China).

To top it all, with two key CDMA players — Reliance Infocomm and Tata Teleservices — launching pre-paid services last year and the mobile penetration in non-metros set to grow, the proportion of pre-paid numbers is bound to go up. In its latest quarterly earnings statement, Reliance Infocomm indicated that 80 per cent of incremental additions to its subscriber base has been of pre-paid customers. Tata Teleservices has also managed to notch up fairly impressive numbers since its pre-paid service launch in November 2004. The problem of inflated numbers is not as acute in the case of post-paid mobile subscribers. But with the tariff differential between pre- and post-paid connections coming down sharply during the year, the migration to the latter may also account for some of the overstatement. With the recent launch of zero rental schemes and bundled mobile offers that subsidise handset costs, savvy shoppers may either keep multiple accounts with one operator or migrate between service providers, intensifying the problem of inflated subscriber count.

If TRAI strongly believes that the subscriber numbers are materially inflated, it may consider ordering an independent study on the subscriber base in the country. It is significant to note that an independent research study in South Africa in December 2004 reached the conclusion that the country's mobile subscriber base was routinely overstated by 20 per cent the previous five years. Only an independent study can reveal the true numbers. Given that the Indian stock market has tended to value telecom companies at the rate of about Rs 15,000 a subscriber, operators may not be able to resist the urge to fudge the numbers.

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