The Hindu Business Line : The mid-flight pause

Players in the telecom industry feel that it is time for it to pause, iron out existing regulatory or other issues, consolidate and move forward. For the consumer, this might turn out to be yet another blessing.

IT may seem almost heretical to even voice a view that mobile subscriber additions are appearing to plateau off in India. After all, the GSM camp alone has been adding over 1.35 million subscribers every month over the past four to five months. And even in the latest month (March 2004), the subscriber additions were a robust 1.5 million. Last month, however, such a statement came as a bolt from the blue and that too from none other than the Cellular Operators Association of India (COAI) spearheading the interest of the GSM operators.

Releasing the mobile subscriber additions for March 2004, COAI said that, ".... there is increasing concern that the subscriber additions trend is appearing to plateau off. This is particularly disturbing against the background of the aggressive teledensity targets that the industry wishes to achieve."

Fortunately, this COAI statement on a possible flattening of mobile growth passed off without even a ripple, as the industry had placed it quickly in the right context. Clearly, the association was concerned about finding ways and means of taking the subscriber additions from the current levels to over 2-2.5 million or more to achieve the teledensity targets. Reiterating this aspect, Sunil Mittal, Chairman and Managing Director, Bharti Tele-Ventures pointed out recently in a conference call that it is time for the industry to pause, iron out the existing regulatory or other issues, consolidate and then move forward.

For consumers who have already reaped rich rewards of competition in terms of lower tariffs and wider choice, the latest development may turn out to be yet another blessing. But that is provided the future pans out along these lines:

Bundled offers in mobile: In the next phase for the mobile industry, aggressive growth may emerge only through greater innovation in handset purchases. There is no doubt that over the past year and a half, there has been a crash in handset prices by nearly 60-70 per cent, bundling of handsets with minutes by different mobile operators and even attractive handset finance schemes to increase affordability.

But it appears that the time has come for the bundled services (of handsets with tariff offers) to be taken to a higher level. As Pradip Baijal, Chairman, Telecom Regulatory Authority of India, indicated late last year, customers in India need to be offered the option of getting the mobile handset free with tariff plans, or at least at heavily subsidised rates. Currently, the bundled deals for handsets are either at full down payment or have easy payment or finance schemes attached to them, be it Bharti's Airtel handset bundling with Motorola or Idea Cellular and Airtel's recent handset deal with Samsung.

The next leap in growth will probably come only when the handsets are either available free of cost or at substantially lower prices. Reiterating this view, T.V. Ramachandran, Director-General, COAI, says that eliminating the handset entry barrier, which stands even now at Rs 2,000 - Rs 3,000 will pave the way for aggressive growth. And this is the trend which has worked well in the developed countries such as the US and Europe. Sooner or later, the industry has to start moving in this direction.

Dynamics of inter-circle connectivity: At present, the mobile operators have to per force carry the mobile inter-circle (between two circles) long distance calls through national long distance operators. This is irrespective of whether they have a national footprint or operate in contiguous (adjoining geographical areas). It may only be a matter of time before the government (in consultation with TRAI) will allow direct inter-circle connectivity among mobile operators for national/international long distance calls. Four of the top five operators in the country, with the exception of Hutch, namely, Reliance Infocomm, Bharti, Bharat Sanchar Nigam, Idea Cellular/Tata Teleservices are integrated telecom players. If and when direct inter-circle connectivity is permitted, these four operators will be in a position to exploit the potential of inter-circle connectivity with aggressive tariff plans which bundle national and international long distance minutes. This will probably be the next stage in mobile service innovation/differentiation among these players. It will be interesting to see how Hutch as a standalone mobile player will rise to this challenge.

Faster consolidation possible: The two recent deals of Idea Cellular acquiring the six-circle operation of Escotel and Bharti sealing the deal recently with Hexacom (with Rajasthan and North-East circle) show that consolidation of at least the smaller players is happening at a faster pace than expected. The markets have been buzzing with rumours of Sivasankaran's Aircel (operating in Tamil Nadu and Chennai) selling out. Along with Aircel, Spice Communication (in Karnataka and Punjab) and BPL group (in Maharashtra, Mumbai, Tamil Nadu and Kerela) are the only relatively smaller players who are holding out. Considering that these operators are sitting on a huge debt and do not enjoy the economies of scale of a pan-Indian operation, they may eventually sell out, if the price is right. In all probability, if other regulatory hurdles such as spectrum, FDI ceiling, direct inter-circle connectivity and lower revenue are cleared, the consolidation moves may take place sooner than expected.

maverick@thehindu.co.in

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