The Hindu Business Line : Slowing down

WHEN the mobile subscriber base in India crossed the 30-million mark in February this year, nearly doubling in nine months, it was widely believed that the mobile industry had reached the `tipping point.' As Malcolm Gladwell says in his bestseller with this title, it is a magic moment when ideas, trends or social behaviour cross a threshold, tip and spread like wildfire. After resolving the wireless-in-local-loop controversy in December 2003, both the industry and the regulator felt that there was a potential to add 2.5 to 3-million subscribers every month comfortably over the next year or two.

But, in less than four months, by early April, the Cellular Operators Association of India (COAI), representing the interest of the GSM operators, sounded a warning that the subscriber additions trend was beginning to plateau off. This has been borne out by the mobile subscriber numbers between April and June this year, with additions of 1.3 million in each of these three months compared to an average of 1.7 million in the six earlier months.

If we look back at the growth of the overall mobile industry in India, along with new subscriber additions over the past year, two trends dictating the growth patterns become evident.

Scheme-driven growth: On the marketing side, the launch of Reliance India Mobile's Monsoon Hungama offer tipped the scales in favour of the mobile industry. In early July 2003, Reliance Infocomm provided customers with multimedia handsets and wireless connectivity at just Rs 501 (with additional payments to be made over the next couple of years). At that point, it was a win-win for both the consumer and Reliance Infocomm. The mobile frenzy that it unleashed was inevitable, as the offer price was irresistible for the consumer. And for Reliance, which was aiming to establish its presence as a full-fledged mobile service operator, it was a sound strategy. The mobile subscriber numbers that Reliance needed to tot up to strengthen its fait accompli in the WLL segment was offered by this scheme, especially after its much publicised Dhirubhai Ambani Pioneer Scheme failed to have the desired impact.

The mobile subscriber additions over the next few months tell the true story. In July 2003, Reliance added 1.1-million subscribers compared to 0.43 million in June 2003. Additions continued to be robust in the next three months, with Reliance adding 0.6 million on an average between August and October 2003. Compare this to an average subscriber addition of 0.3 million between April-June 2004 and the power of the Monsoon Hungama offer becomes obvious. Even the launch of the attractive Reliance `prepaid' offer early this year has had only a limited impact on mobile subscriber additions so far. If we adjust for the impact of the scheme, the subscriber addition average falls dramatically, despite select schemes by Bharti (such as its Sachin Invitation Plan), Hutchison and Bharat Sanchar Nigam (BSNL) doing well.

Metro/circle a focus

: The Metro/Circle A tilt was the key element which dominated the mobile subscriber addition in the second half of calendar 2003. This is evident from the fact that between June and December 2003, Metro/Circle A (covering key states such as Gujarat, Karnataka and Andhra Pradesh) contributed to 65-70 per cent of the net subscriber additions. Reliance apart, Bharti, Hutchison and IDEA Cellular have together contributed to this huge addition. Moreover, during this period, as the incumbent BSNL's strategy was focussed on the neglected B and C circles, the overall growth momentum remained fairly strong.

A combination of factors has played a role in steadily slowing the mobile subscriber additions in the first six months of 2004. First of all, as the operators (such as Bharti or Hutchison) started adding more low-paying subscribers in Metro/Circle A, they have started focussing on the B Circle. This strategy, without BSNL sharing its infrastructure or entering into roaming agreements with the private sector operators, will take a longer time to pay off. BSNL's strategy of enhancing its Circle A presence may also take longer than expected, if their network expansion plans are anything to go by. Finally, the GSM-CDMA split may slowly get skewed in favour of GSM operators, as Reliance's aggression has tapered off in the past few months and Tata Teleservices has only recently entered into investment mode on an aggressive scale.

No near-term trigger

The mobile subscriber additions at 1.3 million per month continue to remain strong, but there is no near-term trigger that will help scale-up mobile subscriber additions to the 2.5 to 3-million-per-month mark.

The COAI feels that if several lingering concerns of the mobile industry are addressed, it will be in a position to leap to the next stage of growth. The concerns are:

Reduction of Access Deficit Charge payable by the private operators to BSNL.

Removal of high tax levies in terms of revenue share.

Paucity of spectrum, particularly in metros.

Rework the definition of `Adjusted Gross Revenues' to make for bundling of handsets attractive.

FDI hike to 74 per cent (from 49 per cent) as proposed recently in the Union Budget.

BSNL to share infrastructure with private operators.

There is no doubt that these contentious issues have to be addressed as soon as possible. But, the mobile industry constituents may have to introspect whether these will be enough to scale up the mobile additions. Or does the industry need another big-bang scheme?

maverick@thehindu.co.in

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