The Hindu Business Line : Timing the catch

When it comes to expanding one's customer base, the timing and strategy matter. eWorld analyses the rationale behind the special offer of a key telecom player.

DOES the mobile industry need a big bang scheme, of the Reliance's Monsoon Hungama kind made in July 2003, for the mobile subscriber base to start galloping again? Three weeks ago, this was the question we had raised in eWorld (in the issue dated August 2, 2004) in the wake of slowing additions to the mobile subscriber base (GSM and CDMA put together) in the March-June quarter. Reliance Infocomm has come up with a fitting reply, launching its `Independence Day Special' offer by reducing prepaid tariffs by 40-60 per cent and doubling the talk time available, compared to other competing prepaid services.

Reliance Infocomm's offer aims to buck the GSM mobile trend, where operators have been slowly increasing rentals and tariffs for roaming subscribers. Having succeeded with the Monsoon Hungama scheme in postpaid, Reliance is playing the affordability card again through its prepaid offering. But if we scratch the surface and examine the rationale and timing (and perhaps the inevitability) of this prepaid offer, three underlying factors become evident:

Safeguarding market share: Since September 2003, Reliance Infocomm has been the market leader in the mobile arena, with a market share in excess of 20 per cent. This leadership position is likely to be threatened by both Bharti and Hutchison (to some extent) by their aggressive consolidation moves. While Bharti has snapped Hexacom, Hutchison has acquired Aircel in the past few months. In turn, this has also led to the difference in marketshare between Reliance and Bharti steadily narrowing down from over 2 percentage points in the January to March quarter to less than 1.5 per centage points by July. The obvious inference is that in terms of net monthly subscriber additions, Bharti is slowly making inroads into Reliance's marketshare.

Balance between postpaid and prepaid: It has become imperative for Reliance Infocomm to strike a balance between postpaid and prepaid CDMA subscribers. The company had made a bad debt provision of nearly 16 per cent (of over Rs 400 crore) of its service revenues in 2003-04. After all, Reliance had offered only postpaid schemes till the launch of its prepaid services in February this year. These bad debts, among the highest in the industry, clearly highlighted the logistical, billing and collection problems associated with its celebrated Monsoon Hungama scheme of July 2003. As recently as a couple of months ago, Reliance came out with an attractive offer to convert its postpaid customers to prepaid. This offer allowed its existing customers before April 30, 2004, to shift from the postpaid to a prepaid scheme after settling all their outstanding bills. In return, the company waived all the instalments on the customer's handset and made it completely free. This offer was valid upto July 31. And finally, through the latest offering, Reliance is hoping to regain its magic touch a la Monsoon Hungama, without the downside of rising bad debt, as this whole offer relates to prepaid schemes.

GSM-CDMA tussle: The GSM-CDMA split in the mobile subscriber base analysed from June 2003 to June this year reflects the true status of CDMA technology. While the subscriber additions which were split 50:50 between GSM and CDMA in July 2003 (to coincide with the Reliance's Monsoon Hungama scheme) have swung steadily in GSM's favour, with 72 per cent of additional mobile customers opting on an average for GSM over the last ten months. Seen in this backdrop, Reliance's prepaid offer is an attempt to bring the GSM and CDMA subscriber base on a somewhat even keel. The fact that this offer is also timed to the launch of the Tata Teleservices prepaid offering is probably only a coincidence.

As the mobile subscriber base has nearly doubled to 39 million over the past year since the Monsoon Hungama offer, it will be interesting to see how effective Reliance is in garnering additional subscriber base. Riding on the Monsoon Hungama scheme Reliance had added 1.1 million subscribers in July 2003 and an average of 0.6 million subscribers in the next three months. Secondly, it will also be interesting to see how the GSM operators react to this Reliance offering, since they they have been focussed on enhancing their postpaid subscriber base.

Picture by P.V. Sivakumar

maverick@thehindu.co.in

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