The Hindu Business Line : What the buzz was all about

THE year 2005 proved to be one of mega deal-making in the telecom sector. In end-December, when Maxis Communications Berhard, Malaysia, along with the Chennai-based Reddy family, decided to buy out the mobile operations of the Sivasankaran-promoted Aircel for Rs 4,860 crore, it epitomised the heightened deal-making spirit that pervaded the whole of 2005.

The consolidation activity that had hit a rough patch in the mobile sector in 2004 started falling into place by the middle of the year.

The first of the mega deals off the block was the promoters of BPL Communications (operating in Mumbai, Maharashtra, Kerala and Tamil Nadu) selling out their stake to Hutchison Essar at an enterprise value of Rs 4,400 crore in July.

And by October, when the amended FDI regulations were put into place, the stage appeared set for Vodafone Plc, the world's largest mobile operator, to make a dramatic re-entry into the Indian markets.

A smart move by Bharti Tele-Ventures promoter Sunil Mittal helped Vodafone pick up a 10 per cent effective stake in Bharti paying a staggering sum of Rs 6,700 crore.

As this landmark deal, which can prove to be the game changer in the mobile arena, was inked, it ensured that regulatory battles, scorching growth in mobile subscriber base and availability of low-cost mobiles ended up as mere sideshows in a dramatic year for telecom.

Trends to watch

In this backdrop, the trends shaping the mobile sector in 2006 could play out across two dimensions:

Operational dynamics

Since 2005 has already provided the right momentum to the mobile sector, the key events that are expected to dominate the sector are:

BSNL/MTNL to hog attention: Unlike the previous years, the PSU behemoth, Bharat Sanchar Nigam is likely to dominate the attention of the sector in the first quarter and maybe the rest of the year. The `mother of all tenders' from the PSU behemoth for 60 million GSM lines involving an investment of nearly $5 billion is likely to be opened early this year. Practically every single telecom equipment manufacturer of repute, ranging from Alcatel, Ericsson, Siemens, Nortel and Nokia and even Chinese manufacturers such as ZTE and Huawei, wants a piece of this action.

Apart from this tender, it is also likely that the BSNL-MTNL merger that has been hanging fire in 2005 may take some shape during the course of this year. I-Sec, as one of the key advisors, has outlined some options for putting through this merger. If it goes through, the combined entity will prove to be a formidable force in the mobile space.

Battle for marketshare: The mobile markets are also priming up for a no-holds-barred battle for market share. Since the metros and A circles have reached high levels of penetration, the battle for market share is shifting to the price-sensitive B (such as Kerala, Punjab, West Bengal) and C (Himachal Pradesh, Bihar, Orissa and North East) circles. The possibility of a price war is fairly high as the private sector players are building up capacity aggressively in the B and C circles to compete head-on with BSNL that already has an entrenched presence.

Consolidation at an advanced stage: With BPL and Aircel deciding to sell out, the consolidation in the mobile arena has reached a fairly advanced stage.

It leaves the standalone playing field open to only two players: Idea and Spice Telecom. Since Tatas and Birlas have only recently acquired the stake from Cingular Wireless in Idea, they will be exploring several options such as bringing in a new strategic partner or coming out with an IPO to finance its expansion plans. Since Tatas are playing aggressively along the CDMA plank through Tata Teleservices, their plans for GSM will play a role in the future strategy for Idea. For Spice, which is embarking on a major expansion drive, it will be only a matter of time before it capitulates to the process of consolidation.

IPO rush: The two key initial public offerings that are expected to hit the markets this year are Hutchison Essar and Reliance Infocomm. Hutch has managed to get its act together from several angles, making it a strong contender in the IPO race. Reliance Infocomm, coming under the Anil Ambani banner since the Ambani settlement, will also be speeding up its plans for an IPO, before `new paper' overhang and competition put pressure on valuation.

Marketing/regulatory angle

While the price wars will reach a feverish pitch in 2006, innovation in marketing will also keep pace. This, however, will be subject to a relatively benign influence of regulation. As the mobile market begins its march towards a target of 200 million by the end of 2007, some of the trends that will play out are:

Lifetime/One India offers: The lifetime offers that have been announced by practically all the players for prepaid subscribers is going to be the next battleground in marketing. Typically, this scheme will allow prepaid subscribers to retain a single number for life on payment of an initial fee of Rs 999.

This is expected to prise open the price-sensitive lower end of the market and also address issues of churn. What started off as a two-year offer from Tata Teleservices, countered by a three-year offer by Reliance Infocomm has morphed into this lifetime offer. Since the regulator is now studying the validity of these offers, there is a streak of uncertainty surrounding them. If this is cleared, it will be a big play for the year.

The One India tariff plan, unveiled by the Communications Minister, has already found a willing taker in Reliance Infocomm. Calling it a New Year gift for its CDMA subscribers, Reliance has announced one specific plan in prepaid and postpaid, which will let subscribers call from anywhere in the country to any mobile or fixed line at Re 1 per minute.

The other mobile operators are expected to respond to this competitive offer in the next few weeks.

Bundled offers and MVNOs: The bundled offer packages (with cheap subsidised handsets) that staged an appearance in 2005 will make a comeback with low-cost mobiles in 2006.

It is also likely that the regulator, in order to infuse higher competition, will consider allowing Mobile Virtual Network Operators (MVNO) in the Indian markets. MVNOs typically team up with an existing mobile operator and resell airtime or access to that network under its own brand.

Recently, Richard Branson of Virgin Mobile indicated that he was planning to launch MVNO services in India.

However, this plan remains fuzzy as NTL is planning to acquire Virgin Mobile.

Irrespective of this, this concept is likely to take off and lead to a finer segmentation of the market among youth, middle-aged and older customers. Once 3G services are launched, there will be greater scope to provide a wide range of value-added services through this concept.

Start of 3G services: By the first quarter of the year, if the Government and regulator can untangle the spectrum allocation process, third generation mobile telephony (also known as 3G) is set to take off this year. It will prove to be a tricky battle as the core of the dispute relates to opening up of 1900 MHz spectrum, which GSM wants exclusively for 3G, while CDMA proposes to use it for regular and 3G services.

maverick@thehindu.co.in

Picture by G.R.N. Somashekar

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