The Hindu Business Line : Crossing the divide

This is a move that has baffled everyone in the industry. The decision by Reliance Communication to expand its mobile services using GSM technology has caught the industry by surprise. The surprise element is, the same Reliance that over the past six years coughed up a handsome fortune fighting legal battles against the GSM camp, on various issues ranging from WLL limited mobility to spectrum, now seeks to join it. The gravity of the decision assumes larger dimension when one considers that Reliance Communication has invested a few thousand crores in setting up a state-of-the-art mobile network across the country using the rival Code Division Multiple Access (CDMA) technology and has garnered 20 million subscribers in just over four years.

So why is the Anil Ambani-promoted telecom company now talking of GSM?

The Qualcomm factor

The official reason is that the company wants to harness the best of both technologies, GSM and CDMA, and is looking to offer a mix of the two. After all, even the state-owned Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd are rolling out millions of lines of both GSM and CDMA services. But there's more than that.

Market watchers point out that Reliance's move could be part of a three-pronged strategy, including getting Qualcomm to reducing its royalty charges in India, which, in turn, will enable cheaper CDMA handsets.

"While Qualcomm charges only 2 per cent royalty in China, it charges a 7 per cent royalty in India. Reliance has been asking for a reduction in the royalty and the announcement to shift to GSM may put pressure on Qualcomm to effect a cut in the fee. If Reliance stops procuring CDMA equipment it could prove disastrous for the entire CDMA chain, starting from Qualcomm at the top, to manufacturers such as LG and Samsung," says an analyst. Qualcomm has denied any overcharging of fee in the Indian market and has said that the royalty here is the lowest in the world. Nevertheless, the Reliance announcement has surely caused enough panic that Qualcomm's worldwide Chief Executive Officer, Paul Jacob, is scheduled to fly down to India shortly.

Tapping the GSM potential

The second part of the strategy seems to take advantage of the GSM business environment. For one, this is not the first time that Reliance is foraying into GSM. It had bagged licences to offer GSM services in six circles, including North-East, Bihar, Orissa and West Bengal when the Government opened up the mobile sector for the first time for private players.

In a bid to expand its footprint, the company put in two separate bids to acquire GSM licences across 15 circles during the bidding for the fourth cellular licence held a few years ago.In fact it had put in two separate bids under different company names.

However, with Bharti and Idea Cellular bidding higher, the gates were shut for Reliance.

It was only when Reliance had no option to expand its existing cellular business, consisting of the six GSM cellular circles, that it decided to take the CDMA route.

And now with the Government taking a technology-neutral stance and allowing operators with unified access licence to deploy either GSM or CDMA, Reliance is seeing yet another opportunity to get into the GSM space.

Advantage GSM?

Why GSM? Consider these facts — 75 per cent of the new subscriber base in the mobile segment is happening on the GSM platform. Eighty per cent of the total mobile population is a GSM subscriber.

While CDMA is considered to be more efficient, GSM has more volumes because of which handset manufacturers and equipment vendors offer a better price on GSM handsets and equipment.

While the GSM Association, the global industry body representing the interests of GSM operators is enabling GSM handsets which are sub $20, Qualcomm, the global promoter of CDMA technology, is still talking of sub-$50 handsets. Qualcomm has, however, pegged the difference between GSM and CDMA handset price at only $3.

"In a competitive and price-sensitive market such as India, a small difference in price matters a lot for the consumers. And with operators' margins decreasing with steep reduction in voice tariffs, the difference of a few cents can make or break a business," says a market analyst.

Sources close to Reliance say the company will have the flexibility to deploy third generation services (3G) using the more efficient CDMA even at a higher cost and at the same time take on GSM players such as Airtel and Hutch on their own turf by offering cheap voice calls on a GSM network for the mass market.

Spectrum policy

The third part of the strategy seems to be to take advantage of the Government's spectrum policy. At present, GSM operators such as Airtel and Hutch get double the spectrum that a CDMA operator gets. Reliance could be eyeing the 45 Mhz of spectrum, essentially meant for GSM services, which the Government is expected to make available by November after the defence forces vacate it.

Mixed welcome

While the Cellular Operators Association of India (COAI), the GSM lobby in India, has officially welcomed Reliance's decision, some of the operators are concerned with the fact that they will have to share spectrum with one more operator.

"Already there are four GSM operators in each circle desperate to get spectrum. If Reliance also comes then there will be one more mouth to feed even as the Government is finding it tough to find radio frequency for the existing operators," says a private cellular operator.

For the consumers, Reliance's foray into the GSM segment could bring further cheer in the form of price cuts. Apart from getting one more option of service provider, consumers can hope for Monsoon Hangama type offer, which Reliance had announced while launching its CDMA-based mobile service.

tkt@thehindu.co.in

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