The Hindu Business Line : Telecom battles just got bigger

HERALDING the next phase of robust growth, the mobile phone industry has notched four straight months of record subscriber additions. In December 2005, the GSM mobile additions at 3.2 million touched a new all-time high, topping three months of record subscriber additions of over 2 million every month. The second half of calendar 2005 proved to be a cauldron of intense activity, marked by innovative tariff schemes, mega deal making and broader mobile penetration. In this backdrop, three key trends that are set to dictate the course of events in 2006 are:

Price sensitive tussles

The battle has been shifting decisively in the past few months to the price sensitive B (such as Kerela, West Bengal, Punjab) and C (Bihar, Orissa, Himachal Pradesh and North East) circles. The growth in the highly penetrated metros and A (Gujarat, Maharashtra, Tamil Nadu, Karnataka) circles is getting saturated. Compared to 3 per cent growth logged in the metros and A circles, among GSM mobiles, the growth in B and C circles have averaged 5-6 per cent consistently in recent months.

For instance, in the C circle with a low subscriber base, mobile subscriber numbers have doubled over the past year and in recent months; the growth rate has averaged 8-10 per cent.

And this trend has been playing to the strength of the public sector behemoth, Bharat Sanchar Nigam (BSNL). It added 1 million subscribers in December 2005, higher than the additions by Bharti or Hutchison Essar. This was the second successive month in which subscriber additions by BSNL outpaced its peers, reversing the drift seen in the earlier months, when Bharti's additions were higher. As the top five players are aggressively building network capacity in B and C circles, the possibility of more price wars appear to be in store in 2006. As regulatory levies (both revenue share and spectrum allocation charges) start coming down, it is likely to expand the scope for further reduction in tariffs.

Usage in focus

The focus of the mobile battle is steadily changing from average revenue per user (APRU) to effective realisation per minute per user.

The market share battles seen in mature Asian markets such as Korea suggests that a company with the highest market share can enjoy operating margins nearly 8-15 per cent higher than the third or fourth ranked player. Clearly, the combination of higher revenues, economies of scale in operations and larger footprint can make a big difference to margins.

The difference in mobile subscriber base of the top five players — Reliance, Bharti, Tatas (including Idea), BSNL (if MTNL is included subject to the merger) and Hutch — is hardly 3 million, ranging between 17 million for the largest and 14 million for the lowest ranked player. As the consolidation process in the mobile arena is at a fairly advanced stage, with Spice Telecom alone left in the fray, the stage is set for an aggressive and bruising battle for market share.

Tariffs, the core

The lifetime offers announced by the top mobile players has already set the playing field for the next round of tariff wars. What started off as an innovative two-year offer for prepaid subscribers from Tata Teleservices on the CDMA platform, a laggard in the mobile race, has morphed into a lifetime offer, across both GSM and CDMA. This offer, which will allow prepaid subscribers to retain a single number for life on payment of an initial fee of Rs 999 is likely to open up the lower end of the mobile market.

As prepaid subscribers are expected to dominate this subscriber growth phase in telecom, these offers make eminent sense. This scheme is applicable to subscribers with a range of mobile handset options. As low cost mobiles launched by different mobile operators proliferate and second-hand mobile market remains vibrant, this plan could be the next big growth driver.

Concurrently, the One India tariff plan announced by the Communications Minister could also change the pricing trends in mobile telephony. In a New Year gift unveiled for its CDMA subscribers, Reliance Infocomm will let pre-paid and post-paid subscribers in one specific plan to call from anywhere in the country to any mobile or fixed line at Re 1 per minute.

If there are no legal glitches to this plan, there will be a flurry of competitive offers from other mobile operators soon.

More Stories on : Insight | Telecommunications | In Focus

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page