Lower CDMA royalty, cheaper connections expected

Kripa Raman

While CDMA being a proprietary technology, GSM is based on open standards. Reliance is paying over Rs 600 per chipset to Qualcomm in royalties.

Mumbai, June 13

Reliance Communication's entry into GSM in a big way could eventually bring down costs on its CDMA business as well and help it breach into an even lower socio-economic customer base.

CDMA being a proprietary technology, Reliance ends up paying around $14 or over Rs 600 per chipset to US-based Qualcomm in royalties. The chipset is the key component of the mobile handset, and its cost is passed on to subscribers.

Reliance's entry into GSM not only means savings on these royalties, but it would also help it drive a harder bargain with Qualcomm for reduction in royalties, said industry sources. GSM is based on open standards, with no royalties involved.

Rural entry

Any substantial reduction in royalty could make CDMA handsets that much cheaper. CDMA royalties, for instance, range between $2 and $3 per chipset in China, said industry sources. A substantial reduction will bring down entry costs, and allow easier penetration into small town and rural areas for which CDMA is currently considered more appropriate.

Many benefits

Although analysts have attributed Reliance's application for GSM chiefly to the proposed acquisition of spectrum that the defence forces will vacate shortly, the side benefits would be many too, they said.

It will cost Reliance little to overlay a GSM network on its existing CDMA infrastructure and set up GSM equipment at its CDMA towers.

Domestic roaming on prepaid would also become easier for Reliance subscribers if they take up GSM. If a taxi-driver should take a month off to spend time in his village, he does not want to pay roaming rates, even though CDMA roaming rates are currently cheaper than GSM, said analysts. With a GSM handset, he can simply change his SIM card for a small cost and remain connected.

Global roaming

The chief advantage of GSM technology is that it allows seamless international roaming. High networth individuals, who use international roaming, have already been captured by existing GSM players.

But going ahead, Reliance could in its typical style offer good bargains on international roaming and even offer services through GSM/CDMA dual mode handsets. The early markets for this will probably be Mumbai and Delhi where Reliance has applied for GSM spectrum.

(This article was published in the Business Line print edition dated June 14, 2006)
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