TIPPING POINT M. Rajendran Businessworld (Edition: September 1, 2008) Along-awaited offer, about to be proffered; a sought-after date on the verge of being accepted; a bold proposition almost agreed to — and then your call drops! We've all been through this experience. India's cellphone network, once the country's pride and the most tangible symbol of success, is fast turning into a labyrinth of crossed policy wires and faulty corporate connections.
"Call is dropping?" a customer service agent recently repeated to an irate consumer. "Call is dropping, sir, because you are moving about." With mobile phones not expected to work when people are mobile, public disaffection with India's telecom companies (telcos) has been followed by investor disenchantment with telecom stocks. The total market capitalisation of the industry's three listed companies has fallen by 38 per cent in the last year, from a high of Rs 4,24,692 crore to just Rs 2,65,228 crore today. Driving the decline are falling average revenues per user (Arpus) telecom companies make every month. CDMA players Reliance Communications (RCom) and Tata Teleservices have seen their Arpus fall from Rs 176 in December 2007 to Rs 159 in March 2008, according to the Telecom Regulatory Authority of India (Trai). GSM players Bharti Airtel and Vodafone's Arpus limped up by just 1.15 per cent to Rs 264, in the same period. In part, this is a reflection of a global trend. Monthly Arpus are expected to fall worldwide, from $20.16 (Rs 867) to $18.96 (Rs 815) by the end of this year, according to a report from Informa Telecoms & Media, a London-based telecom analysis firm. But in India, Arpus could fall even faster because of a mixture of a new policy barrage from New Delhi that is certain to hurt all existing players. New Delhi's first blow to the six telcos currently dominating the industry was the issuance of new telecom licences to six companies — Swan, Unitech, Loop, Shyam Telecom, Stel and Datacom. Even as Bharti chief Sunil Mittal was privately complaining that this increased competition would hurt, the government said it would allow global telcos to bid for new 3G (third-generation) telecom licences. This could also raise the number of players. And the official nod has also been given to mobile virtual network operators (MVNOs) such as Virgin Mobile, which will further fuel competition. The path to power The Gordian knot somebody wanting to claim conquest over Indian telecom will have to cut through is called VAS, or value-added services. The term refers to the various capabilities and utilities beyond vanilla voice and messaging services a 3G cellphone, such as the new Apple iPhone, could offer when running on a 3G network. These services would include mobile broadband, mobile television, buffer-free movies, and music. In many companies, such as South Korea Telecom (SKT), VAS contribute the lion's share of profits. Voice calling has virtually become a free commodity. This is the main reason Arpus are falling in countries such as the UK, where mobile operator O2's Arpu fell by 14 per cent to £231 ($338) from £269 ($393), last quarter. But in India, despite the speed with which voice calling diffused in the late 1990s, 3G and VAS have been painfully slow to roll out. It was only last month that Telecom Minister A. Raja announced plans to roll out 3G services, which could take another 12-24 months to arrive. Telcos admit 3G will commoditise voice services, but worry that India's VAS market will not be large enough to make up the loss in revenue, as has happened in other countries. Mittal has admitted that free voice services "will happen in India too". But he and his peers have always avoided the supplementary, when? The path of least resistance Instead, Indian telcos have tried to postpone the commoditisation of voice services and milked them like a cash cow. There is a myth that mobile call rates in India are among the lowest in the world. But at Re 1 (2.5 cents) a minute, India's mobile phone rates are costlier, in terms of purchasing power parity, than those in the US, where they are Rs 2 (5 cents) a minute. Often, Indian call rates are also costlier in real terms, for in many countries, consumers can buy unlimited calling plans for just $49-99 (Rs 2,000-4,000) a month. Indian telcos defend their aversion to unlimited calling plans. "The urban customer is happy and even rural customers are agnostic," says Manoj Kohli, president and CEO of Bharti Airtel. "With 2 cents a minute, we are the lowest in the world." Back to the future Such systemic mismanagement of Indian telecom, once ahead of its global peers, has pushed the industry years behind. Time was when cellphones were launched simultaneously in New Delhi and London. Today, when the latest 3G iPhone is thrilling users worldwide, Vodafone, with much fanfare, has launched it in India too. But the India cost of the phone is almost four times its international cost, and Indian consumers will be unable to use its most brilliant features. No Indian operator is even participating in the development of Google's new mobile phone software Android, being developed by the Open Handset Alliance, comprising operators and manufacturers such as Motorola, US operator T-Mobile and chipmaker Qualcomm. Both DoT and Trai claim helplessness in the face of falling service levels. "Trai has no powers to directly impose a penalty on service providers not meeting the QoS benchmarks," says Trai Chairman Nripendra Misra. The lack of interest in service is most apparent in two linked issues: the ineffectiveness of the national do-not-call (NDNC) registry and roaming charges. About 13.5 million subscribers are registered with the NDNC but many still receive unsolicited sales calls. With the fine levied on the telemarketers for violating the NDNC being a meagre Rs 500-1,000, it took the Supreme Court to solve the problem. It suggested that instead of an opt-out registry, subscribers would automatically be protected from receiving sales calls with only people wanting to receive them putting their names on an opt-in registry. India's two industrial titans trying to play in telecom — the Tatas and Aditya Birla Group — have reproduced little of their other successes in the industry. Kumar Mangalam Birla's Idea Cellular, which recently acquired Spice Telecom's 4.6 million subscribers for Rs 2,716 crore, is still struggling to grow. Idea's subscribers are mostly in urban areas, and it has been slow to grow in rural markets. The company also has not announced any significant growth plans, and experts predict that Birla, like Ambani, may soon sell out to a foreign player. "They are for sale, but the valuation they are seeking is high," says Balakrishnan. "They still hope to get $400 per subscriber as Hutch got, but a more realistic price would be $120-140 per subscriber". State-owned BSNL and MTNL have 37.91 million and 3.53 million mobile subscribers, each. But their success has been built on the back of unfair support from DoT and Trai. For example, both will receive the licence and spectrum for 3G at least 6-10 months ahead of others. This has marred the companies' ability to compete in an open and fair playing field. Thanks and Regards, Amit Kumar Khandelia # 9223348883. Add more friends to your messenger and enjoy! Invite them now.</a -- Posted By Ronald Chisley to Investor Forums at 8/31/2008 09:38:00 AM --~--~---------~--~----~------------~-------~--~----~ Logon at – http://investorline.co.in/blogs/news Learning Center- http://investorline.co.in/blogs/learning Mutual funds - http://investorline.co.in/blogs/mutualfunds Life Insurance - http://investorline.co.in/blogs/lifeinsurance Investor Journal - http://investorline.co.in/blogs/investor Latest News - http://investorline.co.in/blogger/?q=aggregator/categories/ Create your own Forum & Blog at - http://investorline.co.in/blogger To post to this group, send email to [email protected] Visit this group at-http://groups.google.com/group/investor-forums?hl=en -~----------~----~----~----~------~----~------~--~---
