BANGALORE, India-Although cellular operators in India fear revenue losses of as much as 25 percent due to a sharp increase in the monthly rental, or service charge, from US$3.90 to US$15, many in the industry hope the new tariff structure will expand cellular usage over the next few years and weed out non-serious subscribers. In general, however, operators disagree on the structure’s long-term impact on the market, which has seen slowing subscriber growth in recent months.
Announcing the new tariff structure, Justice S.S. Sodhi, chairman of the Telecom Regulatory Authority of India (TRAI), predicted overall cellular usage would go up as a result of the new tariff.
“We do not share the perception of the cellular operators that the hike in rentals will induce subscribers to give up their connections,” he said. “The rental income is a fixed income coming to operators. It will meet the basic costs.”
Sodhi added that the new rate would decrease the amount of people who currently use their cellphones as pagers. “With US$15 as the rental, the cellphone will not be used as a pager.”
In addition, TRAI officials explained, cellular operators can now virtually customize the packages they offer to subscribers.
Carrier reaction
The carriers, however, argue the sharp rental increase will lead to customer loss. Bharti Enterprises Chairman Sunil Mittal said there could be a 20-percent drop in revenue in the short-term. Some have predicted up to a 25-percent loss.
Other industry participants view the measure as positive.
The new tariff structure will provide the right impetus for growth in India’s cellular market, which lately has been stagnating, said Arun Seth, British Telecom India’s managing director.
The TRAI has recommended a standard airtime ceiling rate of 15 cents per minute, which Seth believes will go far in narrowing the gap between the costs for cellular and wireline phone calls.
Industry slowdown
Figures released by the Cellular Operators Association of India (COAI) showed there were 1.12 million cellular subscribers at the end of February, up 1,100 from the end of January and indicating a month-over-month increase of just 1.3 percent. This marks a sudden slowdown in subscriber base growth, which in 1998 had been growing between 30,000 and 40,000 subscribers per month.
“There has been a fair amount of churning going on, with the industry getting rid of subscribers who have been defaulting on payments,” said Rajiv Burman, director of marketing for cellular operator Escotel. He also believes the higher rental levels, which had been proposed for some time, may have acted as a deterrent for potential users.
Most in the industry believe the TRAI tariff guidelines address just part of the cellular market’s problems. Revising the current license structure with its high fees and implementing the new telecom policy will be key. Observers believe that revenue-sharing, as recommended in the new telecom policy, will be crucial for the success of cellular operators. (See related story, page 35.)
Apart from the general slowdown in economic activity, market sentiment has dampened after carriers stopped bundling handsets with free airtime. In preparation for the per-subscriber license regime implemented in the metro circles from last October, under which operators pay US$150 per subscriber per year to the Department of Telecommunications, operators started offloading low users halfway through 1998. Therefore, metro operators stopped bundling free airtime with handsets, a strategy that had effectively lowered the cost of entry for subscribers.
When these schemes stopped, entry-level prices went up, though in real terms handset prices fell.
Meanwhile, the Group on Telecom (GoT), a government agency, predicted a cellular boom in India. In the short-term, the GoT forecasts 2.2 million subscribers by 2002, possibly reaching 10 million by 2007.
Thus, the potential in India is there. But high license fees and lower-than-expected customer usage rates on top of buildout costs are squeezing cellular operators.
