NEW DELHI, India-Cellular phone customers in one of the fastest-growing markets in Asia are a happy lot, but this happiness is not shared by operators, as they face mounting losses due to high government tariffs. This is the trend in India, where the subscriber base at end-July crossed the 8 million mark.
The country’s airtime tariffs have plunged by more than 75 percent during the last three years alone. According to the Telecom Regulatory Authority of India (TRAI), the average monthly rental and airtime being realized for cellular services stands at 202 rupees (US$4.17) and 1.99 rupees (US$0.04) per minute respectively. Roaming charges have been cut by 70 percent, down from 10 rupees (US$0.21) to 3 rupees (US$0.06) in early 2002 and now to as low as 1.50 rupees (US$0.03) by several service providers. International Telecommunication Union (ITU) and independent industry data show that tariffs in India-at US$16 per month for a 300-minute basket-are the lowest in the world.
According to industry data, the Indian GSM market registered a compound annual growth rate (CAGR) of 109 percent in cellular subscribers from 1995 to 2001. The growth rate during the 2001-02 fiscal year stood at 79 percent. The Cellular Operators Association of India (COAI) predicted the subscriber base would be 10 million by December 2002, taking total wireless penetration to 1 percent. New additions in the April-June 2002 quarter were three times the increase in the number of fixed-line subscribers, in line with the trend in most emerging economies.
“Consolidation-leading to better coverage, better pricing plans and airtime propositions-higher incidence of prepaid at affordable rates, increased roaming coverage and surging popularity of SMS (short message service) are the key growth drivers in the Indian market,” observed Shiv Putcha, Asia-Pacific wireless/mobile analyst at the US-based research firm, Yankee Group.
The current growth will be further fuelled with rapid expansion of infrastructure and services following the launch of service by a fourth cellular operator in all telecom circles. By March 2003, the number of networks operational will be 70, up from the current 51, serving 2,000 towns and cities as against 1,500 being served now.
“While our tariffs are the lowest in the world, our regulatory costs are amongst the highest in the world. Indian cellular operators are passing 35 to 42 percent of their revenues to the government by way of various levies-license fees (8-12 percent), spectrum usage charges (2.5-4.5 percent), service tax (5 percent) and interconnect access charges (approximately 20 percent of revenues),” said T V Ramachandran, director general of COAI. Most of the cellular operations, he said, are running negative in terms of not only profits, but also cash flow. The accumulated losses of the cellular industry stood at 77 billion rupees (US$1.6 billion) as of 31 March.
“We want the license and revenue-sharing fee to be in line with international practices,” said Virat Bhatia, managing director of AT&T (India). The operators should be allotted adequate spectrum, and the interconnect regime should be made “equitable, non-discriminatory and cost based.” Operators in state circles have been allocated 4.4 megahertz of spectrum, while those in the metro circles have been allocated 8 megahertz of spectrum. This is much below the international average of 16 megahertz, Bhatia pointed out.
The impending rollout of cheaper CDMA service, known as wireless local loop (WLL) or limited mobility services, by basic service providers could put further pressure in GSM operators. “As for revenues, it is true that there are not many billable voice minutes being generated for many operators. This problem is easing due to rapidly falling airtime charges, but will rear up again assuming that limited mobility services are allowed. The marginal subscribers are very likely to be mopped up this way, not to mention potential churn away from the mobile operators,” said Putcha.
Basic telecom service providers, government-run MTNL and private players such as Tata Teleservices and Reliance, have plans to install a capacity of more than 1 million WLL lines in Delhi and Mumbai by year-end. According to license conditions, basic service providers can operate limited mobile services within a short distance calling area (SDCA). In Delhi and Mumbai, SDCA boundaries coincide with boundaries of the metros.
BSNL, the former government monopoly, has plans to roll out about 1 million CDMA lines all across the country during the next year. It has announced an aggressive pricing for its WLL services-it is cheaper than fixed-line service. A shocked GSM industry is again knocking at the doors of TRAI asking for help.
“It would be impossible for GSM players to match up to the cheap WLL tariffs. There may be a significant erosion of subscriber base (especially the low-end users) and drop in new additions. The drop in new subscribers would be more significant than losing existing customers-the investment made for handsets is going to be a major barrier to switch over,” said Parijat Chakraborty, head of telecom research at IDC India based in Gurgaon, India. GW
