BANGALORE, India-Finally, the Department of Telecommunications (DoT) has received the Telecom Commission’s OK to offer cellular services in 17 cities across the country. With Mahanagar Telephone Nigam (MTNL)-an offshoot of DoT- slated to offer services in the two major metros-New Delhi and Mumbai-the combined DoT/MTNL network will provide tough competition to existing operators.
This is happening at a time when India’s ailing cellular industry is doing all it can to survive despite the continuing price war, complex problems with government bodies and weak demand.
The cellular industry to date has invested US$2.79 billion and currently serves 1.2 million subscribers around the country. While the industry has earned cumulative gross revenues of US$825 million since 1995, its accumulated losses for the same period stand at a whopping US$1.5 billion, according to the Cellular Operators Association of India (COAI).
“The cellular industry has suffered an estimated loss of US$296 million during 1998-99, which includes the license fee payments to the government,” said marketing consulting firm Frost & Sullivan in its study, “Strategic Review of Indian Cellular Services Market.” “The total turnover of the industry during this period was at US$324 million, a growth of over 29 percent as compared with previous years.”
In fact, the country’s cellular industry in its first four years clocked the highest growth in the developing world, placing India among the fastest-growing wireless telephony markets in the world.
“There was much hype when cellular services started,” said TV Ramachandran, executive vice chairman of COAI. “There was tremendous hope that the Indian market would take off in a big way. Everyone was talking about high growth levels and a strong Indian middle class of 250 million, which is equivalent to that of the [United States].”
According to the COAI, the cellular industry increased from a subscriber base of 820,000 in March 1998 to 1.19 million by the end March 1999. Most of that growth was in cellular in circles (analogous to states) as opposed to the negative growth in metropolitan areas.
It was not in the subscriber base alone that the metros faced problems. A 20-percent decline in airtime usage affected the sales revenue of all operators. The present average airtime use is 120 minutes a month.
“The [rise] in cellular rentals will substantially contribute to the coffer of operators this year, and this may result in some metro operators [breaking] even,” said one industry analyst.
Subscriber-wise, major growth is not expected in the metros. However, the subscriber base in the circles will grow by 50 percent by the end of the year. This would bring the total cellular base to the 1.5 million mark.
Prepaid
The advent of prepaid has created a new product segment in cellular telephony. The prepaid system found wide acceptance last year, with almost 20 percent of subscribers opting for this facility. Operators are finding a bit of solace in this system for meeting their operational expenses.
Operators like Bharti and BPL marketed to prepaid customers quite differently from postpaid customers.
“This consumer profile for the prepaid product is typically much younger and lower income, where emphasis is more on keeping costs under control than on value-added services,” said a BPL Mobile spokesman.
Revenue-sharing
Amid the market’s many permutations, the ailing operators may get a fresh lease on life by the government’s decision to allow private telecom operators to migrate to the new revenue-sharing regime. Under the revenue-sharing plan, telecom service providers will have to share a portion of their revenues with the DoT instead of paying license fees.
Sunil Mittal, chairman and group managing director of Bharti Telecom, said the decision to allow the revenue-sharing regime is a big move forward for the telecom sector, which is full of opportunities. “We are now heading for a new chapter in the Indian telecom sector,” he added.
The Frost & Sullivan report predicted the government’s shift to a revenue-sharing model will be the prime driver for consolidation in the Indian cellular market during the last part of this year.
However, it is difficult to foresee what will emerge for the cellular industry. India has seven communications ministers and five secretaries, each with their own whims and frequent changes in policy, and market observers think it is difficult to operate in a climate of such instability.
Richard D. French, president of telecom operator Tata Communications, added, “What Indian operators and policy-makers have not fully absorbed is precisely how weak the telecom market in India really is. The lack of revenue potential of the market is a grave threat to the survival of the industry even with a reasonable policy framework.
“After the dust has settled on license terms and conditions, this will still be (an) exceedingly difficult market to operate in. Put another way, the industry is already seriously overcapitalized, and plans for additional operators, public or private, make no economic sense. There is insufficient demand to support additional players.”
