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Krishnan Thiagarajan

IN A single and striking policy move, the Group of Ministers' acceptance of the recommendations of the Telecom Regulatory Authority of India in toto and the Union Cabinet's approval of a unified licence involving basic and cellular services has rung in momentous change to the mobile business. The two key basic operators, Reliance Infocomm and Tata Teleservices, offering limited mobility services are slated to become full-fledged mobile players and exert immense influence over the mobile telecom segment.

Existing mobile players have a real battle on their hands. For the moment, the mobile market consists mainly of three major groups: Bharti, Hutchison and the MobileFirst alliance (comprising BPL Mobile, Escotel, RPG Cellular and Spice Telecom — each with a reasonably large footprint). By virtue of the unified licence, both Reliance Infocomm and Tata Teleservices will be able to offer full-scale mobile services including roaming. No longer will Reliance Infocomm need to offer roaming in the guise of "multiple registrations/call forwarding".

Between Reliance and the Tata group, the former will kick off with the distinct advantage of a nation-wide footprint covering 17 circles and a strong subscriber base of close to 5 million. The subscriber base places it at the top of the mobile subscriber chart.

In relative terms, the Tata group may take a while to gather steam as its energies have been divided between IDEA Cellular (a joint venture among Tatas, AT & T and Birla) and Tata Teleservices that offers limited mobility in five circles. It will have to integrate these two operations first to eliminate the overlaps and exploit the inherent synergies between mobile and limited mobility services. In this backdrop, the `pure' mobile players will have to contend with pressures on four major fronts:

Entry fee advantage

The additional entry fee of Rs 1,096 crore for 17 circles of Reliance Infocomm (excluding penalty) and Rs 545 crore for five circles of Tata Teleservices is low by over 50 per cent relative to the average entry fees paid by the existing mobile operators in every circle as part of the 1999 pre-migration package.

The entry fee has been fixed at a lower level as TRAI has recommended only the differential between the entry fee paid by the fourth operator (which was considerably lower relative to the earlier rounds of bidding when the competition was intense) and the basic entry fee.

Since the additional entry fee is one of the key determinants in the fixing of mobile tariffs by individual players, the relatively low entry fee may confer an unfair advantage to Reliance and Tatas vis-à-vis the existing mobile operators.

This is particularly true for Reliance Infocomm as it has garnered 4.5 million subscribers through a combination of roaming like features, attractive offers (such as its Rs 501 offer), aggressive tariffs. Given its strong subscriber base and a national footprint, it is likely to maintain its aggressive tariffs in the current tariff bracket over the next year or so.

The `prepaid' battleground

There has been a steady fall in the average revenue per user in the Indian mobile market. One of the key reasons for this trend is the burgeoning prepaid subscriber base. Studies done by TRAI show that nearly 70 per cent of the all-India mobile subscriber base was prepaid in 2002-03.

Since 1999 there has been an almost three-fold rise in prepaid subscribers as a proportion of the total subscriber base. With the entry of Reliance Infocomm and Tata Teleservices into the mobile market, the prepaid market may be the next major battleground. Given the enormous potential of the prepaid market, these two players are likely to aggressively target this market.

The `postpaid' churn

The "roaming" service, nationally or internationally, has traditionally been one of the big selling features of GSM technology. Traditionally, it has been found that postpaid subscribers generally are the early adopters or heavy users of mobile phones, for whom roaming is a significant value-added feature. Though roaming service revenues accounted for less than 10 per cent of the mobile sector service revenues, its importance cannot be underestimated in the postpaid market.

With the change in policy paving the way for roaming (in the true sense) to be provided by limited mobility service providers, such as Reliance Infocomm and Tata Teleservices, for the first time, they will be able to attract the customers of the existing mobile players on an even keel.

And the stage is obviously set for a churn among the existing mobile players. Sooner or later, the SIM (subscriber identity module) card bearing CDMA handsets akin to the existing SIM based GSM handsets will be launched, and that may trigger the churn. Once it is launched, customers with CDMA handsets will be able to change their SIM card to shift from one operator to another as easily as GSM subscribers do today.

Intra-circle mergers

To usher in consolidation in the mobile sector, TRAI is slated to propose intra-circle mergers and acquisitions (M&A) as long as there are at least three operators in each mobile circle.

There is no doubt that this regulatory measure will provide an opportunity for existing mobile operators, such as Bharti and Hutchison, to consolidate in different circles.

But their cost of acquisition is likely to go up sharply as they will be forced to compete with the Tatas and Reliance on an equal footing in the M&A arena. The survival of individual operators in the MobileFirst alliance will be tough as they will be pitted against the operational economies of scale and deep pockets of Reliance, Tatas, and Bharti.

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