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The cellular arena: How do the gladiators stand

Salil Panchal/Morpheus Inc in Mumbai

Part I: Cellular phone war hots up again

India's cellular phone industry is one of the world's fastest growing markets, according to leading global research house, Gartner.

It has drawn massive investment from private equity players and global telecom giants facing saturation in most western markets. There are around 6.9 million subscribers in India compared to 150 million users in China.

Gartner estimates the Indian cellphone market to expand at a compounded annual growth rate of 46-50 per cent over the next five years till 2006.

According to industry figures, India's overall cellular subscribers on July 20, 2002, stood at 76.9 lakh (7.69 million) with more than a third - over 30 lakh (3 million) coming from the four main metros of Mumbai, Delhi, Kolkatta and Chennai.

How strong are some key cellular players?

BPL Mobile: A subsidiary of the BPL group and one of the leading players, BPL has more than 7,20,000 subscribers and is spread across 192 cities in the circles of Mumbai, Maharashtra, Kerala, Tamil Nadu, Pondicherry and Goa.

A further growth in this segment is expected with the coming of the high-speed Mobile-Internet services through General Packet Radio Service that allows subscribers to connect directly to the Internet through their mobile phones.

The parent company BPL Ltd has posted a net profit of Rs 2.36 crore (Rs 24 million) for the quarter ended June 30, 2002 compared to Rs 10.21 crore (Rs 102 million) for the quarter ended June 30, 2001.

MTNL: Through its basic telephony network, it continues to be a dominant player in Delhi and Mumbai, where long distance calls originate. Its strength comes when it negotiates interconnect arrangements. Its cellular operations - Dolphin - not faring too well in Mumbai and Delhi, suffering in customer service.

Analysts with equity research houses Goldman Sachs and SSKI now give MTNL a `market outperformer' investment rating, considering divestment takes place.

MTNL declared disappointing results for Q1 FY03 ended this June 30, 2002. The company saw a 33.8 per cent dip in net profits to Rs 249.7 crore (Rs 2.50 billion) for the quarter ended June 30,2002 compared to Rs 377.2 crore (Rs 3.77 billion) for the same period in the previous fiscal.

This was on the back of a marginal fall in net income from services - Rs 1,493.65 crore (Rs 14.94 billion) for the quarter ended June 30, 2002 compared to Rs 1,495.32 crore (Rs 14.95 billion) for last fiscal`s corresponding quarter.

Bharti Tele-ventures: Steady financials and a nationwide presence make it a strong player. This will help the operating subsidiary - Bharti Cellular. Its licences have increased from 2 to 15 since 1999 and through various group brands Bharti touches 93 per cent of India's cellular customers in the post- fourth operator licence regime.

Strong branding and the recent IPO have strengthened its position (the company raised $172 million).

It has private equity investment from Singtel, Warburg Pincus and IFC Washington. Bharti Tele-ventures reported a sequential growth of 21 per cent in revenues, 29 per cent EBITDA and improved earnings.

EBITDA margins have improved to 25.6 per cent in Q1FY2003 from 24.2 per cent in Q4FY2002. By the end of June 2002, Bharti Tele accounted for 22 per cent of total mobile subscribers in the country. Its strong points include marketing skills, stable national reach and value-add features.

MAIN CENTRES LEADING OPERATORS SUBSCRIBERS
Mumbai BPL Mobile 5,08,220
Chennai Bharti Mobitel 1,54,265
Kolkatta Usha Martin 1,82,370
Delhi Air Tel 6,65,023

The worries for BPL Mobile, MTNL and other players...

Domestic PSUs like MTNL and Bharat Sanchar Nigam will have to work hard towards maintaining transparency and streamlining their customer services departments.

MTNL has been operating its Dolphin services for over a year at the key metros but has failed to hit the leading players - BPL, Orange and Bharti - in a major way.

These two players will have to capitalise on factors like good networking, huge nationwide reach and government backing.

BPL Mobile, despite its stable subscriber base, has its major worry in the future of the Birla-Tata-AT&T combine (Idea Cellular) tie-up.

A year after signing the MoU, the merger of BPL Mobile and Idea Cellular is still to take shape and has run into trouble due to legal wrangles faced by BPL. The merger would boost Idea's position in the cellular market as there would be access to the major Mumbai and Maharashtra market. Industry analysts say the merger has been called off and a fresh round of dialogues may commence later.

In the case of the Orange brand of Hutchison Max, strong marketing skills have seen it narrow the gap with its arch rival BPL Mobile across most centres. Customers have however argued of poor frequencies in some of the metros.

What will differentiate the players in the market?

An ICRA study projects subscription to the telecom industry cellular services to grow by 80 per cent touching 1.15 crore (11 million) by March 2003. This would mean that mobile phones would account for 20.5 per cent of total telephone connections in India. Still the cellular density will remain low at 1.1 per cent compared to the fixed tele-density of 4.3 per cent.

The Indian cellular operators, in their initial years, grew due to factors like demand and high margins. Over the past 4-5 years the scenario has changed completely. Today increased competition and declining prices - in terms of duties, tariff and mobile phone sets - has made the Indian cellular industry a low margins and high volume game.

It must be said that "value added services" will no longer be the differential factor.

Another key development is that while initial (fresh) subscriptions will always be seen in a new market, maintaining this segment will become a crucial issue. There are three key issues, which will become the focus for cellular operators whenever they penetrate a new market.

  • Customer service: This is key both in terms of streamlining billing procedures or introducing new features. Offering 24/7 effective offline services (through service centres) and information/data updates (through online channels) are considered to be mandatory from a customer's point of view. Media reports suggest that AirTel has run into a system overload after commencing operations in Mumbai and both connectivity and billing records have been impacted.
  • Frequency spectrum: Customers may not necessarily opt for cheaper tariff plans if the networking frequency is not good enough. Customers tend to switch cellular operators for this factor alone. This may of course become the biggest hurdle for cellular operators as allotment of frequency spectrum is a touchy issue for the telecom ministry.

  • Corporate transparency: As with other sectors, Indian cellular companies will have to place greater focus on corporate governance. In India's case, it leaves much to be desired and corporates like BPL, MTNL and BSNL do not score heavily on this front.

    Customers will not just keep a close watch on the parent company, its tie-ups/alliances and subsidiaries but also its strategic partners for roaming services.

Cellular licenses/operators in India:
 
Telecom Circle Existing Cellular Licences Fresh Cellular Licences
J & K  BSNL  
Himachal Pradesh Bharti Telenet, Reliance Telecom, BSNL Escorts Telecom
Delhi Bharti Cellular, Sterling Cellular, MTNL Idea Cellular
Punjab Spice communications, Bharti mobile, BSNL Escorts Telecom
Haryana Escotel Mobile Comm., Aircel Digilink, BSNL Bharti Cellular
UP West Escotel mobile, BSNL Bharti Cellular
UP East Aircel Digilink, Koshika telecom, BSNL Escorts Telecom
Rajasthan Aircel Digilink, Hexacom, BSNL Escorts Telecom
Assam Reliance Telecom, BSNL  
North East Reliance, BSNL  
Bihar  Reliance telecom, BSNL  
Madhya Pradesh RPG Cellcom, Reliance telecom, BSNL Bharti Cellular
Gujarat Fascel, Idea, BSNL Bharti Cellular
West Bengal Reliance, BSNL  
Orissa Reliance, BSNL  
Kolkatta Bharti Mobitel, Usha Martin, BSNL Reliable Internet
Mumbai BPL Mobile, Hutchison Max, MTNL Bharti Cellular
Maharashtra BPL Mobile cellular, Idea, BSNL Bharti Cellular
Andhra Pradesh Idea, Bharti mobile, BSNL Barakhamba
Karnataka Spice Comm., Bharti mobiles, BSNL Barakhamba
Chennai RPG Cellular, Bharti Mobinet, BSNL Barakhamba
Kerala BPL Cellular, Escotel Mobile, BSNL Bharti Cellular
Tamil Nadu BPL Mobile, Aircel, BSNL Bharti Cellular

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