Search the Internet          Tips  Sites: Finance, Investment

Recent Specials

Are pension fund      schemes bad ideas? Strong rupee adds      to IT firms' woes Chance to get state      finances back on track The small screen sees      a big battle Why you need personal      accident insurance 'RBI should deregulate      savings rate, cut CRR' Reforms: One step      forward, two      steps back The state governments'      precarious finances

Cell firms fighting for limited space

Surajeet Das Gupta

It sounds almost too good to be true for the Indian phone user. Next week Reliance Infocomm is slated unleash its new limited mobility services at cheaper prices than ever before.

Subscribers to its services will be able to make local calls for a super-cheap 20 paise per minute. That's one-sixth the price that subscribers currently pay to use their mobile phones.

The Reliance move has already altered the country's telecom landscape. This week the Tatas launched their own limited mobility services.

Many parts of the country will now have six or seven operators offering limited mobility or cellular services.

Is Reliance about to decimate all the country's top mobile phone operators? Will there be blood on the streets by this time next week? The answer is yes - but it won't necessarily be all from the mobile operators who are preparing a counter-offensive to the Reliance pincer attack.

The cellular operators received a shot in the arm from this week's Supreme Court judgement. The country's highest court set aside the (Telecom Disputes Settlement Appellate Tribunal's (TDSAT) order on limited mobility.

The court pulled up the appellate tribunal for not considering material on the 'level playing field' issue. And it asked the tribunal to look into the licencing issue once again.

Armed with this judgement the cellular operators are now working out an aggressive strategy to counter the Reliance juggernaut.

First, they are making a series of short-term moves that could slow down Reliance. That will be followed by longer term moves to stop it dead in its tracks.

For a start, the cellular operators will be offering more to the customer themselves. Firstly, they will restructure tariffs and offer more attractive rates. Then, they will give customers more details about their bills.

So, customers will now know how much is being charged for add-on services - like SMS - that only the GSM mobile operators can offer.

To publicise its new moves the cellular operators are also poised to launch an advertising blitzkrieg that will highlight the strongest points of GSM mobile phones.

The ad campaign will also point out that there's still doubt about whether the regulator will hand Reliance the red card for contravening the rules on limited mobility.

Customers will be paying upfront for the new Reliance services and the cellular operators will be pointing out that this could be risky. It is after all an untested service.

These are the first blocking moves in what is likely to be a long drawn fight. As part of a longer-term strategy the cellular operators are getting ready to aggressively present their arguments to TDSAT.

They will point out once again that if they have a 'level playing field' they can match the tariffs offered by the limited mobility players.

Says a confident T V Ramachandran director general of the Cellular Operators Association of India: "We have already written to the government that we can match WiLL limited mobile service tariffs if you give us a level playing field."

Adds a senior executive of a leading cellular company: "Rest assured we will not be dead. We have both a short as well as a long-term strategy to take on WiLL players on the pricing front."

But basic service operators who are offering WiLL mobile services scoff at complaints that they have an unfair advantage.

Says S C Khanna secretary general, Association of Basic Telecom Operators: "The level playing field issue is just a bogey being created to ensure that customers do not get affordable telephony. What we are offering is a service for the masses."

Says a basic service operator which is offering WiLL services: "We will ultimately win this battle, because CDMA is a new technology and which has been proved to be cheaper than GSM."

That is a strong stand to take. But what aces do cellular operators have to take on the rockbottom WiLL tariffs? Most operators won't talk on the future course of action but some details are becoming clear.

For a start, it may divide cities into smaller zones and offer different rates within the zone. That means that a person who lives in Delhi's Jor Bagh and works in Connaught Place could pay lower rates for calls within these zones.

Then, there's 'home zone tariffing' to take on WiLL tariffs. Currently, mobile phone users pay only local charges for calls within a state. That means that a cell-to-cell call within Pune is the same price as a cell-to-cell call between Pune and Nagpur. By contrast, a WiLL user has to pay long distance charges between Pune and Nagpur.

Taking advantage of this distinction, the cellular operators are now working on dual tariffs. So, calls in Pune, for instance, will be cheaper and will virtually match WiLL rates. Higher charges will be levied for calls between cities or talukas within a state. This will still be cheaper than making such calls on WiLL phones which pay STD rates.

Explaining the logic a mobile operator points out: "Customers can now compare apples with apples. Earlier we were averaging out tariffs between the two so that there was only one tariff for both."

Will this help customers? About 75 per cent of all calls are within a city or taluka. These will cost about 5 per cent to 10 per cent more than WiLL calls. But the cellular operators believe customers will pay slightly higher prices because they will also get services like SMS and roaming.

That is one part of the game. The other part of the game is to leverage the value-added services which the limited mobility operators cannot provide. Takes SMS, for instance, which has become a instant hit - the average Indian customers sends 40 SMS in a month.

Says Vikas Saraf, CEO, Essar Teleholdings: "We will also have to unbundle our tariffs so that customers know how much they are paying for each value-added service. They should be educated that they are paying extra because for instance, they are getting SMS as a value add."

One possibility being considered is to offer two differentiated tariffs: a vanilla service without SMS which will be almost the same price as WiLL calls. Secondly, the cell operators will also offer SMS and charge a premium for it.

But the cellular operators also have a series of blocking moves up their sleeves. Take, for example, the interconnect agreements which must be signed before customers from one service can talk to subscribers of other services.

The cellular operators are locked in a dispute with Reliance over the interconnect agreements. Both sides are arguing about what are called termination charges. WiLL customers won't be able to talk to 10 million mobile phone customers until the interconnect agreement is signed.

Says a senior executive of a mobile company: "The matter seems to be headed to the Telecom Regulatory Authority of India for a possible solution. Till then WiLL customers won't be able to communicate to one- fourth of the telephony population. We will bring this point also to the fore to the customer."

The GSM players are confident that they can offer attractive rates and prevent customers moving to WiLL services. But they are assuming that the actual difference between the two tariffs is not more than 30 per cent to 40 per cent - a gap which they believe is possible to bridge.

Reliance Infocomm is offering a limited mobile phone for an upfront payment of Rs 14,400 for three years. In simple terms what they are offering is a rental of Rs 240 a month and 800 minutes of call time for Rs 160 a month (effectively 20 paise a minute).

But cell operators say that average usage in the country is around 200 minutes a month. So even if it doubles what customers effectively pay is 40 paise for a call (because they are using only half their total free calls).

That's only one part of the picture. Add the rental and the money forked out by a customer is Rs 1 for a minute (He pays Rs 240 rental which means 60 paise per minute on 400 calls).

Says a cell operator: "Our average pay out per minute which include pre-paid where there are no rentals is Rs 1.30 to Rs 1.40 a minute so we are 30 per cent to 40 per cent more expensive. But we offer more value. Strip these cost of these value adds and we can also offer the same tariff."

But the basic grouse of the cellular operators is that their service has become more expensive because they've paid higher licence fees. They want this thrashed out before the telecom tribunal once again.

Says Ramachandran: "As far as our understanding there is no difference in terms of the cost of investment in the two technologies. The difference has come because regulation has made it cheaper."

To give one example: for the fourth licence GSM players have paid over Rs 1,553 crore (Rs 15.53 billion) as licence fees for 17 circles. In contrast, Reliance paid one-third of that - a mere Rs 448 crore (Rs 4.48 billion) for an all-India licence.

Points out a senior executive of a mobile phone company: "The licence fee is over 30 per cent to 40 per cent of our total project cost - which is not the case with basic operators. Give us the difference or ask them to pay the same amount - we will have not problems matching their tariffs."

Then, there's the contentious issue of access charges - GSM operators pay Rs 1.20 for three minutes when a customer calls from one of their phones to either a fixed line or a WiLL phone.

Says a mobile operator: " Basic service operators can offer incoming free because they were being compensated by the access charge they get. Give us the same terms and we will also offer incoming free and match limited mobile operators on this front."

But the basic service operators offering WiLL rubbish these arguments. Argues Khanna: "The three basic service operators in six circles paid Rs 1,566 crore as licence fee when they migrated to revenue share policy. The GSM operators paid Rs 7,000 crore (Rs 70 billion) for 42 licences. So how can you say we have not paid the licence fee. We have paid more."

He also points out that Reliance might have paid Rs 448 crore as entry fee but it has also forked out Rs 1,792 crore (Rs 17.92 billion) as performance bank guarantee (in case it didn't roll out the services it would have lost the money).

On access charges ABTO argues that unlike the cellular operators, the basic service companies do not earn from airtime.

The basic operators also grouse that income from long distance calls within a state has fallen dramatically because GSM operators are offering these calls at local rates.

Says a basic service operator: "Earlier we used to earn substantial revenue from intra-city STD calls. That has been unfairly taken away from us."

No doubt most of these arguments will again be aired before TDSAT. But are any compromises possible? Experts suggest that WiLL operators should be allowed a fully mobile licence.

And Communications Minister Pramod Mahajan has already approached TRAI with the suggestion that there should be an unlimited number of players in the mobile business. He says this would mean that there are no differences between the different types of licences.

Not surprisingly, the cellular operators are incensed by this idea. They point out that all the players are either offering GSM or WiLL services.

Says a senior mobile company executive: "There is already so much competition that there is no logic in having more players. All this means is that WiLL operators will be able to take full mobile licences at dirt cheap rates."

All eyes are of course on the Reliance Infocomm mega launch. But the GSM operators have been emboldened by this week's Supreme Court judgement. They are ready for a scrap even though it promises to be a long and hard struggle.

Powered by

ALSO READ:
Cell firms to cut tariffs to checkmate WLL
More Specials
More Money Headlines