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Home > Business > Special

Telecom firms holding customers hostage?

Surajeet Das Gupta | January 27, 2006

Imagine this. You are frustrated with your mobile service and want to dump it for another operator. However, you have given this number to hundreds of clients over the last few years. It's an unnerving task to inform all of them of your new number besides getting the new number printed on new visiting cards, letterheads, et al.

Assume, now, that you are allowed to retain your mobile number even after you have jumped from one service provider to the other. The magic word that can make this possible is "number portability".

All across the globe, number portability has been introduced by regulators in their countries to bring in competition and encourage new players - leading to lowering of tariffs for customers.

Number portability allows customers not only to move from one mobile service provider to another within the Global System for Mobile Communications (GSM) but also from GSM to Code Division Multiple Access (CDMA) services (you have to change your phone in this case), and also from landline to wireless phones.

Sounds exciting? The hitch is it is that Indian telco operators are not enthused in the least. And, for a change, both GSM as well as CDMA mobile operators are united on this one issue - they think the time for introducing number portability is not ripe.

Only last year, the Telecom Regulatory Authority of India came out with consultation paper on only mobile number portability (it did not touch on the issue of portability between landline and landline and wireless) soliciting the opinions of service operators.

TRAI officials point out that while number portability is a complex issue, it is good for customers. The consultation paper points out that an IDC survey has shown that 30 per cent of mobile subscribers were likely to shift from their operators if they were given an option.

GSM operators have plainly rejected portability. Instead, they have asked for more time to respond to the paper (the deadline was January 6.).

Says T V Ramachandran, secretary-general of the the Cellular Operators Association of India: "Number portability is introduced in countries as an instrument to increase competition. But in India, we already have so much of competition and the lowest tariffs in the world. Introducing portability will only increase tariffs - it makes no sense now." COAI, instead has appointed international consultants to study the issue carefully before it comes to any conclusions.

Joining the chorus are incumbent operators. Mahanagar Telephone Nigam Ltd has categorically opposed number portability for the time being as it will raise costs. Even officials of the Department of Telecommunications are lukewarm on the issue - they say that with just 11 per cent tele-density, it is too early to launch number portability, which could raise costs and therefore tariffs.

In the CDMA space, the main players - Reliance Infocomm and the Tatas are divided on the issue. While Reliance Infocomm has been pushing for number portability only in fixed lines, the Tatas have demanded that portability be extended to both fixed as well as wireless services.

Says S C Khanna director general of Association of Unified Telecom Service Providers of India: "As we have had a difference of opinion among our members we have not submitted our recommendations to the TRAI". Reliance has also played upon the fact that it would require a large investment and lead to hike in tariffs.

The opposition is not surprising. Churn rates in India are at around eight per cent a month and industry (which means every customer changes his service provider every year) experts say this could go up to 15 per cent if number portability in the mobile space is introduced. And that would increase the cost of acquiring customers, which no one really likes.

Telecom experts say incumbents like BSNL and MTNL - which control over 89 per cent of the fixed line phones - have resisted number portability in fixed lines as this would give the private sector a chance to nibble into their stable subscriber base.

However, Reliance has demanded that number portability should be introduced in fixed lines first as that would give them an opportunity to take a swipe at BSNL's customer base.

Says Ramachandran: "The TRAI talks only of portability in the mobile space. That is amazing. Why should they not consider it in fixed lines where the incumbents control the market and unlike us have very little competition".

Similarly telelcom experts point out that the Tatas are angling for portability since they have the lowest subscriber base both in mobile as well as fixed lines amongst the national players - and portability will give them the chance to take grab market share for exisiting players.

Ramachandran says operators might have to fork out between Rs 3,000-4,000 crore (Rs 30-40 billion) in the mobile space alone for implementing portability.

Global experience, however, shows prices have not risen anywhere in the world - whether in the US, Singapore or Europe. Ashok Sud, chief officer, corporate affairs, Tata Teleservices, argues: "Implementing mobile number portability is not as expensive as it has been made out to be by certain operators. Global examples corroborate the fact that the overall benefits to consumers and industry far outweigh the costs involved".

Considering that labour is cheaper, and software costs are lower in India (software comprises a major part of the cost), Tatas say the cost per subscriber would be around Rs 300. Assuming that 15 per cent of the total subscriber base of 200 million (projected in 2007) opt for the service, operators would need to fork out about Rs 900 crore (Rs 9 billion).

But in most countries, a substantial portion of the cost is borne by the customer to avail the service. They argue that customers could easily pay up to Rs 200 (one-time cost) for the service - so telecom operators need not fork out more than Rs 300 crore (Rs 3 billion). Divide that amongst six national operators and it amounts to only Rs 50 crore (Rs 500 million).

However, the costs could be higher. Based on European assumptions - operators would have to fork out over Rs 2700 crore (Rs 27 billion). And even assuming that part of the cost is borne (Rs 200 is paid by customers for the service) each operator needs to fork out over Rs 350 crore (Rs 3.5 billion) for offering the service - which is a one-time cost.

Those supporting portability argue that since it was launched in 2003, the US has already had over 8.5 million customers who have opted for number portability. And as much as 10 per cent of US consumers have moved a landline number to a wireless phone.

TRAI, too, argues in its paper that countries like Pakistan with 6.9 per cent penetration of phones and Netherlands with 10 per cent have, or are, thinking of introducing number portability. Pakistan, for instance, has announced it will introduce mobile portability in April 2006.

Of course there has been opposition from operators in most places. In the US, phone operators moved the court opposing portability. In Europe, too, introduction of portability was being delayed by service providers till the regulator put its foot down.

However, is the move towards portability already too late? Has the regulator taken too much time to implement this instrument to ensure competition? Many point out that number portability should have come two to three years ago when the market had dominant players - like Airtel, Hutch, BSNL and a lot of new players and smaller players getting in.

Currently, all the advantages associated with number portability are severely limited. One, the top four players in the mobile space have market shares ranging between 19-21 per cent - so there is no single dominant player.

Two, tariffs across service providers are virtually similar, so there is no compelling reason to shift to another operator because you save financially.

Three, quality of service - which is another determining factor for customers to shift - is unfortunately dependent on extraneous factors (spectrum, or the shortage of it) outside the service operators' control.

The only differential is customer service, or the fact that some may want to shift from one technology to another (GSM to CDMA) because of their needs. But any shift from one technology still entails a cost you have to buy a new handset and that makes it expensive to change even with portability.

In sum, should number portability be pushed through? The TRAI consultation paper argues that the Indian telecom market is still not saturated and competition still focuses on increasing market share. However, with strong opposition from virtually every quarter, it might not be easy for the regulator or the government to push it though.

Mobile number portability game

Voices for MNP say

  • Cost per subscriber to introduce MNP in Australia is Rs 675
  • Cost per subscriber to introduce MNP in Europe is Rs 900
  • Cost per subscriber in India to introduce MNP is expected to be around Rs 300
  • Pakistan to introduce MNP despite only 6.9% tele-density
  • Netherlands to introduce MNP in spite of only 10% tele-density
  • US has over 8.5 million customers who have opted for MNP
  • Tariffs have not gone up in any country which have adopted MNP

Voices against MNP argue

  • In the US, only 5% phone subscribers have adopted MNP so it has got a lukewarm response
  • Tele-density in India only 11%, so market has not matured
  • Churn rates (changing service providers) will increase by 15%-30%
  • Additional expenditure will be in the range of Rs 3,000-4,000 crore, hence tariffs to go up
  • Indian mobile tariffs are the lowest in the world, hence no justification to use portability as a weapon to ensure competition.

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Number of User Comments: 10

Sub: Problems due to absence of Telephone Number Portability

Most of the Vendors of telecom services adopt the "Gather first and then screw policy". They first market their product for lowest prices, and once ...

Posted by Harry

Sub: Number portability-highly beneficial

It is very imperative that the scheme is launched immediately. Any one wanting to change over wont mind to pay even rs. 500/- -1000/- higher, ...

Posted by sanjay

Sub: very true.. this is monopolistic, should be abolished

the telcos are holding us hostage and this is a true monopolistic attitude.. this is against the very basic rules of free trade and consumer ...

Posted by mihir shah

Sub: telcos

yes the telcos are keeping customers as hostage in absence of number prtability. the quality of service is poor and the absence of portability is ...

Posted by raju gupta

Sub: TELCOs are mis-using non-portability

TELCOs know, once they go for number portability, customers will not pardon them for their non-sense. I have retained my original number from last 6 ...

Posted by Vikrant Dhoke



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