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MNP may eat into telcos' profits: Study

By Rajesh S Kurup in Mumbai
June 12, 2009 10:44 IST
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With mobile number portability expected to be operational by the end of this year, telecom service providers may have something to worry about, if a study on the facility is to be believed.

Two US-based companies, Telcordia and Syniverse, were earlier selected to provide solutions for MNP, which would permit mobile users to retain their existing numbers while changing their service from one operator to another.

According to a study by analyst firm Angel Broking, once the MNP facility is operational, the mobile operators' average revenues per user, the benchmark of a telecom operator's financial strength, would get adversely impacted by around 5 per cent.

The telecom companies' margins would also drop by 100-150 basis points and even earnings per share estimates would be pruned by 9-21 per cent.

In addition, the telecom companies' financials would be under stress, as churn rates (a customer moving from one operator to another) are likely to increase. At present, the industry has a 4-5 per cent churn rate for pre-paid subscribers.

An increase in subscriber acquisition and retention costs, higher capital expenditure to improve service quality and a likely drop in rates are also expected to exert pressure on margins and earnings growth, it said.

According to Meridian Telecom (makers of 'Fly' brand handsets) CEO Prem Kumar, even though MNP would be good for customers, it would pull down ARPUs.

At present, the ARPU of GSM (global system for mobile communication) users is Rs 220 and that of CDMA (code division multiple access) players at Rs 111 per month. The ARPUs were as high as Rs 400 in 2005.

"There would be a lot of churn, from CDMA to GSM and vice-versa, with discarding of entry-level handsets -- that are network-locked -- and a graduation to higher levels. Subscriber retention would become a costly affair for mobile operators and this is likely to put pressure on their financials," he said.

Bharti Airtel CEO (Mumbai, Maharashtra and Goa) Manu Talwar, however, is optimistic. "MNP would be detrimental only to operators without robust networks and customer service programmes. At least for the industry leaders, the churn would be in their favour as they have already invested a lot in infrastructure upgradation," he said.

Bharti Airtel, Reliance Communications, Vodafone-Essar and state-owned Bharat Sanchar Nigam Ltd are the three leading operators in the country. However, MNP has been never a success in foreign countries, like in the US, where it was implemented first.

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Rajesh S Kurup in Mumbai
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