Alarm Bells For Small Telcos?

[Honest 836]

Alarm bells for small telcos?

1 Jul, 2008, 0133 hrs IST

MUMBAI: The acquisition of Spice by Idea Cellular has closed the chapter on almost the last of the mobile service providers with a small presence. Spice operates in the circles of Karnataka and Punjab and the buyout will help Idea in increasing its presence from 11 circles to 13. This is, of course, less than Bharti or Vodafone, even as it provides Idea a much needed leg-up.

With an exception of players such as BPL Mobile, MTNL, Shyam Telelink and HFCL Infotel, every other operator has a large presence—meaning at least 10 circles. The top six operators in India—Bharti, Reliance, Vodafone, BSNL, Idea and Tata Teleservices—account for 258 million subscribers out of India’s 277.39 million subscribers at the end of May. That is a whopping 93%! Aircel has 11.49 million subscribers across 10 circles while a smaller one like BPL Mobile is restricted to Mumbai. MTNL is a two-city operation (Delhi and Mumbai).

It is at a time like this when new players like Videocon, Unitech, AT&T, Russia’s Sistema among others are looking to enter this highly-competitive market. At a subscriber base of 277.39 users out of a population of over a billion people, India is said to have a reasonably healthy penetration level. Clearly, the rest of the population will be one possible target for the new entrants.

Videocon Group chairman Venugopal Dhoot pretty much confirms this when he says there is a large market which is still not in possession of a mobile. However, the story is rather different in a city like Mumbai, which is also an independent circle.

Mumbai alone accounts for over 12.3 million subscribers against a population of 19 million which translates to a penetration level of 65%, which compares to a national average of less than 28%. “I do not think that is a cause for concern since there a market of over six million which can be addressed,” thinks Dhoot.

A market surely does exist but the question is how much it can bring in as revenue. After all, all the big and medium users of a mobile phone are already locked into one operator or the other. “The lower end of the pyramid is one where the pre-paid component is big. The Average Revenue Per User (ARPU) also, as a result is much lesser” says KPMG executive director (Telecom) Romal Shetty.

Consider another large circle like Delhi where the ARPU for the October-December quarter, according to figures released by the Cellular Operators Association of India, stands at Rs 379.73. This is down from Rs 391.27 for the preceding quarter. The fall in Kolkata, like Delhi, is around three per cent, while the fall it is at a more worrying 6.86% for Chennai. How much more this can fall remains to be seen.

Unitech is another entrant waiting to launch services. Its managing director, Sanjay Chandra, is has said that India is an underpenetrated market in terms of the number of operators and that there is place for more. Without a doubt, the new players will need a clear differentiator in this market. “This could be on pricing or possibly on quality of service” says Shetty. Dhoot, for his part, speaks about his existing distribution as an advantage. “We have access to 50,000 dealers who can sell our mobile service. It, therefore, becomes very easy for us” he says. Dhoot says that he will launch his operations on August 15 from Chennai.

More operators mean more competition resulting in a possible pressure on tariffs. “I think there is scope to relook at tariffs,” concedes Dhoot. This comes after the government has said there will be a three year lock-in period for the new entrants implying they cannot engage themselves in M&A activity.

For the new entrants, starting afresh in large circles will not be easy. The way forward looks interesting with talk of mobile portability (retaining the same number while changing the operator) looming large. The scenario looks interesting as the consumer gets ready to be pampered again.