Repeating The Mistakes Of 2003?

[niket 0]

» Indian CDMA operator Reliance Infocomm, repeating the mistakes of 2003?

3G Portal

Last year, The 3G Portal put the Indian wireless industry under the spotlight with these features:

- CDMA operator, Reliance (India) loses the confidence of Qualcomm and

- CDMA how bright is its future?

In the latter article, we noted that one particular player, the CDMA operator Reliance Infocomm was doing it's best to buy market growth through tactics that could not be sustained if the business wanted to become financially sound, e.g. excessive spending on customer acquisition that would be hard to recoup during the lifetime of the customer relationship.

So as expected the high costs of acquisition were not sustained and the over-generous, deep discount Monsoon Hungama offer had to end. And it did, and as one would expected it resulted in a slow down in growth for Reliance. This became most evident early in 2004 when Reliance, which was adding over 400,000 users every month on average, managed to sign on only 170,000 new users in January 2004.

Reliance tried to regain the earlier momentum by launching its pre-paid card service in February. However the company has not been able to repeat the same trick twice, the Reliance numbers (330,000) in February 2004 were lower than the targeted one million new users every month announced by the company at the time of the launch of its pre-paid card.

Also no one should allow the apparently high historical growth rates of Reliances' numbers to mislead, they don't really spell dramatic growth when setting the growth numbers against the relatively small base of CDMA compared with the popular and larger GSM segment. And even those "high" growth rates are a thing of the past it seems, as a recent report by Hindu Business Line (India) showed that CDMA digital mobile growth rates in India have started to slow down.

Morgan Stanley analysis also confirmed the slow down:

"...Wireless net adds for June 2004 came in at 1.37 million. Monthly subs growth slipped to 3.8% (from an average 7.3% for the previous 12 months), with most of the slowdown occurring in the CDMA segment. While the next month confirmed the slippage for the CDMA sector, i.e. the CDMA subscriber base only grew by 3% in July ‘04, two percentage points lower than the GSM growth rate..."

To make matters worse for CDMA, Hindu Business Line observed that almost all the growth in the CDMA sector comes out of the almost singular effort of one player — Reliance Infocomm (with around 90% market share of the CDMA sector). So if Reliance's growth numbers falter in India so does the performance of CDMA.

So how has Reliance's mobile operations fared in recent months?

A local news service, Mid-Day, reported:

"...Reliance added 273,000 subscribers in July, exactly what it had added in June. Analysts attribute it to the company being “preoccupied with trying to set things right on the billing and service front”.

Analysts also said that the 40-60% cut in its prepaid tariffs in August was a move to step up the somewhat decelerating growth. Reliance seems to be making all out efforts to replicate the success of its Monsoon Hungama offer of July 2003, and drive an uplift in Reliance's subscriber numbers. However that outcome is by no means certain, if the Hungama promo caught out the competition last summer, then this year they were quick to respond with similar promotions. For example, GSM operators like 'price warrior' Bharti Cellular is fighting back with price cuts of its own while Idea Cellular also countered Reliance with price cuts in its prepaid service. Most stunning though was CDMA operator, BSNL's response. BSNL not only set its prepaid tariffs 10 per cent lower than Reliance, but also opened another front, by slashing its post-paid tariffs.

So even if there's an uplift in subscriber numbers for Reliance against the backdrop of highly repsonsive competitors, then it is likely only to worsen the current bad debt problem. A problem that The 3G Portal anticipated for the company last year, coming directly from its unfocused and potentially damaging Monsoon Hungama offer.

Our views have since been supported by a local analyst in India who said about the post-Hungama period, "This (bad debt problem) lends credence to the rumours in the market that many customers were cheating Reliance Infocomm by disappearing, not paying up, not even receiving bills, and so on."

Hindu Business Line noted that Reliance has already made a bad debt provision of nearly 16 per cent (of over Rs 400 crore) of its service revenues in 2003-04.

This compares badly with the lower default levels seen amongst GSM operators like BPL. They have pegged the level to 1.5% as default amount (Rs 15 crore) of their total revenue (Rs 1,000 crore). But for Reliance Infocomm it is close to 22.1% of its revenue (Rs 2,007 crore) reported The Times of India (Aug'04).

Reliance's bad debts, among the highest in the industry, clearly highlighted the logistical, billing and collection problems associated with its infamous Monsoon Hungama scheme of July 2003. So why is Reliance taking the risk of making the bad debt situation worse with "Hungama 2"? Again Business Line thinks it knows the answer;

"...The GSM-CDMA split in the mobile subscriber base analysed from June 2003 to June this year reflects the true status of CDMA technology. While the subscriber additions which were split 50:50 between GSM and CDMA in July 2003 (to coincide with the Reliance's Monsoon Hungama scheme) they have swung steadily in GSM's favour, with 72 per cent of additional mobile customers opting on an average for GSM over the last ten months".

The key issue is - will another Hungama-like promotion only accelerate Reliance Infocomm's problems? The 3G Portal will keep a close watch on the situation and report back in a few months.

Related news stories here

Edited September 16, 2004 by Chirag

[compenn 0]

Reliance has created all these problems itself. All the time it was more concerned about trapping new customers rather than taking care of old and loyal ones. Their after sales, billing, customer care standards has always been pathetic. compare it to hutch n airtel and its nowhere near & would not come close in near future. options of handsets is not too good. every now & then they come out with new tarrifs which confuses the customers... all the more.

The only positive in reliance is low tarrifs (including roaming) &nothing else.

[Vishal Gupta 4]

The only positive in reliance is low tarrifs (including roaming) &nothing else

And FREE R-World & Bug in their Pre-Paid Billing S/W

[Ganesh 0]

Well it all depends on the attitude of people also. more for less is the keyword.

unethical marketing is another point which haunts reliance.