18-Feb-2001, Indian mobile operators face threat from new 'local loop' competitors
by James Moore, Research Analyst
The Indian cellular industry has never looked as troubled as it does today. The telecom regulator ruled in January 2001 that basic or fixed line operators should be allowed to provide wireless services within a service charge area. This effectively means a basic operator can cover an entire city like Mumbai through CDMA wireless local loop (WLL) provision without having to bid for cellular licences. Mobility would be allowed within a city or town within the range of a local call. WLL operators could offer services within a range of up to 40km. Spectrum of 5MHz would be given to each operator on the 800MHz frequency spectrum.
The tariffs for limited mobility have been set at INR 1.20 per three minutes. This is against INR 4.00 per minute which Mumbai's cellular operators currently charge. The tariffs are higher in other circles. Cellular operators are complaining about the manner in which the regulator has moved to bring in the change. They allege that the speed at which the exercise has been conducted suggests favouritism. Cellular operators say that this is nothing but a 'backdoor entry' into cellular, without having to bid for licences, paying lower revenue share to the government and also getting precious spectrum on the 800MHz spectrum band without having to bid for it. Offering spectrum for free on a first-come first-served basis seems absurd. The existing 900MHz spectrum which is available to cellular operators has more or less been exhausted and the fourth operator would get spectrum on the 1900MHz band. But the existing cellular operators are not sure whether they would get adequate spectrum on this band. More importantly, they do not want rivals to take over their cellular territory by offering limited mobility at INR 1.20 per minute.
India's cellular operators are only now beginning to get into the smaller markets in the circles they operate. The focus so far has been on getting the high-end customer into the cellular fold. The total subscriber number has now gone past 3 million and most high-end customers are now in. The real challenge now is to get to the semi-urban and rural areas which have been showing tremendous commercial potential. Incremental growths are split between urban, rural and semi-urban areas. With limited mobility and the attractive tariff that goes along with it, cellular operators stand to lose a large amount of additional subscribers. This is what is troubling them.
Moreover, they also feel that the INR 1.20 per three minute tariff is just not sustainable but yet they would have to justify to their lenders and promoters, several of whom are foreign, about how they intend to compete against such lower tariffs. This could delay funding, which is much needed at this stage as cellular operators are in the second major roll-out phase. Despite the low tariff barrier, the high cost of WLL handsets would be a barrier. MTNL's WLL solution will involve offering handsets for a security deposit of INR 11,000. Nevertheless as WLL becomes much more prevalent, handset prices will fall. There is also a lack of roaming and messaging services with CDMA WLL, although most cellular users do not use these anyway and so this is not an immediate deterrent to most potential WLL users.
The TRAI (Telecom Regulatory Authority of India) has said with the offer of basic telecom companies to offer WLL services, cellular operators will be allowed to offer WLL services. The revenue share licence agreement for cellular operators will be reduced from 17% to 12% as a result of basic telecom operators being allowed to offer WLL services. This is on the recommendation of the TRAI. This is to compensate cellular operators, which claim their businesses will be hit by the decision to allow limited mobility.
Cellular operators like Hutchison and BPL as well as Birla AT&T have been trying desperately to convince their promoters and lenders that they could still get the government - which has to endorse the regulator's decision - to see reason. Hectic lobbying is now taking place. Initial signals are that the government wants to go along with the regulator's views. Hutchison has put a freeze on fresh investments. The Cellular Operators Association (COAI) has taken the WLL matter before the Telecom Disputes Settlement and Appellate Tribunal, a body recently formed to deal with telecom disputes. This is an appeal against the TRAI recommendations allowing fixed line operators to offer limited mobility to their WLL subscribers (restricted to the local calling area). This will be the first test of the Appellate Tribunal. COAI filed the case on 22 January 2001 and the case will be heard in late February 2001. The COAI has said that the move would adversely hit foreign investment in the country. Hutchison Whampoa, which has four networks in India, has apparently asked its local firms to freeze all fresh investments in the country. Others are also reportedly reworking their business and investment plans in wake of the TRAI order. The WLL matter has also meant that operators will not currently commit to the fourth licences. This could mean that the fourth licence process is delayed. The bidding process is currently scheduled to be completed by July 2001.
Rush for basic licences
Although there is no limit to the number of basic telecom licences per state, there is obviously not unlimited spectrum. Basic telecom operators will get spectrum free (subject to availability and decided on a first-come, first-served basis) and a licence at a very low cost. Also basic operators will get an interconnect charge and revenue share, unlike cellular operators. This anomaly is being looked into by the government.
These factors mean that there has been a rush for licences with 109 applications a week received, after the Department of Telecommunications started accepting applications for fixed line telecom licences. The first day of bidding saw 47 sealed bids. Applicants include the BPL group, the Birla-AT&T-Tata combine, Aircell Digilink and Fascel, Tata Teleservices, Shyam Telecom and HFCL (Himachal Futuristic Communications Limited).
Hutchison has applied for basic licences for all circles where it has a cellular presence. Hutchison is not interested in offering fixed line services, it never invested in this sector in any of its markets, but is bidding only to ensure that it does not allow a rival to eat into its market share and at the same time ensure spectrum. Hutchison's partner in India, the Essar group, has, interestingly, bid for all 21 circles. It remains to be seen whether Hutchison would use this as its foray into other circles. The Bharti group has bid in eight circles, most of which are existing cellular properties. The Reliance group has bid in most circles (11 in total) where it does not have a cellular presence. In other words, Reliance wants to have a presence in every state of the country. With limited mobility only expected to graduate to full mobility over a period of time, it makes sense for a prospective cellular operator to go through this route. MTNL and BSNL have also applied for basic telecom licences. Interestingly, MTNL have applied for licences in some of the same states as BSNL (and vice versa).
INR 1 (Indian Rupee) = USD 46.6
e-searchwireless.com |
