WLL and Indian telecomm market
Till a few years ago, one could only get a wireline phone service in India through a State-supported monopoly telecom provider. The inefficient monopoly made it very difficult to get a phone service in India for businesses and households. In early 1980s, there was a wait for many years to get a residential phone line. That explains only 35 million fixed lines in 100 years of telephony in India.
Rural telephony is always a good socialist slogan in India. Making telephone affordable for the common masses. The politicians keep talking about it.
In the mid 1980s, the thrust of the Govt. departments was that imported telecom equipment is too expensive (and comes out India's foreign exchange reserves). So India should develop cheaper (Indian technology) telecom equipment that would make phone access affordable beyond the big cities. In the end a hybrid of Indian and imported technology was used to deliver a very successful manned phone kiosk program. The STD/ISD booths allowed almost universal geographical coverage in big and small towns. By early 1990s you could find them at every corner. In late 1990s, many of these booths got extended to become cybercafes.
The next step was to start providing telephone service to rural communities. Affordibility was a big factor. So the telecom department had many research projects running. WLL was one of them. It was believed that a non-mobile wireless service would be cheaper. Technologies tested included Cordect technology and CDMA WLL. But the technologies were not seriously implemented. They continued to be tested for most of the late 1990s.
In the lates 1990s, the Indian Govt. floated the cellular licenses and allowed competition in that field. Also, competition was introduced in the Basic Service (traditionally wirline) market. Now if you wanted a residential or business phone, in many geographical areas, you had more than one choice of companies. Getting a business phone line is no longer a problem and there is hardly any wait (a week or so).
The new Basic Providers concentrated on competing in highly dense business areas mostly in big cities. They ignored everything else - residential customers, small towns, and villages.
At the same time, cellular providers got traction among the 1 percent of the richest Indian households. (That is 10 million people). In the beginning, the celullar rates were as high as Rs 20 per minute. Every year the lowering of rates brought in new customers. The rates are such that affordability is not really an issue on a pre-paid basis. In a post-paid environment, housholds may not carry a phone because of recurring monthly charges. But the rates are still too high for the mass market.
To the credit of the Indian Govt., the 1990s saw a definite action by the the Indian Govt. to improve telephony access. Several steps were taken - partial privatization of Govt. controlled monopolies, introduction of competition in Basic Service, introduction of cellular services, and introduction of the WLL spectrum.
Another trend has been the disinvestment of govt. owned monopolies and selling off the assets, prefereably in international markets. Over the years, Indian companies have raised money in foreign markets. The govt. prettied up the Govt. monopolies and sold postions of them to foreign markets. Once that job was done, a greater amount of competition was introduced.
It was assumed that if competition was introduced in the Basic Services market, the telephony penetration rates would rise at a fast pace. But this has not happened in spite of all the incentives given by the Indian govt. WLL is one of the newer incentives. A small band of spectrum was allowed nationwide for this alternative technology on a nationwide basis. Concession were given to WLL providers, equivalent to the other Basic Service Providers. So if a company could offer cheap fixed-wireless or partially mobile service at the same prices and conditions as Basic Service (fixed-wireline) Providers, then why not? In return, the WLL providers were offered spectrum at very low cost.
Any of the existing cellular providers could compete for the WLL licneses.
Now, it would seem that the Indian Govt. was really caring for the masses. But there may be more to it.
Reliance is one of the most successful companies in India (and maybe in the World). In the last twenty years, they have vertically integrated the petroleum, petrochemical intermediate products, and textiles industry putting them in the top 10 chemical plant equipment buyers in the world. Reliance is very frugal and efficient company with big ambitions. But a partial credit of their success is patronage by various Indian govts. at different times in the Company's life.
Dhirubhai Ambani, the founder and builder of Reliance died recently. His sons, Mukesh and Anil are ambitious and want to get into the limelight on their own. But Reliance is already so big that only a very ambitious project would allow them the platform to come out of their father's shadow. And becoming the biggest telecomm and associated providers is their main goal. Reliance missed out on the Information Technology boom of the 1990s, which other companies such as Wipro, Tata, and Infosys exploited. So telcomm is the platform. By the looks of it, Mukesh Ambani, the elder brother has taken over the telcomm busienss. And Anil Ambani is looking for his own large platform. I think that would be the natural gas pipeline business!
When Reliance goes seriously into a business, they try to control as many variables as possible. So getting the politicians on their side would be one of the first things.
Friends in Chemical industry tell me how tough a buyer Reliance is. They know exactly what is available in the market and the pricing. They buy the core technology from the best firms, and build the rest in-house or from lower priced vendors. They go for economy of scale, which gives them a huge advantage in terms of bargaining power with vendors, and ultimately making them a lower cost producer.
The undersaturation of Indian telecom market allows room for the ambitions of Reliance. They have taken advantage of the downturn in the telecom infrastructure markets worldwide to lay down an optical fiber through most of Indian telecom markets. Now they have to fill it up.
Reliance does not care about WLL or CDMA or data etc. All they want is to be Number 1 or 2 player in the Indian telecom market. WLL allows them to reach the customer directly nationwide. They also control a nationwide data and voice optical cable backbone giving them an early-mover advantage.
Reliance may have rigged the WLL game. CDMA WLL solution uses spectrum more efficiently. So only small portions of the spectrum were awarded to WLL nationwide. That must have discouraged the GSM cellular providers to compete for those licenses. As a result, the CDMA providers are Number 1 (Reliance) and Number 2 (Tata Teleservices) in WLL coverage.
The GSM players have received investments from large non-Indian GSM carriers. They could have acquired the Basic Services licenses licenses like Reliance, another GSM cellular provider in Gujarat did. But they were not very ambitious. They were happy feeding off the top 1-5 percent of Indian populations, essentially using the same business model as that used in Western markets.
Reliance and Tata Teleservices are more ambitious. They see the Indian market as a a nascent telecom (not just cellular) market. Tata and Reliance Groups of companies are about the same size overall. So they will play in all the aspects of the telcomm business - data, voice, long distance, international connections.
The GSM cellular providers in India are fragmented - with the biggest having a million subscribers out of 10 million. So all Reliance and Tata Teleservices have to do as a first step is to take over about 2 million subscribers each and they have the bargaining power. The GSM players are fighting their last battle before surrender, going to the desperate measure of denying interconnect to the CDMA players, and openly flouting the regulatory body. And Reliance may have used (pure conjecture on my part) its political connections to force the Govt. controlled Basis Service Providers BSNL and MTNL to "unofficially" deny interconnect to the protesting GSM providers to give them a taste of their own medicine.
The GSM cellular providers are protesting the terms of WLL, while they had full access to apply for the WLL spectrum under the terms that were laid out for it. As for paying the WLL players for the interconnect, and not getting paid by them for the interconnect, that was always the case with the Govt. controlled Basic Service providers. Of course that was not an issue before, because every cellular provider needed to get that access without which they could not reach the installed base of wireline phones.
Reliance is probably at its weakest right now and is willing to negotiate. Its customers cannot do without access to the 35 million wireline connections, and 10 million wireless conncetions. At the moment the GSM cellular providers can live without accessing the tiny numbers of WLL subscribers. So they are using their last trump card to negotiate a rate for the interconnect.
Reliance does not care. In the long term it cannot be held to ransom. It is ready to pay extra for WLL spectrum as long as it allows Relaiance to be a national player. When the CDMA players have 5 million customers by next year, they will have much better negotiating power with fragmented GSM providers. Say, 2.5 million subscriber strong Reliance can individually negotiate with 1 million subscriber strong GSM provider. So in each market it can shake down the weaker GSM player to negotiate with it and will not be held to ransom.
And Reliance can acquire customers in various ways. What may be the "Friends and family plan and business associate plan". Whatever the interconnect rate ends up being, those charges practically cancel out. Reliance has several ways to acquire the critical mass of customers to leave the fragmented GSM providers in the dust. Thses are:
- Building an Amway style marketing campaign that converts the sellers to become the first buyers. They are talking about 250,000 such sales people. This can be done quietly without big ad campaigns.
- Low and competitive cell phone plans.
- Providing long distance at local call rates. The typical long distance rates are 5 to 20 times the local call rate per minute. So if you have a family member in another city with Reliance coverage you can recover the cell costs by savings in long distance. People may just quit their wireline service if the coverage is good. And the CDMA 1x offers modem speeds and voice/data handset in mobile environments without even buying a PC.
- High end phones can help in attracting the high end cellular subscribers currently in the GSM camp.
- Converting large companies to switch part of their work forces to the wireless phone/data handsets.
Reliance is running a few months behind. And it is promising the sky when it is not fully ready with its telecom offerings. Only a week ago, Reliance contractors who were laying down a telcom line in a posh neighborhood in Mumbai (Bombai), damaged a water line by mistake. That means the optical fiber is still being laid.
The hype may be to float a new stock offering.... Let us see how it pans out.
-Arun |
