GSM Operators: United They Fight
GSM operators have joined forces to counter the Reliance impact…and are raising issues that will benefit the industry in the long run
Voice&Data voicendata.com
Monday, February 17, 2003
Slowly, the dust started to settle down, and GSM players could see Reliance’s movements more clearly. And they realized that the best way of survival was offence—through a common front. And that’s the beginning of a new phenomenon—the Great Unification of GSM Operators. Call it Reliance Impact 2.
When there is a common opponent, smart fighters unite. Never has one seen the GSM operators so closeted together. A sense of brotherhood has showed up in every move they made since late 2002. They talk, write jointly to the minister. They defy the regulator together. They fight their court cases together. They communicate their anguish through a common advertisement. They cut their prices together. They share their networks. They even address the media together.
This phenomenon is indeed remarkable, considering that as many as four operators competing against each other in almost every circle and metro. It is a fiercely competitive market. On one hand, cellular operators have to play the game of one-upmanship among themselves and yet put in a common bat against the big guy hurling the demon ball from the other side.
The cellular market in India has grown at the rate of 80–85 percent, and achieved a subscriber base of 10.4 million by end-2002. According to Cellular Operators Association of India (COAI), the industry has grown from Rs 3,285 crore in FY 2000-01 to Rs 4,700 crore in FY 2001-02.
But with Reliance having shot the CDMA arrow, will the fast-growing cellular industry start slowing down? That, today, is the billion-dollar question.
The stakes are very high. COAI estimates that there will be 120 million mobile subscribers in India by 2008. In the course, the mobile subscriber base is expected to leave behind the fixed phone subscriber base. The mobile is not only being looked as a means to solve the lack of teledensity but as an enabler of an information society. That obviously points to not only a market for voice communication but data/multimedia as well. Here, one is talking of a billion-dollar industry, which is all set to grow at a fast pace.
So, the operators are doing everything in their capacity to hold their customers from churning out to CDMA players. The challenge is huge and everybody is affected. Unity has automatically followed as a result. Individually, they present at best a few million subscribers each, but jointly they are a 10 million-strong team to contend with. United they stand, divided they fritter away their advantages. They know this fact very well.
Thus, the united fight is very much on. The two major objectives here have been to match and even preempt the opposite party’s moves both at the marketplace as well as in the corridors of power. And the way things are going, this strategy seems to have already paid back its first batch of dividends through the Supreme Court direction and the TRAI tariff order.
Pricing
For cellular phone consumers, the year 2003 has truly started off on a celebratory note. On the second day of the new year, GSM cellular operators congregated to announce one of the most aggressive tariff revisions in the history of the industry. With immediate effect, cellular-to-cellular national long distance (NLD) calls of 50 km and above became cheaper by 66 percent, from the prevailing peak charge of Rs 9 per minute to Rs 2.99 per minute anytime.
This was a joint initiative by the major cellular operators, which have been using Bharti Televenture’s NLD service IndiaOne as the common carrier for cell-to-cell NLD calls. Though the offer of such arrangement was made by IndiaOne to all cellular operators, the two major incumbent telcos BSNL and MTNL did not join this arrangement. And the two responded five days later, with an even more aggressive cell-to-cell NLD tariff cut after joining hands for cell-to-cell long distance. While MTNL’s calls beyond 200 km got marginally cheaper at Rs 2.90 per minute (both peak and off-peak) compared to the private operators’ Rs 2.99 calls between 50 km and 200 km and calls under 50 km became significantly cheaper at Rs 2.40/1.20 (peak/off-peak) and Rs 1.20 (both peak and off-peak) respectively. BSNL’s tariffs, which are current under introductory plans and hence has to be revised, remained more or less at existing rates (which are already lower than private operators tariffs), except for calls beyond 500 km. For calls beyond 500 km, it announced a new flat tariff of Rs 4.80 per minute, inclusive of airtime. Further, there were price cuts also by BSNL for cell-to-fixed NLD calls.
Cellcos will have to either quickly ramp up on the benefits side or match Reliance’s tariffs
What all this meant was no matter where you call from and where you call to within the reach of the cellular signal, if you are making a call from a cellular phone to another cellular phone, the national long distance call tariffs have become almost three times cheaper than what the earlier tariffs.
As a result, roaming has become somewhat affordable, thus enabling more and more people to remain always connected through a cellphone.
But there was more to come.
Two weeks later, after an intense war of words and action between private cellular operators on one side and the Wireless in Local Loop (M) operators and the incumbent fixed operators on the other side, cellular operators again upped the ante. There was a joint statement that all cell-to-cell incoming calls (within the same network or across networks) would become free.
Soon after came TRAI’s tariff order of 2003, directing basic service operators to hike their local call charges and cellular operators to make all incoming calls free, including calls from a fixed or WLL mobile phone. A new interconnection regime has also been ordered, wherein basic service companies, including those operating WLL mobile services, will pay interconnection charges for using the cellular last mile—a long-standing demand of the GSM operators, who have been paying interconnection charges for using the basic service providers’ last mile.
As expected, by the first week of February, all the major cellular operators have made major overall tariff cuts. Incoming calls from GSM mobiles, across almost all networks, have been made free, while incoming call charges from fixed phones and WLL phones have been set at Rs 0.50 per minute. That apart, there has been drastic fall in outgoing call charges too, with some premium packages even doing away with outgoing airtime charge as well. Pulse period for calls has also undergone a migration from the existing 30 seconds to a minute. Cellular operators also promise to do away with the 50 paise charge for calls from fixed and WLL phones, once the new interconnection regime comes into force.
The Reliance Factor
Cellular service providers have never been so forthcoming as they are now. In the past, though tariffs have come down from the Rs 16 per minute levels of 1996, they have never cascaded so drastically—all at once. The difference between now and then, obviously, is Reliance.
WLL mobile services have been there in the country for some time in the form of MTNL’s Garuda. It was however, the entry of the big private sector corporates Reliance and Tata into this service that set off the panic button in the cellular services camp. Suddenly, the alternate mobile service threat was a reality.
While the cellular operators see the entire WLL (M) industry as a threat, it is Reliance which has really imprinted itself in their psyche. Yes, the Tatas are big too. But it is the Mukesh Ambani-run Reliance Infocom whom they are watching all the time. Why this profound impact?
Grandiose as Reliance’s product, distribution and promotion plans are, it was its pricing strategy that shook up the industry in the initial phase. Going from the price positioning that it has taken, the nimble giant seems to have taken great care in evolving its pricing strategy.
While other WLL players have chosen to position themselves as cheaper mobile phone services in terms of pricing, Reliance has positioning itself as the ‘cheaper and as-good-as cellular’ mobile service. Unlike others, Reliance overtly promotes such value-added features as inter-SDCA number facility, SMS, multimedia services, Internet access, and games. The idea clearly is to be as competitive as the GSM cellular operators when it comes to consumer benefits—real or perceived.
The Value War
What we are witnessing today in the Indian mobile market is not exactly a price war. It is in fact a value war that is throwing us all the goodies that have come so far since the launch of WLL mobile services.
Value is nothing but benefits minus cost—not what the service provider estimates but what the consumer perceives.
Therefore, the greater the perceived benefits and the lower the price of a service, the higher is the customer value and more are the chances that customers will choose that service.
The current mobile pricing strategy adopted by Indian mobile operators can be explained in a simple manner by mapping the various players on a value map.
The horizontal axis of the value map shows the customer-perceived benefits of the services offered while the vertical axis plots the price of the service as perceived by the customer.
In a scenario where market shares are more or less stable, as was the case of cellular industry, competitors align themselves in a straight diagonal line from the point of origin, which is called value equivalence line (VEL). Depending on what benefits the customer wants at what price, the customer makes a logical choice. The consumer decides whether to choose a private cellco and pay a premium for the better perceived benefits they provide or go for MTNL/BSNL to enjoy the cheaper tariff.
WLL companies like Tata Indicom, BSNL, MTNL, HFCL, Shyam Telelink seem to be clearly positioning their services truly as the poor man’s mobile, setting their tariffs significantly lower than the cellular operators, right at the bottom level of fixed phone services. They are mainly targeting the mass market. They are betting on the hope that majority of new phone subscribers would choose to take up a mobile phone rather than a fixed phone for their personal communications. These companies, while being at the same price level as fixed phone services, have an advantage on the perceived benefits due to the mobility factor. Because of this, they hope to gain marketshare from the fixed phone operators. Cellular operators are not that threatened by this group of players.
On the other hand, it is Reliance that is sending the shivers down the cellcos’ spines. Reliances’ position is that of matching the fixed operators on price and matching the cellular service providers on perceived benefits. Now, that is the real cause of the incumbent mobile operators’ worries. If the customer perception matches what Reliance has set forth to do in its price-benefit mix, then it means that the company would capture marketshare from not only the fixed phone operators but also the cellular service companies.
So either the cellcos have to quickly ramp up on the benefits side or match Reliance’s tariff apple to apple. The catch-up activity has already begun on the price side. How far they can go, however, remains to be witnessed.
Nareshchandra Laishram |
