Cellular Services: Gone Are Days of Crude Price-wars?

While cellular service providers are crying foul that limited mobility

service will result in far lower subscriber additions for the cellular industry,

they tend to lose sight of the fact that this market is big enough for everybody

to compete in.

When Bharti, the fourth operator in Mumbai, launched its mobile services in

July, it was expected to fuel another price war among the operators. Mumbai,

where the competition is the most intense among various cellular operators,

already boasts of the lowest tariffs in the country. Mumbai has a four-digit

ARPU, though it trails behind Delhi in terms of number of mobile users.

Almost a month before AirTel’s launch in the city, teasers splashed across

huge billboards over the city, made Bharti’s intentions clear. The company was

not going to join the fray by slashing the prices further, as they had already

reached the rock bottom. Bharti indicated that its thrust was going to be more

on the quality-of-service and its network. Even Bharti’s launch in the city

was a reflection of the attitude it had adopted–the launch was anything but

spectacular.

Instead of entering a price war, Bharti tried to look at other ways of

attracting customers. For example, the company doled out many goodies. Also,

AirTel flaunted the first 1,800-MHz mobile service in Mumbai, coupled with a

30-second pulse.

Further, leveraging its national footprint, the operator made roaming free on

AirTel networks across the country. The incoming calls were also made free from

any AirTel to AirTel mobile connection across the country. It did not take long

for BPL Mobile and Orange–the other players in the market–to respond to

Bharti’s offerings.

Operators seem to have taken the cue that price wars alone are not the means

to increase subscriber base and retain customers. They also seem to have

realized the need for a simplified set of tariff plans. A large number of tariff

plans only confuse the customer, without giving any substantial advantage to the

operator. It has been a heartening development to see the number of tariff plans

coming down to three. Not long ago, service providers had around 90 odd tariff

plans.

Probably for the first time in the country, this is an indicator of the fact

that competition is now being led by services, and price is not a differentiator

anymore. This is also partly due to the fact that cellular operators cannot

afford to slash prices any more. The airtime tariffs have come down by over 75

percent in the last three years alone. According to TRAI, the average monthly

rental and airtime being realized for cellular services stand at Rs 202 and Rs

1.99 per minute, respectively. Pre-paid services have been introduced by all

operators at an extremely affordable tariff of Rs 300 per month. Roaming charges

have been cut by 70 percent from Rs 10 to Rs 3 in early 2002 and now, they are

as low as Rs 1.49 (by many service providers).

According to Cellular Operators Association of India (COAI), accumulated

losses suffered by the cellular industry stood at over Rs 7,000 crore as on

March 31, 2002. TV Ramachandran, director general, COAI, had pointed out that

the prevalent market tariffs were well below the TRAI reference benchmark

tariffs, and are driven by market compulsions and the need to meet consumer

expectations, enlarge subscriber growth and gain market share.

But on the other hand, cellular infrastructure cost has come

down significantly over the years. Recently, the CEO of a well-known service

provider lamented that while he invests around $100 per subscriber in each cell

site, the yield per subscriber is as low as 15-18 cents. Does this mean that

mobile services in the country are a loss-making proposition for the players?

No. The inability of cellular operators to find an optimum level between

revenues and tariffs has been mainly due to the inability to grow the market.

Take Mumbai for example. The city has a population of 19 million. The combined

subscriber base of BPL Mobile, Orange, and MTNL, stands at 1.1 million,

translating into a meager 5-6 percent of mobile penetration. So instead of

crying hoarse about entry of limited mobility players and TRAI’s move to

standardize tariffs, cellular players should focus on the immediate task at hand–to

grow the market.

All over the world, 50 percent of the money for cellular

operators comes from long-term investments. At the end of the day, adding value

to the services offered to the consumer in a predominantly voice market is what

matters most. With competition changing from price-led to service-led, this is

what can make or break cellular service providers. Let our mobile service

providers not lose sight of this fact.

MT Jeevan