Basic Services: Back in the Reckoning

The recent decision by Bharti and Tata Teleservices to surrender some of
their Letters of Intent, sent an ominous sign across the industry. This was
followed by an MoU signed between Hughes Tele.com and Tata Teleservices to
consolidate their operation, which raised some questions about the viability of
basic services as it stands today, in the country. With Reliance’s basic
services remaining a non-starter and Bharat Sanchar Nigam Limited (BSNL) and
Mahanagar Telephone Nigam Ltd (MTNL) a lagging way behind their projected
targets, the scenario appears to be not so promising. At at time when things
were beginning to look bad, the green signal for limited mobility changed all
the rules of the game, and after much controversy, the operators are gearing up
to take upon the opportunity to make their businesses more viable. Operators
like Tata Teleservices, Bharti, and Hughes Tele.Com, have provided some glimmer
of hope with their services picking up well in their respective areas.

What Went Wrong?

India was one of the selected countries in the world to throw open its fixed
telephony for competition, long before long-distance, in accordance with the
National Telecom Policy (NTP) of "telecom for all and telecom within the
reach of all". However, several hurdles came in the rollout of basic
services, especially, the lack of a regulatory body and high license fee quoted
by the bidders. Right-of-Way (RoW), an unfriendly interconnect regime, harsh
rollout obligations, in terms of SDCA coverage, were some of the other issues
which did not aid to the the fast rollout of the network across the country.
According to S Ramakrishna, managing director, Tata Teleservices, "Current
rollout obligations in terms of SDCA coverage are very challenging and unless
all the necessary approvals, such as RoW, etc, are obtained from various
authorities, this remains an uphill task".

Does Limited Mobility Hold the Key?

There has been a change in the ground situation after the
government allowed basic operators to offer limited mobility services. There is
an increased optimism amongst the basic operators about going mobile via the
limited mobility route. This was very clear when Reliance exited from all but
one cellular license and signed agreement for sixteen basic licenses. Reliance
plans to launch nation-wide CDMA-based limited mobility services, once its
network is in place. So now with a total of thirty-two licenses, one can expect
a definite progress. With both Bharti and Reliance also being in the reckoning
for National Long Distance (NLD), services look more viable. But the decline in
long distance tariff can not be ruled out.

What Does It Mean for BSNL and MTNL?

The two incumbent operators control almost the entire basic
telephony landscape in the country, with virtually no competition. Now the rules
of the game are changing very fast. Private operators are ready to take the
bulls by their horn. Bharti has made deep inroads into Madhya Pradesh, and is
likely to start rolling out in other states as well. Hughes Tele.com has given
MTNL sleepless nights by poaching on to its corporate customers. Tata
Teleservices is also doing well in Andhra Pradesh and has got subscribers close
to 1 lakh. It has introduced a host of value-added services, giving BSNL a tough
time. Both BSNL and MTNL are trying their best to face the new reality of
competition.

Killer Services to Deploy

Most operators have realized that providing plain vanilla
fixed telephone will not be of any consequence to their business, despite the
per line cost coming down considerably. All operators are targeting corporates
and SMEs aggressively with innovative value-added services. Says Vijay K Gupta,
president and CEO, Lucent Technologies, "There is a chance for basic
operators to go to corporates, SMEs, and rich households, by creating innovative
services. The per line cost has come down when it comes to offer only voice
services, but for both voice and data, it remains more or less the same. Some
operators have already seized this opportunity and there are other operators
like Hughes Tele.com who have gone to the extent to deny connection to
consumers. Hughes is doing satisfactorily in Mumbai and is offering a complete
range of broadband voice and data services, though its Internet services are yet
to take off. MTNL, despite having almost similar set of services, has not been
able to stop its customers from leaving its network.

On the other hand, Tata Teleservices is offering voice
telephony, facsimile, ISDN, DSL and leased lines. Other services on the anvil
include an intelligent network which facilitates toll-free numbers, voice mail
services, pre-paid cards,VPN, and premium calling services. It has also tied up
with Schlumberger for the smart-card based PCO network in Andhra Pradesh. It is
also offering a virtual PABX service (Centrex) available on the wireline
network. Internet bundled with the phone connection has already become a reality
with operators like Shyam and Tata Teleservices who are likely to provide their
services in Rajasthan and Andhra Pradesh. Hughes is all to set to follow suite.
Internet will also become the driving factor in

the growth of basic services in the country. Most of the basic operators have
also obtained an ISP license which will help them.

Will Rural Telephony Become Attractive

Most private operators are guided by their business interests
and it makes little sense for them to reach out to the rural areas. The result
is for everybody to see. The VPT deployment is far from anywhere near the
target. The reduction in cost per line may not be enough for the operators to
fulfill their VPT commitments. One thing that has not happened in India is the
concept of community PCOs like the Grameen Phone in Bangladesh. It is not that
the demand is not there, it is only that the operators have not been able to
market properly. The operators have to tap the rural market. The rural
teledensity is low at less than one. The community PCOs given to the franchisees
will go a long way, in not only making communications facility available, but
also offer livelihood to the rural entrepreneurs. Private basic operators can
succeed where BSNL has failed. Though the task is daunting, it is not
impossible. According to Ramakrishna of Tata Teleservices, "This is
possibly due to the lack of funds on part of the current operators. Also, TRAI
could come out with the USO policy to encourage extension of services to such
sections and geographical areas".

Big Opportunities

This is against a backdrop of the fact that tele-density in
the country is just three and the target is to achieve fifteen, in the next five
years. There cannot be a better time with vexed issues like RoW being solved to
a great extent and investor confidence showing signs of picking up. With total
waiting list as of 4.2 million as in August 2000, there are immense
opportunities for the basic, incumbent and private operators, to really grab
this and accelerate the rollout of their network, and offer services.

One thing is clear–operators will have to shift their focus
from the present overwhelming dependence on voice to data and other value-added
services, for which the market will have to be explored. Already Hughes Tele.com
and Tata Teleservices have amassed subscribers in excess of 70,000 and are doing
very well given their quality of services and excellent marketing strategy.

TRAI is coming up with a consultation paper on cost-based
tariffing. This should be a good news for operators, as this will mean increased
rent and less dependence on long distance revenue, to subsidize the local
access. But in return for high tariff, corporate customers will expect a better
quality of services. Retail customers, however, will resist any upward hike in
the tariff.

Sudesh Prasad

'Viability could still exist in areas which earlier were not considered lucrative.' S Ramakrishna, MD, Tata Teleservices

What are the top issues before the basic operators
today?

There are many uncertainties on the interconnect
regime, both in terms of certain technical matters and commercial
arrangements with BSNL–the leading service provider. This uncertainty
restricts the feasibility in operations and naturally, the viability of
the venture. While the government in-principle has indicated technology
neutrality in all licenses, in case of limited mobility, they have
insisted upon V5.2 which leads to sub-optimal investment and inability on
the part of the service provider to extend voice and data services to
customers on a cost-effective basis.

Similarly, the current indication that one should have
a switch at every point of presence for interconnection does not make
sense, given the modern technology which allows large-size switches with
partitioning capability and possible back hauling through backbone
bandwidth that is likely to be available in plenty. The current
macro-economic situation across the globe, both from the point of view of
attracting investment and financing for telecom, is not very encouraging.
Given the large investments needs of the telecom sector, the current
capital market situation, and health of the Indian institutions and their
ability to take telecom exposure, is of concern. Current rollout
obligations, in terms of SDCA coverage, are very challenging and unless
all the necessary approvals, such as RoW, etc, are obtained from various
authorities, this remains an uphill task. With the indications of the
slowdown in the economy, communications expenditure of customers may not
grow at the rates projected earlier. This could be a challenging phase of
maintaining good operating margins in the initial years.

What are the top five issues before the service
providers today?

The order of importance would be mobilizing resources,
in terms of financial and human resources, which would be the key to the
success. Access to the latest technology at lower costs is again an issue
that confronts operators while going in for short-term or long-term
projects. Customer satisfaction is important as the expectations from a
PSP are always higher than the services so far provided by the DoT. Cost
of handsets for limited mobility services prevents faster acceptance among
customers, and this also results in the inability of PSPs to project,
demand and negotiate, for an optimum price. Support from the local state
government, as a facilitator is critical for quick rollout of services.

What and where are the opportunities?

The opportunity for the basic operator lies in reliable
high-technology network, with the support systems to provide good customer
service. The network could also be built for the future to take advantage
of developments in technology, to offer services to customers at favorable
rates as well as meet their increasing expectations. Having multiple
circle operation, will provide the ability to the operators to procure
goods and services at optimum rates, maintaining high-quality level of
management and provide for the promotion of a common brand. A common brand
between the multiple circles will lead to cost-effective promotion. Common
operations will also help them to provision and sell value-added services
in various markets.

Is market segmentation important? Many service
providers say that their target is corporate or enterprise. How
sustainable is this approach? Is there money in serving the end-consumers?

Segmentation is very important. Given that the
customers graduate over a period of years, it would be necessary to
service a large number of customers to maintain viability. Covering other
segments in business and residential areas where the network has been
created, is necessary to maximize revenue and operating margins. However,
we are keenly awaiting the USO policy from TRAI. We should cover villages
and also low-end customers.

How would you rate the availability of services? Is
it adequate? Justify.

In most of the circles in cities and towns, the basic
requirements of voice telephony are being met, however, emerging
requirements of the corporates and other customers are still not being
met, especially, in the field of data and entertainment. Further, in
smaller towns even the basic telephony requirements are not being met,
though the viability could still exist in these places. This is possibly
due to the lack of funds on the part of the current operators. Also TRAI
could come out with the USO policy to encourage extension of service to
such sections and geographical areas.