FIXED PHONE: Old Horses Lose Steam

The year 2004-05 was a watershed year for the fixed line services in India as
mobile subscribers outnumbered fixed phone subscribers. This was along expected
lines as for the past few years mobile phone subscription has seen growth at
many times faster rate then fixed phone subscriptions with almost all leading
operators focusing more on wireless. However, this did not mean that there was a
dearth of people buying fixed phones in 2004-05. The fact that private operators
more than doubled their fixed-line subscriber base and consequently increased
their revenue by 48 per cent buttresses the fact that there is still a
significant market in India for fixed lines. The cumulative subscriber base of
all private operators crossed the 5 million mark during the year as they added
around 2.7 million subscribers in 2004-05.

On the other hand, as they focused on mobile services, both BSNL and MTNL
lost close to a million fixed line subscribers. While BSNL saw a two per cent
negative growth in its base, MTNL lost around six percent of its fixed line
subscribers. Naturally, this had a negative impact on the revenue of both these
operators particularly MTNL which saw its overall revenue going down by around 9
percent. For the first time, BSNL and MTNL's share of fixed phone customers
came down to below 90 percent. As a result, the share of private operators
doubled to 11 percent from 5.5 percent in 2003-04.

Quite ironically though even fixed phones are now being driven by wireless.
After all, the fixed services market has now been completely taken over by Fixed
Wireless Phones (FWPs) as they accounted for the majority of the new additions.
Due to the convenience that it offered in terms of deployment and mobility, FWPs
were popular with both the operators and consumers. It is estimated that India
would have close to 5 million FWP majority of which have been deployed by the
private operators. Among all operators, Tata Teleservices has the highest number
(close to 50 per cent of the total) of FWP subscribers in the country.

Overall, the country's fixed phone subscriber base grew by 4.22 percent in
2004-05. In 2003-04, it had grown at 5.6 percent. Private operators largely
drove this meager growth. Increasing availability, affordability and popularity
of mobile phones together with the convenience that they offer made fixed phones
less attractive for consumers. While for private operators, most of the growth
came from large cities and towns, for BSNL a large number of its new fixed
phones subscribers came from rural areas.

V&D estimates  CyberMedia Research

As more and more people switched over to mobile, there was a decline in the
fixed services APRU as well. As per VOICE&DATA estimates, fixed services
ARPU was in the region of Rs 645.

Private Operators: Racing past BSNL, MTNL

Growing at the rate of around 116 percent, private operators added around
2.7 million fixed line subscribers in 2004-05. Growing at the rate of 174 per
cent, Tata Teleservices continued to lead the private operators in terms of the
number of subscribers. Except for Bharti, all other private operators registered
more than 50 per cent growth in their subscriber base with Tata Teleservices
(including Tata Teleservices Maharashtra) and Reliance Infocomm registering more
than 100 percent growth.

In terms of revenue growth, Reliance Infocomm and Bharti were the top
performers. However, the most commendable performance in revenue terms was that
of Bharti.

Even though Bharti had lesser number of fixed line subscribers as compared to
Tata Teleservices and Reliance, its focus on business customers and its strategy
to offer them more and more services led to a consistent increase in its
fixed-line ARPUs leading to higher revenue realization than the other two
leading private operators. Currently Bharti is present in about 50 cities, and
is rolling out network in 12 more cities. Network rollout in another 12-15
cities would follow. Bharti aims to register its presence in 50 big towns of the
country.

V&D estimates  CyberMedia Research

The Road Ahead

It is unlikely that BSNL and MTNL would be able to check the customer churn
that is happening currently nor can they expect to add new subscribers in large
numbers. Even though BSNL has a waiting list of more than a million, mostly from
rural areas. It is unlikely that fixed phones would meet all this. Given the
convenience and ease that mobile phones offer and their growing popularity, a
large number of those in the waiting list are likely to opt for mobile phones.
At best what they can do is offer new and innovative value-added services
specifically designed for fixed phones and thereby keep the customers. Also, as
both BSNL and MTNL have already launched broadband services, this could also
help them keep fixed line customers.

V&D estimates  CyberMedia Research V&D estimates  CyberMedia Research

V&D estimates  CyberMedia Research

Going forward, possibly the other big opportunity that operators like BSNL
and MTNL (who still have huge fixed subscriber base) can tap is the opportunity
offered by fixed-mobile convergence. As mobile usage grows and consumers start
using it even at home, fixed line revenues are likely to shrink further. It is
estimated that fixed services would lose 20-25 percent of their revenue to
mobile operators. In this scenario, fixed operators can gain or protect their
turf only if they are able to combine the advantages of fixed line (mostly
related to cost) and convenience of mobile phones. Obviously doing this would
require an altogether new strategy unlike the current one that is largely
focused on offering new value-added services to fixed line customers.

Ravi Shekhar Pandey