FIXED PHONES: Crushed by a Juggernaut

The market was sluggish this year owing to an overall decline in the total
number of direct exchange lines (DELs) over the previous year, largely due to a
tremendous growth of cellular services. The largest consumers of push-button
telephones, BSNL and MTNL, witnessed a negative growth of 25 percent in fixed
DELs during the year 2002—03 (April—December), which gave a rude shock to
phone manufacturers. It should be kept in mind that state-owned BSNL and MTNL
had witnessed a growth of 18.87 percent in the fixed-line subscriber base during
FY 2001—02 over the previous year.

Chandigarh became the first district in the country where cellular phone
connections surpassed the fixed line connections.

Bharti decided to consolidate its manufacturing operations and shut its
Gurgaon plant. It, however, continues to manufacture from its existing plants at
Ludhiana and Goa. The Ludhiana plant basically caters to state operators.

These developments are obviously owing to the shift in user preference in
favor of cellular services, which grew by about 113 percent during the period. A
total of 4.5 million new fixed line connections were provided by the incumbents
during the last years. Out of this, about 1.5 million were supplied by Bharti
Teletech, while the government-owned Indian Telephone Industries supplied only
1.07 million This shows the deliberate strategy of the company to move out of
this low-end manufacturing space. Other players like Himachal Exicom and Godrej
Telecom were hardly visible during the period, thus giving strong indications of
their plans to get out of the business altogether.

The Players

Bharti Teletech, the manufacturer of Beetel range of phones is clearly the
market leader, with 56 percent market share. The company manufactures 22 models
of phones, ranging from Rs 395 to Rs 3,095. One brand that really made a mark
during the last fiscal was Orpat, promoted by Elora Times, a Rajkot-based
company. Its sister concern Samay Electronics, which was primarily into
manufacturing watches, has ventured into the low-end market with cheaper phones
but has started making its presence felt in the market. BPL Telecom continues to
enjoy a reasonably good market share in the south, though on the whole, BPL has
been loosing its market share over the past few years. Priyaraja Electronics,
part of the Rs 400-crore Bangalore-based UTL group that manufactures Preetel
brand of phones, is largely confined to the western and southern India.

The cordless segment continues to be dominated by
international brands such as Panasonic, which could not compete, in the corded
segment due to its high price.

The
Outlook

With Reliance launching its IndiaMobile service and expanding it throughout
the country in phases and BSNL also getting aggressive on the GSM services
front, the outlook for fixed phones looks pretty dismal.

Mobile phones are likely to overtake fixed-line phones by
2007 in India. In three to five years, 65 percent of domestic fixed-line
subscribers are expected to switch over to mobile.

The outlook looks not so bright for the next year. MTNL
launched the fixed-phone SMS service during the last financial year. But given
the high cost of the SMS-enabled phone and the personal nature of SMS, the
service is unlikely to create any major impact in the market.

Sudesh Prasad