GSM BUSINESS: One Shot, Two Birds Killed

Reliance’s announcements succeeded in sending panic waves across the GSM
space, literally forcing all the big players to sit together and do some
brainstorming. One quick outcome was the announcement by the cellular industry
to cut national long-distance tariffs from Rs 9 per minute to Rs 2.99 per
minute, anytime, anywhere, for all mobile-to-mobile calls of 50 km and above.

Cellular operators hope that GSM subscribers will now stick to their
respective service providers rather than switching to Reliance Infocomm. Even
BSNL responded to the cellular operators’ call by reducing the tariff in the
distance slab of more than 500 km and made its tariff look more attractive than
cellular operators in all distance slabs.

With these announcements, industry insiders feel that the market size of DLD
will shrink from the existing Rs 4,000 crore.

Even the cell-to-cell STD market, which contributes 10 percent of the overall
DLD market, will shrink from Rs 400 crore to Rs 150 crore, according to experts.
Although the decrease in the DLD tariff will lead to demand elasticity, experts
feel that cell-to-cell traffic is not going to increase in the same proportion
and it might take at least 2—3 years to reach the same level in revenue terms.
This might lead to a drop in DLD revenues for both Bharti Telesonic and BSNL on
the lines of the shrink in ILD revenues.

With this announcement, cellular operators feel that there will be a lot of
migration of long distance calls from fixed line to cellular. This will result
in faster growth of cell-to-cell STD traffic. But industry experts feel that
cellular networks do have problems of call dropping and call quality might
hamper the growth in cell-to-cell STD traffic. The reduction in tariff will
definitely result in increase in traffic but to accommodate that the cellular
service providers will have to do additional capital expenditure. The big
question here is: when cellular operators are making huge losses, why will they
invest in additional capex? And if they don’t do that, the surge in traffic
will lead to network congestion, which in turn will result in inferior voice
quality at a lower price. This is certainly not what GSM subscribers are looking
at as it can benefit Reliance Infocomm and basic service providers.

In terms of cellular tariff, BSNL is ahead of private cellular operators. And
now with BSNL and MTNL deciding for a seamless roaming between their networks,
without any roaming charges, they will be pose a serious challenge for cellular
operators. The battle is now open among three players–Reliance, BSNL—MTNL,
and cellular operators.

Pravin Prashant