More Mallapurams Please

In the past couple of months, the Indian cellular industry had at least two
items of good news to rejoice in. While on the one hand, the country’s
cellular subscriber base crossed the four million mark, on the other Mallapauram
in Kerala, distinguished itself as the first district in the country to have
more mobile connections than landline phones. But did you say it is time to
celebrate? Think again. For, the Indian cellular services industry is still
caught in a maze of legal-policy and business wrangles. While the limited
mobility issue continues to haunt operators and the government alike, the latter’s
attempt to bring in fourth operators as early as possible, has been hit by a
spate of litigation. At another level, there are issues of affordability and
level playing field, waiting to be resolved.

The Immediate Roadblocks

Even though the bidding for fourth operators invited an overwhelming fifty
seven applications, it was not a smooth sail from the very start. A spate of
PILs in Mumbai and Chennai high courts, dampened the high spirits. The Mumbai
High Court in its order allowed VSNL to participate in the bidding process under
advise from the government. Earlier, VSNL was barred from bidding for the basic
as well as cellular license on the grounds that they would compete directly with
the other two state-owned entities BSNL and MTNL. VSNL has been keen on cellular
services, as its international telephony monopoly will end in 2002. As such, the
third round of bidding has been stalled midway. DoT is filing a caveat in the
Supreme Court asking for vacation of the High Court orders, so that the process
of bidding may proceed further. It still remains to be seen as to when the
process for the fourth license is brought to a conclusion.

The cellular services industry also saw some disputes arising between vendors
of network equipment and service providers. While Motorola and Siemens are at
loggerheads with Spice, Motorola is up against BPL. Spice, it appears, sold its
Kolkata cellular operations to partly pay up its dues to vendors (some sources
say cash from the sell-off is being used to finance the Modi Rubber Limited
share buyback). But BPL has gone aggressive and instead, claimed compensation
from Motorola for an alleged delay in supplying equipment.

On the other hand, consolidation in the cellular industry is in full swing.
After BATATA’s proposed merger with BPL, Bharti bought Spice Cell of Kolkata
in all cash deal. Talks are also on between Hutchison and Spice for the latter’s
operation in the south. Meanwhile, the Usha Group has decided to offload 49
percent stake in Koshika Telecom (which operates in UP and Bihar) in favor of a
US-based NRI.

The issues related to payment of dues of the vendors and the ongoing process
of consolidation in the industry, leads towards the conclusion that except for a
few large companies, most of the others who bought cellular licenses, had
actually bitten more than they could chew. In other words, while most players
received huge sums of money to buy licenses (in the first round of bidding) and
rollout networks, they are now finding it difficult to sustain the operation.
These developments vindicates Reliance’s recent stand that it is not going to
buy licenses at a price beyond which it feels it becomes unviable.

A word on the vendor-operator clash–Will cellular operators (who always
keep saying that government attitude towards the cellular industry, particularly
with regard to the limited mobility issue, is having adverse affects on India’s
image as a investment destination) what kind of impression this would create?

Bharti: An Emerging Cellular Giant?

Bid or Buy. This seems to be Bharti’s mantra. Bharti
surprised many by buying out SpiceCell for $90m, its second major buyout since
it bought JT Mobile some time back. It has bought 100 percent equity in Spice
Cell in an all-cash deal from Modicorp. Spice Cell, which provides cellular
services in Kolkata, was owned by Modicorp and Hong Kong-based Distacom in the
ratio of 51:49. Spice Cell Ltd has a base of more than 1,00,000 subscribers.
Bharti thought it better to go for acquisition rather than bidding for the
Kolkata circle, as a new network rollout would have consumed both time and
money. It would be worthwhile here to mention that Bharti recently managed to
get $500 Million dollars from SingTel, Warburg Pincus, AIF and IFC.

It appears that Bharti’s decision not to bid for VSNL was
driven by its desire to consolidate its existing lines of business that includes
fixed and broadband services besides the cellular operations. But it still
remains to be seen whether Bharti is building an empire for itself or for
others, like its prime investor SingTel. A future sell-out to investors like
Singtel cannot be ruled out. Already, Bharti’s chief protagonist Sunil Mittal,
has been gunning for raising the limit of the FDI in telecom services to 74
percent.

Reliance’s Gameplan: Back to Basics

Reliance’s cellular strategy has been widely talked-about
though little is known of its intentions. It dramatically withdrew from all but
the Kolkata circle, where it had no option but to take the license due to Bharti’s
withdrawal. After missing the bus in the first round of bidding and getting
non-lucrative areas like West Bengal, Bihar and Orissa, it had created a record
of sorts by bidding for almost all the circles this time round. Reliance’s
strategy is simple and straight. It does not want to bid beyond a certain point
after which the business itself would become unviable. Taking into account that
it has already embarked upon an ambitious task of building a broadband fiber
network in the country, the company, it appears, thinks it is better to go
aggressive about providing limited mobility services using CDMA technology, than
investing a huge amount on new cellular network rollouts. It also appears that
the company believes that limited mobility is not going to remain limited, but
would take the shape of full-fledged cellular services. Reliance’s intentions
has put cellular operators in a fix. So in the coming days, it is expected that
cellular operators would get even more aggressive in their opposition to the
limited mobility services. Whether Reliance’s gamble will work or not, only
time will tell.

The Subscribers: Will they have Choice?

The existence of duopoly in the cellular services has meant
that subscribers have little to look forward to when it comes to choices. Even
though MTNL has started operations in Mumbai and Delhi as the third operator, it
is yet to emerge as a formidable choice for subscribers in both the metros. But
the one thing that MTNL has succeeded in doing, is that, it has forced other
operators to bring down rentals and airtime rates to a hitherto, unknown level.
However, there has been no effect on the almost cartel-like operations of the
cellular operators — just look at the way they’ve announced almost-similar
rates and schemes, and all at the same time, too. Let us hope things change once
the fourth operator comes into being. Moreover, even though MTNL has actually
seen a downturn in its subscriber base, it is expected to get aggressive in the
coming months. The state-controlled operator has already drawn up an aggressive
marketing plan to get its cellular services accepted among subscribers. And with
BSNL planning to start cellular services in about 500 cities in the next three
years, life for the private operators is not going to be easy. The quality of
service and customer care is going to be the key differentiator between the
incumbent operators and others.

The cellular subscribers of Mallapauram had a message for all
cellular operators–tell us what cell phones can do for us and give us what we
can afford. You will, in turn, find more and more of us coming to you. With the
adoption of the Convergence Bill (slated to be introduced in the parliament
during the current monsoon session) which entails fair competition, minimal
government intervention, single licensing, and technology neutrality, it is
sincerely hoped that the cellular industry will go an extra mile in raising
India’s tele density to respectable levels.

Sudesh Prasad and Ravi Shekhar Pandey