NLD: New Players Want to Party

Mobile expansion in new geographies has given a fresh lease of life to
national long distance (NLD) services. After a negative growth to the tune of 14
percent in FY 2003—04, the NLD services grew by 22 percent in FY 2004—05,
thanks to private operators as well as the incumbents. The utility players also
helped in growing the market, as there was large infrastructure requirement from
the private NLD operators.

According to VOICE&DATA, NLD services in FY 2004—05 were estimated at
around Rs 6,261 crore, in comparison to the Rs 5,140 crore in FY 2003—04. In
terms of the number of minutes too there has been a significant increase as
India added around 17.9 million mobile lines taking the cellular tally to around
52 million lines.

Public Versus Private

Nobody can match the reach of BSNL in terms of microwave and cables laid for
long distance network. BSNL, along with the utilities, still contributes around
82 percent whereas BSNL alone contributes around 80.5 percent of the NLD pie.
Private players contributed around Rs 1,109 crore of which the majority comes
from integrated service providers like Bharti, Reliance, and VSNL. With
government targeting 200 million mobile subscriptions in the country by 2007, it
is expected that there will be a significant increase in the private operators'
market share.

Pure-play Versus Utility

On NLD, there are two kind of players. First, the pure-play players called
the NLD (national long distance) operators and second, the IP-II players, which
provide bandwidth to NLD operators wherever these players do not have their own
links and where redundancy is required. On the national long distance front
there are four players-Reliance, Bharti, BSNL, and VSNL whereas there are
seven IP-II players of whom Delhi Metro Rail is a recent addition. Other player
includes: Gas Authority of India, Power Grid Communications India, Railtel, Tata
Power, Tata Power Broadband, and HECL.

The
majority of NLD revenues still come from pure-play providers. In FY 2004—05,
they contributed around Rs 6,131 crore whereas utilities contributed around Rs
126 crore. In comparison to last year, the contribution from pure-play operators
dropped by around 0.7 percentage points and was at 98 percent. In future, with
expansion of services being planned in semi-urban and rural areas, one will see
a decrease in the contribution made by pure-play operators. This gives enough
opportunities to companies like Railtel, PGCIL, and Gailtel for creating a more
robust NLD infrastructure in the country.

The NLD Players

In NLD services, BSNL continued to dominate the market with revenues of
around Rs 5,041 crore. The company's market share stood close to 81 percent, a
drop of around seven percentage points from FY 2003—04. However, it still
registered an increase in revenue by 12 percent.

As of March 2005, the company had an installed base of around 500,000 RKm of
cable plus microwave network, together covering almost all of India. The network
is incomparable to any operators' network. Despite having a large network, the
company is continuing to expand in a regular manner. Last year, it installed
around 700 Rkm of microwave systems and around 10,000 Rkm of fiber although the
target was of around 18,000 Rkm.

Bharti is at the second position with revenues of around Rs 482 crore, a
growth of around 41 percent. Its growth is mainly attributable to the landmark
deal the company signed with Tata Teleservices for NLD infrastructure sharing.
Captive customers too contribute a lot for Bharti.

As on March 2005, the company had an OFC backbone of approximately 29,000 Rkm.
Its network is good in northern, western, and southern India but it is pretty
weak in eastern India, where it uses the infrastructure from IP-II players.

Reliance Infocomm is number three with revenues of Rs 381 crore. The company
grew by around 115 percent. It has embarked upon an ambitious program to cover
around 400,000 villages and 5,700 plus towns and cities by December 2005. All
this is planned through 80,000 Rkm of optical fiber cable network forming the
backbone of its countrywide expansion. This will help in facilitating voice,
data, and video applications. Once completed, the network will cover 91 percent
of the country's national highways and around 85 percent of rail routes.

With revenues depleting on ILD, VSNL has done pretty well on NLD with
revenues of Rs 231 crore in FY 2004—05 and is ranked fourth. It seems VSNL's
NLD investment has been justified through revenues and cost rationalization.
Presently, NLD contributes around seven percent of the company's total
services revenue. From a meager revenue in FY 2003—04, the company showed
strong performance and registered 381 percent growth in FY 2004—05. Having
realized that the company cannot grow at a fast pace in NLD, the company tied up
with Bharti in April 2004 and acquired around 23,000 Rkm of optical fiber cable
and this has paid off handsomely for VSNL. Presently, the company has a national
backbone of around 30,000 Rkm.

In India, prepaid dominates the market with around 75—70 percent of the
total base whereas post paid contributes around 25—30 percent. In terms of
churn, the number is at around 8—10 percent of the total base.

Players

In the mobile services space, Bharti is numero uno with market share of 21
percent in subscriber terms and 23 percent in revenue terms. In FY 2004—05,
Bharti netted a revenue of Rs 5,436 crore. Bharti's achievement can be
attributed to excellent marketing coupled with continuous innovation and an
aggressive approach. Presently, majority of Bharti's revenue comes from old
circles, which contribute around 98 percent to it. The company also launched
services in new circles like Uttar Pradesh (east), West Bengal, Jammu &
Kashmir, Bihar, Orissa, Assam, and the Northeast. All these circles are new in
terms of operations and contribute around two percent. In FY 2005—06, there
would be increased contributions by new circles.

size=1>V&D estimates CyberMedia Research

Hutch is at number two position with revenues of Rs 4,365 crore, though in
subscriber terms, the company is at fourth position. Hutch has around 18.7
percent market share in revenue terms and 14.9 percent in subscriber term. Hutch's
achievement can be attributed to its selective approach of going only to the
metros and A and B category circles. The company is hardly present in C category
circles and this gives a distinct advantage to the company in terms of ARPU. It
has the highest ARPU among all Indian operators, thanks also due to its strong
focus on value-added services.

Hutch India is part of Hutchison Telecommunications International, a leading
global provider of telecommunication services, which currently serves around
nine markets globally of which India is one. In FY 2004—05, the company
expanded its operations in three more circles taking the overall tally to 14
circles. However, Hutch is still not present in lucrative circles like
Maharashtra and Kerala, and C category circles like Assam, Northeast, MP, Bihar,
Orissa, HP, and J&K. In order to have pan-India operations, the company is
on the look out for circles through the acquisition route. Though things were
moving in the right direction with the Aircel acquisition, it was mutually
terminated in FY 2004—05.

Reliance has done pretty well both on the revenue as well as number fronts.
Within two years, the company is in the 10 million club. In terms of revenue,
the company has done good with Rs 4,089 crore. The company expanded its
operations in around 1,400 cities and plans are to afoot reach 5,700 by March
2006.

It is among few companies in the world to report net profit within two years
of starting telecom operations, majority of which is in mobile services. In
order to rectify mistakes of the past, the company conducted a major exercise
and initiated a large churn of around one million subscribers as there were
issues of credit worthiness and errors in subscriber data. Now, with the cleaned
up operations and clouds of family feud no longer hanging over it, one will see
a lot of movement in Reliance.

With the telecom operations of Reliance coming under Anil Ambani, the company
has decided to set up a holding company called Anil Dhirubhai Ambani
Enterprises, which will have ownership of Reliance Infocomm, Reliance Energy,
and Reliance Capital.

BSNL comes fourth with revenues of Rs 3,700 crore and commands around 15.9
percent market share. In subscriber terms, the company has done exceptionally
well and is ranked third with market share of around 19.4 percent. The company
has done pretty well in the northern and southern regions. The break up of its
10 million is: 1.6 million from eastern zone, 2.1 million from western zone, 2.6
million from northern zone, and 3.7 million from southern zone. In terms of
coverage, BSNL has an excellent coverage as far as of district headquarters,
national highways, and state highways. The company also has a well spread-out
network.

BSNL believes in plain vanilla voice service but this is not what the
industry believes. Non-voice services contribute an increasingly significant
portion at around 6 percent for the industry as a whole. And that's the reason
it has very low ARPUs in comparison to its counterparts. The company has to move
at a fast pace and tie up with content providers for non-voice based services.
BSNL also has to improve on the marketing front if it plans to generate
significant revenues from mobile operations. Presently, mobile revenues of BSNL
are not commensurate with its investment plans.

BSNL is also introducing new technologies on the wireless front, to enable
broadband services through the wireless media. To a limited extent, data
services on mobiles are available on GPRS, which will get augmented further by
EDGE deployment, which is part of the 15 million cellular rollout plan.

Idea Cellular is on the fifth spot with revenues of Rs 2,409 crore and has a
market share of around 10 percent. In subscriber terms, the company has crossed
the five million mark. FY 2004—05 was a turnaround year for the company as it
successfully managed the Escotel acquisition and moved into a bigger league with
operations in around eight circles. The company is also planning to launch
services in circles of Rajasthan, Himachal Pradesh, and UP (E). Idea's success
can be attributed to its excellent quality of service, wider distribution reach,
and innovative tariff. Having done pretty well in the existing circles, the
company is actively focusing on new circles and planning to double VAS revenues.

Tata Teleservices, the unified service operator, has grown by around 73
percent (in number terms) but the company has to do a lot to secure its place in
the Top 5 Club. Last year, the company was in expansion mode and launched
services in many circles. Now, with infrastructure in place, the company can
ramp up its base quickly if it shows more aggression in marketing.

Till March 2005, VSNL's NLD services were rolled out in around 200
locations and there would be a significant addition this year too. VSNL has
established points of presence in 109 cities using optical fiber cable and
satellite media. The company has already rolled out optical fiber across
several states covering northern, western, and southern parts of the country.

In terms of customer acquisition, the company carries traffic for Tata
Teleservices, Hutch, Idea, BPL, Spice, and others. With increase in the number
of subscribers of Tata Teleservices in different circles, the volumes at VSNL
are destined to grow at a fast pace in the future.

IP-II Players

Among all the utilities, Railtel has done pretty well with revenues of
around Rs 65 crore. The company registered an impressive growth of 150 percent
thanks to its customers: Tata Teleservices, Hutch, Bharti, Essar, Dishnet, and
Idea.

Till the end of FY 2004—05, the company had laid down around 23,606 Rkm,
of which around 17,452 Rkm have been lit. Presently, the network connects 178
cities and 1,784 railway stations. Plans are afoot to commission around 32,000
Rkm by June 2006. The company also has tower space for installing antennas at
600 locations, of which 30 are being used by mobile operators. The company has
plans to build NLD an network of around 40,000 Rkm by March 2007.

size=1>V&D estimates CyberMedia Research

With expansion in semi-urban and rural areas, Railtel is planning to reap
the benefits, as many railway stations are very close to the cities. Other
utilities not being present in east and the northeast of India, will help
Railtel in boosting its revenues.

In FY 2004—05, PGCIL did pretty well with revenues of around Rs 27 crore,
a growth of 286 percent. Its major customers includes VSNL, Bharti, and Sify.

The company has a robust and strong network in the north Indian states like
Jammu and Kashmir and Himachal Pradesh. The company has plans to connect
19,250 Rkm of which 17,650 Rkm is overhead and 1,600 Rkm is underground. The
network will interconnect around 60 major cities including all metros and
state capitals. Presently, around 14,700 Rkm is operational and the balance is
being planned for August 2005. Last year the company added around 8,650 Rkm.

Gailtel was unable to repeat last year's performance and had a negative
growth with revenues of Rs 19 crore. Most of its revenue came from Hutch,
Idea, and Bharti. Last year, the company was slow in expansion but focused
more on creating redundancies.

In terms of network, more than 70 percent of Gailtel's network is along
its pipeline and this enhances reliability of the network. Presently, the
network is at around 8,500 Rkm with strong presence in north and northwestern
states of UP, Rajasthan, Maharashtra, and Gujarat. Plans are in place to
connect south India with further expansion of around 5,000 Rkm.

Conclusion

India is moving ahead with a plan of 'One India' plan, i.e., one STD
tariff across the country. Presently, the government is still struggling on
how to go about operationalizing this plan, as it would not be easy in terms
of implementation. But one thing is sure, NLD prices will see a drop in days
to come. But whether this leads to positive growth in NLD services is still a
big question mark.

Pravin Prashant