Service Provider : The GSM Price War

The Ambanis and Tatas are known for corporate rivalry. Their rivalry shot up
when both CDMA players-Reliance Communications (RCOM) and Tata Teleservices (TTSL)-got
the spectrum for running GSM services. Both are in the midst of a major price
war, while the mobile world is awaiting future action.

After eating almost the entire market share in the CDMA space, TTSL and RCOM
have forayed into the lucrative GSM space. Both players are pushing GSM brands
aggressively in a bid to have a better and bigger pie in subscriber base and
revenue.

In India, of the total number of mobile subscribers, nearly 75% are using GSM
services, while the rest are with CDMA operators. This clearly indicates
end-users' love for GSM services. Industry experts says that CDMA services are
not given preference due to limited number of handsets available with service
providers. The option to switch between operators is also limited in CDMA
segment. CDMA subscriber base is primarily divided between RCOM and TTSL, having
72.7 mn and 28.2 mn subscribers, respectively, by the end of FY 2008-09.

Survival of the 'Cheapest'

RCOM launched its GSM services by the end of December last year. The GSM
services got a thundering response among the cost conscious subscribers in the
country, as the company offered them a mouth watering tariff plan. In the first
three months of the launch, Reliance GSM gave Rs 900 free talk-time to its
subscribers, at Rs 10 per day. The scheme paid good dividend for Reliance GSM,
as far as the number of subscribers are concerned. Within three months of its
launch, by the end of March 31, Reliance GSM had 11.1 mn subscribers, with 3.9%
of the total GSM subscribers base of the country. The STD tariff rates had also
touched another low to 75 paise per minute.

However, after three months, the company took no time to role back the
scheme.

TTSL launched its GSM services under the brand name, TATA DOCOMO in June this
year. The company's next generation GSM service started with TTSL managing
director, Anil Sardana making the first phone call from TATA DOCOMO's '3G-ready
network' to the Union Minister for Communications and Information Technology,
Thiru A Raja. TATA DOCOMO's pan-India service rollout will be completed this
year, with south Indian circles going 'live' in the first two weeks.

TATA DOCOMO also threw a lucrative tariff plan to attract subscribers. The
mobile tariff has touched another rock bottom in the country. The new service
has brought the STD rates to all time low at 60 paise per minute, 10 paise less
than what Reliance GSM offered.

Further, the difference between local and STD calls have been completely
diminished. TATA DOCOMO offers calls on any network, irrespective of the place
in the country, at 1 paisa per second. The company offers this without any
additional charge for the service. It seems the company has more surprises for
the Indian market. The company's postpaid service shall have no rental charges,
a user will pay as per use.

However, the mouth watering tariff plan by TATA DOCOMO to its subscribers
could be limited for the initial stage. Industry insiders believe that TATA
DOCOMO would withdraw the tariff plan, after achieving initial targets, similar
to that of Reliance GSM.

What the Future Holds

After complete rollout of its services, TATA DOCOMO would become the fourth
player in the country having pan-India GSM presence. At present only Bharti
Airtel, Vodafone-Essar, and Reliance GSM have pan-India presence in this
segment. Besides, it would be the second player in the country offering both
pan-India GSM and CDMA service. RCOM was the first one.

RCOM could become the largest telecom company in India in terms of the number
of subscribers by adding both its GSM and CDMA numbers, if the present growth
rate continues.

On the other hand, TATA DOCOMO expects that mobile number portability (MNP)
would benefit them, as the parent company TTSL is known for congestion free
network. But, the industry experts believe otherwise. MNP would be relevant to a
handful postpaid mobile phone users. India has around 93% prepaid users. So, MNP
would be relevant to only 7% of users. The cost of switching operators, which is
yet to be finalized, would be another bottleneck.

If the first war among telecos were fought in metros and urban areas, than
second would take off in rural India.

Mobile market penetration is projected to increase from 38.7% in 2009 to
63.5% in 2013. Gartner says this growth can primarily be attributed to the
operators shifting their focus on rural markets; local consumer durables and
electronic companies entering the domestic mobile handset segment; and reduction
in handset prices. The Indian mobile subscriber base is set to exceed 771 mn
connections by 2013 from 452 mn in 2009, growing at a CAGR of 14.3%.

For both the operators, the challenge would be to attract a large number of
subscriber base, especially in rural areas where the next growth is expected to
take place. TATA DOCOMO has to be very aggressive to attract new subscribers,
unlike the parent company, TTSL. However, TTSL has earlier opened kiosks in
rural areas to increase penetration in rural and semi-urban areas. The company,
so far, was banking on its congestion free network, for which it has won Trai's
recommendation as well.

While on the other hand, its rival in the space, RCOM was flooding the market
with lucrative offers one after the other, suiting the need of almost everyone.
Reliance GSM is being promoted as a lifestyle product. The company is
positioning its product as ready to switch on 3G network.

TATA DOCOMO leveraging on its partnership with NTT DOCOMO, is also
positioning its product as ready for 3G network.

It would be interesting to see how both the companies, riding on the 3G wave,
increase penetration in both rural and urban areas, when the dust around 3G
spectrum allocation is yet to settle.

Akhilesh Shukla

akhileshs@cybermedia.co.in