The Hindu : Differing views of basic, cell operators

Online edition of India's National Newspaper
Monday, Dec 02, 2002

Business

Business

Differing views of basic, cell operators

THE DECISION to let basic telecom operators provide limited mobility service has generated enough heat. The cellular operators have complained that it has upset the playing rule, triggering a price war. The decision will render the cellular industry unviable. Their reasoning goes thus: Provision of limited mobility entails less investment for the basic operators in terms of licence fee and infrastructure. This, in turn, gives them price advantage over cellular operators who have sunk huge sums (on licence fee and infrastructure). A trip down the reform lane will put the issues — from the stakeholders' point of view — in perspective.

The Government laid much store on providing universal access to the telephone. Hence, it opened up the telecom field to the private sector. The attempts in the early phase of the telecom reform process did not yield the required results. With a view to hastening the process, the Government reviewed the terms of liberalisation and converted the licences from a fixed high entry fee to a low fixed fee plus revenue share. This made the proposition attractive for private players. In addition, the Government allowed the use of modern technologies such as Wireless in Local Loop (WLL) for faster implementation. WLL provides a faster and cheaper alternative to copper cable network (either underground or overhead). However, the frequency used for basic services can also be used for mobile handsets. Consequently, there was a demand from basic operators to extend limited mobility within a specified area, using the same infrastructure. Considering the long-term benefits, the Government too has allowed limited mobility to basic operators as an add-on facility without extra licence fees. The revenue share is the same.

The licence fee paid to the government by Global System for Mobile Communications (GSM) operators is high. The capital cost of setting up a GSM network is also high, given the cost of technical equipment at the node and the large number of cell towers installed across a city to provide total coverage. For a basic operator, on the other hand, the incremental cost for offering `limited mobility' is negligible. The GSM network allows data transfer at a speed of 9 kbps. The Code Division Multiple Access (CDMA) technology used for WLL can throughput 170 kbps. Since a capacity of 9 kbps is not enough for Internet applications such as data transfer and MMS (multimedia messaging service), most operators will be forced to upgrade it to General Packet Radio Service (GPRS), which enhances the GSM network capacity to 170 kbps.

The spectrum allocated for GSM operators is split among the four operators in a circle. Each operator gets a band of 6.25 MHz to operate. However, the subscriber base required to utilise the spectrum has to be a minimum of four lakhs. Except in Bombay and Delhi, no operator has scaled to this level. The cellular industry argues that the basic operators with WLL facility have undue advantage over cellular operators.

Consumer angle

With the advent of competition in basic services, consumers may see novel schemes and promotions, offering attractive terms for purchase of handset and call charges. The basic operators can subsidise local call charges with lucrative STD revenues. The GSM operators are not allowed to transfer STD calls and they have to use a basic operator to take and land calls between two circles, even if the GSM operator has a contiguous area and connectivity. The cellular operators will, thus, be forced to reduce prices of services like roaming charges to retain consumers.

Basic operators contend that they have to invest sizable sums in the circle to meet their network coverage obligations. The urban markets will of course be lucrative with reference to size. However, if one looks at the total investments and revenues, a holistic approach is needed vis-a-vis pricing and business models. Unviable segments in a circle have to be subsidised by lucrative city markets. Any incremental costing for pricing WLL services will land them in a downward spiral of prices and unviable operations.

The introduction of Internet telephony and competition on the ILD segment will put pressure on ISD rates and bring them on a par with international standards. With the emergence of national level cellular operators, the Government will be forced to open long distance calls to cellular operators, who can initiate and terminate calls (mobile to mobile) on their network or partner GSM networks. This would make immense sense from the consumer point of view as well. This is likely to put pressure on the STD calls.

In India, currently local calls are subsidised by ISD and STD calls. It will be prudent to keep the charges for limited mobility higher than fixed line and in line with the cost of operation. This will enable the average revenue from local calls to go up. With the increase in density of limited mobile vis-a-vis fixed line calls, the overall revenue realisation will grow, removing or reducing the subsidy. In the short-term, consumer demand for telephone lines is not likely to go up exponentially. Also CDMA equipment is costlier than GSM equipment and the use of value added services would be low compared to pure voice services. Thus the price of the equipment is the key to penetration of CDMA technology. In addition, the cellular operators and BSNL have an incumbency advantage. The new players will have to spend substantial sums in marketing and customer acquisition, it is pointed out by basic operators.

Shanthi Kannan

in Chennai

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