The Hindu Business Line : Battle for turf

Basic telephony operators are, for now, offering limited mobility. Cellular operators are up in arms, saying it's encroachment on their territory. In this fierce face-off, in whose favour will the Government rule? Whose cause will the customer favour? And is there enough to pass around?

WHILE the final judgement from the Supreme Court on the issue of allowing basic telephony operators (BTOs) to offer limited mobility is still awaited, the Court has refused to grant an interim stay on the issue. And BTOs have been allowed to continue to offer limited mobility services to customers, pending the decision.

The dispute is a long-standing one, the cellular mobile telephony service providers contending that the licence they received was a service-based one, and that any proposal to permit the introduction of limited mobility services by fixed service providers would tantamount to a backdoor entry into mobile services by BTOs. They have also complained that the terms and conditions under which BTOs were granted limited mobility by the authorities discriminate against the cellular operators and do not constitute a level playing field.

While this issue is pending in the Court, the huge question mark that was looming over the industry throwing a shadow of uncertainty over it all this time is now looming larger and closer. Should both the services, limited mobility and cellular, run parallel to each other? Where will investments go?

Investments will go wherever the returns will be better, but that would depend on how the customer would bite, says the head of a telecom company.

At the outset of the battle, formal reports from analysts as well as existing cellular operators foretold dire times for the cellular operators. The impact would be maximum on cellular operators in State circles, due to the greater suitability of the limited mobility technology for rollout in dispersed areas, its lower cost of rollout, and its lower tariffs, said reports. Rs 1.20 for three minutes would be the common tariff with incoming calls free. This is not the case with cellular services and they will have to contend with lower subscriber growth and at the same time get returns on their high investments.

GSM technology (Global System for Mobile operators), which is currently used by the cellular operators in India, supports many services that CDMA technology (Code Division Multiple Access), adopted by the limited mobility players, does not. But these services such as roaming, text messaging and Internet access are used by a small percentage of subscribers, noted CRISIL analysts some time ago when the debate was raging high.

"Where the primary attraction is the convenience of mobility within a localised area, the proposed regulation to allow basic telephony operators to offer the convenience platform at a cheaper cost would dampen demand for cellular services,'' said CRISIL.

Limited mobility will basically duplicate the convenience of continuous access now provided by cellular services, but at a much cheaper cost. "It would negatively affect the business risk of cellular operators and impair the growth of this segment. The new provision would have adverse bearing on the financial profile of these operators and further stretch their break-even period.''

But this fear based simply on the fact that limited mobility would be cheaper in cost and will therefore succeed is dissolving away. And now analysts and industry officials are simply uncertain as to what the scenario will be and valuations are in a state of uncertain suspension.

One of the views, of course, is that private basic operators have been doing so badly in comparison to the growth displayed by the cellular industry in the country that they had little charm for financiers. "The possibility of limited mobility could considerably lift their fortunes.'' On the other hand, entry costs are still high while that for cellular connectivity has fallen considerably.

A limited mobility subscriber has to pay Rs 5,000 to Rs 10,000 for the instrument, and a rent of Rs 450 per month, and more for STD connectivity and the like, although tariff is at Rs 1.20 for three minutes with incoming calls free. GSM cellular instruments are as cheap as Rs 2,500 today and a student or a youth at his new job can start with a prepaid card of just Rs 300.

"We do not know to what extent limited mobility will work,'' says a telecom analyst with a broking firm. "If CDMA instrument prices fall, then GSM has a headstart already, in that prices have already fallen. The only advantage then is that the operator can cover an area faster than he can with GSM and also put in more subscribers within the spectrum range he has. Through this, he can hope to service more customers. But this is dependent on the customer biting at all.'' BSNL chiefs of circles are known to complain. "Of course, we will offer all services, but who will bring in the revenues? People barely use their existing phones in the small towns and villages.''

Scale, the winning factor?

Some talk of scale being the winning factor. The AV Birla, AT&T and Tata group combine, now known as Idea Cellular, have been able to raise close to Rs 2,000 crore in syndicated loans. "This is because of the groups and their asset-base backing the project, as well as the scale of the project, they are present in so many circles,'' says a senior official with a financial institution.

Bharti Televentures too would not have a problem raising funds: "Bharti Televentures is an umbrella under which operate both its basic telephony and cellular services. Also, they have large footprints and large rollout plans.''

Even in the case of players such as Sterling Cellular in Tamil Nadu, which do not boast such a large footprint, their scale of rollout has paid off, says an official with a financial institution who tracks projects the institution has lent to. "Sterling rolled out across the State. They were able to procure infrastructure and equipment at a good cost and they are competing with the basic operator there, whereas their competitor, which set out to be the best cellular operator rather than a competitor to the basic operator, selectively rolling out depending on which city or town will fetch it larger revenues, is lagging behind.''

Where there is scale, there can be lower tariffs, says the official. "Then the differential in price between limited mobility services and cellular mobile services becomes too little for tariff to be the determining factor.''

And, equally, basic players such as the Tata Teleservices group have been successful in raising funds. The others are reportedly finding it very difficult to raise funds and their march to profitability seems to be stretching out further away in front of them, say analysts.

On the other hand, some of the CDMA players who can offer limited mobility are scale players, and no mean scale players either. BSNL, which has the mandate to offer both limited mobility as well as cellular services across the country, except in Mumbai and Delhi, dwarfs every telecom player in the country, with the Government to help it with funds.

BSNL has already rolled out limited mobility services in 15 cities or so. The other State-owned player, Mahanagar Telephone Nigam Ltd, has launched limited mobility services in both Mumbai and Delhi. Although MTNL has not been able to cater to the applications that poured in, there has been mixed response to the customer satisfaction with the service with some of them even relinquishing their connections on account of connectivity problems.

The other large CDMA player waiting in the wings is the Reliance group, with a large footprint and with plans for simultaneous launch in all of its 17 basic circles some time in the middle of this year. The US-based company Qualcomm, which is the pioneer of commercial CDMA technology, has taken a small stake in Reliance Communications Ltd.

Both the CDMA and GSM camps are now saying theirs is the technology the world is increasingly adopting and has largely adopted, respectively. The GSM Association (worldwide) says it has 70 per cent of the digital wireless market and that even in the US, which does not follow GSM, a large operator is pushing for growth of texting with GSM/GPRS (General Packet Radio Switching, which allows Internet access) overlay on their TDMA networks. They like to say the single largest GSM market is in China and that even Afghanistan is adopting GSM.

Meanwhile, the CDMA technology providers talk about the world going the CDMA way; that the second largest player in China, Unicom, has decided to go the CDMA way. That Korea, Japan, Australia and the US (a lot of TDMA as well) are largely non-GSM markets.

Each likes to say they are the most cost-effective.

GSM providers say they are the first to be ready with broadband access and are offering TV-based messaging, done, for example in Norway and Finland. They also like to say that CDMA being proprietorial technology, several of its disadvantages may not be yet known. And CDMA technology providers talk about their innovative products, including camera phones, video on demand phones and multimedia-enabled phones and devices, combined with third-generation performances.

Qualcomm has even issued a press release to say that it has successfully demonstrated a technology called GSM1x which combines GSM core network and SIM card with CDMA2000 radio access so that GSM operators can "leverage their existing GSM/GPRS network equipment while enhancing the data capabilities and spectral efficiency of their radio access with commercially available CDMA20001x infrastructure.''

"It is quite possible that going by the argument that technology cannot be stopped, some kind of convergence will happen. Basically people are using almost the same kind of technology. And so much money is being wasted in parallel infrastructure when funds are so difficult to come by,'' says a government official associated with the telecommunications industry.

kripram@thehindu.co.in

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