BANGALORE, India-Although the Indian cellular industry is growing quite well, with the country’s cumulative cellular subscriber base at 2.18 million at the end of June, operators are still hesitant to expand coverage outside high-density population centers.
When the Department of Telecommunications (DoT) originally divided the cellular services operator markets into metro- and circle-operator segments, it valued the metros higher, saying metro carriers provided service to larger customer bases. Mumbai and New Delhi are the largest metro markets, accounting for 80 percent of the Indian market.
Operators’ continued concentration on lucrative cities is quite obvious from the fact that cellular service is quite cold in the C category circles, such as Maharashtra, while it is at best lukewarm even in some of the B category circles, such as in the northeast.
The reluctance to expand could hurt operator valuations. According to the U.S.-based high-technology research firm Frost and Sullivan, mergers and acquisitions have narrowed the Indian cellular industry from more than 20 companies to around six major players, but overvaluation of companies is a serious impediment that may cause a slowdown in further consolidation.
The firm recently valued the total cellular market in India at US$4.6 billion. “One of the major restraints for mergers is the astronomical projections of these companies,” analyst Anil Joseph said in his report. “These unreasonable valuations are due to overestimation of market potential and underestimation of critical factors like the impact of change in the market structure.”
“The circle operators could increase their value by competing in more than one circle. A major share of the market is in the metro and category A circle, but the B and C circles should be growing faster. The market is still developing in these areas,” said market observer Shailaja V.R.
And government policy still continues to play the role of villain. The government finally opened Indian national long distance (NLD) services to competition, but the guidelines for the policy have left cellular service operators “bitter and disappointed,” said industry insiders. Wireless carriers hoped for, but did not receive, automatic permission to carry inter-circle straight trunk dialing traffic using their networks in return for NLD operators being allowed to carry intra-circle traffic.
“If you are taking our intra-circle traffic away, which is legally ours, at least you should compensate us by allowing us interconnectivity with contiguous states,” said Manoj Kohli, Escotel executive director and chief executive officer.
In addition, the licensing conditions of basic and cellular services make it mandatory for operators to have a foreign partner. This condition was laid down to ensure competition in the telecom sector would not suffer because of lack of expertise. The government mandated foreign partners bring in advanced technology and experience.
However, although a foreign partner’s presence is mandatory, the licensing conditions demand that foreign promoters maintain a minimum equity of 10 percent for the first five years. Although many international players were active at the time of bidding, their interests waned when they found the market not as large as anticipated and the license conditions stringent.
International players that are looking to pull out of the market include Bell Canada (Tata Cellular and Tata Teleservices); Swiss Telecom (Essar Cellular); Bell Atlantic, now Verizon Wireless (Reliance Telecom); Piltel (Koshika); Guangdong PTT (Shyam Telelink); France Telecom (BPL Cellular); GTE, now Verizon Wireless (Essar); and Telia (JT Mobile). However, the players cannot exit fully because of the mandatory five-year presence.
Simultaneously, the Indian players have found their operations limited by the lack of interest from foreign players.
New competition
State-owned Mahanagar Telephone Nigam Ltd.’s (MTNL) recently announced foray into cellular services is another hot issue in the Indian cellular market. Opponents argue MTNL’s presence will disturb the level playing fields. Supporters justify the move saying it will bring down the cost of mobile telephony. Indian Communications Minister Ram Vilas Paswan said MTNL’s GSM services will be launched in New Delhi and Mumbai by November.
Further, India’s international monopoly carrier and telecom giant Videsh Sanchar Nigam Ltd. (VSNL) has also decided to enter the cellular market in India. It will bid for a third-generation (3G) license when the DoT auctions the licenses-the number has not yet been determined-within the next 12 months to 18 months.
Amitabh Kumar, VSNL director of operations, said the company is actively looking at becoming a 3G cellular service provider by bidding for the 3G licenses. The company has yet to decide on the amount it will target toward 3G investments.
Although the country’s registered subscriber base is commendable, cellular penetration is far from satisfactory. In China, mobile services are increasing at a rate of 2 million new subscribers per month, while India seems to be happy adding fewer than 100,000 subscribers per month.
However, the cellular industry now stands at the crossroads of an exciting world of wireless data. Value-added services like Internet access, mobile e-mail and mobile banking are finally about to mature, thus giving cellular operators reasons to be hopeful about the future.
