The Real Business Begins

Tackling DoT gave way to business planning. The result, an impressive Rs 3,865 crore sales.

For all practical purposes, the year 2000-01, was the first business year for most companies. For the first time, they actually concentrated on issues like network quality, marketing, tariff, revenue assurance—issues that are related to business and not regulation. The result is for everyone to see. Here is an in-depth look at the financial performance, subscriber growth, significant market changes, and industry issues in 2000-01.

Performance

• The total billed revenue in the year 2000-01 was Rs 3,865.29 crore. While circles accounted for 49.79 percent, metros accounted for 51.21 percent.

• The total net revenue or adjusted gross revenue that gives a more accurate picture of the industry stood at Rs 3,040.61 crore. The adjusted gross revenue, on which all the service providers calculate their revenue share to the government, actually, is the total billed revenue minus the passthrus, the service tax and the revenue accrued through the sale of handsets. This appears to be the industry size.

• The circles have caught up with the metros in terms of revenues. At the end of 2000-01, the revenue was almost equally divided. Out of the total figure of Rs 3,040.61 crore, the metros contributed 50.62 percent while the circles contributed 49.38 percent.

• The total subscriber base as on 31 March 2001 reached 3.57 million, up 89 percent from a figure of 1.88 million on 31 March 2000. Some of the circles with low penetration registered extraordinary growth. The subscriber base in West Bengal and Rajasthan grew by more than 200 percent each. Drop in tariff as well as handset prices drove the subscriber growth. The drop in rentals will drive it in 2001-02.

• Most of the subscribers added last year were prepaid subscribers. With rentals being as high as Rs 400-Rs 600 (They have come down only recently), most users with low usage preferred prepaid. In a market with low churn, prepaid suited the service providers as well, most of whom were just looking at adding the subscribers as the short-term strategy. Many service providers ran big campaigns for pre-paid, with separate brands, separate marketing strategies, and even separate advertising agencies. The result: about 70-80 percent of the new users in circles and 60-65 percent new users in metros went for prepaid.

• With a low Average Revenue Per User (ARPU) typically, more prepaid customers meant lower ARPU for service providers. In the year 2000-01, the nationwide ARPU stood at Rs 731 rupees per month. Mumbai tops the list as the highest ARPU. However, surprisingly, the circle average is not too lower than the metro average as far as ARPU is concerned.

• The ARPU actually dropped in the last two quarters. It dropped drastically in the third quarter. Apart from more prepaid new customers, the drop in tariff also contributed to the drop in ARPU. The ARPU for prepaid stood at Rs 450 per month while that for postpaid stood at Rs 970 approximately over the entire year 2000-01.

• However, the drop in ARPU of own customers was offset by growing roaming revenue by the service providers. In the last quarter, this figure as a percentage of total revenue was as high as 30 percent for some metro operators, while it was about 22 percent for the circle operators. Going a step further, this figure in circles is a little non-uniform as cities like Bangalore and Hyderabad had a trend similar to the metros.

Services

• MOBILE PHONES: Shades of Grey

  Grey market rules. Still. In 2000-01, an estimated number of 20.7 lakh handsets were sold in India. Out of these, as many as 16.2 lakh (78.3 percent) of phones were sold in the grey markets. Legal sales accounted for only 22.7 percent. The total market size was Rs 1008 crore. With an average price of Rs 4000 per handset nationally, the total grey market in India was worth Rs 648 crore. The average price in Delhi, Mumbai, and North India was much less. At an average price of Rs 8000 per handset, the legal market was worth Rs 360 crore. The handset sales by service providers dropped drastically. While in metros it is negligible now, in some circles, still a small percentage of handsets is sold by the service providers. While Nokia continued to rule the legal market with an estimated 30 percent market share, grey market was a fragmented market, with brands such as Mitsubishi, and Sagem also competing almost on equal terms with market leaders Nokia, Ericsson, Siemens, Motorola and Samsung. The favorite low-end products were Motorola Talkabout, Mitsubisi Trium, Siemens C 25, Nokia’s tried and tested 5110, and some models of Sony and Panasonic. Towards the end of the year, Chinese products also entered the grey market. In the mid-end market, both in the grey and legal market, Samsung SGH 600, Nokia 3310 and Samsung C35 were the favourite models. Siemens C35, with the lowest price tag among WAP phones, did extremely well. Nokia 3330, the WAP enabled version of 3310, introduced at the end of the year, is picking up. Mobile Brands in Indian Market Alcatel Panasonic Ericsson Samsung Nokia Sagem Mitsubishi Siemens Motorola  Sony

  The marketing effort of cellular service providers in metros and circles alike was focused on just one objective: adding more subscribers. Few marketing campaigns were targeted at increasing usage or increasing awareness. Notable exceptions were the campaign of Hutchsion Max in Mumbai. Escotel in UP (West) and Kerala also did some awareness campaigns towards the end of the year.

• Despite little marketing, SMS usage caught the fancy of Indian cellphone users. By March 2001, Mumbai users exchanged as many as 5 lakh messages per day and Delhi users about 4.25 lakh messages per day. That is more than one SMS per user in Mumbai and a little less in Delhi. Since then, it has been growing exponentially. The average SMS usage in Bangalore is estimated to be even higher, though there is no data available.

• In SMS, it is person-to-person communication that accounts for more than 85 percent of the usage in the major cities. Only about 10-12 percent usage is for information services. News and the cricket score continue to be the top favorites.

• Though WAP services were launched by a few service providers, it is yet to capture the popular imagination. This is because of a number of factors, foremost among which is a lack of application. Slow connection coupled with high airtime also makes it a costly proposition. Handset availability, which the service providers have traditionally blamed elsewhere as a deterrent for WAP taking-off, is not a negative factor here.

• The Indian service providers have failed to forge effective alliances to serve the needs of users in an emerging data centric world. The services available over SMS are the most primitive and not of high quality. In fact, news is sometimes a day old in a city like Delhi. Also, not many of their alliance partners are too happy with the partnerships. Overall, this has not been a priority for most service providers. Hutchison Max in Mumbai, again is an exception. If the situation remains like this, it is not possible to even think of building revenue models around information services.

• The other utility services like dial a cab, dial a pizza etc have few takers.

• Overall, quality of services improved a little. However, customer care is yet to improve much. In India, most service providers do not have a process where a high usage subscriber gets preferential treatment over a low usage subscriber. As a result, though the overall satisfaction rate is high (as the cellular customer care is much better than that of BSNL/MTNL), the high usage business users are a dissatisfied lot.

Industry Issues/Trends

• Consolidation continued throughout the year. Bharti completed acquisition of its stake in JT Mobile, now called Bharti Mobile. Hutchison bought stakes in Fascel, the Gujarat operator and the Swisscom stake in Sterling Cellular, the service provider in Delhi.

• The major issue before the industry was the government’s decision to allow the fixed line service providers to offer limited mobility, which the cellular service providers thought would pose a challenge for them. Though the debate is still on, BSNL has launched the service in some areas and quite a few private operators are likely to introduce it. Though it would create some impact on the cellular service providers in some circles, it is unlikely to be a major issue.

• While incremental network expansion operation was undertaken by many service providers, little new technology was introduced by the operators. Only two operators went for GPRS implementation. Services are still to begin.

• The government also announced its plan to issue a fourth license in each metro/circle. BSNL/MTNL are/will be the third licensee.

• Though MTNL entered the cellular service fray in the last quarter, the only impact it made was on drop of cellular tariffs in these two cities. The PSU has not been able to market its brand Dolphin.

• The cellular industry shared an interim 15 percent revenue with the government for the entire year. However, TRAI has since then announced differential rates for different circles and metros.

• Most cellular service providers bid for the fixed license in their respective circles. More than business objectives, it was meant to preempt the competition by getting the spectrum allocated to them.

Ranking 2000-01

Cellular Subscriber Growth