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The fixed access voice business in India entered an era of unexciting times in FY 2003–04. While eager doomsayers would like us to write something like an obituary for the fixed access voice business, that time is not in sight anywhere at least as of now. But then, why are we saying fixed voice wasn´t exciting any more? That´s because thanks largely to the mobile services´ boom that the country witnessed during that period, potential subscribers did not think much about fixed voice. The lure of mobility proved too much for them for to ignore. Add to that, the relative ease with which new mobile subscriptions were available.

No doubt, while the mobile subscriber base grew by more than 100 percent in FY 2002–03 in terms of subscribers, the fixed access market grew by just 5.6 percent. So much so that in many areas, mobile phones outnumbered fixed phones. In fact, the second largest fixed line service provider MTNL saw a five percent decline in its subscriber base. Its fixed line subscriber base declined from 46 lakh customers to 43.31 lakh customers.

Also our estimates show that, almost all the operators, except MTNL, witnessed a fall in the average revenue per user (ARPU) past year. So in other words, the fixed voice business in India has reached a point from where it would either only go up marginally grow or more likely, go down. However, unlike the more developed telecom markets, the Indian fixed voice market has reached saturation before actually fully maturing. While in the developed markets, mobile services picked steam after the fixed service market had almost attained maturity, in India the mobile boom came too soon for the fixed voice service.

From a service provider standpoint, the fixed access market in India, for all practical purposes, is clearly divided into two camps with two different sets of games being played by each camp but both after the same set of customers. The first camp is made up of the incumbents BSNL and MTNL, while the second camp is made up of private operators.

The fundamental difference between the two is their approach to the market —BSNL and MTNL are slogging it out to save their empire that is by all accounts shrinking. While, the private operators are either busy contributing to the two state operators´ woes or creating new markets for themselves. In other words, as far as fixed access business is concerned, while the state operators are more or less playing a defensive game in order to keep their huge subscriber base intact, the private operators are on an offensive. BSNL and MTNL who have a huge subscriber base of fixed access customers created mostly in the ancient regime, have reached saturation point—BSNL registered only a marginal growth in FY 2003–04 and MTNL actually lostmany.

V&D estimates CyberMedia Research

Also, an operator like BSNL is now more concerned with growth in its wireless business and whatever opportunities that remain in the fixed phone market are being cornered by the private operators. In Delhi and Mumbai, where MTNL is the leader, private operators like Tata Teleservices, Bharti Infotel, and Reliance Infocomm added thousands of new subscribers. In Delhi alone, Tata Teleservices and Bharti added 150,356 new subscribers even as MTNL lost subscribers.

Private operators posted a healthy return on their investment in fixed access services, in terms of subscriber growth and revenue returns. This, despite the fact that leading private fixed access providers like Bharti Infotel and Tata Teleservices have aggressive mobile access businesses as well. Bharti Infotel is part of a group that is India´s largest GSM mobile operator, while Tata Teleservices has been aggressively rolling out CDMA-based mobile services across the country.

It is now well accepted that it is mobile phones that would dominate voice access in the times to come. In fact, mobile phones are expected to surpass the number of fixed lines across India any time soon. Service providers very well realize that. And this is very clear from what they have been doing in the past one year.

V&D estimates CyberMedia Research

Fixed line service providers are trying too woo customers with value-added services like voicemail, audio conferencing, and SMS besides offering the Internet bundle. For example, Tata Teleservices positioned its fixed wireless phones as a ‘smart wireless service´ that not just provide services which a traditional fixed line provides but also services like SMS which include both person-to-person as well as applications-based SMSs to content providers such as Indiatimes, Rediff, and NDTV. Service providers like BSNL and Bharti also offer similar services.

The problem however has been that except for the Internet bundle (which has made BSNL and MTNL two of the largest ISPs in India), none of these value-added services have really worked. Residential subscribers rarely use voice mail, audio conferencing is yet to pick up, while fixed line SMS never really picked up.

No doubt, service providers are looking at something more exciting to shore up their bottom lines. Instead of expanding their network or service, operators are now more interested in consolidating their existing fixed service operations. For almost all companies, and especially an operator like BSNL, this has meant an increased (even if disproportionate) focus on wireless. BSNL, the largest fixed line operator, is now also the fourth largest mobile operator in the country after Reliance, Bharti, and Hutch. The other significant growth opportunity that it is now looking at is residential broadband and data services. The operator, which had a false start in broadband last year as its franchisee model didn´t really take off, is now reworking its strategy for the broadband market and is looking at selling broadband to at least a million of its subscribers. The operator believes that its broadband offering would be key to arresting the churn in its fixed line customer base.

V&D estimates CyberMedia Research

Similarly Bharti Infotel, that is present in six states and 70 cities as of now and does not have any plans to extend it to other states and within the existing states also, it would be targeting only a few cities. Their focus is and would remain corporate clients. In broadband, Bharti would focus on expanding its DSL services (complimented with residential Wi-Fi). Its DSL service is currently available in 11 cities and would be extended to a few more cities. Tata Teleservices is also looking up at the data opportunity to build up its market—Tata Teleservices believes that the FY 2004–05 would be a good year for its data services. In the broadband space, it is moving aggressively to ensure that Wi-Fi becomes a viable model. Tata Teleservices plans to open up over 300 hotspots across the entire country.

The only fixed line operator which appears to be missing from action in the new market environment is MNTL. MTNL has been witnessing a subscriber churn because of its and attitude. The Delhi-Mumbai public operator appears to have failed to reinvent itself, something which it should have done to retain customers as well as take on the more aggresive and customer-friendly private operators.

V&D estimates CyberMedia Research

It doesn´t need much of a thought to arrive at a conclusion that fixed operators, especially BSNL and MTNL, will have to focus a lot of data services both for residential and business customers to enhance their revenue.

There is no way they can stop their fixed voice subscribers (from migrating to a rival service provider or switching over to mobile phones) unless they focus on offering value-added data services. Even then, it is highly unlikely that fixed customers would not be lured away by mobility.

A significant number of mobile subscribers also retain their fixed voice services largely because of their relatively low tariffs (as compared to mobile services) and the subscribers´ preference for a ‘home´ phone that can be used by everybody at home, unlike a personal mobile phone. All this is likely to change in the coming years with more and more fixed line subscribers surrendering their phones in favor of mobile access. The need for fixed lines to support Internet access might limit this decline in the short term, but this will not prevent an aggressive battle for voice minutes between fixed and mobile operators.

Ravi Shekhar Pandey