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The fiscal began on a belligerent note over the limited mobility issue, with swords drawn out. Supporters of the two rival camps—GSM and CDMA—nearly bordered on fanaticism. And as the matter inched toward the final hearing in courts, passions flared up. It looked like an either-me-or-you situation then....

Time—and the positive approach of the industry—has changed all that. It´s a me-and-you-too scenario now.

It couldn´t have been otherwise, given the fact that the cellular pie in India is big, and growing. More so, contrary to all apprehensions, Reliance´s—and hence CDMA´s—big-ticket entry helped expand the market.

The Subscriber Surge
It was a 135 percent-caliber explosion that expanded the market. The mobile service subscriber base swelled from 14 million in March 2003 to 33 million in March 2004.

Reliance Infocomm was the strongest growth propeller, lapping up 6.9 million subscribers for its Reliance IndiaMobile brand in 10 months flat (the offering was launched in May 2003). Although numbers fell short of the company´s initial projections of 10 million subscribers in twelve months (the figure is yet to be achieved), it was a project well executed.

V&D estimates CyberMedia Research

For one, in a matter of seven months or so, the dominance of Bharti in the mobile arena was over, though not necessarily for good. (Bharti has already bounced back with some strategic moves, aimed at turning the management into a lean, mean
machine.)

Going back to Reliance´s entry, the Dhirubhai Ambani Pioneer Offer did manage to change the rules of the game, and, commoditized cellular services to a certain extent. It grabbed instant mindshare by announcing a 40 paise per minute rate for STD calls made from a Reliance phone to another. Even though the scheme got scrapped as TRAI disallowed it for obvious reasons, Reliance did manage to create a marketing blitz out of the ‘offer´.

The RIM—Reliance India Mobile—honeycomb attracted swarms of worker bees aka Dhirubhai Ambani Entrepreneurs (DBAs) who built a huge base of subscribers in practically no time. The growth rate—1 million subscribers per month, for months in a row. The new CDMA juggernaut rolled on…crushing many a skepticism on the way.

And those who ardently thought that RIM´s advent would crush the GSM brigade for good, proved equally wrong.

As tariffs crashed, induced by a highly competitive scenario, mobile services looked a lot more attractive—and affordable—to potential subscribers. A record 2 million plus customers decided to cross the lowered entry barrier and go mobile.

ARPU, Poor ARPU
In the industry´s quest for quick subscriber growth, average revenue per user (ARPU) continued to be the worst sufferer. The average industry ARPU shrunk to a new low of Rs 475 as against Rs 595 in the previous fiscal and Rs 780 in the fiscal 2001–02. In percentage terms, the fall was 20 percent this year and nearly 40 percent over a two-year period.

V&D estimates CyberMedia Research

Two factors accounted for much of the fall in the average ARPU. One, increased pressure on voice tariffs, as voice still accounts for 90 percent of the traffic. Two, the high incidence of prepaid subscribers across almost all service providers.

Tata Teleservices could boast of the highest ARPU, at Rs 650, only because its mobile subscriber base is largely postpaid. However, Reliance Infocomm, despite having a large postpaid base, couldn´t realize a high ARPU because of an ongoing spate of billing-related problems, and the resulting revenue losses.

Among the GSM-only operators, Hutch claimed the highest ARPU in the industry, at Rs 534. In its stronghold Mumbai, where it has a relatively higher incidence of post-paid customers as compared to other operating circles, the ARPU was as high as Rs 608.

State-run cellcos BSNL and MTNL had significantly low ARPUs for different reasons though. One, the somewhat barebone nature of their offerings didn´t quite prompt the users for non-voice usage. Also, BSNL had a large number of subscribers in the B- and C-class cities where even the voice usage is relatively low.

Yet, Revenues Shot up…
The sharp drop in revenues was more than compensated by the hefty rise in subscriber numbers. Bharti topped the tally with Rs 3,261 crore and clocked a growth of 57 percent. In the previous fiscal, it had posted revenues of Rs 2,084 crore.

Reliance, despite zipping past Bharti in terms of number of subscribers, had to contend with the second slot. This was because for most of the year, Bharti billed on a larger subscriber base. Only in the last two to three months of the fiscal 2003–04 did Reliance Infocomm have a large billable base.

Fiscal 2004–05 could be different though. If Reliance can maintain the lead it has created over Bharti, in terms of number of subscribers, it can easily surpass Bharti in revenue terms too. It´s too early to derive conclusions at this stage though, as Bharti is quite capable of springing surprises…outsourcing partnerships with tech giants Nokia, Ericsson, and IBM have already put new weapons in its arms.

Reliance, however, added the maximum amount—Rs 1,888 crore—to the revenue kitty among all operators. Clocking a high growth of 276 percent, the group´s mobile services business grew from a relatively smaller revenue base of Rs 683 crore in fiscal 2002–03 to Rs 2,571 crore in 2003–04, of which Reliance Infocomm alone accounted for more than 87 percent.

V&D estimates CyberMedia Research

Hutchison managed to retain the No. 2 position, with estimated revenues of Rs 2,701 crore, sending BSNL to the fourth slot in the process. It registered a good growth of 56 percent over the previous year´s base of Rs 1,735 crore.

The top five companies/groups together accounted for 81 percent of the mobile services revenues, while the top three made up 59 percent of the pie. Bharti´s individual share was slightly above 21 percent while Reliance´s slice was close to 20 percent.

It may be worth noting here that the fiscal was of historic significance to Bharti, being its first full year of profit. All its four quarters showed improvements quarter on quarter and all quarters were profitable in themselves.

Reliance Infocomm on the other hand, is yet to become profitable. In fact, the company incurred a loss of the order of Rs 300 crore in the CDMA services business.

Prepaid for Fast Forward…
Bharti used prepaid significantly as a tool for subscriber growth. However, the downside to this approach was a lower ARPU, because of heavy churn rate in the segment, among other factors. Bharti sought to increase loyalty among its prepaid subscribers by way of improved brand association and greater number of recharge-options. The company has 79 percent of its mobile customers on prepaid.

V&D estimates CyberMedia Research

Bharti´s market expansion initiatives for prepaid were well-crafted moves and associated with catch phrases pronounced by its brand ambassadors. One such highly effective initiative was ‘Aisee azadi aur kahan´, targeted at prepaid customers.

In May 2004, Bharti introduced the Easy Re-Charge option for prepaid users. Unlike other similar schemes, the feature has had a very positive impact on recharge patterns. Bharti claims that already, nearly 40 percent of recharge coming through this electronic scheme, rather than the paper coupons.

Hutchison was relatively less passionate about prepaid, even though it could hardly ignore the segment for obvious competitive reasons. In May 2003, it signed agreements with leading banks like SBI, HDFC Bank, UTI Bank, IDBI Bank, and Citibank that would enable Hutch and Orange users to refill their prepaid cards by simply sending an SMS or using refilling options at one of the banks´ ATMs. This initiative was termed ‘Direct Top-Up´, and gave prepaid subscribers the flexibility to refill for any amount between Rs 315 and Rs 5,000, instead of using pre-denominated cards.

This process also allowed one to top up for others by just entering their mobile numbers on the ATM screen. It saved users the inconvenience of physically carrying the refill-slips when they are roaming or unable to go to a Hutch outlet.

Idea Cellular too, a month later, announced a similar feature for its prepaid subscribers. This allowed Idea ChitChat subscribers to keep the card valid for a period of five months by paying a fee of Rs 50 per month. For this, they need to recharge their cards with a minimum denomination of Rs 540.

A new prepaid user is informed of the new service via an SMS. If the subscriber opts for first recharge using a Rs 540 or Rs 1,080 denomination voucher, another SMS informing the subscriber of his card´s validity for five months is sent. The validity is extended once the subscriber replies to the message with a ‘YES´.

V&D estimates CyberMedia Research

As may be seen from the above examples, service providers tried to create some differentiation in their otherwise similar-looking offerings.

It is understood that in not-too-distant future a very large percentage of people will make recharges electronically, as it gives them the flexibility of topping up flexi-amounts, depending on the need or affordability.

Looking Ahead
The fiscal under consideration saw a number of major regulatory challenges being met and the regulatory regime in the country getting stabilized. This removed the haze for all, and particularly improved the climate for consolidations.

Chennai-based Aircel bought out 79.24 percent stake in RPG Cellular Services for a consideration of more than Rs 210 crore. Later, in January 2004, Idea signed a definitive share-purchase agreement for 100 percent acquisition of Escotel Mobile Communications. The acquisition got completed in June 2004.

V&D estimates CyberMedia Research

In early April 2004, Bharti Tele-Ventures announced that it had reached an agreement with the Shyam Group to acquire the latter´s 67.5 percent equity stake in Hexacom India for a consideration of Rs 430 crore. Earlier, in December 2003, Bharti entered into an agreement with Telesystem (Mauritius), a subsidiary of Telesystem International Wireless, Canada to buy its 27.5 percent equity interest in Hexacom for a consideration of $22.5 million (approximately Rs 102 crore).

The latest rounds of negotiation involve none other than Aircel, which itself acquired RPG Cellular just a few months ago. Idea Cellular is reportedly in an advanced stage of talks with Aircel with an offer in the order of Rs 1,200 crore.

Hutch and Bharti are said to have approached Aircel´s promoters, Sterling Infotech, with their respective offers. However, Hutchison has sprung a surprise by closing the deal.

As the year progresses by, a few more companies may be drawn to the negotiation table. In fact, one need not be surprised to find not more than seven players in mobile arena by the time the fiscal 2004–05 draws to a close. However, some big  players may not get the go-ahead as they could end up having more than two-third market share, post a large acquisition.

The current round of consolidation, which has already underway, is going to be pretty interesting to watch. Fiscal 2004–05 is poised to become the year of consolidations.

Deepak Kumar

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Freedom to Grow

Brand: AirTel
Catch Phrase: Aisi Azadi Aur Kahan
Brand Ambassadors: Shahrukh Khan and Sachin Tendulkar
Footprint: Service already available in 15 out of 23 circles in India. Licenses taken for another six circles and LoI issued for Assam circle

Leadership: Sunil Bharti Mittal has exhibited enough grit and determination. Has the capability to face challenges head on, and emerge stronger—against state-run behemoth BSNL and Ambani-promoted juggernaut Reliance Infocomm. Bharti also has Kurt Hellstrom, the former president and world chief executive of Ericsson on its board of directors.
Holding Company: Bharti Tele-Ventures, which has grown rapidly into an integrated telecom services company. This has given AirTel the leverage to engage in competitive pricing against the state-run BSNL, and survive. A ‘Crisil governance and value creation (GVC) Level 1´ rating was assigned to Bharti Tele-Ventures in February 2004. The rating reflects the strong strategic direction and management oversight provided by Bharti´s board.
The Approach: Have the first mover advantage wherever and whenever possible, and best, market it well
Promoters Holding: 46.6 percent
Foreign equity: Foreign companies—37.35 percent; FIIs—9.24 percent
Technology offerings: GSM, GPRS
Value-added Services: Voice reminder alerts, download content such as Java games, polyphonic ringtones, wallpapers, videos over GPRS-compatible handsets, MMS and mobile office on GPRS, enhanced phonebook and inbox service, vernacular SMS, astrology, etc.

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Believe in the Value Game

Brand: Hutch
Catch Phrase: Wherever you go, our network follows
Coverage: The service is available in 13 out of 23 circles in India, which qualifies for a pan-India footprint
Leadership: Asim Ghosh: He´s perhaps the most diligent group head in the mobile services industry. A firm believer in the value game and not the number game. Widely regarded as a silent worker—actions speak louder than words, as they put it

Company: Hutchison Max Telecom. Unlike its primary GSM competitor Bharti, Hutch is a mobile-only player. Slowly and steadily, it has expanded, and consolidated operations in the country. Has always had a very strong VAS portfolio, and has managed to maintain leadership in GSM services ARPU.
TECHNOLOGY OFFERINGS: GSM and GPRS
The Approach: Keep playing the value game and consolidate…results will follow
Value-added Services: Push2talk, check e-mails using MS Outlook, Hotmail, and Yahoo Mail, MMS, Mobile Gaming, Missed Call Alerts that inform the subscriber of calls missed while the phone was switched off, the Internet, voice response service (in Hindi and in English), location-based help service for locating the nearest police station, hospital, etc., ringtone downloads, and SMS-based contests.

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The Juggernaut Rolls On

Brand: Reliance IndiaMobile
Catch Phrase: Kar Lo Duniya Mutthi Mein
Footprint: Services are available in 20 out of 23 circles in India, which brings the group very close to having an all-India presence
Leadership: Mukesh Ambani: While he may not have the charisma of Dhirubhai Ambani, he is a man of details and is highly result oriented. On the face of it, he may not come across as an aggressive person, but he knows how to get things done…and get them moving. Anil D Ambani, vice chairman and MD, teams up with him quite effectively

Companies: Reliance Infocomm and Reliance Telecom: The behemoth managed to shake up the India telecom stage, if not the earth, with its big-ticket entry in May 2003. Deep pockets and financial muscle helped it win the lion´s share. In literally no time, the group has emerged as no. 1 in mobile services in the country in terms of subscribers, surging past Bharti, Hutch, and BSNL
The Approach: Move stealthily, and bombard as many territories as possible in the first go itself...size matters. Call that project execution.
Technologies Deployed: CDMA-1x RTT, and GSM: CDMA-1x RTT can provide data speeds of up to 144 kbps, which meet the IMT 2000 specifications for next generation vehicular traffic. With the addition of two permutations, 1X EVDO and 1X EVDV, it can also reach the specified next generation targets for stationary and nomadic users

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Slow, Steady, and a Behemoth Too

Brand: CellOne—GSM prepaid, Excel—GSM postpaid, Tarang—CDMA
Footprint: The CellOne service is available in a total of 20 circles. However, it doesn´t have a presence in the two most lucrative circles, Delhi and Mumbai. This is because of the other state-run company MTNL´s presence there. Nevertheless, BSNL has reportedly approached DoT for the permission to operate in these two metros
Leadership: Prithipal Singh (April 2002–December 2003), VP Sinha (April 2003 onwards): The short tenures of BSNL CMDs hardly give them the time and space to strategize and pursue a vision. Also, the decision-making process becomes long-drawn as files have to travel on corridors of the ministry.

Holding Company: Bharat Sanchar Nigam Ltd: The rather sleepy public sector giant has a telecom presence in every nook and cranny of the country. Not only does it dwarf all competition in the landline business, it also has the potential to usurp cellular market share whenever it chooses to. In fact, the demand for new CellOne connections far exceeds the supply. If aggressive, BSNL can give private cellcos a run for their money.
Technology offerings: GSM, CDMA
Value-added services: SMS-based services, voice mail service, group messaging, national and international roaming, call forwarding, call conferencing, friend and family talk, call waiting and call holding facility, unified messaging services—provides voice mail, fax, e-mail, text to voice services over the mobile, surf WAP-enabled websites

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An Idea Can Rake in the Moolah

Brand: Idea
Catch Phrase: An Idea can change your life
Footprint: Post the Escotel acquisition, the service is available in a total of 11 circles
Leadership: Vikram Mehmi: The CFO-turned-CEO has to his credit the acquisition of Escotel, one of the largest such deals in the Indian cellular industry. He took over the reigns more than a year ago, after two CEOs, Sanjeev Aga and Graham Burke, put in their papers within a short span of 12 months

Holding Company: Idea Cellular: The company achieved a record-high financial closure of Rs 2,225 crore with leading Indian financial institutions in October 2003.
Is the first cellular service provider to operate in the 1,800 MHz frequency band
Technology offerings: GSM, GPRS
Value-added Services: Language SMS, global SMS, group SMS, chat, voice mail, Internet, ringtones, picture messages, MMS, GPRS, recharge over SMS, etc.