My guess for a while has been that any telcos struggling in the current climate may be prepared to sell off assets at rather lower prices that they would consider in happier times, hence the opportunity for MENA region players. Moreoever, writing this week, Nick notes that traditonally strong and expansionist mobile players such as Orange/France Telecom and Telenor are now more reluctant to get involved in further acquisitions activity, which may make the prices of potential targets lower still for Gulf region telcos looking to expand further. In Nick's article, he wonders whether powerhouse cellcos from China and India might also have the appetite for global expansion. "Some say the global mobile telecoms industry could go the way of the steel sector, which is largely dominated by emerging market players," writes Nick.
Nick notes that Bharti Airtel and China Mobile are the leaders of the two fastest-growing mobile markets in terms of subscriptions, with India adding just over 100 million subscriptions in 2008 and China 89 million. Nick feels this means that these two giant cellcos are therefore focusing on their domestic markets, noting that China Mobile is also busy rolling out its TD-SCDMA network. Bharti Airtel, Nick asserts, "has intense - even brutal - competition to contend with while preparing to launch its 3G network."
One element of the tough competitive environment in India is the fact that state-owned operators BSNL and MTNL have beaten Bharti Airtel and other private sector MNOs to the punch in terms of going to market with 3G services. According to a telecoms.com article, BSNL has rolled out 3G services in an additional eleven cities following the launch of its first 3G service in Chennai earlier this month. MTNL, meanwhile, has launched 3G services in central New Delhi with the stated aim of attracting 200,000 to the service within two years.
The article notes that "if BSNL and MTNL were to have a substantial head start over 3G rivals, particularly if the spectrum auctions, as many industry commentators now believe, are unlikely to take place until the end of this year, the licences would surely look less attractive to investors weighing up India's 3G opportunity." If this has the effect of driving down the amount of money the Indian Government is able to raise through the long-delayed auctions, the article continues, this too could work to the advantage of BSNL and MTNL because the price they both have to pay for their 3G spectrum has to match the highest winning auction bids in each of the respective circles.
As the telecoms.com article also notes, BSNL also has a first-mover advantage when it comes to BWA spectrum because while the BWA auctions are scheduled to take place the same time as the 3G licence awards, "BSNL is already sitting on a chunk of pan-Indian 20MHz spectrum in the 2.5GHz band." Again, the article continues, BSNL does not have to pay for its BWA spectrum until the BWA auctions take place.
In the mobile space, Bharti Airtel, with 26.38% of subscriptions according to the World Cellular Information Service, leads a select group of larger Indian cellcos. Other major players include Vodafone Essar (18.77% market share), Reliance Communications (16.63%) and Idea Cellular (11.71%). Of the two state-owned 3G early movers, BSNL is another significant player, occupying fourth place in the market with 12.74% of subscriptions. MTNL, which is also active in wireline telephony and CDMA WLL, is a much smaller GSM mobile player, with only 1.20% of subscriptions.
Of the few further existing opertators with single-digit market share, one in particular has been in the news quite a lot of late. CDMA network operator Tata Teleservices (7.01% market share) has announced that it will be seting up 100 new cell sites in the state of Gujarat by August, according to a Business Standard story today. This seems to be the latest component of a drive to extend the geographical reach of the Tata network. In October, Global Mobile Daily reported the company's plans to expand its services into the Jammu and Kashmir operating circle by the end of November, thereby becoming the fourth operator in that market alongside BSNL, Bharti Airtel and Aircel. The war chest for this expansion will be boosted by the USD 822.67 million which Tata Teleservices raised by selling a 49% stake in its tower unit to Quippo Telecom Infrastructure, a deal which was announced in January.
The CDMA operator has certainly been deemed attractive by NTT DoCoMo of Japan, an existing shareholder which has had a move to add a further 20.25% stake in the business approved by India's cabinet, according to a Global Mobile Daily story of 24th February. This stake was up for grabs because its previous owner, the broadband player Tata Communications was strapped for cash and had pressured the Indian Government to allow the sale of a share in the CDMA mobile operator, according to an earlier Global Mobile Daily article, which reported that Tata Communications has been "particularly hard hit by the credit crunch and that the operator has told the Department of Telecommunications that it will be nearly impossible for it to carry out its business plans unless it receives new funding."
Government approval was needed because the state holds a 26.12% stake in Tata Communications, formerly known as VSNL, and was therefore able to veto the sale of the company's stake in Tata Teleservices, in which DoCoMo already owned a 26% share. According to yet another GMD story in January, Tata Communications is also planning a USD 51 million bond issue to help finance its bid for WiMAX spectrum.
Tata Teleservices is aiming to grow further by addressing the relatively untapped rural market, having done a deal with Impetus Infotech India to launch services for value-added services aimed at farmers and related communities, providing updated information on current prices of commodities across the country. According to the Business Standard article, Tata Teleservices expects around 60-70% of new additions to its subscriber base to come from rural areas.
Tata Teleservices may also ratchet up the competitive pressure in India's mobile market by enabling Virgin Mobile India, in which the CDMA MNO owns a 50% stake, to enter the GSM space. Prior to reading an Economic Times article earlier this week, I had not realised that Tata would be following Reliance Communications in migrating from CDMA to GSM family technology. This mobile standards migration seems to me quite reminiscent of what has happened in Brazil, where the operator Vivo, which had been the lone CDMA player, chose to make the move to GSM in order to compete more effectively with its rivals.
At present, Virgin Mobile is positioned as India’s first youth-centric mobile service, according to this week's Economic Times piece, and its services are offered on the Tata Teleservices CDMA network via a brand franchisee arrangement.
"Our agreement with TTSL is technology neutral. At present, our services are restricted to CDMA. Once TTSL unveils its GSM network, we will extend the Virgin services into GSM as well," says Virgin Mobile India CEO M.A. Madhusudan. The article states that Virgin Mobile is now gearing up to launch its GSM service as soon as Tata Teleservices does. "Nearly 73% of the Indian mobile market is controlled by GSM operators. An entry into GSM will help us to expand our addressable market and also increase our average revenue per user. Currently, our ARPU is nearly 30% higher than the industry average," said Mr Madhusudan. The article continues: "In a bid to expand its portfolio, Virgin is also keen to enter the business phone segment", qouting Mr Madhusudan: "We are in talks with multiple handset vendors, including Research in Motion... there are also plans to launch data cards."
CDMA operators migrating to GSM. Virgin Mobile beefing up its MVNO play. State-owned operators stealing a march in the 3G space and in the WiMAX services arena. I imagine this is what Nick Jotischky meant by 'brutal' domestic competion for Bharti Airtel. I can therefore understand speculation about India's mobile market leader looking beyond the borders of its home country for growth opportunities. As Nick noted this week, the Indian cellco has shown its hand before, having failed in a previous bid to acquire South Africa's MTN. Nick feels that "as an operator with proven experience of coping with the lowest tariffs in the world while sustaining growth, Bharti would have an innovative approach to the challenges presented by African markets" and argues that "at the root of this innovation in India is Bharti's use of outsourcing, in not only its network and IT functions but also its call-center and customer-relationship services." Nick feels that this kind approach would be an alternative to the one taken thus far by African operators and says that "it will be worth watching how new entrant Econet Wireless Kenya fares, having pledged to use outsourcing as a key strategy."
Nick feels that China Mobile, meanwhile, may be encouraged by recent success in Pakistan and go on to expand elsewhere in Asia. China Mobile's Pakistan outpost, CM Pak (branded Zong), has, in Nick's view, built its success on cheap tariffs and an aggressive network rollout plan. Nick notes that "a sign of that success is the fact that in 3Q08, CM Pak added more subscriptions than any of its rivals."
Nick conludes his article by predicting that "we can expect China Mobile to stretch its Asian coverage and Bharti [Airtel] to return to Africa," but feels it would probably be premature for either company to reach out any farther. I have thought about the China Mobile case a lot less, but having considered the many competitive pressures endured by Bharti Airtel at home, my guess is that the Indian cellco must be thinking very seriously about where it might extend its footprint.
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