News, views and commentary from the telecoms sector across emerging markets and developing countries worldwide

Friday, 4 September 2009

India update: loose ends from previous entries

MTS: Russian cellco's Indian operation - world's first CDMA2000 1x Advanced deployment

The time is fast approaching when I'll want to revisit the twists and turns of the much-discussed MTN-Bharti Airtel merger. That mooted deal, though, is by no means the only interesting story on the Indian telecoms scene so in the meantime I'd like to follow up on a number of issues covered in previous articles here.

Early last month, this blog discussed the desire of Scandinavian telecoms firm Telenor firm to secure a controlling interest in the Indian mobile operator in which it is a shareholder. A stumbling block had been the concerns of the country's security agencies, worried about the Norwegian firm's links to Bangladesh and Pakistan, both neighbouring states inside which terrorist attacks on Indian targets have been planned. When DTW last picked up this story, it looked as though a solution might be on offer - in the form of the transaction being approved on the condition that none of the staff who have worked at Telenor's Pakistan operation will be employed in India. Courtesy of India's Economic Times, I learned yesterday that this proposal to allow Telenor to increase its stake in Unitech Wireless has been sent to the Indian cabinet for approval. Doubtless the Norwegian firm will be hopeful of a positive outcome.

Another recent India-focused DTW article explored how the Government's security fears may be set to affect other telecoms businesses. That piece mentioned the case of ByCell, a Russian-backed firm that has been prevented from entering the Indian mobile services market, with security concerns about the company and its shareholders being the deal-breaker.

Now, another Indian telecoms firm with links to Russia is also the subject of worries over foreign ownership rules. Sistema Shyam Teleservice (now branded MTS India), a CDMA cellco in which Russian conglomerate Sistema has a controlling stake, has been asked to seek fresh approval for its wholly-owned subsidiary Shyam Internet Services, an ISP. According to an Economic Times article yesterday, the subsidiary never secured the mandatory Foreign Investment Promotion Board (FIPB) approval.

The article states that the issue came to light when the cellco's ISP subsidiary, which currently offers services only in Rajasthan, sought approval from the Department of Telecommunications (DoT) to be a pan-India player. MTS India has reportedly told the DoT that since FIPB had previously approved Sistema's 74% stake in the company, it was therefore "assumed that this approval covered all wholly-owned subsidiaries." MTS representatives seem to be confident that this issue can be resolved quickly and without much fuss, but it's worth pointing out that this is not the first time the cellco has run into trouble over failure to obtain FIPB clearances.

Early last year, according to the Economic Times piece, Sistema grew its stake in the Indian mobile operator to 73.97% despite only having got FIPB approval for a stake of 51%. This was resolved, but perhaps the Sistema people will be hoping that these trangressions have not tried the patience of the Indian authorities too far.

On the mobile side, MTS India remains a vigorous proponent of CDMA technology as a good fit for the country. On Tuesday, the operator announced its membership of the CDMA Development Group (CDG), the international consortium of CDMA service providers, manufacturers, application developers and content providers whose roles are to ensure interoperability among systems and encourage the adoption of CDMA2000 wireless technology worldwide. The previous day, the cellco had announced its plan to adopt 1X Advanced technology to support its growth plans. An announcement about the completion and publication of specifications for CDMA2000 1x Advanced was only made last month, so MTS India's claim to be the first service provider in the world to offer this "future-ready technology" seems credible.

CDMA2000 1x Advanced is intended to enable best-in-class and simultaneous voice and high speed EV-DO data services. MTS India CEO Vsevolod Rozanov says "with a need to offer uncompromising, seamless call connectivity with fewer call drops, and data services at ever faster speeds, operators are in search of solutions that utilize limited spectrum more efficiently, to be able to support a larger subscriber-base on it. 1X Advanced is designed to meet both these needs and will help MTS to significantly increase its capacity to provide outstandingly clear voice quality to its growing subscriber base."

This operator, then, seems bullish about the prospects for its advanced services. Last month, DTW covered the apparently less successful efforts of India's two major state-owned telecoms businesses to compete in that space. That article noted that both BSNL and MTNL have registered very low subscriber numbers for their 3G offerings, failing to capitalise on the first-mover advantage they should be enjoying - India's private sector mobile operators continue to wait for oft-delayed licence auctions to take place. I am not sure to what degree high handset prices have been a barrier to consumer adoption of the state sector telcos' 3G services - in previous articles here, it has been noted that the two state-owned companies have a rather lower ARPU subscriber base than some of their private sector rivals. If the price of devices is a major stumbling block, MTNL will be hoping that its recently launched own brand 3G handset - priced at around USD 110 - will have a positive impact.

MTNL is also looking to develop its 3G play in partnership with franchisees, whose role will be to acquire, serve and retain customers and provide customer care, according to a Business Standard article of 16th July. Two interested parties have emerged - Virgin Mobile and Spice Group. The former is well known globally for its MVNOs in the UK, Australia, Canada, France, South Africa and the USA. The Virgin Mobile brand has also been present in India for a little while, with services offered via the CDMA and GSM networks of Tata Teleservices.

Whether the franchise route will turn out to be the best way forward for MTNL remains to be seen. The DTW article which covered the public sector telcos failing to sell good numbers of 3G subscriptions also mentioned the criticism BSNL has received for selecting the franchising model for its WiMAX deployment. A vocal critic was the WiMAX Forum's top representative in India, who has asked the telco to consider how much revenue it may be foregoing by employing this approach.

This criticism, then, implies that the franchisee in this arrangement can make a tidy sum. Perhaps with this in mind, and presumably encouraged by its existing arrangement with BSNL, wireless solutions provider Harris Stratex is eyeing a role in MTNL's WiMAX franchisee project, according to Thomas K. Thomas of Business Line, writing recently.

In the case of 3G mobile services, perhaps MTNL's management would be encouraged by how successful Virgin Mobile has been in the UK and be attracted to the idea of working with a company whose brand value can prove very attractive for consumers. That said, in April this blog discussed how much less successful the Virgin Mobile MVNO in South Africa has been. In terms of market maturity (measured by mobile penetration), Virgin Mobile South Africa made its debut rather later than its UK counterpart had done some years before, thereby finding itself needing to win custom away from the incumbent MNOs. I don't have figures to hand, but I daresay that here in the UK, the Virgin-branded MVNO was the first supplier of mobile services to many of the customers it signed up. In India, mobile penetration might look attractively low to Virgin Mobile, causing the group to hopeful about experiencing growth more akin to the UK scenario than the frustrating South African one. I wonder, however, how strong an affinity for the Virgin brand exists in the minds of Indian consumers. Here in the UK, the brand is associated with a plethora of other products and services and its founder, the charismatic Sir Richard Branson, is often described as one of this country's most admired citizens. Does this brand resonate much more strongly here in Britain than, say, India?

It remains to be seen whether these franchising deals or the launch of new devices will do much to improve the fortunes of India's two ailing state sector telcos. For Amit Gupta of telecoms and IT advisory firm Ovum, none of this is as important as the need to privatise both BSNL and MTNL. In a recent opinion piece, he argues that "political intervention, a bureaucratic culture and pre-liberalization mindset are the root causes for BSNL and MTNL’s poor performance". Even with control handed to new investors, argues Gupta, "the challenge to transform BSNL and MTNL from state owned sick companies into customer centric service providers will be daunting". He feels that "due to the size and complexity of these companies, it won't be possible for an outsider to manage change without the cooperation of the existing employees", which could be tricky if we believe the argument that "at the same time, investors will have to cut the flab from a bloated workforce." These concerns notwithstanding, Gupta continues, "privatization is the only economically viable option" if these companies are to be saved from "their eventual demise."

Amit Gupta argues against the value of the Indian Government merely divesting stakes in the two operators while retaining control. He feels that this is inadequate. I imagine, then, that he would warn off any potential bidders for minority stakes in either opco. One such might be the giant US telco AT&T, which is reportedly considering a bid for a chunk of BSNL.

I've written so much about India on this blog since February that I daresay other loose ends from previous entries may need tying up soon. Watch this space. The next article on India may well zero on that mega-merger whose developments have rumbled on all summer.

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