India: cut-price tariffs squeezing margins and causing telecoms stocks to tumble

A number of articles here have wrestled with the question of optimum pricing for mobile operators in emerging markets. Some of these have focused on the case of Millicom International Cellular selling its three Asian operations, having cited, in the case of Cambodia, the challenges of maintaining healthy profitability in the face of the highly aggressive market entry strategies of new entrants.

This week a price war fought amongst telcos elsewhere in Asia has cause a slide in the value of their stocks:

The lady speaking in this clip contends that the first shots in this Indian tariff war were fired by Aircel (India's seventh largest cellco by market share) and Tata DoCoMo, the recently-launched GSM proposition from CDMA operator Tata Teleservices, arising out of its strategic alliance with Japanese mobile giant NTT DoCoMo.

In August, Tata DoCoMo made waves by becoming the first Indian mobile brand to offer per-second billing. Some media sources contend that impressive subscriber additions for the operator since then have been largely driven by the attractiveness of this innovation. Surya R Kannoth of the Economic Times, writing today, says that the most aggressive response to this yet has been from Reliance Communications, which on Monday announced a flat, cheap per-minute lifetime tariff for all calls - local, NLD, on-net, offnet, inbound/outbound roaming - made by both CDMA and GSM prepaid users. All this comes for no monthly fixed charge, but with a one-time set up fee of Rs48 (around one US Dollar).

The commentator speaking in the video clip above argues that this tariff causes the spread between cost per minute and revenue per minute to become very narrow, "and that would hurt profitability going forward." She goes on to quote analysts who say that the tariff is "disruptive" and will put pressure on major players such as Vodafone, Idea Cellular and Bharti Airtel, whose Chairman said today that prices in India have hit rock bottom. In light of the damage to share prices seen this week, investors in the various mobile operators will doubtless be hoping that this really is the case.

Bharti Airtel is getting consecutive mentions at DTW, having been the subject of the most recent article here, which was about how India's market-leading cellco has been disappointed by a second failed attempt to create a merger with the Africa and Middle East cellular powerhouse MTN of South Africa. In that article I mentioned, not for the first time, that there exists the belief that competitive pressures in its home market will continue to make the exploration of foreign investment opportunities very compelling for Bharti Airtel. I take today's news of a price war and tumbling telecoms stocks to be a pretty solid plank for that argument. I also reported the opinion that the Indian cellco might want to take a good look into acquiring some or all of the assets of Zain, the availability of which has been talked up for months now, not least here at DTW, where we ran a whole series of articles on speculation around the Kuwaiti group's possible exit from Africa.

A Business Standard article run on Saturday contends that not only is this a likely scenario, but that the Indian operator may need to take on its one-time suitor in a battle to take control of Zain. This idea seems to be drawn from the fact that last month, MTN CEO Phutuma Nhleko told journalists that his company would consider buying the African assets of Zain if the deal with Bharti Airtel did not go through.

India: cut-price tariffs squeezing margins and causing telecoms stocks to tumble

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.

India update: loose ends from previous entries

India Week continues at DTW

This is turning into 'India Week' here at DevelopingTelecomsWatch. Today's musings begin by revisiting yesterday's discussion here about the imposition of Mobile Number Portability (MNP) in the country. We will also consider - not for the first time - the ways in which the Indian Government's concerns about national security might lessen the appeal of this vast, growing market for foreign telecoms groups.

The reason we are returning to the MNP debate so quickly is that yesterday saw an open house discussion in Hyderabad on this theme. Hosted by the TRAI, India's telecoms regulatory body. This rejoiced in the snappy title 'Determination of Port Transaction Charge, dipping charge and porting charge for mobile number portability'. The surrounding media coverage provides more information on the range of concerns expressed by India's cellcos.

Speaking to an Economic Times reporter at the workshop was TRAI Chairman SJ Sharma, who said he expects MNP to go live on December 1st. While Sharma is confident that his agency will have its MNP regulations in place by the end of August, he expressed the belief that some of the operators do not seem to have ordered enabling equipment yet, meaning that a delay of 2-3 months is likely.

Yesterday, ahead of the Hyderabad discussions, we considered the estimated cost one operator had calculated for the implementation of MNP. State-owned BSNL had come up with a USD 250 million estimate, complaining about this cost in light of its contention that only 2% of "elite customers" are likely to use the facility.

Today, drawing on an article from K.V. Kurmanath of the Business Line, we can see how BSNL's numbers stack up against the estimates of some of its competitors in the mobile space.

Reliance Communications, and Tata Teleservices have indicated that they expected MNP-related expenditure to the tune of USD 20.6 million each. Vodafone India has come up with the much larger figure of USD 72.3 million. Much lower numbers than those mentioned by BSNL, then, but still pretty significant sums of money. I invite anyone with a view on this to offer an explanation for why this set of estimates varies so much.

"The regulator asked the service providers to send in their points on these issues by Tuesday," Mr T. R. Dua, Deputy Director-General of the Cellular Operators’ Association of India, told Business Line, whose article states that "keeping in mind the huge expenditure", the telecos want the TRAI to ensure that they are compensated for their "huge investments".

Let's see, then, if December 1st really is the date after which Indian mobile users can elect to switch their cellular providers while keeping their phone numbers.

In the meantime, I want to consider once again how the Indian authorities' concerns about national security are impacting on the telecoms sector.

In a recent piece here about worldwide developments across the footprint of Scandinavian telecoms group Telenor, I noted that the company had been facing difficulties around establishing a controlling interest in Unitech Wireless, the start-up Indian cellco in which it currently has a minority stake. For India's security agencies, the stumbling block was Telenor's presence in Pakistan and Bangladesh - apparently a cause for concern in light of strained relations with both of these neighbouring countries.

Telenor's immediate problem appears to have been resolved with the Indian Home Ministry's suggestion that security clearance for a bigger stake in Unitech Wireless up could be provided on the condition that none of the staff who have worked at the Norwegian firm's Pakistan operation are employed in India. Other security concerns affecting the telecoms sector more broadly, however, continue to be aired pretty regularly.

For example, all telecoms firms present in India may find themselves subject to further personnel restrictions. Late last week, Joji Thomas Philip of the Economic Times wrote that India's intelligence agencies now want all telcos to have a native Indian in the post of Chief Operating Officer. At present, only operators' CTOs need be a resident Indian citizens, while foreigners are allowed to hold all other key positions such as Chairman, MD, CEO and CFO, subject to clearance from the Home Ministry on a yearly basis.

If enforced soon, this proposed new regulation might not make a big impact right away because, as Philip notes, none of the existing telcos currently has a foreign COO.

This is not to say that such restrictions will have no impact, however. An article in today's Financial Times goes as far as stating that such stringent personnel requirements would lessen the appeal of India for foreign strategic investors and will restrict the freedom of companies already operating in India to make use of existing foreign expertise within their global organisations.

The article also contends that such restrictions on management positions could complicate corporate merger and acquisition activity such as Bharti Airtel's planned tie-up with MTN, the South African telecoms firm with interests across and beyond Africa. This would just add to the concerns of some analysts who are already sceptical about the wisdom of that proposed deal for Bharti Airtel shareholders. On Monday, India's Financial Express noted that day's 4.8% drop in the market-leading cellco's share price, which seems to have been triggered by worries that the company will increase by 5-10% its offer to buy a stake in MTN. The article quotes Sonam Udas, VP Research at BRICS Securities, who says: "we don't understand the logic for this deal at all. Why does Bharti want to change from a company with a net cash position of USD 1 billion to a debt-ridden firm? We do not buy the argument the deal is going to add value. There is nothing in the deal to highlight as adding strategic value."

Operators may not be the only telecoms value chain participants affected by the Indian Government's security concerns. Joji Thomas Philip writes that the Home Ministry fears that "suspect vendors may install back-door entries, remote logic facilities and also design Trojan horses in networks and hardware. This could be used to remotely bring down the network or to monitor it." Philip states that the agencies are particularly concerned about Chinese vendors.

One definite casualty of all this worry about national security is Swiss-registered firm ByCell. On Saturday, the Economic Times confirmed that after much wrangling, the company is to be prevented from entering the Indian mobile services market, with security concerns about the company and its shareholders being the deal-breaker.

A busy week for Indian market watchers so far, then. Let's see if the rest of the week has enough action in store to warrant another look here at DTW.

India Week continues at DTW

MNP draws closer in India: How will cellcos be affected?

After years of discussions, it now seems that the imposition of Mobile Number Portability (MNP) in India really might be imminent. As noted in local reports last week, the Telecom Regulatory Authority of India (TRAI) recently announced that its guidelines for MNP should be in place later this month and has asked operators to be ready for a quick implementation.

In the meantime, the country's cellcos continue to disagree on the desirability and likely impact of number porting in the country. Joji Thomas Philip of the Economic Times reports that, "in a move which could make it significantly costlier for mobile users to change their operator while retaining the number", GSM operators are demanding that only those who wish to change their numbers be made to bear the cost of the enabling technology.

Philip writes that state-owned telco BSNL estimates its implemtation costs for MNP will be around USD 250 million and that only 2% of "elite customers" are likely to use the facility. Philip contunues that "going by BSNL's formula, back of the envelope calculations show that it will cost about [USD 125] per user to port... number[s]".

BSNL, then, is proposing that these costs should not be borne by the subscriber base as a whole:

"Only those customers for the benefit of whom the MNP is being implemented should be made to bear the cost of the same and not the ordinary customers, who are not going to get any benefit from the implementation of MNP. All these customers, who will utilise the MNP, are big entrepreneurs, professionals [and] businessmen who will save huge switching costs, otherwise, they will have to invest on informing friends and business partners about new number, missing calls from uninformed people and updating company web pages, brochures and business cards etc. These customers can afford and must pay for availing this facility," BSNL said in a statement to the TRAI.

This concern for the vast majority of less affluent subscribers seems admirable enough. BSNL and fellow state-owned telecoms operator MTNL, though, would appear to have a compelling need to avoid taking on a lot of extra cost, if we are to believe some analysts. As reported today by Rashmi Pratap (another Economic Times writer), industry watchers such as HSBC Securities analyst Rajiv Sharma are warning the public sector telcos not to make significant further investments in 3G mobile technology.

Sharma feels that MTNL is better placed to leverage its fixed line infrastructure for wireline broadband products, and is sceptical about the chances of the operator's plans for partnering with an overseas telecoms player to run its 3G operations, asserting that "the chances of MTNL benefiting from such a structure will be restricted as the state-owned enterprise culture of the company will get in the way of foreign telcos, restricting their ability to deliver."

Rakshmi Pratap also quotes Alok Shende of Ascentius Consulting, who believes that the below-industry ARPU recorded by MTNL and BSNL reflects that the companies have attracted price-sensitive, low-MOU subscribers who do not use VAS and would not gain from the enhanced capabilities of a 3G offering. Sharma writes that in the six months since its 3G launch, BSNL has roped in just 10,733 subscribers and that the figure for MTNL stands at "a dismal 902", an average of just 150 per month across Mumbai and Delhi, considered the two most lucrative 3G markets in India.

If these observations about the state-owned telcos' subscribers are accurate, I can perhaps see why BSNL has said that only a very small percentage of its customers are likely to gain from MNP. If the bulk of the telco's subscriber base really is so price sensitive, I'd guess that use of multiple prepaid SIM cards is widespread, with customers switching between service providers to take advantage of the optimum tariff for any given call.

How widespread? Gartner analyst Madhusudan Gupta, quoted in a Forbes India article by Rohin Dharmakumar back in June, estimates that 10% of all mobile connections in India might be instances of one phone/person with multiple SIM cards. Dharmakumar writes that India's mobile subscription numbers may also be somewhat inflated by churn, stating that 35-50% percent of prepaid connections (which, he says, form 93% of all mobile connections in India) become idle. Separating live (but infrequently used) subscriptions from totally inactive ones seems to be made harder by the existence of numerous approaches to gauging the validity of a given sub. Due to the rapid evolution of lifetime offers, writes Dharmakumar, each operator is saddled with lifetime subscribers bound by different contracts - some are required to recharge once in six months to stay active while others get by simply by getting an incoming call every few months.

In this context of low ARPU subscriptions and high churn, one can perhaps sympathise with BSNL's point of view regarding the costs of implementing MNP services only likely to benefit an affluent minority of their customers.

Joji Thomas Philip notes that two other GSM players are supportive of BSNL's argument. Bharti Airtel, for example, is of the view that "all operators who make the investment (for MNP) are entitled to recover their costs". The market-leading cellco has told the TRAI that "the investments being made by operators for the implementation of MNP needs to recovered only from the consumers who want to port their numbers" and that "ordinary customers should not be penalised by increased tariffs and call charges." Idea Cellular has chipped into the debated by observing that service providers should be compensated for the one time CAPEX and recurring OPEX involved in MNP.

Strongly opposed to this line of argument, writes Philip, is CDMA operator Reliance Communications, which also launched GSM services earlier this year. The cellco asserts that since it costs less than Rs 50 (around one US dollar) for a prepaid subscriber to take a new connection, the porting cost should be lower than this figure and has suggested that the any fee charged to the individual consumer be fixed at Rs 20. If we are to believe the output of MTNL's number-crunching, Reliance Communications seems to be a strong advocate of spreading the much, much higher costs of MNP across a subscriber base most of which is not likely to be interested. Is Reliance motivated to take this position by its status as a new entrant in the GSM space? To do so, I would have thought, is to buy the idea that MNP helps new entrants and hurts incumbents. The last time DevelopingTelecomsWatch visited the MNP issue, we considered an alternative view - as articulated by Raymond Yu of telecoms think tank Ovum - that all MNOs are vulnerable to MNP-driven churn. Yu cites the cases of Greece and Lithuania, where the largest operators actually managed to increase their market shares immediately following the introduction of MNP.

Aside from this disagreement about how best to spread the cost of implementing MNP, what else might India's operators need to consider? ARPU may be one worry, reported Rajesh Kurup of the Business Standard in June, basing his article on a study by stokebrokers Angel Broking. This study indicates that ARPU would be negatively impacted by around 5% and that telcos' margins would also drop by 100-150 basis points and earnings per share estimates would be pruned by 9-21%. Angel Broking belives that an increase in subscriber acquisition and retention costs plus higher capital expenditure to improve service quality are also expected to exert pressure on margins and earnings growth.

What proportion of post-paid subscribers might be motivated to churn once they have the option of retaining their existing numbers? An EFYTimes article last month, drawing on a recently conducted Mobile Consumer Insights study by the Nielsen market research company, reports that around 18% of contract customers will change service provider once MNP is live. The figure is higher for customers of Tata Teleservices and Reliance Communications.

According to the study, around 55% of respondents were generally satisfied with their operator, but only 48% are satisfied with network quality. The operators are probably concerned by the fact that scores for network quality satisfaction were down compared to previous iterations of the Nielsen study. Bharti Airtel, BSNL and Reliance Communications have registered the biggest drops in this metric. According to the study, 43% of the people polled are satisfied with the price they pay for their service.

My feeling is that ARPU in India is already so low that differentiation by quality of service could prove to be a more powerful tool for any operators which cope best with this issue in India's highly competitive market. I don't imagine that competing more aggressively on price than is currently the case could be sustainable for very long.

India's operators may be interested to note that loyalty to operators is, according to the study, higher among lowest socio-economic groups, older age groups and among female customers.

Lots to think about, then, for India's numerous competing mobile operators. Let's see, however, if this end-of-year deadline for MNP going live is really going to be met. Past delays have been numerous and India would not be the only country in the world to see shifting deadlines as the many concerns about MNP are debated. Right now in Thailand, for example, while MNP regulations have come into force, it is not yet clear when mobile subscribers will be able to port their numbers as operators are not yet ready for the service, TelecomPaper reports.

MNP draws closer in India: How will cellcos be affected?

CDMA-alive-and-well Watch: good news from India?

For the last month or so, media, analysts and bloggers have offered comment about the news that India has overtaken China to become the world's largest CDMA market. This was announced last month by the CDMA Development Group (CDG), the trade association whose role is to foster the worldwide development, implementation and use of CDMA2000 technologies.

According to the CDG, "there are now more than 100 million CDMA subscribers in India". This figure, however, is some distance from the number provided by the Informa Telecoms & Media World Cellular Information Service, according to which there were 77.1 million Indian CDMA subs by the end of March. According to WCIS figure, this rose from 72.6 million as of December 2008 and 66.6 million as of September 2008 - fairly consistent growth of about 5 million subs per quarter. If the WCIS figure are accurate, it's hard to imagine a sudden leap to 100 million subs by late May.

As well as impressive-sounding subcription numbers, the CDG press release also featured warmly supportive quotes from India's two leading CDMA operators:

"CDMA is a technology that allows a rich telecom experience, especially on the data side, and we are confident that in the years to come that experience will only get better, especially as 3G arrives and we are able to unleash the full potential of applications and services," said Mr. Anil Sardana, Managing Director of Tata Teleservices.

"We remain committed to further grow and serve our ever-increasing CDMA customer base through innovative applications, superior network quality and service and attractive value-propositions," said Mr. S.P. Shukla, President, Wireless of Reliance Communications.

The latter quote is interesting in light of an assertion by Informa Telecoms & Media that "India’s Reliance has also been looking to sideline CDMA for GSM/WCDMA" - a comment made in the analyst firm's Asia Pacific Mobile Market Analysis and Forecasts report, which was released this month.

That phenomenon of CDMA operators favouring the W-CDMA/HSPA flavour of mobile broadband over the CDMA family EV-DO route is, of course, not unique. The Informa report asserts that South Korea's "CDMA stalwarts" SK Telecom and KT "are vigorously pursuing HSDPA." The report contends that this will further the degree to which CDMA operators face disadvantages when competing with GSM/W-CDMA rivals, stating that "as Asia Pacific operators jump on the HSDPA bandwagon, handset pricing will continue to fall, meaning that EV-DOrA operators will struggle to compete on handset price. The same argument applies to EV-DOrA network prices."

Whichever set of numbers you choose to work with, then, (the CDG's 100 million vs. Informa's 77 million), it will be interesting to observe for how much longer India's CDMA subs growth continues and is cited as evidence for CDMA technology being in rude health.

CDMA-alive-and-well Watch: good news from India?

Bharti Airtel to go international in 2009? Could competitive pressures at home make it a must-do strategy?

Earlier this month, I was wondering where MENA region-headquartered groups such as Orascom Telecom, Etisalat, Zain etc. might next go shopping for extensions to their empires. I discussed the view that the current economic climate has created a nice opportunity for Gulf-based telcos. That view was echoed this week by my former Informa Telecoms & Media colleague Nick Jotischky, whom I last saw in Dubai last December at GSM>3G Middle East, the final Com World Series event in which I was involved before leaving the company.

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.

Bharti Airtel to go international in 2009? Could competitive pressures at home make it a must-do strategy?

Infrastructure sharing to have a major impact in emerging markets in 2009?

More details are emerging about the long-expected infrasructure sharing deal between Indian cellcos Reliance Communications and Swan Telecom, the operator in which Etisalat took a 45% stake in September for USD 900 million. According to an Economic Times (India) article last week, the two companies are now expected to finalise a fifteen year deal.

Swan Telecom plans to launch mobile services in the second quarter of this year and has licences to offer mobile services in 13 of the total 22 'circles' (markets) in India.

The article also states that Reliance Telecom Infrastructure Limited (RTIL), which is the spun off tower business of the Anil Ambani-owned MNO, is also discussing similar passive infrastructure sharing arrangements with other new players such as Datacom, Sistema Shyam Teleservices and Loop Telecom.

The Reliance-Swan deal is not the only infrastructure sharing arrangement recently worked out in India. Another of the greenfield MNO's, Telenor-backed Unitech Wireless was reported by Global Mobile Daily in late January to be finalising an agreement with the Tata Teleservices tower arm Wireless-TT Info-Services Limited.

Globally, we might expect more deals of this kind. Back in March last year, the ITU expressed the view that telecoms regulators are increasingly agreeing on the need for infrastructure sharing. This was apparently a major topic of discussion at the annual Global Symposium for Regulators (GSR-08) in Pattaya, Thailand. "Pro-competitive and open access strategies are needed to cut the cost of deploying ICT networks - and thus take a big step towards achieving the targets set by the World Summit on the Information Society as well as the United Nations Millennium Development Goals," commented ITU Secretary General Dr. Hamadoun Toure at the time.

Led by Sethaporn Cusripituck of Thailand's National Telecommunications Commission, the Global Symposium delegates reached a consensus on a set of best-practice guidelines aimed at offering affordable broadband access through innovative infrastructure sharing and open-access strategies relating to spectrum. According to a Global Mobile Daily report on the Symposium, "one of the more-radical ideas... was that to encourage universal access to communications services and address the 'digital divide' separating urban areas with telecoms coverage from rural areas without, regulators should consider offering incentives for operators to share infrastructure, including financial subsidies on a competitive basis."

Presumably the two recently asgreed deals in India have met with the approvel of Nirpendra Misra, Chairman of the Telecommunication Regulatory Authority of India, who said at the Symposium that "sharing is key to promoting ICT access at affordable prices in rural areas" and recommended that sharing of both passive and active mobile and backhaul infrastructure be encouraged. "Operators will automatically receive subsidies for the deployment and management of towers, funded by the Universal Service Obligation Fund, as long as operators share the towers with three other operators or service providers," said the TRAI Chairman.

This is in line with recommendations outlined in the ICT Regulation Toolkit, a joint production of infoDev and the ITU, which state that "because of the cost savings, infrastructure sharing may be a pre-requisite for receiving Universal Access and Service Fund (UASF) support into new areas."

Infrastructure sharing involving mobile operators, especially in emering markets, might not only be to the advantage of the cellcos themselves. In the same section of the ICT Regulation Toolkit, the argument is put forward that where mobile operators are dominant service providers, "at least one mobile operator may have a near-ubiquitous national transmission network that has potential usefulness beyond the narrow needs of mobile service provision. This network could include the provision of digital backbone facilities from widely dispersed POPs for ISPs. Even if the existing capacity is limited for broadband, an upgrade to provide broadband may be significantly more economic than a completely new network."

India is not the only South Asian market in which mobile infrastructure sharing has been embraced. In September 2008, Global Mobile Daily reported that the Bangladesh Telecommunication Regulatory Commission had unveiled passive infrastructure sharing guidelines aimed at reducing network duplication. The guidlines read: "Operators shall jointly develop, build, maintain and operate new passive infrastructure for providing telecommunication services to the subscribers... However, an individual operator may build passive infrastructures with the permission of the Commission." Tariffs and charges for infrastructure sharing should be mutually agreed among operators, according to the BTRC.
"In case of any dispute regarding the tariff and charges the decision of the Commission shall be final and binding upon the parties," say the guidelines.

At least two of the country's six mobile operators already had network sharing plans in place. In June Warid Telecom's Bangladesh operation and CDMA operator Citycell signed a network infrastructure sharing agreement which sees the two operators sharing the passive elements of around 350 of their combined base stations. Warid Telecom also gained access to a fiber network operated by Citycell for backhaul and bandwidth purposes.

Meanwhile, in the Western Hemisphere, I know of one market where all four mobile operators competing there are set to share infrastructure. In Panama, as reported by BNAmericas in November, the local subsidiaries of América Móvil/Claro, of Digicel, of Telefónica/Movistar and of Cable & Wireless have worked out deals. The article indicates that Claro and Digicel have reportedly already agreed to sharing their infrastructure and that newer entrants Movistar and C&W, which entered the market last year, having been awarded the country's third and fourth mobile operating licenses in May, will also be involved.

Not all operators agree that infrastructure sharing will always offer them substantial cost savings. In a BNAmericas interview in December, Digicel's Luis La Rocca, said that the process is not without difficulties. Speaking about Panama, he said "not many towers were built in the past to accommodate two carriers, so structures will have to be put in place to make this sharing possible." La Rocca was asked if infrastructure sharing helps to reduce initial deployment costs for a greenfield operator, with the interviewer noting that the deployment cost for Digicel in Honduras was USD 450 million versus UDS 350 million in Panama. La Rocca replied that investment had been higher for Honduras because geographically it is a much larger country with a larger population. He indicated that infrastructure sharing had "not substantially" saved Digicel money in Panama.

Another concern could be maintaining quality of service. In August 2008, according to Global Mobile Daily, the local units of Zain and MTN in Zambia declined to share network infrastructure, with both operators claiming it would be difficult to maintain quality assurance. The GMD article indicated that the country's telecoms regulator the Communications Authority of Zambia had urged the sharing of infrastructure as a way of boosting the expansion of services in rural regions.

With varying degrees of enthusiam for network sharing across emering markets worldwide, I wonder how far developments in the largest market of the lot, China, will influence regulators which have yet to rule on this issue. Nicole McCormick of Informa Telecoms & Media wrote in October that the Chinese Government had issued a policy statement requiring mobile operators to share passive network infrastructure, expressing the view that the move could lead to a reduction of about 15% in the 3G capex of China's three operators China Mobile, China Unicom and China Telecom. McCormick noted that a possible downside would be that this could add to the delays in the process of rolling out 3G networks, "since operators will have to spend time hashing out the terms and practicalities of sharing networks."

In the same month, another Informa commentator, Kriz Szaniawski, noted that at a recent conference he had attended, someone suggested that network sharing is a bit like healthy eating in the UK: Everyone talks about it obsessively and watches endless TV shows about the subject, but nobody actually does anything about it." Szaniawski feels that there have been "suprisingly few examples of successful deals worldwide, with a few in Australia, Spain and Sweden. Most others are still at too early a stage to fully assess, and some have clearly struggled." However, Szaniawski feels that an extended economic downturn could well drive network sharing deals worldwide.

With the governments of major markets such as China and India backing network sharing, 2009 may be the year that deals of this kind have a major impact on operators' bottom line and on the extended availability of services in emerging markets.

Infrastructure sharing to have a major impact in emerging markets in 2009?