Free Is The Limit

The year 2006 may well turn out to be an exceptional year for the Indian telecom sector and the millions of mobile subscribers. The ball was set rolling on January 1, when Reliance Infocomm introduced a new tariff regime—the "one-nation, one-tariff" one—under which any call to any city in the country will cost a mere Re 1 per minute. It was possibly a dream come true for Union communications minister Dayanidhi Maran, who wanted the state-owned BSNL to launch a similar scheme. The BSNL's "OneIndia" plan, which was to start on January 1 itself, is in its final stages and will be finalised soon.

If you thought this is it, think again. Late last year, several telcos initiated a mind-boggling paradigm shift when they shifted from a monthly rental for your mobile to a lifetime validity. And all this is just the beginning of a new era in the sector, when prices will be rock-bottom. On the anvil is another move by the government to reduce what's called the access deficit charge (ADC) by shifting from a fixed-cost regime to a revenue-sharing one. This change, which is expected to be announced by the end of this month, will definitely trigger another round of massive price cuts.

The price-warrior mentality will get accentuated if telecom regulator TRAI has its way. It is pushing through a concept of a uniform licence for telecom, broadcasting and IT—and that'll lead to a major shift in business models, emergence of newer and powerful players, and more price reductions. It may result in a period of aggressive consolidation, as has recently happened in the telecom space with a number of takeovers. Finally, a select number of giants will emerge with their tentacles in all the three sectors.

Reliance's Re 1 plan itself will force a new thinking as far as long-distance communication in the country is concerned. Says S.P. Shukla, president (wireless), Reliance Infocomm, which claims to have a subscriber base of 17 million: "This will break the (so-called) circle barrier. OurUSP will be our low rates. We are offering STD calls at Re 1 a minute while that of others is around Rs 3. We have flexibility to give even better offers for our subscribers." Soon, other private and state-owned operators cutting across technologies are expected to follow suit.

Admits Hemant Sachdev, group chief marketing officer, Bharti Tele-Ventures: "That is an eventuality in this sector and, of course, we would be competitive." Says a telecom analyst: "A uniform rate for local and STD had to happen and BSNL would be instrumental in pushing it through. Across the world, distances between states have vanished. India had to follow it sooner than later. All companies will have to move with it to stay in the race. This would be aided by the new telecom policy and a new ADC regime."

At present, ADC is charged at 30 paise per minute for STD calls and Rs 2.50 for international calls. If this fixed-cost regime is changed to a revenue-sharing system, it can help operators slash overall tariffs by 10-20 per cent. Although no operator wants to commit to specific reduction figures, this is the theoretical calculation based on a revenue-sharing policy that's similar to the one applicable for licence fees.

But as usual, there're too many slips between the lip and the cup. The Reliance offer itself is not as attractive as it looks and comes with several riders. To begin with, Reliance already had a similar plan of uniform STD rates (at Re 1 per minute) for its post-paid customers under the Rs 499-a-month plan, which was introduced in September 2004. Now, the company has merely expanded the scheme and extended to its pre-paid subscribers too.

A senior executive from a rival company criticises: "The (Reliance) scheme is unfair to subscribers as it is available only on a Rs 1,100 recharge coupon. Anyone who wishes to avail of the low STD rates will be forced to purchase a Rs 1,100 card, even though the majority of pre-paid recharges are only in the Rs 300-400 range. Even in the case of Reliance, a majority of its pre-paid recharges are for its Rs 199 and Rs 399 coupons. Thus, only high-value customers will benefit from this scheme." In addition, sources say, the high-value subscribers will need to recharge their phones with a similar amount every month, as the Reliance scheme is valid for a month and will work only when recharged on a monthly basis.

What'll surely help all the pre-paid customers is the lifetime validity option being generously offered by telecom companies. Late last year, India's largest private sectorTELCO, Bharti Tele-Ventures, introduced this for an one-time consideration of Rs 999. It meant that users no longer had to pay a monthly rental or service charge to stay connected. Until the Bharti offer, the validity of connections for pre-paid subscribers, who form the bulk of India's mobile-owning public, was on a monthly basis and users had to recharge their connection every month to stay connected. Now, they'll stay connected forever. Even if they forget to recharge their phones in any given month, they will be able to receive calls.


Within a week, other telecom firms, including Reliance, Hutch and Idea Cellular, came out with schemes to match the Airtel offer; Idea extended its offer to its post-paid subscribers as well. Even the state-run BSNL and MTNL now offer a lifetime plan. Although lifetime validity is likely to result in much lower revenues for telcos, the firms are banking on the lower revenue-sharing ADC regime to neutralise their losses. A reduction in the spectrum charges, also under consideration of the finance ministry, will also help.

But what prompted the lifetime validity offers? Explains Bharti's Sachdev: "It called for a paradigm shift and we decided to go for it. If you want to expand the market, you have to open up. This will give the user more freedom and result in an increase in traffic." Other Bharti managers say there has been a substantial growth in talk-time since the introduction of the offer.

The real reason was competition. Last year, Tata Teleservices, launched a two-year validity scheme for its pre-paid customers. This was strongly opposed by the Cellular Operators' Association of India (COAI)—of which Bharti is a member—and it asked the TRAI to stop the Tata offer as it amounted to predatory pricing. But the TRAI allowed the Tata offer to continue. Admits T.V. Ramachandran, director general, COAI, "It was extremely unbusinesslike on the part of the regulator. The Tata scheme violated subscriber validity and was open to misrepresentation of subscriber figures. We decided to better the Tata offer by offering a lifetime validity."

Surprisingly, the TRAI, which had cleared the Tata scheme, has decided to undertake a suo motu exercise to see whether the concept of lifetime validity is a viable one or not. The regulator has stated that it will look into all aspects of the schemes and take action, if necessary. It is expected to come out with its assessment this week.

However, all the existing rules of the telecom game will change radically if the TRAI succeeds in achieving its objective of convergence. Last week, it released a consultation paper to energise the process that's been under discussion for years. According to the regulator, convergence is a powerful force in increasing competitiveness in the telecom sector and, if implemented, could lead to a new regime. Recently, MTNL stated that it would move ahead with convergence and offer voice, data and video (Cable TV) through its telephone line. With competition trying to catch up with any innovator, other players are expected to follow suit.

It's competition—and possibly convergence—that'll lead to more consolidation in the sector. Last month, Malaysia's biggest cellphone firm, Maxis Communications, acquired 74 per cent in Aircel, which provides services in Tamil Nadu and other south Indian circles. After Bharti's takeover of Hexacom, Idea Cellular's acquisition of Escotel, and Essar's deal withBPL, the only small player left to be gobbled up is Spice Telecom and rumour has it that one of the big five—Bharti, Hutch, Idea, Reliance and Tata—is eyeing it.

Over the next few years, the telecom arena will change beyond recognition. Some of the existing large players will become bigger, new ones with expertise in IT and broadcasting may enter the field, and foreign giants may gain a majority control over some of the Indian firms. But more than that, the mobile population will explode, as prices move just one way—southwards.