Low cost handsets driving Indian mobile growth

With operators beginning to roll out cellular services in rural and semi urban areas, low cost handsets are driving India's mobile growth story. According to a report from the Yankee Group mobile handsets costing less than $50 account for 62 per cent of all imported units. The study points out that low cost CDMA handsets are more popular than the GSM ones in this category.
"Very low-cost (defined as sub-US$50) handsets have become integrally important to the Indian cellular market's astonishing growth. Sub-$50 models accounted for 62% of all imported units between January and October 2007. CDMA models from 13 vendors dominate this category, comprising 78 per cent of all sub-$50 imports," said the Yankee Group. While this is good news for mobile users, for handset manufacturers such as Nokia popularity of low end phones means lower margins. In order to cut down on costs Nokia is manufacturing most of the low end phones from its plant in Tamil Nadu. Whats also working for handset vendors is the huge volumes in the market. Nokia for instance earned 3.9 billion Euros in India. The Indian cellular market continues to add new subscribers at a world-leading rate of between 7 and 8 million users per month. "A number of factors including, but not limited to, service provider competition, service quality, brand affinity, effective marketing and distribution, device vendor competition, increasing per-capita GDP, and general demand factors such as choice, are driving growth. The broadening availability of ultra low-cost handsets (defined as sub-US$35) is also becoming one of the key drivers to subscriber growth," the study pointed out.
A comparison of GSM versus CDMA sub-$50 import volumes shows that sub-$50 CDMA imports outpaced sub-$50 GSM imports by a factor of approximately 3.5 times for the period. In terms of average selling price the CDMA handsets were found to be much cheaper than GSM low cost handsets. There are around 60 very low cost CDMA models from 13 vendors making it a highly competitive sector. This price gap between CDMA and GSM has, however, narrowed with the introduction of sub-$30 GSM imports from August to October. "Total market leader Nokia's contribution to sub-$30 GSM volumes increased from 15 per cent from January to July to 22 per cent from August to October," said the study.

CDMA's second innings in India

When Reliance Communication and Tata Teleservices announced plans to launch GSM based cellular services everyone thought that it was the end of story for CDMA in India. However recent announcement from State owned BSNL and new entrant Shyam-Sistema, that they were rolling out pan Indian CDMA network, has given a new lease of life for the future of this technology. To be fair ever since CDMA was launched in the country it has had a bad deal, thanks to the strong GSM lobby and also the way it was brought into the market by Reliance and company. In its desperation to break into the mobile market, Reliance argued that CDMA was a more efficient technology which can offer mobile services at half the amount of spectrum than what GSM operators use. It was pegged as a low cost poor man's mobile. Both arguments were pushed hard to build political consensus to allow CDMA to enter the Indian market in the face of objections from the strong GSM lobby. The fallout of the two arguments was that a) CDMA operators got much less spectrum compared to GSM operators which meant they had to pack in almost double the number of subscribers in the same amount of spectrum and b) the poor man's mobile image pushed away the high end users to GSM which meant that CDMA operator's average revenue per user was dismal compared to the GSM counterparts. The third reason is that for a long time CDMA was playing catch up to the different variety of handsets available on GSM platform. CDMA handsets were also expensive compared to GSM handsets and in a price sensitive market that spelt doom. All these factors made the CDMA business look unviable compared to the more popular GSM platfrom. Even now not much has changed except for maybe availability of cheaper CDMA handsets. But what is driving some of the operators to use CDMA technolgy is in fact GSM's popularity. Most of the existing operators and new players are clamouring for GSM spectrum. While there is huge demand, the Government does not have enough for all. That could leave out a few aspiring mobile companies without spectrum for a year or two. For a company like Shyam-Sistema that's a wait that they cannot afford. Therefore moving into the CDMA segment is their biggest bet of getting a quick entry into the fastest growing mobile market. Of course the perception about the CDMA as being a low end mobile users platform could now work to its advantage given that it is only the rural and semi urban areas where the new roll outs are likely to happen. CDMA technology has also proven to be a better bet when it comes to data services and therefore high end users can be tapped by offering third generation mobile services whenever that is permitted by the Government. CDMA seems to be set for another innings in the country but it will have to weather the onslaught from the strong GSM operators.

All set for 3G a(u)ction

After all the brouhaha over second generation (2G) spectrum in the past few months, the Government has got it right by suggesting an open auction for 3G mobile licences in the country. This means that companies such as Shyam, Unitech, Videocon, STel and Swan, which recently got new 2G licences, will be able to take part in the auction for 3G services. A new company wanting to take part in the auction will have to take a unified access licence by paying an entry fee of Rs 1,650 crore for pan Indian operations. This could also give a chance to companies such as Moser Baer, Hindujas and AT&T which could not acquire a licence for 2G mobile services. Since these companies were at the back of a queue of applicants, they were left out by DoT based on the first-come first-served policy. Now they could straightaway bid for 3G spectrum after taking a licence. This will increase competition for existing operators such as Airtel, Vodafone and Reliance Communication as they were expecting the auction to be limited to only those companies which were currently in operation. Since new licence holders are still awaiting release of spectrum to launch 2G mobile services, they will compete hard with the existing players for acquiring 3G spectrum. While existing operators want 3G spectrum for packing in more subscribers in line with their growing user base, new operators would want it to kick start their operations. As per the proposals being finalised by DoT successful bidders would be given chunks of 5 MHz spectrum each in the 2.1 GHz band. A single operator will not be allowed to bid for more than 2 such blocks which means that a company like Airtel could get 10 MHz spectrum if it goes for an aggressive bidding. Given that DoT has 30 Mhz for 3G services, at least 4-6 operators could get a 3G berth. While BSNL and MTNL will get 3G licence without participating in the bidding, the two companies will have to cough up the same amount as quoted by the highest bidder during the auction process. The final guidelines are expected to be released by April and the auction is being planned for the later part of the year. Going by the initial enthusiasm from the operators Government can expect to rake in around $5 billion from the auction. Now that should prompt DoT to take a fresh view on allocating 2G spectrum also through an auction method instead of a flawed subscriber linked allocation criteria.

(Third generation services will enable mobile users to get high speed broadband connectivity on their handsets. This will allow operators to start offering interesting data services like video on demand and mobile TV. Operators also need 3G spectrum as it is more efficient in packing in more number of users in lesser bandwidth compared to existing mobile technologies.)

Right frequency for RCOM- 1800 or 900

Reliance's latest move to request for the extended GSM 900 MHz frequency band, instead of the 1800MHz for its GSM service is no surprise. It has been proven beyond doubt that the 1800 MHz is much less efficient than the 900 MHz band. Ask any of the fourth cellular operator such as Idea Cellular and they will tell you how they got a raw deal when the Government gave them spectrum in the 1800 MHz band. But what has surprised most experts is that RCOM has sought capacity in the 900 MHz band despite the knowledge that eGSM band may not be available anywhere in the near future. The Wireless Planning Coordination wing has not even mentioned the use of the eGSM band in the ongoing discussions for finalising the new national frequency allocation plan. It gets even more surprising that RCOM has asked for a band where there is only a maximum of 2MHz left (compared to 4.4 MHz it has got in the 1800 MHz). So is Reliance willing to wait till this band is cleared up for launching its GSM service? Sources claiming to know RCOM's gameplan say that the strategy is two pronged. First the application for eGSM band has been made so that the Government starts thinking about vacating this band. 900 Mhz is a huge advantage for existing GSM operators such as Airtel and Vodafone as they can start offering cheaper 3G services using this band compared to the 2.1 GHz band. So whoever has capacity in the 900 MHz band has a leg up on 3G. RCOM wants to have that advantage. The second part of its strategy is that it wants to be sure that when the Government decides to release the eGSM band it should either go to RCOM or no one. In other words by applying now RCOM has made sure that it claims first right ahead of the all the new operators who are also waiting for start up spectrum. Even if RCOM starts roll using the 1800 Mhz now, it can easily upgrade its network with minimum additional investment, for use in the more lucrative 900 MHz. Of course the existing GSM operators have already seen through the game plan and have told DoT that there will be more blood shed on the telecoms street if eGSM is given away to RCOM.

Are GSM operators losing sleep over the 'Virgin Effect'?

Within just two weeks of Virgin Mobile's entry into the Indian market, pre-paid mobile tariffs have started spiralling southwards. While Virgin launched with an aggressive scheme which allow subscribers to get paid for receiving incoming calls, Bharti Airtel has raised the battle pitch for the pre-paid mobile market by slashing airtime tariff to 50 paise a minute for its Delhi subscribers. The reduced tariff will be available for all mobile-to-mobile local calls. Pre-paid subscribers can avail themselves of the new scheme by buying a recharge coupon worth Rs 56 every month. The move comes after the Tata-Virgin combine raised the bar by launching mobile schemes for the youth segment offering airtime at 50 paise a minute. Most of the other mobile operators are charging Re One per minute on their pre-paid cards.

Mr Shashi Arora, CEO - Bharti Airtel Ltd. (Mobile Services), Delhi & NCR said, “We at Airtel have always been at the forefront in introducing best in class products and services for our consumers. This latest endeavour is towards making tariffs more affordable and within the reach of all income groups. We are sure our customers would find this opportunity very cost effective.”
However, the Virgin Mobile offer seems to be still more attractive as it allows subscribers to call fixed line users also at 50 paise a minute, besides getting paid for incoming calls. The Airtel offer is limited to mobile-to-mobile calls. The other difference is that while the Airtel offer does not give any talk time with the Rs 56 voucher, Virgin has a recharge coupon for Rs 50 with a talk time worth Rs 39. “Virgin Mobile branded services offer the best value for money for youth who call and text a lot. The way we do this is by rewarding them both for making outgoing and receiving incoming calls. Customers who make a lot of calls, will benefit from our 50 paise to any local network offer. Many third party experts agree that we offer great value for money.
For example, in a report released by Morgan Stanley earlier this month, they found that customers who made 140 minutes of outgoing calls could save up to 25-30 per cent if they used Virgin Mobile,” said a Tata Teleservices spokesperson.

More than 70 per cent of the 200 million mobile subscribers use pre-paid cards and they tend to change operators. Lifetime validity cards were launched just over a year ago by all the mobile operators in a bid to arrest the high churn rate, which is around 4 per cent. GSM operators are confident that they are ready for the Virgin blitz. Bharti Airtel, BSNL, Vodafone and Idea Cellular are internally gearing to up the ante in terms of pushing their own youth-oriented initiatives. “We are enhancing our youth-oriented advertising and marketing initiatives. Our entire customer service platform is based on self-service, where customers pick and choose what they want without actually interacting with a human interface and is aimed at the youth segment,” said an Airtel executive. Another GSM operator said that it was waiting for Virgin Mobile to unveil its complete range of value-added services. “It is still early days and we will react once the entire package is unveiled,” said a Mumbai-based operator.

Market watchers said that with more than 44 per cent of the user base falling in the youth segment, every player will be eyeing a larger share. GSM operators are taking comfort in the fact Virgin Mobile is on a CDMA platform which means subscribers will not be able to change the operator. “Youngsters like freedom, but the offer from Virgin will mean that one would be locked up on Tata Teleservices’ network,” said a GSM operator. GSM operators also said that the offer from Virgin to offer money for receiving calls works to their advantage because they also end up earning revenues. “About 80 per cent of the mobile base is on GSM and it is more likely that it will be a GSM user who will be calling a Virgin Mobile user. So a 10-minute call could mean earnings of at least Rs 5 for GSM operators,” said an industry expert.

However, what is working in favour of Virgin Mobile is that no other company can probably afford to replicate its advertising and communication strategy. While Virgin can be irreverent and funky since it is targeting only the youth, other mobile operators have to create a brand image for their larger mobile user community. GSM operators will also have to bear a huge cost if they were to match Virgin's offer to pay for incoming calls because of the large existing user base. Sources close to Virgin said, “Our entire proposition is based on simplicity and flexibility. This is backed by strong market research which clearly indicates that the youth are looking for an overall proposition, not a piece-meal approach that exists in the market today.”
With many new operators set to enter the fray Indian mobile market can expect more interesting days ahead.

DoT's Blackberry woes

After almost 4 years since it was first launched, Blackberry services have suddenly come under the Government's scanner for not meeting security related monitoring requirements. Does that mean that all these past 4 years Blackberry services were not monitored and could have been used by anti social elements? Even if one were to assume that DoT has woken up just now to the issue, why threaten to ban it if the company (Research In Motion) did not give the codes for decryption. The demand from DoT is absurd on three counts. First no company will give away its patented codes to a leaky Government department. Second, under the existing rules, the procedure for submitting coded keys have not been laid out. So even if RIM were to be bold enough to give the code, they would not know how to. The third and the larger issue is that this could open up a Pandora's box for all e-commerce, m-commerce and Internet based transactions in future wherein every one will have to give the codes to the security agencies. Today people buy anything from a railway ticket to mobile top up cards to withdraw cash using the Internet. Has DoT taken the codes from all these companies? The encryption laws in the country are archaic that it does not permit anyone to use more than a 40 bit encrypt code. That's way too low for e-commerce applications. For example Government run Railways itself uses more than 200 bit encryption for its online ticketing application. Its time that the Government takes a re look at these laws and moves ahead with technology. Meanwhile for resolving the Blackberry controversy maybe the DoT can consider asking all the major email service providers to set up a local server in India which can be used by the security agencies to snoop around.

Broadband or slowband?

When I was in Paris a few weeks back I was amazed at the fantastic speed of the Internet services there. Here in India, though speeds have improved since the so called broadband services were launched, it is no where near suited for viewing streaming video or downloading high bandwidth files. Watching a 5 minute clip on Youtube,for instance, could take as much as 20 minutes. While Indian telecom authorities are not keen on raising the minimum speeds required for broadband services from 256 kbps, the actual speeds that one gets is probably a few notches higher than the dial up. High bandwidth prices and an artificial choking of available capacities are making quality of Internet services in India among the worst in the world. According to data collected by Internettrafficreport.com, India had an overall index of 74 and a response time of 253 milliseconds.
Countries like the US have an index of 98 and a response time of just 13 milliseconds. Response time is the time taken for a packet of information to reach from one point to another. The higher the response time the slower will be the Internet connection.
Higher index, on the other hand, indicates faster and more reliable connection. Even developing countries like Mexico and Peru have a higher Internet index than that of India. Though the numbers put out by Internettrafficreport.com is dynamic and changes almost every hour depending on the connectivity of each country, similar index comparisons have been noted over the past few months.
Mr Rajesh Chharia, President, Internet Service Providers Association of India (ISPAI), says that though the Internet services being offered by Indian companies are among the best in the world, the efficiency is reduced because the bandwidth providers have an artificial cap on the total availability.
“Indian bandwidth providers have the infrastructure to offer capacity in terrabits but they are making available only a few gigabits. This has resulted in artificial change in the supply and demand equation.”
Mr Chharia also said that international bandwidth operators are also pricing capacity at much higher levels than global standards. “An E1 capacity in India is available for Rs 33,000 per month while the same is available for just Rs 17,000-20,000 per month in the US and the UK. This forces smaller ISPs, which cannot afford such higher price, to manage their services with less capacity even though they may need more bandwidth. The end result could be poor customer experience,” he said.
Market watchers pointed out that poor quality could be the reason for a sluggish growth in Internet and broadband services in the country.
However, bandwidth providers are refuting the ISPAI claims and said that there was more than enough capacity available and more is being added.
“Indian bandwidth operators are only adding capacities and building new cable systems to cater to the growing telecom market. It is a highly competitive market and the pricing is determined on free market forces. As broadband and Internet services grow in India, the prices will only come down,” said a Mumbai-based international bandwidth provider.