India Telecom

October 7, 2002
Cellular industry forecasts 75 percent growth for 2002-03

NEW DELHI -- The Cellular Operators Association of India (COAI) regretfully accepted the resignation of Manoj Kohli from the chairmanship of the association and recorded its deep appreciation of the excellent leadership provided by him and Sanjeev Aga over the last year at its annual general meeting. It unanimously elected Rajeev Chandrasekhar as chairman of COAI for the next term and Dilip Modi was as vice chairman of the association. The new executive council comprising of 12 members was also formally constituted in the meeting.

The general body also discussed and clarified that it had never been the industry's intention to block cellular traffic from BSNL. The industry had only been seeking a level-playing field through seeking of interconnection by BSNL Cellular with private cellular operators on same terms as applicable for latter. The industry had sought that BSNL’s cellular subscribers should not be burdened with an unnecessary access charge due to BSNL Cellular not taking direct connection from the private operators. It was clarified and confirmed that industry would not block access to the ‘94’ code allotted to BSNL Cellular.

At the AGM, the industry described the past year as mixed. While it has contributed strongly to growth of telecom infrastructure through large-scale investments and improved coverage at arguably the lowest mobile cellular tariffs anywhere in the world, it has been plagued with serious regulatory and policy issues that continue to hold back the real potential of this sector.

Interesting cellular facts about India

Key achievements of the industry

Reduction in tariffs: The cellular industry outlined as among its key achievements a drop in cellular tariffs of more than 75 percent. With an average rental of Rs 202 and airtime of Rs 1.99 per minute, India offers the world’s lowest cellular tariffs for a 300-minute basket of cellular services.

Affordable tariffs drive subscriber growth: Affordability has powered the explosive growth in the sector. The industry has grown at 79 percent last year. Since this April, subscribers increased from 64 lakhs to 87 lakhs at the end of September 2002, and are expected to exceed well over a crore by the end of the current fiscal. The cellular industry has already met and exceeded its license obligations and is poised to grow to over five crore by 2006 and 12 crore by 2008.

Increased investments, competition and coverage: As the ranking sector for attracting FDI, the cellular industry is a top-tier investor in private infrastructure at Rs 21,000 crore -- expected to grow to Rs 25,000 crore by March 2003. Currently, there are 57 cellular mobile networks serving 87 lakh subscribers across 1,500 cities and towns, in addition to 60,000 villages, and most major rail routes and highways. A vast majority of the fourth licenses are already operational, making cellular the most fiercely competitive sector. Seventy-seven networks would serve India when all licensees become operational.

Growth in prepaid and SMS: Affordable tariff packages have also been propelled by prepaid services, which are gathering pace. Prepaid subscribers constitute almost 60 percent of total subscriber base and 80 percent of new subscriber add-ons. Beginning at Rs 300 per month, almost 50 percent of prepaid subscribers pay less than Rs 500 per month. Usage of SMS is also picking up, especially among the youth in big cities.

Challenges faced by the cellular sector

Financial health, revenues and losses: While industry revenues have grown from Rs 3,285 crore in 2000-01 to Rs 4,700 crore in March 2002, losses have mounted to Rs 7,700 crore at the end of the last fiscal. The industry’s ability to reduce its losses and reach an impressive growth through lower tariffs is undeniably linked to resolution of the key outstanding issues, regulatory best practices and reduction of costs. The key challenges are:

Unfair competition from FSPs offering CDMA-based WLL (M) services: The biggest threat facing the growth and investments in mobile sector is the uncertainty created due to the government's decision allowing fixed service operators to provide CDMA-based WLL limited mobility, without a proper mobile license and on favorable terms. This is perhaps the most significant threat to the cellular industry. The matter is currently before the Supreme Court.

Likely misuse of market power by incumbent: Finally, the industry believes that consumer interest will be best served by an orderly growth of competition. It will make every attempt to resist any anti-competitive practice or misuse of market power by dominant wireline/NLD operator, especially since predatory pricing or discriminatory interconnection can destroy competition. The industry has urged the regulator to explicitly separate the multiple businesses of the incumbent. In the meantime, the TRAI will need to guard against the anti-competitive behavior of the incumbent.

Discriminatory access charge regime: Cellular subscribers in India are subject to a discriminatory access charge regime resulting in high tariffs. In fact, while a calling party pays (CPP) regime is forced on mobile subscribers (Rs 1.20) for calling landline and WLL (M) mobile phones, the reverse is not true. This regulatory anomaly prevents the cellular industry from moving to "incoming free" regime – a step that will instantly reduce tariffs and bring cellular within the reach of millions of new potential users.

Lack of cost-based and timely interconnection: Interconnection is the lifeblood of the telecom sector and impacts tariffs most significantly. While the reference-interconnect offer has been initiated by the TRAI, it is impossible for any cellular operator to reach a mutual agreement on such issues with the dominant landline and domestic long distance operator. Hence, the cellular industry continues to urge the TRAI to step in and mandate interconnection terms, which are cost-based, non-discriminatory and time bound.

High cost structure: A high regulatory cost structure and passthrough revenues are major hurdles in further driving cellular tariffs down. While India has among the highest regulatory cost structures with a passthrough of 35-42 percent of their revenues to the government by way of various levies, by contrast, China, which currently has more than 160 million cellular subscribers, has a near zero cost structure.

Need for adequate spectrum: The industry highlighted the need to resolve the issue of frequency spectrum, which also has a major bearing on the cost structure, and consequently, consumer tariffs. While India has, in principle, agreed to a grant of 2x10MHz spectrum subject to a specific subscriber base, it is way short of the international average of 2x17MHz per cellular operator. This matter is currently under review in the DoT.

The cellular industry has become a leading example of successful private sector provisioning of utility services. It has built India’s first nationwide, world class, state-of-the-art infrastructure -- providing connectivity across the country at arguably the lowest tariffs in the world. The industry sees a great future, but also serious challenges – mostly regulatory and those related to government policy, which currently stand in the way of an explosive growth.

The industry believes that the future of Indian consumers will be best served by a robustly competitive, technology-savvy cellular industry aided by stable policy and regulatory best practices.