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MUMBAI: Just a fortnight or so ago, the telecom industry in India was agog with rumors about Reliance Communications Ventures Limited aggressive shift towards the GSM mobility market. According to the market buzz, the company planned to start GSM operations in Delhi and Mumbai with an estimated investment of over Rs. 1500 crore. Also, that Reliance was already in talks with major equipment vendors like Nokia, ZTE, and Motorola for rolling out GSM service.
While Reliance is not new to GSM, it already operates a few networks in certain circles, like Bihar and North East, the news made every one sit up. Simply because, Reliance is the leading player in the CDMA mobility segment, has close to 19 million users, more than double of its competition Tata Indicom.
One of the main reasons mooted behind this move is the allocation of spectrum bandwidth. Agrees TR Madan Mohan, director (Consulting), ICT Practice, Frost & Sullivan India. “There are several advantages for Reliance for moving to GSM. First, if the application is approved, it gets access an additional 5 Mhz of spectrum, a scarce resource.”
He also goes on to state that access to additional spectrum in high-dense areas such as Mumbai and Delhi makes economic sense. Moreover, since the back-end remains more or less same, no fresh investments are required from Reliance. “Rolling out of new services in the key circles of Mumbai and Delhi would offer Reliance the required growth engine to sustain double-digit growths,” he adds.
The shift could make good business sense, as well. GSM is an open standard, so that the company would not have to pay any sort of royalty to Qualcomm. Currently, there has been a lot of heated debate on the royalty charged by Qualcomm for CDMA. According to estimates, the average royalty per CDMA handset turns out to be around $13. In fact, a few industry insiders hint at the possibility of that Reliance is pressurizing Qualcomm by this move.
Though Mohan adds that, “GSM entry would open up a growth stream for Reliance. The company can offer GSM-CDMA dual phones or obtain additional revenues from GSM services to exploit the user-base scale advantages, thus beating the competition on price,” he says.
Will this adversely affect the CDMA market in India? Mohan feels that this is a victory for the dominant standard. He cites Metcalf’s law of positive network externalities that states that the ‘standard’ with a significant market share will become the dominant standard and the markets would tip to the dominant market in the long run.
“Given the GSM worldwide subscriber base is over 2 billion and CDMA worldwide subscriber base is about 318 Million, both from a producer and consumer perspective the markets are expected to tip to the large standard,” he adds.
Recently, Nokia had announced it is going to discontinue making of CDMA mobile phones (partnered with Japan’s Sanyo Electric).
Mohan also mentions the case of Chinese CDMA giant Unicom’s shift to GSM. “Also, in other parts of world, operators who initially pursued 800-1900 MHz CDMA have moved to 1800 GSM MHz as it supports both GSM and CDMA. Consider China Unicom, initially a large CDMA player and recently has moved to GSM. With about 370 Million and 80 Million GSM users in China and India respectively, the operators would find the logic of moving to technology-neutral as a good option to grow,” feels Mohan.
It is a win-win situation for the customer, as NK Goyal, senior telecom analyst and president, Indian Manufacturing Foundation says, “Customer needs a phone, he does not care whether it is CDMA or GSM, as long as it is cost-effective.” He also mentions that MTNL and BSNL, both successfully run CDMA and GSM services, “so there isn’t anything new,” he adds.
Analysts feel that Reliance’s competitor; Tata would adopt a wait-and- watch approach for the moment as they recently exited Idea. “GSM entry decision for Tata would depend on the fairness of frequency allocations, their business plans and concessions from Qualcomm itself. Qualcomm, may consider reducing the royalty rates to sustain their installed base and thus offer price-parity to Tata,” mentions Mohan.
As far as the other GSM operators goes, they need not worry as the market pie is too large. “After all, we have still to meet the 500 million user target by 2010,” says Goyal.
Thus, Reliance has quite many reasons to shift to GSM. Though an industry insider mentions insidiously, that it also has something to do with the Ambani brothers’ rivalry. Reliance Infocomm was Mukesh Ambani’s brainchild, and now, Anil Ambani wants to prove his mettle and venturing into GSM is one way to overshadow his “bhaiyya ka sapna (brother’s dream)”.
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