A shot in the arm for WLL

NEW DELHI: A court swept away a legal deterrent to investing in the world's fastest growing mobile phone market on Friday by backing cheaper limited mobility services, ushering in added funding and expansion.

The government permitted fixed-line firms to offer mobile services in 2001 in a limited area such as a city like Delhi in competition with money-losing cellular companies as a way to attract investment to the booming telecom sector.

But cellular firms such Bharti Tele-Ventures Ltd, 16 percent owned by Singapore Telecommunications, wanted the policy scrapped saying it was unfair and never formed a part of their license agreement.

The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) on Friday ruled otherwise and set aside a petition filed by the $5 billion private cellular sector against the controversial decision, a move applauded by analysts.

"A possible deterrent for those wanting to invest in one of the world's fastest growing wireless markets has been removed," said Kobita Desai, principal analyst at Gartner Research.

FRACTURED DECISION

In a split verdict, the three-member telecom court ruled the basic license allowed fixed-line firms -the powerful Reliance and Tata business groups and also by two state-run firms -to offer the limited radius service, which works on CDMA wireless in local loop mobile (WLL-M) technology.

However, the court did provide some relief for the nine-year-old cellular sector saying some compensation was due from the government as the "level playing field had been disturbed" following the entry of fixed-line firms.

It said the government must levy entry fee and additional spectrum charges on the limited mobility providers.

But analysts view the ruling as a shot in the arm for limited mobility firms who were locked in a two-year legal battle with a dozen cellular companies, whose market share is now seen at risk.

Fixed-line firms are expected to launch aggressive marketing to lure more customers for the "poor man's mobile service", which currently has 3.2 million users compared to 16 million cellular customers in a country with more than a billion people.

"The new growth engine for the sector would now be the rollout of the CDMA networks," said Rothin Bhattacharya, telecoms partner at KPMG Consulting.

Bhattacharya said the dissenting ruling, which found the WLL-M service illegal, could prompt cellular firms to launch another legal battle, but the rivals were likely to bury the hatchet to jointly tackle the largest mobile market after China.

India's cellular base is expected to cross 100 million by 2008 as world's lowest tariffs drive up volumes.

"We're certainly looking at a 50-60 percent compounded growth in subscribers over the next 10 years," Bhattacharya said.

MARKET SHARE LOSS

But valuations could come down in the short term, as seven players offering mobile services will vie for subscribers instead of the current four cellular firms.

As a consequence, companies may lose market share because of increased competition despite a rising number of subscribers.

The less expensive WLL-M costs 1.20 rupees (2.6 cents) for a three-minute call and could lure away most users from cellular firms who charge an average of one rupee a minute, analysts say.

The sector, which has just five phones per 100 people, needs more than $60 billion spread across a decade to push penetration level to 15, the current global average.

A large chunk of that money is expected to come in as debt from foreign investors as the equity route is seen as relatively expensive for telecom projects due to long gestation periods.

Indian caps foreign investment, both direct and portfolio, at 49 percent in fixed-line and mobile services firms.

However, in a move to further liberalize the sector, the government has begun talks with operators to raise the limit to 74 percent and attract cheaper funds into the industry that was opened up to foreign competition in 1991.

"Most firms will look for offshore financing to fund expansion because of lower interest cost," said an analyst with a foreign brokerage who refused to be named. "Because of this legal hurdle both foreign and Indian lenders were extremely cautious in deciding where to invest -- GSM or CDMA. That is over."

© Reuters