If the subscriber trend in the months of May and June
is any indication, the cellular operators have cause to worry. The
subscriber base eroded in all the categories of circles after the
four-fold hike in rentals came into effect from May 1999. The shrink in
subscriber base is more visible in metros. The metro circles are expected
to achieve relatively high growth after the implementation of calling
party paying (CPP) system. The CPP will be implemented from November 1,
1999.
The latest market developments cast doubts on the
expectations of high market growth. Currently, the reach of cell phones is
largely confined to upper and upper middle classes. The industry has
realized that volumes will dictate profitability in the long run. Cellular
operators have to reach out to the middle class in order to achieve
greater volume sales.
Going by last year’s spending pattern, the revenue
per unit (RPU) came to only $25. A break-up of these figures will give
more details of the spending pattern. The share of the rentals was $3.6.
The contribution of value-added services and billing was about $7. The
remaining $14.4 was on account of airtime. When rentals increased to $14,
the market witnessed the subscribers on low usage side giving up the cell
phones.
The Telecom Regulatory Authority of India (TRAI) has
now reduced the rentals to $11. On the assumption that 60 per cent of the
existing spending on airtime is accrued to incoming calls, airtime
spending is likely to reduce to about $7 in Mumbai and Delhi. Including
the monthly rental of $11 and other spending of $7, the RPU comes to $25.
This implies a decline of above 10 percent in RPU. In Calcutta and Chennai
circles, the RPU estimation comes to $23. The decline in these circles is
above 15 per cent.
When it comes to circles, the picture is a little
different. The share of incoming calls in the airtime usage is learnt to
be in the range of 50 to 60 per cent. In "A" circles, the
current RPU is estimated at $26.5. Assuming an incoming : outgoing call
ratio of 50:50. , the spending pattern is not likely to witness any
significant change. In the case of "B" and "C"
circles, the impact of CPP would not suffice to compensate for the hike in
rentals.
One thing is apparent. The hike in rentals is
marginalizing the benefits of subscribers because of shift to CPP. The
issue of concern is the plan of cellular operators to expand the market
with the help of CPP. For a new subscriber, even if the airtime usage is
only 50 minutes, the monthly expense is close to $23. This means that the
issue of "affordability" exists even after the implementation of
CPP. The implementation of CPP is expected to take two more months.
However, it is very clear that introduction of CPP alone will not assure
high market growth. The need of the hour is to bring down the rentals and
tariffs. The operators may perhaps take some more time to realize that the
CPP would not suffice to bring the turnaround.
Particulars |
1998-99 |
Post CPP Regime |
Monthly Rental |
$3.6 |
$11 |
Value Added Services |
$7 |
$7 |
Airtime |
$14.4 |
$7 |
Total |
$25 |
$25 |