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Alarming signals to cellular operators

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CIOL Bureau
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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.

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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.

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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

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