FT : India Mobile Market’s Gold Rush

Thursday, April 30, 2009

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…..Bharti’s strong performance reflects the stunning growth of India’s mobile market, which is adding more than 10m subscribers a month as operators seek customers beyond the cities in the vast hinterlands.  With calling rates as low as Rs1 per minute, Indian operators attract customers from all income levels.  The country had 392m mobile phone users at the end of March, second only to China…..SP Shukla, the chief executive of Reliance Communications’ mobile division, chuckles when asked about complaints from rivals about his aggressive marketing campaigns to win new subscribers.  In the first quarter of this year, India’s second-largest mobile operator launched a special offer that it called the “customer experience programme”.  This gave new subscribers a virtually free Sim card, Rs10 (20 cents) a day of free minutes for 90 days, and free calls late at night on Reliance’s recently launched network based on the global system for mobile communications (GSM) standard…..With about 392m subscribers, India is the fastest growing wireless market in the world, with more than 10m new users being added every month.  Whoever emerges on top in India will also be a world leader.  Animosity between the leading three operators dates from 2003, when Reliance persuaded the government to allow it to offer mobile services based on the CDMA standard after being licensed as a fixed-line operator.  Hostilities flared again in 2007, when Reliance persuaded the government to award it spectrum for a new nationwide network based on GSM, which is dominant in India and is expected to eventually replace CDMA.  The government also allocated GSM spectrum to several other smaller carriers, most of them start-ups.  In India, mobile spectrum is more valuable than gold.  The defence ministry controls 25% of the available airwaves for mobile telephony.  This has left Bharti, Vodafone and other incumbent GSM operators with levels of bandwidth about half those of their overseas peers, leading to substandard service levels in many cities.  Bharti and Vodafone have argued that rather than simply allocating the fresh spectrum to new operators, which has increased competition in an already crowded market, the government should have instead auctioned it to the highest bidder.  Reliance paid about Rs16.5bn for its spectrum while there were claims that Bharti would have been willing to make a counter offer of Rs26.5bn had it had the opportunity.  “Spectrum that should have come to me – and I was ready to pay for it – has actually gone to Reliance and the others,” says one executive from a large GSM incumbent.  He predicted there would be consolidation, particularly among the new, smaller operators, most of which lack funding.  Already some have sold stakes to foreign carriers, including Telenor of Norway and Japan’s NTT DoCoMo.

Having broken into GSM, Reliance is busy grabbing market share.  In the first three months of this year, it amassed 11.3m subscribers, most of them on the GSM network – a number it claimed was a world record for a single quarter.  By the end of this year, Reliance is hoping to have 100m subscribers, up onethird over its present tally of 73m.  Most of these subscribers are expected to come from India’s vast rural hinterland, home to 70% of the country’s 1.1bn people.  Mobile phone penetration in the villages is only 12%, compared with 82% in New Delhi.  However, some analysts are sceptical of Reliance’s strategy.  Its new spectrum is mostly in the 1,800 megahertz band.  This is considered less efficient for rural expansion because the signal does not travel as far.  Bharti’s spectrum, by contrast, is concentrated in the more efficient 900Mhz band.  “RCom’s rush to launch GSM with inadequate networks and value destructive entry-level plans will likely depress margins over the next few quarters,” Rajiv Sharma, an analyst at HSBC Securities, said in a recent report.  Rivals also contend that Reliance’s discounts to attract GSM subscribers are simply a cheap way of acquiring new spectrum.  Under Indian government rules, incremental spectrum is awarded to operators based on new subscriber additions.  However, Mr Shukla rejects claims that his GSM network is inadequate, saying it is less congested and uses newer technology than that of his rivals.

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