December 16, 2000

What have the trends in the cellular industry been like?

Last year there was a series of good news. Licence period was increased from 10 to 20 years which was encouraging for the long term investors. The rentals were brought down and license fees were rationalized. Tariffs as a result became promising.

The icing on the cake would have been CPP (Calling Party Pays) with the initial proposed revenue share plan. If this had happened, cellular would have taken a step closer to fixed line telephony.

Although significant progress has been made in the regulatory environment, there are still some uncertainties. Lack of spectrum is an inhibitor and it makes cost of producing airtime huge. Duties on handset/equipment are still very high. Cost of putting up infrastructure is the highest in the world and revenues the lowest. Revenue share is still unclear.

We have to understand that India is much smaller than it seems. A large number of the population is below the poverty line. Unfair comparisons are being made with China, on the available market. There is still a lot of work to do. Lack of spectrum makes cost of producing airtime huge and much higher than fixed line. Confusion on WLL, etc. needs to be cleared up.

There have been press reports that you could not introduce Orange in Delhi as you do not own the brand?

Sterling Cellular is on a build-up path and would like to make a significant contribution to the customer. It is in the process of upgrading its network and they would want the new brand to deliver customer expectations. The timing of the brand is critical and is left to the operating team.

How would you react to the topic of limited mobility being asked by the fixed service operators?

WLL is not a new technology option, it is an application which was always available in cellular. It has to be seen in the context of affordability to the consumer not where it belongs.

Besides there can be no ambiguity between fixed and mobile service. Limited mobility is neither here nor there. `Speed' and `Spread' cannot define the boundaries of limited mobility. It only allows a backdoor entry to fixed service providers. Cellular operators feel that if city wide mobility is given then the entry must be made on the level playing field, i.e. the guidelines of the 4^th operator entry must apply.

What are the issues to be considered while accounting ARPU (Average Revenue Per User) in the cellular context in India?

The various heads included in the gross ARPUs besides airtime and Value Added Service charges include pass through PSTN charges, taxes and other statutory charges. A certain amount of revenue is passed on to the PSTN by the operator, this is the difference between gross bill value and ARPU's to the operator besides taxes which are all pass through revenues.

What have Average Revenue per Subscriber (ARPU) figures been like for Hutchison Telecom?

The ARPUs registered by Orange in Bombay are one of the highest in the industry. At other locations they are comparable to competition. Average bill values are in excess of Rs.2000/-.

How does India compare on the basis of the ARPUs?

It would be difficult to compare India with other countries in terms of the ARPUs. In India the cost of airtime is one of the lowest in the world. At Rs 3.5 per minute it works out to around 7c. Most low cost networks in the world are around 15c per minute.

Besides, it is more important to consider the usage minutes of the subscribers. In Mumbai, the average usage is around 320 minutes. This compares very favorably with global numbers. However, we have a very small number of subscribers as compared to China. China adds nearly 1mn subscribers in a month as against a total population of 2.7mn in India today. We have some way to go.

What have the contribution from services other than voice been like?

Other services are also contributing to the revenues. Roaming and SMS are contributing significantly to revenues. We are still not charging for WAP airtime as we want more people to access the WAP service.

In India, the mobile Internet is poised for growth due to a number of reasons.

Firstly, the low penetration of home PCs, and exploding numbers in the mobile telephony market implies that for a number of future Indian Internet users, the mobile phone could be the first access device to the Internet. This is especially true when you look at the projected increase in Internet users in the country - more than ten-fold in the next 3 years is a conservative estimate. The next group of consumers who will enter the Internet category will be less tech-savvy, less comfortable with new interfaces, and probably not willing to either buy a PC or visit cyber-cafes. For this person, the simple one-click-away interface of the mobile phone will be far less intimidating. The mobile phone is a device that he is comfortable with, and which does not entail a separate investment - and with the anytime, anywhere advantage that the PC cannot in any case provide. We have already seen the crash in the prices of WAP phones (starting at Rs. 4000) - very soon, all new handsets will be at least WAP-enabled.

Secondly, the rasion d’etre of the mobile Internet is the need for Internet access when you’re away from a PC. In urban India, the average professional spends a high proportion of his/her time in (largely unforeseen) away-from-PC situations with commuting times, traffic jams, delayed flights etc., all of which drive demand for the mobile Internet.

Thirdly, low speeds of fixed-line Internet access in India imply that the consumer will not feel a significant difference in speed when using the mobile Internet

What was the market reaction to the reduction in airtime charges?

We were faced with a happy problem of growth. We saw the subscriber numbers booming and a consequent increase in airtime usage. However, historically Mumbai always had a low airtime flat rate of Rs.4/- per minute.

Demand is certainly triggered by price. To give you an example - In February, when we reduced access charges by 35% and airtime rates by another 30% the Mumbai market more than doubled. Average usage per subscriber climbed up despite a growth in subscriber base. The rates do influence the usage of cellular phones.

However, India must not be misunderstood as a 'cheap market' but considered as a 'value market'. Indians look for value for their money.

There seems to be some congestion on your network, any comments?

The growth registered with the reduction of airtime and increasing popularity of value added services have contributed to the growth in network usage and hence we faced some congestion. We are in the process of upgrading our network, which will reduce congestion significantly. Our biggest challenge going forward will be handling exponential growth on all fronts.

Can you give us an idea of customer acquisition costs?

Customer acquisition cost depends on the state the market is in, the way the market is organized and the way the products are distributed. Marketing costs, distribution costs and brand costs are the major customer acquisition costs. Several operators bundle handsets with their packages and subsidize the handset acquisition costs. These add to the customer acquisition costs.

With BSNL and MTNL intending to unfurl their cellular services, what issues would the present operators need to consider before their launch of services?

An optimal number of competitors are always good for the market and we, therefore, would welcome the entry of BSNL and MTNL in the cellular service field. However, cellular companies are asking for a level playing field.

What would your comments be on the very high valuations of 3G services?

3G platforms would be able to offer revolutionary value added services the kind the world would have never imagined. The lure of these services for the users and the expectation being demanded by the user can be attributed to the enormous valuations that were associated with the 3G auctions. In my personal opinion, some of the license fee bids are astronomically high and disproportionate to the expected