The sands are shifting in the southern cellphone market, with arch- rivals BPL and Bharti all set to lock horns.

By Nitya Varadarajan

In Chennai, unlike in Delhi (or even Mumbai), if your cellphone suddenly rings in a public place, don't be surprised if people give you dirty looks. For, in this still-conservative southern metropolis, cellphones aren't really hot as status symbols. Compared to Mumbai's 4.6 lakh and Delhi's 4.3 lakh subscribers, the number of Chennaiites that own cellphones is less than a lakh. But if you take Chennai's cellphone population as a proxy for what's going on in the four southern states, you'll have got it all wrong. Chennai's is a freak phenomenon. In the rest of the south, the cellphone market is booming. Okay, the subscriber base at 8.25 lakh may still be small (less than Mumbai and Delhi put together), but demand in the five circles-Chennai, Tamil Nadu, Andhra Pradesh, Karnataka, and Kerala-is growing at nearly 10 per cent, which is nearly double the national average of 5.39 per cent.

That probably explains why the action among the region's eight operators is hotting up, with the stronger ones among them making a play for the weaker ones. At the forefront of all the jousting are two familiar names: Sunil Mittal's Bharti Telecom and Rajeev Chandrashekhar's BPL Telecom. Mark those names. For those are the two players (or should we call them combatants?) who may carve up the southern market between them.

The consolidation in southern India's cellphone market really began when Mittal's Bharti Telecom acquired JT Mobile, the cellular service provider in Andhra Pradesh (obtained licence in 1995) and Karnataka (obtained licence in 1996) in December, 1999. More recently, Mittal's Bharti bought out the Thapar Group's 40.5 per cent stake (held through Crompton Greaves) in Chennai operator Skycell Communications, which has racked up accumulated losses of Rs 90 crore. And, although the deal is being disputed by one of Skycell's three other partners, Mittal could be jockeying to buy out all three.

That's just the beginning. Expect more. In Chennai, Skycell's rival, RPG Cellular, which has losses totting up to Rs 17 crore (although the group expects to get into the black this year), could shortly see a change in shareholding. RPG is putting 17 per cent of the 68 per cent stake it has on the block, while its two other partners, Skycell Mauritius (11 per cent) and Airtouch Vodafone (21 per cent) are also willing to sell out. The possible buyer? Chandrasekhar's BPL Telecom. An alliance with RPG will give BPL, which already operates in the Tamil Nadu market, a toe-hold in the Chennai market, where it could take on its arch-rival Bharti (via Skycell).

The key players

Watch out for bigger moves from BPL. Although it has licences for Kerala and Tamil Nadu (apart from Mumbai and Maharashtra), it is absent in Karnataka, a sore point for the BPL Group, which is headquartered in Bangalore and has a strong brand presence in Karnataka. Chandrasekhar is keen on expanding his domain and could be eyeing Spice Telecom, the Karnataka operator in which B.K. Modi has a 22 per cent stake. That is if Modi sells, Spice still has a lead over Bharti in terms of number of subscribers, but aggressive competition from its rival is narrowing the gap. In May, 2000, Spice Telecom had a lead over Bharti by 27,211 subscribers, but in November, 2000, this gap was almost halved to 14,328.

Jockeying for space

Whether the bipartite competition between BPL and Bharti spreads to Karnataka will depend, therefore, on whether the Modis sell out of Spice, but it could certainly spread to Tamil Nadu, where Bharti could be jockeying to buy Sterling Group's 51 per cent stake in Aircel. Sivasankaran unleashed a price war in Tamil Nadu by slashing rates. When Aircel first came into the picture in April, 1999, competitor BPL's most popular scheme, that offered 100 minutes of free airtime, called for a monthly payment of Rs 976. Thereafter, Rs 7 was charged during peak hours and Rs 3.50 in non-peak hours. In a swift move, Sivasankaran changed the rules of the game. Aircel introduced a monthly rent of Rs 625 that included incoming calls and charged Rs 2 for 3 minutes. Playing for short-term gains rather than long-term profits, Sivasankaran, who is a known arbitrageur (in 1995, he sold the Delhi licence to Essar), maybe just waiting to cash out. That would be an opportunity for Bharti to enter the Tamil Nadu circle-and yet again be face to face with (who else?) BPL. To further consolidate its position, Bharti may even want to strike an alliance with (or even buy out) Escotel, BPL's rival in Kerala. Escotel operates licences in Haryana and Uttar Pradesh (West), both geographically far removed from the southernmost state, and it could make sense for it to concentrate on the north rather than the south.

That leaves Andhra Pradesh, where the fight is between Bharti and Tata Cellular, which has recently merged with Birla-AT&T, the licencee for the Gujarat and Maharashtra circles. BPL may be close to striking an alliance with Birla-AT&T-Tata combine as a strategic partner. This would come about with a binding factor of AT&T, which has an interest in Tata Cellular and BPL. It may be recalled that US West-BPL's partner having 49 per cent-was acquired by Media 1 globally, which in turn is a subsidiary of AT&T. With BPL's declared intentions of having a footprint in the south and west, this alliance is a strong possibility.

Both the major players in the south-Bharti and BPL-are convergence players. Apart from cellular telephony, both have ISP ventures and would, naturally, like to leverage their strengths to provide convergence services. Both players have unveiled new service packages recently. BPL is leveraging its content and technology available with group company BPL Innovision and offering a range of value-added personalised services. For example, its cell user gets his 'own page' similar to a 'mypage' on the internet that also becomes an organiser. The user gets mobile banking services and any content whenever he requires it. Bharti has recently started offering unified messaging, interactive content such as location-based directory services, mobile commerce transactions, voice mail, etc. Spice is not far behind with value-added services like WAP in SMS platform, regular messaging services, voice mail, and some community-specific content. Aircel has also introduced WAP and is ringing in mobile commerce through bank tie-ups, facility to track parcels with some localised information for content. Escotel will also be introducing WAP on SMS platform in a couple of months along with other services. But the players to watch in the south are clearly Bharti and BPL.

And what if the two biggies are unable to expand their turf through acquisitions? Their only other option is to become a fourth operator (the third in each circle will be the Bharat Sanchar Nigam) in circles where each is not present yet. But acquisition (at the right price) is obviously a quicker route to consolidation of operations. And probably cheaper too. The deals, therefore, could keep happening. Keep your eyes (sorry, ears!) open.

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