WHO WINS, WHO LOSES? A snapshot of the strengths and weaknesses of the big players.

Bharati's Sunil Mittal BHARTI TELE-VENTURES UPSIDE Acquisition opportunities, new licences, overseas listing planned DOWNSIDE Network congestion (requires capex), spectrum constraint FOOTPRINT All India (except North East) SUBSCRIBERS 5.4 million (Fixed: 0.5 million; GSM: 4.9 million). Growing at 250,000 a month Infocomm's Mukesh Ambani RELIANCE INFOCOMM UPSIDE New data services on 3G-compatible network, enterprise products planned, pre-paid foray DOWNSIDE High customer expectation FOOTPRINT All-India (except NE and J&K) SUBSCRIBERS 5.6 million (GSM: 0.6 million; CDMA: 5 million). Growing at 750,000 a month BSNL's Prithipal Singh BSNL UPSIDE Among the cheapest service providers DOWNSIDE Network capacity surpassed, government interference in commercial decisions FOOTPRINT All-India (except Delhi and Mumbai) SUBSCRIBERS 41 million (Fixed: 35 million; GSM: 5 million; CDMA: 1 million). Growing at 350,000 a month Tata Tele's Ratan Tata TATA TELESERVICES UPSIDE Goodwill of Tata brand DOWNSIDE Inadequate synergy between GSM and CDMA operations FOOTPRINT All-India (except J&K and NE) SUBSCRIBERS 3.3 million (Fixed: 0.3 million; CDMA: 1 million; GSM: 2 million). Growing at 225,000 a month

The telecom conference held on a chilly morning in the capital late last month was different from the countless others that had preceded it over the last couple of years. The rancour that was typical of such meets was replaced by an air of resignation as the most vocal participants-the cellular operators-had precious little to say. They felt betrayed. They felt cheated. But they had to bow before the might of the government-regulator combine, which-the refrain went-had embraced the gate-crashers into the cellular party (read the limited mobility players led by Reliance Infocomm) and put them on an equal footing through a unification of licences. It may or may not have been a fair solution, but the investing community has given it a high five simply because it removes a huge cloud of uncertainty.

What this country has now is head-on competition between the two mobile technologies that are slugging it out in the global arena-CDMA and GSM-where the latter has subscribers numbering a billion while the former boasts a sixth of that. In India, the ratio is about 1:4. That could change since CDMA is now available without the "limited" tag. Industry watchers are predicting a doubling of monthly wireless subscriber additions, from the current average of about two million a month. "In seven years, the country managed just 12 million wireless subscribers. We have added 12 million in the last seven months and I would expect us to add much more than 12 million over the next six months...it may even be as high as 24 million as customer confusion ends," says Pradip Baijal, Chairman of the Telecom Regulatory Authority of India and one of the key architects of the so-called unified access regime.

If you think that a tele-density touching 10 per cent by 2005 (currently 7 per cent) is not a big enough benefit of unification, there is more for the consumers-both retail and enterprise-in the form of lower prices for an enhanced bouquet of services.

Roadmap To Telecom Nirvana

By the second quarter of 2004, a second and wider round of unification will kick in. The plan is to allow mergers within a state like Delhi, which today has an unsustainable seven telecom service providers, thanks to the quirks of policy. Typically, only three to four service providers can survive in a market. The equation that is expected to play out is simple: Consolidation = Economies of scale = Lower price. And there is an almost unanimous opinion on who the long-term players will be: Bharti (GSM), Reliance Infocomm (CDMA), Bharat Sanchar Nigam Ltd (CDMA and GSM with a skew towards GSM) and Tata (CDMA and GSM with a skew towards CDMA). And if you fancy a fifth on the list, add Hutch-a pure play GSM player.

Ruling out the acquisition of a largish competitor like Hutch, Bharti's Chairman Sunil Mittal says: "We are looking at small strategic acquisitions. Some people are already talking to us." The company, sworn to the GSM platform, has also sought greenfield licences to extend its footprint beyond the 16 states that it currently operates in. Consolidation is more of a need in the GSM sector with players like Spice (of the Modi group), BPL and Escotel (Escorts group) scouting for buyers in the market. Though they are braving the inevitable by huddling under a loose alliance termed Mobile First, it is likely to fall apart at the first sign of a serious buyer for any of the individual entities. Shubham Majumdar, a telecom analyst at Motilal Oswal Securities, feels that the unification would hit the valuation of the smaller players, thereby lowering the acquisition costs for prospective acquirers like Bharti, which is expected to maintain the momentum of 250,000 new subscribers every month.

THE HUTCH STORY

Asim Ghosh: Mum's the word Beginning with hutch-max in Mumbai, this pure-play GSM cellular company has expanded to seven states and four metros. Can it survive the integrated onslaught of Reliance, BSNL, Bharti and Tata, who in addition to customer access, also have long distance networks? Will it sell out or will it acquire to expand? Would it foray into long distance services? While the company refuses to comment-we only got a cryptic one-liner from Country Head Asim Ghosh: "We never talk of future strategies because they are only of interest to competition. However, you can see that we have always taken a long view of the market"-it is well-known that Hutch has in its possession the main tool for long-term survival: deep pockets. It could always build or buy a long distance network or, since regulation would soon allow the weaving of existing cellular networks into a long distance network, it could use that to offer a mean deal to its subscribers. Subscribers mean survival.

Stirring The Prepaid Cauldron

Reliance Infocomm, fresh from its victorious entry into full-blown mobile cellular services through CDMA, is planning to make a splash through the launch of a payment option that has enchanted over three-quarters of the subscribers of a company like Bharti-a prepaid option. Since billing costs and bad debts are lower and non-existent, respectively, in pre-paid than in post-paid, the revenue per minute (rpm) tends to be higher. That's why the move is widely seen as a huge positive for the company.

However, learning from past glitches in its service launch, Reliance is going slow and steady in this case. "This should go in a flawless fashion into the market," says the company's President, Prakash Bajpai. As should the communication to the consumer, who has lived with doubts about the legal snags as well as the roaming facility. "The unification lifts the artificial roadblock and expands our addressable market significantly," Bajpai says.

Reliance, without doubt the single-largest gainer of the unified regime, paid Rs 1,542 crore for the right to offer unfettered mobile services. However, it does not find the acquisition option too exciting, since new networks can be built at a fraction of the cost of old networks. "But if a niche player comes to us and says 'bail me out', we would look at the opportunity," Bajpai says. Infocomm claims to have invested Rs 16,000 crore in its telecom foray with its network currently capable of taking three-to-four times its present load of five million, which, it says, has already helped it to cross the break-even point.

Readying to meet Reliance on the same CDMA platform is Tata Teleservices. The company is already operational in six states and is in the process of getting the licence for another 11 states, leaving out just the North East and Jammu & Kashmir. The group also has one foot in the GSM camp through an investment in Idea Cellular.

The GSM players, many of whom have been in business for over nine years, are facing the pressure of subscriber growth and increased average minutes of use. This translates into a demand for a significant enhancement in network capacity, which requires capex infusion (ICICI Securities had estimated incremental capital costs at $15-25 per subscriber) while access to funds is limited. Says PricewaterhouseCoopers Director Deepak Kapoor: "Financial institutions did show some loss of appetite as far as telecom financing is concerned. This could go away given the positive trends in the sector-subscriber growth and peace between the service providers."

Copper Is Dead, Long Live Wireless

"Low penetration, falling costs, and wireline substitution imply a wireless market take-off," says a recent research report of Deutsche Bank. Evidence: BSNL. With a whopping 35 million fixed (read copper) lines, it is struggling to plug the surrender of these phones as consumers switch to wireless options. Quite obviously, there are no plans to expand this network per se though there are plans to aggressively offer broadband data services by leveraging the copper network. In contrast, the company has explosive targets for the wireless space-six million GSM subscribers and1.5 million CDMA ones by end of the financial year. And an additional 15 million and five million respectively by March 2005.

An aggressive price player traditionally, BSNL still holds out the promise of new lows in tariffs. "Certainly, there is a cushion in international telephony, and in local call rates too, which can be passed on to the consumer," says Chairman Prithipal Singh.

Cut back to the telecom conference. Baijal is happy that the telecom sector has matured out of an era where the only issue discussed was level playing field between cellular and limited mobility players. "I want to focus on other issues like internet penetration," he says. There are some smiles (from the Internet Service Providers camp), some scoffs (from the cellular service providers) and some smug smiles (from the erstwhile limited mobility players). But happily for the industry, another 65,000 subscribers picked up a mobile phone for the first time that day, too.