Business Today Web Exclusive

In A Huddle

Small telecom operators Escotel, RPG, Spice and BPL are teaming up against the market's biggies.

By Vandana Gombar

Telecom: Ever closer

Is there survival in banding together? That's what Escotel, RPG, Spice and BPL Telecom seem to believe. Indian telecom is fast becoming a big players' game. And these four regional cellphone service operators are up against the sort of mega-players that probably see them as buzzing irritants more than competitors.

Size has its advantages. Take the gargantuan state-owned BSNL. Not only is it present all across the country with superlow airtime rates, it even offers seamless roaming across the country. Then there's the No 1 private sector player, Bharti, that decided to go for an all-or-nothing strategy. Either rule the entire country's cell-space, or get out. Today, its brand Airtel has a 16-state footprint that's hard to match, particularly on the within-network deals it offers its customers. Next in line is Hutch, which has been in consolidation mode as well -- trying to cover as large a footprint as possible. Each of these three biggies accounts for two million-plus -- subscribers (the top three together are estimated to have more than 6 million subscribers -- almost half the Indian market).

Meanwhile, Reliance Infocomm is trying to change the very notion of 'scale' in this business, with ambitions of signing up customers by the million for its CDMA services. It, too, is banking on offering a super-cheap intra-network service for long-distance calls (remember group founder Dhirubhai's dream of a postcard-price 'kem chho?' from Mumbai to Ahmedabad?). Reliance, with its national clout and resourcefulness, is giving even the GSM biggies cause for worry.

In short, it's no secret. This is a game for biggies. The value of a network is a function of the square of the number of its users, as they say. And in a business with high fixed costs but low marginal costs (per additional network user), network expansion becomes the key thrust. The big players get to amortize costs over a larger customer base, turning them even more competitive, while the smaller players get squeezed.

Consider the case of single-circle players such as RPG Cellular, in Chennai. It has some 175,000 subscribers, which may be fine for a single circle, but certainly isn't on a nationwide comparison. Spice Communications is a dual-circle play (Punjab and Karnataka), and has some 788,000 subscribers. The triple-cricle players? Escotel, with Haryana, Kerala and Western UP, and BPL Mobile, with Mumbai, Maharashtra and Tamil Nadu.

Now, don't get us wrong, these players have built strong consumer franchises within their circles. Their problem is the lack of nation-wide leverage. This matters, particularly now that long-distance cell calls are all the rage (falling rates and so on) and corporate users like to use their phones seamlessly on the move - wherever they are. Now, connectivity isn't the hassle. The cost is. Any circle-to-circle 'hop' involves one or more network transactions, and this could inflate the bill if the bandwidth of different companies must be used.

Makes sense, then, for the regional players to operate as a single whole on the national level? Sure does. That explains why RPG, Spice, Escotel and BPL have joined hands to create MobileFirst.

It's not a new idea, mind you. There were earlier attempts at similar alliances, but they fell flat. What makes this different?

For one, there's a brand, MobileFirst, which, by operating on a common set of brand values, could gain independent credibility as a national network to be trusted (across all circles). For another, the four players really have no choice. It's a matter of survival for them, and this is the best shot they can give it - as a unified front. After all, they do have some 3 million subscribers between them, which is not bad. What they needed desperately, though, was a way to overcome the negatives of a fragmented base.

That still doesn't mean that MobileFirst (which sounds uncannily like LG's 'Cricket First' campaign) will be able to stand up to the biggies. In fact, many market analysts still see the project headed for Stygian shores, given the limited financial strength of these players. Also note that MobileFirst cannot quite match the benefits of landline-mobile --long distance integration that the mega-players enjoy. Yes, they could strike deals with long distance operators such as BSNL, Bharti and Tata's VSNL, but it's hardly likely that they would offer terms that allow MobileFirst to become truly competitive.

With any hope of playing the price game dead, the only thing the new grouping can do is play for value, as the Birla-Tata-AT&T combine is trying to do with Idea. That's a much harder game, given the state of the market, as under-evolved as it is.

Issue Contents Write to us Subscription Syndication