The Next Big Mobile Market
By David James, Tue Mar 04 13:33:42 GMT 2003

India is finally on the verge of blasting off into mobile space-thanks to Wireless Local Loop technologies, a new CDMA player, and Genesha.


Ganesha-the Lord of all Beginnings in the pantheon of gods of the Hindu religion, the religion of 81 percent of India's population-is on the mind of India's mobile communications industry these days. Ganesha the elephant-headed god who gives support and encouragement to new undertakings and is a source of strength in times of rapid and uncertain change.

New Beginnings

After eight years of slow growth for India's mobile industry, which consisted primarily of GSM cellular operators until now, a new division of Reliance Industries, India's largest private company, has burst upon the scene like a stampeding elephant. In December 2002, the division-Reliance Infocomm-launched a nationwide mobile network that offers services at rates about half of those previously offered by cellular operators, with free incoming calls and CDMA-1x speeds up to 144 kbps.

Several calling plans are offered by Reliance. Under the introductory "Pioneer" three-year plan, for an upfront payment of $63 plus $13 per month, a subscriber will receive a free multimedia mobile phone, free incoming calls, 400 minutes of free outgoing calls, and free SMS, music and audio downloads, Internet surfing and other digital services. Premium color screen handsets are available for an added $314.

Reliance's network is based on Wireless Local Loop (WLL) and CDMA technologies. WLL is known as a "limited mobility" system because it does not permit a subscriber in one WLL-licensed "circle" (or region) to make calls from another WLL circle, and calls to another WLL circle incur long distance charges. Thus there is no roaming capability, and long distance calls may be more costly for a Reliance subscriber than a cellular subscriber. In India, WLL circles are limited to a range of 25 kilometers.

WLL is especially appropriate for developing countries like India where there is little telecom infrastructure. It can bypass fixed networks and be deployed more quickly and at lower cost than other networks. It is also especially well-suited for CDMA mobile applications.

By the end of February 2003, Reliance's network will include18 WLL circles and fiber optic connections covering 673 Indian cities and towns. The company plans to extend its coverage over the next two years and to provide non-mobile broadband services as well.

Tata Teleservices, a WLL-CDMA operator in the state of Andhra Pradesh, is also planning a substantial expansion of its services over the next two years.

Cellular Operators Cry Foul

Reacting to the plans of the WLL operators, the cellular operators quickly slashed their own rates and began to not charge airtime for incoming calls, but they complained bitterly to the Telecom Regulatory Authority of India (TRAI) that the WLL licensing terms were grossly unfair to them. They had bid huge amounts for their licenses-aggregating $1.8 billion-and today are saddled with accumulated losses of $1.66 billion. WLL licenses, however, are classified as basic services, with public access obligations not applicable to cellular services, and the fees are much lower. For example, a basic service license for Maharashtra state, which includes Mumbai (Bombay), was about $21 million.

In addition, the cellular operators complained that standard interconnection arrangements-establishing how calls are carried from one network to another or to another city-would be unfair if applied to Reliance's and Tata's WLL networks. Under current interconnection arrangements, designed to subsidize basic service operators for their public access obligations, cellular subscribers who call to a fixed line or WLL phone must pay a fee of three cents (1.20 rupees), but there is no fee for calls going the other way.

The cellular operators took their grievances to India's Supreme Court last year, opposing TRAI's plan for granting WLL mobile licenses. The Supreme Court upheld TRAI's plan, but indicated that TRAI should establish a "level playing field" for the two types of service.

The argument became so heated in late December 2002 that one of the cellular operators, Bharti's Airtel, blocked all calls from Tata Teleservices subscribers in Andhra Pradesh, protesting the unfair interconnection fees. Other cellular operators did the same, prompting TRAI to issue a directive ordering cellular operators to provide interconnectivity immediately. The Cellular Operators Association of India then countered with an open letter to TRAI, advertised in a number of newspapers on January 13, criticizing the regulator and asking for relief.

Opening a Huge Market

TRAI will find ways to "level the playing field" for cellular operators, enabling them to compete more effectively with the new WLL operators. However this is done-through reduced license and interconnection fees for cellular operators or higher ones for WLL operators-the result is bound to be a thriving market for the Indian mobile industry.

According to Krishna Kishore, Director, Telecommunications Strategy Consulting, Telcordia Technologies, Inc., the industry has tremendous upside potential. "It might be true that millions of economically disadvantaged people in rural India may not immediately embrace mobile communications, but there are plenty of others who will-the growing middle class, the working population in urban India, students, and many more."

Kishore believes that rates and handset prices-or handset subsidies-will be the key. He also believes that the new WLL operators-especially Reliance-will rapidly gain market share. "The WLL operators have a number of cost advantages in deploying and scaling up their networks," he says. "Moreover, Reliance is cash rich and is masterful in building and managing large infrastructure projects." Reliance would agree. It says that it expects to have 15-20 percent of the mobile market by the end of 2003.

With currently about 11 million subscribers in a country with a population of over one billion-a penetration rate of only one percent-India's mobile industry has plenty of room to grow, and it has begun to show strong growth. In 2002 the number of India's mobile subscribers grew by 91 percent. Industry analysts expect that there will be 120 million subscribers by 2008, and Voice and Data Magazine estimates that one-eighth of the world's new subscribers in the next six years will be in India.

For India, that's a good beginning.

David James (djames@bsicorp.net) is president of Business Strategies International, a San Francisco-based consulting and venture-development firm specializing in technology business opportunities.