Portability launch spurs war for post-paid users

Profitability of Indian cellular service providers is likely to be squeezed further following mobile number portability (MNP), triggering a short-term spike in subscribers switching service providers, which will force operators to spend more on attracting and retaining customers, say analysts.

Analysts estimate the rate of subscriber churn at 6-8% among pre-paid subscribers, who make up nearly 95% of India’s 700 million mobile phone connections, and 1-3% among post-paid subscribers.

The 5% subscriber base of post-paid subscribers contributes about 20% of revenues for larger telecom players. That’s the prize money various mobile operators are going to fight over — to win the post-paid subscribers.

Some operators such as Tata Teleservices and Reliance Communications (RCom) are at particular risk of losing subscribers as they still operate a CDMA technology-based network, though both the players also operate GSM networks.
The only other CDMA operator in the country is MTS India, a new operator.

In India, GSM is the mainstream technology platform for mobile telephony, with nearly 85% of subscribers being on GSM networks.
At the time of going to the press, DNA was yet to get responses from RCom.

A spokesperson for Tata Tele did not respond to calls and messages. 

For the 109 million or so CDMA subscribers in India, the incentive to move to GSM comes from a wider choice of handsets as well as service providers.

Given the smaller CDMA subscriber population, the choice of handsets available here is very limited.

Mobile number portability will “expose it (Reliance Communications) to the risk of losing CDMA subscribers, who so far had limited options,” Rajiv Sharma and Harbhajan Singh, analysts with HSBC Securities and Capital Markets, said in a January 11 note.

Goldman Sachs also believes Tata Tele and RCom are at risk of losing their CDMA subscribers once MNP is implemented nationally.

Along with mass market ad campaigns, some large operators are learnt to have launched targeted strategies to poach high value corporate customers from rivals.

“We expect a near-term increase in S&M (sales and marketing) costs, network expenses, and churn rates. We do not expect a meaningful proportion of corporate subscribers moving from incumbents to new entrants,” Goldman Sachs analysts Sachin Salgaonkar, Piyush Mubayi and Paras Mehta wrote in a January 18 note to clients.

Operators are likely to respond by bringing down post-paid tariffs, which are currently about 25% higher than pre-paid call rates.
According to the Goldman Sachs analysts, such post-paid tariff reduction could put “5%-8% of Bharti’s (Airtel) earnings at risk.”

Besides the revenue loss from lower tariffs, mobile service providers will also be forced to spend more to stay in the race, in a market that is not only among the fastest growing telecom markets in the world, but also the most competitive one, with at least 10 operators slugging it out in every telecom circle.

“We expect MNP to increase the cost structure of all the players as they will need to spend more on improving their quality of service and customer care,” said Amit K Khire of Ambit Capital.

Pan-India operators such as Idea Cellular and Vodafone Essar have already started advertising and marketing campaign to educate potential subscribers about number portability and hopefully woo them over to their own networks.

The boldest move yet has came from Loop Mobile, a regional operator in Mumbai, that went beyond the talk by offering to compensate subscribers for every dropped call.

“We declare that for every Call Drop that subscribers experience, we at Loop Mobile shall compensate them,” the company said in statement on Wednesday.

“For every confirmed call drop, we will reimburse the customer 50 paise,” S Mahadevan, chief operating officer for Loop Mobile told DNA.

Being one of the oldest operators in Mumbai circle - the only circle where Loop Mobile operates - the company’s legacy high end customers is an obvious prey for larger national operators.

Such measures, to both attract customers and retain customers take its toll on profitability according to rating agency ICRA Ltd, especially given that tariff levels are already extremely low.

“Higher customer acquisition and retention costs coupled with declining tariffs is likely to affect the profitability of telecom operators post implementation of MNP,” ICRA said in a client note on Tuesday.

“Under such a scenario, telecom operators with stronger financial profile would be better placed to cope with the increasing competitive intensity.”