Cellular Telephony

Chaos continues to rule telecom mobility

Where’s Indian telecom headed? Only someone with omniscient powers could give you the answer to that one, going by the current telecom scenario in India. But the trends in the industry and in the technology that powers mobile phones could throw some pointers to where things could go. Ivor Soans reports

Increasing features on phones means increasing software complexity

As you bite into a delicious vada pav at the humble Anand Bhuvan hotel bang outside Hutchison Telecom’s (Orange) spanking new office in Mumbai you suddenly realise that that your Orange phone is on the blink. Reason: No network availability. Horror tales like these abound in any Indian city where cellular phone services are available. In fact, Mumbai, India’s most lucrative cellular market (in terms of average revenue per user), perhaps has among the best service levels in India.

That means as you travel across India you’ll see worse. Service levels are bad and it’s only the large towns and cities and a few important highways that are connected. Regular travellers will tell you that the only operator constantly present in even the smallest towns is government-owned telco BSNL. Private operator networks are missing in action for hours in between large towns. It’s no wonder then BSNL’s cellular launch is now regarded as the most successful telecom launch in the recent past (Reliance was supposed to take this honour but fell far short), and the giant is already No 2 in the Indian cellular space and is expected to wrest the No 1 spot from Airtel in the next couple of months.

While service levels are still nothing worth writing home about, subscriber numbers are the only thing going up in the Indian cellular industry. India’s cellular subscriber base (GSM) rose to 13.3 million subscribers in April this year. While monthly additions are down from close to a million subscribers per month to 6,47,516 subscribers in April, the industry is certainly growing. Says Kobita Desai, principal analyst at Gartner India, "The market is projected to grow at a CAGR of 39 percent to notch up a base of 70 million subscribers by 2007."

This, in spite of the Reliance CDMA challenge and the resultant battle; where Round 1 has certainly gone in favour of the GSM cellular brigade. More importantly, this growth is despite India’s regulatory bungling in telecom. If the WLL-CDMA controversy wasn’t enough (the concept of limited mobility is an unheard of concept anywhere else), the new interconnect regime that came into effect from May 1 has unleashed a new round of confusion in the market. The calling-party-pays (CPP) regime has been implemented—because of which incoming calls are free—but thanks to political pressure the government-run telcos have rolled back their price hikes partially. This may have a snowballing effect on the CPP regime, which itself may be partially rolled back later. Also, operators seem confused on outgoing
tariffs.

What’s worse is that India’s telecom regulator, the Telecom Regulatory Authority of India (TRAI) has announced that the new interconnect regime will be revised in another three months, thus holding out the promise of continued chaos for the next couple of months, the possibility of incoming calls on cellphones being charged again, and on the macro scale, dragging Indian telecom’s collective image through the muck all over again.

Like we said earlier, subscriber numbers are the only thing going up. What’s coming down are costs—a continual decline that has resulted in more and Indians going mobile. Today, you can get brand new low-end phones for as low as
Rs 2000-3,000; there is also a significant second-hand market for mobile phones, and when combined with the fact that pre-paid cards are available in denominations of as low as Rs 300 per month, it’s an accepted fact that the mobile phone is no longer a status symbol.

However, even as cellular penetration increases in India, the industry itself is still seeing bad times. In addition to the regulatory hurdles, a high level of churn (customers shifting to other operators), bad debts and lack of revenue assurance continue to dog cellular operators. Cellular Operators Association of India (COAI) director general T V Ramachandran estimates churn levels to be as high as 6 percent. According to him, ideally the churn level should be at less than 3 percent. And despite the pre-paid subscriber base accounting for close to 65 percent of India’s cellular market, bad debt costs are as high as 1.9 percent.

Enough said about the state of the industry—confusion, chaos and bad service only make for depression. Since subscriber growth rates are excellent it’s clear that more and more Indians are buying cellular phones in India. And there are many trends that are shaping this market. Here are some of the most important ones.

Business trends
Grey market slows down: Till around two years ago people would label you crazy if you purchased a handset from an authorised dealer. The difference in prices was as high as 30-40 percent. And so we all went to some little shop operating out of some cranny in the wall and purchased a smuggled phone that came with no warranty and where ‘packaging’ meant a plastic sticker to protect the phone’s display.

Thanks to declining customs duties, more and more manufacturers setting up distribution bases in India, a conscious reduction in prices to fight the grey market and increased awareness among users about warranty issues, more Indians are buying cellphones from authorised dealers. The grey market was believed to control 90 percent of India’s GSM handset market till around a year ago. The share of the grey market dropped to 60 percent (a figure that continues to drop) in many Indian states, the Indian Cellular Association (ICA) announced early this year.

The nimble-footed grey market is fighting back though. Today, even grey market operators give you ‘bills’ and ‘warranty’, although it is restricted to the shop you buy the phone from, compared to the all-India warranty offered by the legit distributors.

India remains a low-end market: Like the very basic Maruti 800, which dominates the car market in India in terms of numbers, cheap phones dominate the price-sensitive Indian cellular market. Nokia’s entry-level phone elsewhere is the 3315, but in India it’s still the 3310, which was discontinued some time ago, but brought back because of customer demand for the cheapest, no-frills phone. Heck, the Nokia 5110, a relic from the dinosaur era of modern mobile phones, was still available in the Indian market till some time ago, and is still quite popular in the second-hand market.

That’s the reason why smart vendors like Nokia are now making cheap, no-frills phones specially targeted at markets like India. Expect to see this trend gain ground as phone manufacturers try and widen the buyer base.

Few subsidies: Ever wonder why that phone you bought from the grey market at a seemingly great price has a Vodafone logo on it? Thanks to tough competition, many operators in the West subsidise the cost of the phone when you sign up for the service for a pre-specified length of time. The reason you see a Western operator’s name on your phone is because your phone was purchased under such a subsidised scheme, but was then smuggled to India, and somewhere along the way, was tampered with to break the lock the operator had set to prevent usage on other networks. But that’s another story.

In India, you’d have to be loco to buy a phone from an operator. Many operators charge higher than prevailing market prices (in authorised stories) for phones. In a market where competing operators have identically similar tariff plans, and where they announce new plans within minutes of each other, one wonders just how much of rivalry there is between operators. According to the rules operators have to submit tariffs to TRAI in advance, in confidence, and once TRAI approves announcements can be made; this process is supposed to prevent formation of cartels.

Hutch in Karnataka has broken from the pack and its dealerships offer a scheme where a GPRS-enabled handset such as the Sony Ericsson T100 (prices starting from Rs 6,200) is bundled with a connection and both the activation fee and deposit are waived, saving the customer Rs 2,200 in the process. It’s a start—since Hutch has started offering subsidised phones the others will be forced to follow suit, or commit hara-kiri.

Finance options: While mobile phones are no longer symbols of aspiration in urban India, it’s a fact that there are many who want to get a phone and can afford monthly usage costs, but can’t afford the initial cost of the handset. Nokia has tied up with GE Countrywide Finance to bring the instalment option to Indian buyers. Expect more and more cellular manufacturers to make such finance facilities available in order to grow the market.

Tariff changes: Today most operators offer post-paid schemes where you pay Rs 600 per month and get an outgoing rate of 1 rupee per minute (cell to cell calls can be as low as 40 paise a minute), and of course incoming calls are free. The bad news is that value-added services like SMS have become costlier. Operators have bumped up the pricing from Rs 1 to Rs 1.50 per short message. This could go up further in the new interconnect regime. Besides, if you’ve got used to putting a friend’s number on a frequently called list, paying a fixed monthly fee, and then speaking for hours together, you’re going to experience withdrawal symptoms. Cellular firms are doing away with these and non-peak hour discounts. What high-end users who commit to paying fixed rates per month will get gratis are some national long distance and even international long distance minutes as sops. Roaming charges had come down a few months ago from Rs 10 a minute to Rs 3 a minute, with a monthly fee of Rs 99. These charges may also increase.

Technology trends
Say it in colour: Till around a year ago, it was all about, ‘my phone’s smaller than yours.’ Size no longer seems to matter, and one of the key differentiators today is colour. With vendors bringing in phones with colour displays at price marks as low as Rs 8,000-9,000, it does look like everyone’s next cellphone will be one sporting a colour display. Mine certainly will.

GPRS/MMS: If it was the WAP craze two to three years ago, it’s the GPRS craze now. Everyone wants to buy GPRS-enabled phones and fact is, almost every phone released in the recent past is GPRS-enabled, but very few users actually end up using it. GPRS (General Packet Radio Service) or 2.5G, makes for faster data transfer speeds of up to 115 Kbps (compared to 9.6 Kbps on normal GSM), and thus enables transmission of hi-res pictures, video, and facilitates faster Web surfing.

Which brings us to MMS (multimedia messaging service), which is essentially just like SMS, except that here you can send colour pictures and graphics. MMS needs GPRS and while you will see more and more MMS (and thus GPRS) phones in the market, and even usage of these high-end services will go up, high costs will prevent most users from using these services, even if their phones are GPRS/MMS-enabled. Right now, GPRS access comes with a hefty price tag. Expect to pay at least Rs 700-1,000 per month extra on your mobile bill for GPRS.

Cameras: This is a logical follow up to the preponderance of phones with colour screens and operators offering MMS. Without a camera on your phone, you’re not going to be doing much MMSing. There’s no way you can ignore the technology trend of high-end phones sporting cameras, some of which can even record video. But in the price-conscious Indian market, camera-phones, which usually sell in a price range of Rs 20,000 to Rs 30,000 and more, won’t make up for anything but a tiny chunk of the market in the near future.

Phones with PDA features: Most mid-range business phones now come with Personal Information Manager (PIM) functionality and significant amounts of memory to store contacts in address books and schedules. Nokia’s ‘6xxx’ series of phones are perhaps the best example of this trend. For folks who don’t want to carry a PDA and a phone, and find a PDA-phone too bulky, these gizmos are great buys since they have some basic PDA functions, look cool and come at decent prices.

Java: Sun touts this as another example of Java’s ubiquity. More and cellphones today are Java-enabled, which means you can download third-party applications and games and run them on the phone. This not only adds to the functionality of the phones, but also makes for higher operator revenues as they can charge for additional apps you download from them. For instance, Hutch charges Rs 249 per month from its post-paid customers for GPRS, but you have to pay Rs 20 to play 20 rounds of a downloaded game or Rs 50 for unlimited usage of each game downloaded. Java phones also create a new market for independent software developers who can use this model to distribute their mobile apps.

High memory SIM cards: If you purchased a cellphone a few years ago, you’d have got a SIM card that could store around 100 contact entries. Today, with 32K SIM cards becoming standard, you can store close to 250 entries. Soon 64K SIM cards will be available, and even 128K SIM cards are being talked about. This will not only mean huge amounts of memory available to store contacts, but more importantly, give operators the ability to constantly deliver new applications and content to your phone through these cards. Since these new SIM cards are Java-enabled, even third-party developers can supply apps in association with the operator.

Software complexity: PC software blues are old hat. Today, as Microsoft focuses on making software that’s increasingly robust, the opposite is true in mobile phones. As more and more applications are crammed into these tiny devices, and as phone software includes more and more lines of code, phone software is becoming increasingly complex, and that means these devices are increasingly prone to software-related problems. Expect to see more of these in the future—very soon.