Making Mobile Number Portability a reality
The launch of Mobile Number Portability (MNP) is a landmark achievement which is bound to reshape the fiercely competed Indian Telecom Industry. The launch of MNP now gives the subscribers the option of shifting between operators without going through the hassles of changing their numbers. This has led to a rethink in the strategy of the major players in the industry. In this interview with Dr. Sridhar Varadharajan, Research fellow, Sasken Communications Technology and eminent telecommunications strategy expert, we explore the impact of MNP on the industry.
Nationalisation of MNP
The nationwide launch of MNP this January is a landmark achievement in the telecom sector. But recent developments have stressed for more stringent regulations and tougher subscriber verification processes. Now, with millions of people having options to switch between networks, what challenges in regulations does MNP bring along with it? How important a role do you see Telecom Regulatory Authority of India (TRAI) and DoT playing in this?
I can see two things happening here.
One, the subscriber verification costs is going to go down substantially. All major players have been spending nearly 3-4% of their annual revenue and this has been one of the huge management overheads for them. Now that the new SIMs which are going to be issued for new subscribers is going to go down with MNP, this regulatory function will slowly come down.
Secondly, there is an important need for ‘equal access’ going forward. With the MNP, there is no incentive for the incumbent operator to move his subscriber to the new network. Even the 19Rs transfer charge is going to go to the third party clearing house. So, in this situation it becomes imperative for TRAI to bring out strict norms to ensure ‘equal access’ to all operators such that no one faces any issues in receiving recipients from other networks.
The subscriber pays only a switching fee to the clearing houses and the recipient service provider does not recover this fee in a network switch. Also, the cost associated with the subscriber verification process and new staff strength required to handle switching/ to retain customers are going to increase subscriber acquisition costs. How do you see the network providers reacting to this? Is there a way for them to offset these costs?
Actually, the incumbents do not bear any significant costs other than minor software upgrades to facilitate MNP. The main influx of customers is going to be for the smaller players like Uninor and S-Tel who already have excess spectrum capacity which is left unutilized. So, given this unused spectrum, they have the required bandwidth to support large number of new customers without incurring any extra costs. Costs such as adding new staff strengths are minor when compared to the opportunity of acquiring such a wide customer base.
MNP has been in the picture for few years, but its implementation is being carried out only now. Why has it taken so long to get it off the ground? What were the issues that were hindering the implementation?
Even though TRAI sent out the recommendations for MNP in March 2006, the implementation was started 2 years later and it has been deployed just now.
This delay can be attributed to 3 main reasons:
- Resistance from Large Vendors: MNP brings along with it a huge churn in the subscriber base and this was definitely not favorable for the large vendors such as Airtel and Vodafone, who have the highest number of subscribers and also government vendors such as BSNL and MTNL whose subscriber base was already on a steep decline. So, there was lobbying from the main players against MNP.
- Bureaucratic hang up in selection of vendors: There was a hang-up in selection of third party vendors for the implementation of MNP due to various security reasons. One of the chosen vendor Telcordia got blacklisted due to their projects in other non-favorable countries. Thus, there was also a lag between 2008-2010 due to issues in selection of vendors.
- Implementation powers of TRAI: TRAI is just a regulatory body. It had given it’s recommendations but was in no position to execute the proposed plans. It took 2 years for DoT to take notice of this and implement the suggestions.
Future of CDMA and Postpaid Connections
The TRAI’s figures on the performance of the CDMA service providers have clearly shown a decline in growth and addition of new subscribers. Their subscribers have been locked in too much — to an operator, a technology and a handset, along with a number. Liberated, the push factor might be greater for them. Since, MNP also allows switching from CDMA to GSM service providers, how do you see the CDMA players and the industry getting impacted?
I do not see any impact on the CDMA service providers. Only the SIM based CDMA users can avail MNP and that is a minority amongst CDMA users. Also, the CDMA users are mainly data subscribers and require only high quality data transmission services and are agnostic to voice and other services. So, they would not move out to prepaid connections as their requirements are different. Hence, CDMA players will remain unaffected from this implementation of MNP.
Almost 80% of postpaid connections in India are corporate subscribers, who are usually higher ARPU customers. With MNP and newer attractive schemes to follow, they will also negotiate for better pricing. How do you see the service providers handling the postpaid customers?
Postpaid customers are predominantly price inelastic customers. They do not stress on tariff plans generally but will ask for more differentiated value added services from their operators. With MNP, they become more important to operators and can get benefited by services such as more voice clarity, reduced call drop rates, better schemes for international roaming etc. Hence, I do not exactly see postpaid customers pushing for better tariff schemes, but for better VA(Value Added) services.
Changing Strategies in the Telecom Sector
Pricing and Promotion have been the key drivers in the telecom industry till date, especially in the prepaid segment. Do you see a change in this situation? With this changing scenario, what will be the new key success factors in the telecom sector?
The current scenario in the telecom market looks like this. There are 3 sets of players:
- Large Players (Airtel, Vodafone): They have almost exhausted their spectrum capacity with their huge subscriber base and hence are not able to expand or provide better services to existing customers. They also hold the majority of high ARPU customers in the market.
- Medium Players (Idea, Aircel): They have utilised their spectrum but still have capacity to take in more subscribers. They are not as big as Airtel or Vodafone but have an established subscriber base as compared to the new players.
- Small Players (Uninor, S-Tel): They are very small players and have excess capacity with their spectrum getting wasted without sufficient customers. They have the capacity to take in large number of customers who will come out of the churn caused by MNP.
So, the strategies of these 3 sets of players would be distinct:
Dual-SIM phones are already available in large numbers in market with which consumers can keep their one number constant and change another one to avail the best offers. According to global market intelligence firm IDC, 40% of all handsets sold in India in the past year have been Dual-SIMs. This was also the USP of emerging handset manufacturers such as Micromax, Lava and Spice. Will the introduction of MNP bring a change in their primary marketing strategies? Will the current widespread availability of Dual-SIM phones in the market lead to just a minimal impact on the telecom operators?
- Large Players: Provide high QoS (Quality of Service) to high ARPU and postpaid customers. Encourage low ARPU customers to move to other networks to free up the spectrum.
- Small Players: Play hard on prices and tariff plans and attract new customers from the large players and utilize their excess spectrum capacity.
- Medium Players: Do both. Play on price to attract the low ARPU and medium ARPU customers as well as play on QoS to attract the high APRU customers.
I do not see the Dual-SIM market getting affected. You have to understand that their target segment of customers is different. Their target markets are the migrants who frequently travel and are constantly incur roaming charges. The Dual-SIM phones cater to them by letting them use two SIM cards from two different regions and help them avoid paying more during roaming. Hence even with MNP, roaming charges are not going to get affected and hence, Dual-SIM market will not get affected.
Effect on Major Players
BSNL/MTNL‘s revenue share has been slowly reducing in most circles with private players gaining more penetration. These old operators had been banking on their old and loyal customers obtained through their first-mover advantage. Will MNP take away this loyal customer base or can they leverage MNP to win back customers?
The government players have already been plagued with many problems. Their existing subscriber base is going down rapidly, they are not able to attract new customers and their 3G launch also didn’t take off properly. Slowly, they have lost their majority in many prime telecom circles in the country. With the MNP, their problems are going to increase even more and I do not see them benefitting out of this. They will have to fight it out with other players only on price cuts and tariff plans to bring in new customers as customers who prefer QoS do not look up to the government vendors.
Other smaller players have already started advertising heavily to steal customers with the promise of better service and attractive tariffs. What should the smaller players do to increase their market share? At the same time, will we see more consolidation in the coming year in order for the bigger players to minimise their competition?
Currently, the telecom sector is split into disproportionate bubbles- a few very large players, few medium size players and lots of small and new entrants. This is the perfect scenario for consolidation. But there will be no imminent consolidation in this industry as the M&A guidelines are very stringent. There are certain guidelines such as limits on the telecom stake that can be sold and a huge lock-in period before acquisitions that make the M&A situation complex in the telecom industry. Also, with the industry being capital intensive with high break-even periods and huge sunk costs, acquisition is not an attractive proposition to the players. Now, with the MNP, these disproportionate bubbles will even out with bigger players losing subscribers and shrinking, and smaller players getting more subscribers and growing. Hence, with MNP, the perfect scenario for M&A will also be done away with and all players becoming nearly equal in size.
MNP is sure to become one of the key turning points in the history of the telecom industry of India. It will lead to major changes in strategies of all players - big, medium and small. According to Dr. Varadharajan, this will heavily impact government players like BSNL and MTNL but CDMA providers and the Dual-SIM market will not be affected that much. The strict M&A guidelines along with the disproportionate size of players will lead to bigger players losing subscribers and smaller players growing in size.
Dr. Sridhar Varadharajan is currently a Research Fellow at Sasken Communications Technology in Bangalore, India. He has had a long and eminent teaching career at Ohio University and American University, USA; University of Auckland, New Zealand; SP Jain Institute, Singapore and Dubai; Indian Institute of Management Lucknow and Management Development Institute, India.
He contributes regularly in leading Indian business newspapers such as Economic Times on telecom policy related issues and some of his recent publications are in Telecommunications Policy, Netnomics, Economic & Political Weekly, Journal of Organizational End User Computing, Journal of Global Information Management, Communications of the Association of Information Systems, and Jourmal of Cases in Information Technology. He is the Co-Editor of International Journal of Business Data Communications and Networking and is on the editorial board of the Journal of Global Information Management; member of ACM and AIS.
His primary research interests are in the area of telecommunication management, Information Security and Global Software Development.