Number portability to dent GSM players' profits

The government's decision to introduce mobile number portability (MNP) in the metros will hit the profitability of major GSM service providers. However, new entrants and CDMA players stand to gain from the move.

MNP will result in the shift of customer loyalty to another operator - initially of high average revenue per user (ARPU) subscribers who have, till date, stuck with one operator only to preserve their number.

The current churn in the industry stands at around 3-4 per cent and this is likely to double with the introduction of MNP before it settles down.

The move (that permits shifting from one operator to another, while retaining the same number) will also result in a rise in capex - currently around $7-8 per subscriber in the metros - since operators will have to upgrade their infrastructure to retain such customers "" especially in the metros where teledensity is around 70-80 per cent. It would also mean additional branding and marketing spend to increase recall.

Even though additional expenses would vary from operator to operator, industry estimates that incumbents would be the worst hit.

Anshuman Thakur, Assistant Director with N M Rothschild & Sons (India), said: "The newer entrants such as Spice, Aircel, Idea and others who have applied for new licences will be the beneficiaries of the churn, as they will try to poach users from the existing players. The CDMA players would also be the beneficiaries, as comparatively higher handset costs and the phobia of sticking with one operator is no longer there".

Vodafone, Airtel and certain other existing companies would be the major losers, he asserts, as they are struggling with their networks, and need to bring in additional capex to tide over these issues.

Association of United Service Providers of India (AUSPI) secretary-general S C Khanna said: "It's difficult to say who will benefit from the introduction of MNP, but this would result in getting the best possible for the consumer. Whether it be in terms of quality, cost per call or customer service".

Mirroring the sentiment, Gartner senior research analyst Neha Gupta said: "We don't see any impact on capital expenditure in the short-term. However, the introduction of MNP will hit capex as they will have to bring in customer services by bringing in more royalty programmes to reduce churn".

There will be a fierce shift in the focus of telecom service providers, with customer services slated to take the centre stage.

The companies will have to focus more on customer services, and introduce "innovative value added services (VAS) and set up robust networks". This would necessitate an increase in capex and the actual investments will differ from company to company, she added.

A top executive with Aircel Communications said: "With tariffs ruling at same levels across all service providers, the differentiating factor would be the quality of services. However, for this more spectrum is needed and its allocation would be an important factor".

Earlier, the valuation of telecom entities had taken a beating due to the ongoing spectrum impasse. Over a 15-day period (from October 18 to November 8), the total market capitalisation of all the major listed telecom operators slid by Rs 32,570.99 crore, a 8.15 per cent fall.

On October 19, the DoT permitted three companies - Reliance Communications (RCom), Himachal Futuristic Communications Ltd and Shyam Telelink - to offer dual technology (GSM and CDMA) in their existing circles.

The issue, however, is being contested with GSM operators placing the issue before the Telecom Disputes Settlement and Appelate Tribunal (TDSAT).