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A Goliath's battle call

Surajeet Das Gupta and Thomas K Thomas

It sounds slightly shocking coming from Prithipal Singh, the dapper chairman and managing director of Bharat Sanchar Nigam Ltd. In an age in which aggressive marketing is seen as the only way to grab customers Singh believes the secret lies elsewhere.

Singh is just back from Lucknow where CellOne - the company's new all-India cellular services brand - was rolled out at a ceremony presided over by Prime Minster Atal Bihari Vajpayee. And Singh has been supervising a raft of launches in other states all week. In the midst of the frenzy, he's supremely confident. "Marketing is required where the brand is not known to the consumer. In our case, the 3.5 crore (35 million) customers know us and are well acquainted with us. So I don't see any major requirement for marketing."

The BSNL chairman may not believe in marketing but he clearly thinks size matters. BSNL is the 400-pound gorilla attempting to storm its way into cellularland and scoop up a huge share of the market. It has invested over Rs 2,000 crore (Rs 20 billion) and it hopes 15 lakh (1.5 million) customers will be using its cellular services by March 2003. That's 10 per cent to 15 per cent of the entire cellular market.

By end December, BSNL plans to be in 200 cities (this week services were launched in Maharashtra, Gujarat and Karnataka). But Singh has an even more ambitious target: he wants to wipe out the competition and grab 50 per cent of the GSM cellular market in the next two to three years.

Singh may have some grounds for his optimism. CellOne was hoping to get about 8,000 subscribers in Lucknow initially. What happened was far beyond their wildest hopes. The first 8,000 subscribers signed on in two days. On the third day the company closed advance bookings after touching the 10,000 mark.

BSNL's aggressive moves have sent other cellular operators scurrying back into the trenches from where they're blazing away at it. These competitors say BSNL's pricing could cripple them. Says T.V. Ramachandran. secretary general, Cellular Operators Association of India: "The tariff is meant to kill competition, not to grow the market. It's anti-competitive and clearly tells customers if you're not a BSNL customer, I'll penalise you."

It isn't tough to understand why Ramachandran is crying foul. BSNL is counting on aggressive pricing to win customers. It's a game private operators will find tough to match. What's more, BSNL is tilting the scales in favour of its own fixed-line customers. That's bad news for cellular operators because 80 per cent of India's fixed-line subscribers are BSNL clients.

BSNL kicked off the price war last week by announcing its cellular customers wouldn't be charged for calls from its fixed-line customers. By comparison subscribers using other private cellular services have to fork out Rs 1.20 to Rs 2 per minute for incoming calls. About 90 per cent of all incoming calls on cellular networks come from BSNL subscribers.

The customer bonanza - especially for existing BSNL fixed-line users - doesn't stop there. They don't have to pay a security deposit for a CellOne connection. Other cellular operators charge around Rs 1,000.

Airtime charges have been waived on STD or international long-distance calls and caller identification service is free - bonuses private operators don't offer. Simply put, savings to customers using an average 200 minutes of local airtime could vary from over Rs 100 to Rs 150 a month depending on location and the competitor.

Explaining the logic behind the offers, Singh says: "What we want to do is to offer something special to our large customer base." Cellular operators say BSNL is breaking telecom regulatory rules and cross-subsidising its cell subscribers with earnings from fixed-line and national long distance services. They're weighing a basket of counter-strategies.

One option is to approach the Telecom Regulatory Authority of India and demand a review of BSNL's tariffs. Or they could go to TDSAT (the telecom disputes tribunal) or the courts. The TRAI, meanwhile, has said BSNL's tariffs are introductory offers that will be reviewed after three months.

At another level, cell operators are taking the battle to the customer. In Lucknow, Aircell Digilink - the dominant market player - is offering more talk time for the same price on pre-paid cards. For instance, talk time on starter packs of Rs 599 has virtually doubled. Says Naresh Malhan, CEO of the company running operations in UP East, Rajasthan and Haryana: "We've already started some marginal rationalisation of tariffs and are closely watching for the response to CellOne."

Private cellular operators are also burying their differences in an attempt to halt the BSNL juggernaut. One idea is to allow India's 8 million private cellular customers to make free incoming calls among networks.

Says Vikas Saraf, CEO, Essar Teleholdings that holds equity in the Hutch-Essar joint ventures: "Incoming cell-to-cell calls are 10 per cent of total incoming calls. If we make it free it could go up to 30 per cent to 40 per cent. So we can create a large new community. What will happen is two isolated cell communities - one represented by BSNL, the other by private operators."

The other option is to slash STD rates on cell-to-cell calls among private operators. Cell operators could then cut tariffs. Says a source: "BSNL will find it tough to match this as it has to offer the same STD rates to cell subscribers as well as basic phones subscribers, leading to a large revenue fall."

Also talks are already on between cell operators and Bharti - the other company offering fixed- line national long-distance (NLD) services - to work out a revenue share pattern. Bharti is ready to give cellular operators a bigger chunk of STD revenues than BSNL which only gives 5 per cent.

So how serious is the BSNL threat to other operators?

Says Anil Nayar, president, mobility, Bharti group: "Revenue from incoming calls from fixed-line networks constitutes 25 per cent to 30 per cent of total revenue. So it's substantial."

That's not the only problem. If incoming calls become free that will boost traffic and oblige cellular operators to spend on infrastructure. Says Nayar: "It will dramatically choke existing networks and force us to make fresh investments without revenue flow in return."

While private operators may be worried about this, BSNL is unfazed, saying its networks have been planned to take into account a big airtime usage rise.

At the end of the day, there are two big bones of contention. Firstly, BSNL is offering incoming calls free only from BSNL fixed and cell networks and it's charging Rs 1.20 a minute from other networks. Says F B Cardoso, CEO, BPL Mobile: "You're cross-subsidising and bundling your cellular service with fixed-line service from which you get revenue for the call. You're discriminating against other cellular operators. This is purely predatory."

Secondly, BSNL cell users don't pay airtime on STD and ILD calls. Says Saraf: "This is discriminatory. You're subsidising large margins you make in the ILD and STD business by offering a sop to your cell customers and TRAI doesn't allow cross-subsidisation."

BSNL insists its tariffs aren't predatory. Says Singh: "Offering something special to one's own customer isn't predatory. It's a simple business proposition. Even they do it."

But BSNL has other advantages cellular operators cannot match. For instance, it doesn't pay a licence fee. That's a big edge because licences constitute 33 per cent of project cost for private operators. But BSNL says it has other costs. "We've obligations especially in rural areas which cellular operators don't have."

However, BSNL also has a host of other advantages because of its huge infrastructure such as being able to use existing facilities to put up exchanges. Industry sources reckon savings per line could be around Rs 1,500.

Does the BSNL onslaught mean private operators must cut tariffs or lose customers? Says Nayar: "They'll gain some market share. Our challenge will be to minimise this. We won't play the price game. We'll compete on quality and service".

He points to Kolkata where BSNL launched services a few months ago but has picked up only slightly over 11,000 subscribers. Nayar also points out Bharti has built a gigantic distribution network with 50,000 retailers.

Even Aircell Digilink plans to leverage its network and distribution strength. Says Malhan: "We've 19 towers in Lucknow compared to BSNL's 13 so our coverage and quality is better. We have 3,000 outlets in Lucknow - they're nowhere near that." At the moment Cell One has about 50 outlets in Lucknow.

Others say the market could split into two. Says Cardoso: "The market will get segmented with BSNL functioning in the low-end and private cellular operators addressing the needs of the value-conscious."

BSNL doesn't think that will happen. It sees itself as the logical choice for cellular users. Says Singh: " CellOne will be targeted at the entire urban and semi-urban market. The CDMA-based limited mobile service will be targeted at rural India. That's how we'll divide the market." As the battle heats up, one thing's certain: blood will soon be flowing in the streets.

(With inputs from Vijay Chawla)

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