Mobile telephony: Ringing high and fast - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Mobile telephony: Ringing high and fast

Jan 13, 2001

The liberalisation of the Indian telecommunication sector was initiated way back in 1991. However, slow government reforms and regulatory restrictions have slowed down the actual progress of liberalisation. After a long hiatus, the government has now accelerated the reforms in this sector. One such important announcement was the opening up of the national long distance telephony (NLD). Amongst various categories in the Indian telecom sector, the Indian cellular segment has come a long way. The government invited bids from private Indian companies for mobile licenses in four metropolitan cities viz. Mumbai, Delhi, Calcutta and Chennai in 1991. But due to disputes and litigations regarding the grant of licenses, it took nearly three years for these companies to actually receive permission to provide cellular services. Though low rental charges allowed easy access for the subscriber to the cellular network, high usage charges actually prevented these subscribers from utilizing the network.

The National Telecom Policy 1999 brought something to cheer about for the mobile telephony operators. Mobile licenses were issued for a period of 20 years, which are extendable for further 10 years. Licenses were issued for 2 operators per circle (a circle being a state) with the third operator being BSNL (Bharat Sanchar Nigam Limited) or MTNL (Mahanagar Telephone Nigam Limited) in each of the service areas. The Telecom Regulatory Authority of India (TRAI) also decided to shift from fixed license charge to a revenue sharing regime where license is based upon the revenue earned by cellular operators. Prior to this, cellular operators paid a fixed license charges irrespective of the subscriber base and airtime serviced. This pressurised cellular operators to a considerable extent. Cellular licenses were issued on the basis that these operators were allowed to carry domestic long distance telephony within their service areas and they are free to provide value-added services like voice and non-voice services, public call offices and data service.

Major players
Company Licenses
Birla-AT&T-Tata Maharashtra, Gujarat and Andhra Pradesh.
BPL Cellular Holdings Mumbai, Kerala, Tamil Nadu and Maharashtra.
Hutchison Mumbai and New Delhi. Close to acquiring
Calcutta and Gujarat
Bharti New Delhi, Karnataka and Chennai
Reliance Orissa, Bihar, West Bengal, Himachal Pradesh
and North-East licenses
Hindujas Gujarat and keen on nationwide acquisitions
RPG Chennai and Madhya Pradesh

The regulatory body also permitted foreign direct investment upto 49 percent through the automatic route. However, the TRAI has plans to increase this to 74 percent. According to estimates, India has attracted close to Rs 45 billion as foreign direct investment in the telecom sector till financial year 2000. Of this, close to 50 percent of the actual FDI was accounted for by the cellular industry.

Growing subscriber base
(`000) Aug-00 Sep-00 Oct-00
All India 1,469 1,574 1,682
Delhi 384 402 418
Mumbai 401 433 453
Chennai 79 83 86
Calcutta 125 131 145

However, one of the most encouraging factors for cellular service providers is the fact that the subscriber base has grown by more than 3 times in the first eight months of the current year (0.5 million) to 1.5 million. Since customs duty on mobile handsets were also reduced from 25 percent to 5 percent in the current year, demand for mobile handsets has also shown a sharp growth. Moreover, in case of cellular services, both the called and the calling party (in cellular network) have to pay for the airtime. But, once the calling party pays (CPP) policy is enacted, the cellular industry is expected to witness geometrical growth in subscribers base.

Meanwhile, TRAI has suggested that the DoT grant permission to the fixed service providers for offering Wireless in Local Loop (WLL) to its customers. WLL means that companies like MTNL, Hughes Tele and Bharti, which provide basic telephony services, can offer limited mobility to their customers. However, the spectrum has a range of a 20 kilometers radius at the rate of Rs 1.20 for 180 seconds (the prevailing local call charge).

The Cellular Operators Association of India (COAI) has opposed the move of allowing limited mobility to fixed service providers, as it would have an adverse impact on the revenues of the cellular operators. As a result of WILL, COAI also believes that actual FDI might slow down in coming years. To complement this, the TRAI reduced the annual revenue sharing fee for cellular operators from 17% to 12%. This has given a breather to the cellular industry. On top of this, cellular operators are also allowed to retain 5% of the long distance revenues, which earlier they were not entitled to. These announcements are expected to benefit the cellular industry.

Depending on the availability of the spectrum, TRAI has proposed to induct a fourth operator in each of the circles. As a result, valuations of circles have fallen considerably with in turn has affected sentiment. But the question is: Whether there is a need for the fourth cellular provider?

Equitymaster requests your view! Post a comment on "Mobile telephony: Ringing high and fast". Click here!

  

More Views on News

1,300% in One Year - Are You Kidding Me? (Views On News)

Nov 29, 2021

An amount of Rs 1 lakh invested in the midcap stock a year ago would have turned into Rs 15 lakh today.

Bharti Airtel's Humongous Rights Issue to Open on 5 October. Key Points Investors Should Know (Views On News)

Sep 23, 2021

Shares of Bharti Airtel trade near record high ahead of rights issue.

This Company has Quietly Built an Enviable Startup Portfolio (Views On News)

Sep 22, 2021

The startups era has just begun, and it will provide massive opportunities to those who can spot the right trends at the right time.

More than 450% Gains for Tejas Networks in the Past Year. What Next? (Views On News)

Aug 18, 2021

Shares of Tejas Networks are up 173% since January 2021. Is the rally justified?

Can Vodafone Idea Survive if Government Provides Support? (Views On News)

Aug 3, 2021

Despite the company making several efforts to improve its operational efficiency, its financial position has sharply deteriorated.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE TECK


Nov 30, 2021 (Close)

S&P BSE TECK 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS