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China: The solution to India's cellular telephony problems - Views on News from Equitymaster
 
 
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  • Aug 25, 1999

    China: The solution to India's cellular telephony problems

    When the Government of India opened the doors to private players in the telecom services sector, a large number of companies, both domestic and international, jumped into the fray. However, they erred in estimating the size and the potential of the Indian telecom market.

    In bidding for various telecom circles in India, private operators had bid very high, based on the premise that there existed a large market for private cellular telephony services. However, their revenue projections went haywire with revenues falling far short of the projected figures. Coupled with this the operators were saddled with high license fee, which had to be paid over a period of time, irrespective of the revenue collections. This double whammy has led to large-scale losses in the private telecom services industry.

    The cost of high licence fee is ultimately being borne by the consumer. In China, the airtime tariff is approximately Rs 1.2 per minute as compared with the Rs 3 - Rs 6 per minute charged by Indian companies. Added to this, Indian subscribers have to pay an additional monthly tariff of Rs 630 per month. Moreover, the initial subscription charges in India are in excess of Rs 2,000 while in China charges are approximately Rs 1,000. This brings to light the substantial difference in the cost structures of cellular telephony services between China and India.


    1 Rmb = 5.3 Rs

    The high costs in India are probably responsible for the slow growth in subscription numbers.

    In comparison to China, which has added 2.2 m cellular subscribers per month between May and July 1999, India averaged a meager 30,000 subscribers per month.

    With the revenue sharing plan between the telecom companies and the Department of Telecommunications having been approved and the implementation of the new telecom tariffs by the Telecom Regulatory Authority of India, it is probable that India too will witness a rationalisation in cellular service tariffs. This could trigger the growth of the industry to higher levels - probably to levels attained by China.

    Although the recent renegotiated deal between the government and the telephone companies brings to the forefront a host of issues such as the bailout factor and a sense of rescuing the failing telecom licence holders, the obvious story is that lower prices will spur demand.

     

     

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