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Telecom: Your number's portable... - Views on News from Equitymaster
 
 
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  • Nov 14, 2007

    Telecom: Your number's portable...

    ...atleast if you are residing in any of the four metros - New Delhi, Kolkata, Mumbai or Chennai. This decision from the Indian Department of Telecommunication (DoT) shall come into effect in a year's time, and has been an outcome of last 2-3 years of discussions and confusions amongst the industry associations (COAI and AUSPI), regulator and the government.

    While such a move shall benefit mobile subscribers, it shall impact the service providers' profitability, considering the costs involved in implementing the technology, attracting new subscribers and more importantly retaining existing ones from being poached by competitors. After being introduced in the four metros over the next 12 months, this service will then be extended to other parts of the country.

    For beginners, Mobile Number Portability, or MNP, esentially enables mobile users to retain their existing mobile numbers when changing from one mobile network operator to another. All these years, since the indroiction of mobile phones in the country, and the emergence of mobile numbers as one important identity, the inconvenience of having to change numbers and then informing friends, relatives, colleagues and business partners of new numbers has prevented subscribers from switching to another service provider even if the existing operator is providing inefficient services. Now, the introduction of MNP shall change all that, although at some cost to the subscriber (the customer will also have to incur a fee for switching over to another operator). As for companies, the fact that MNP shall require expenditure towards the required technological setup, might lead to some impact on profitability, atleast for the mid and small size players.

    Subscribers can also expect improvement in service quality as, considering that competitors will be preying for another's subscribers, an operator is expected to be more proactive in the way it services its subscribers. To start with, MNP can have an impact on the churn rate of companies, with the impact being greater in the small ones like Idea and Spice. As seen from the adjacent chart, these companies already have higher churn rates as compared to market leaders like Bharti and Reliance. Readers should however note that the churn rate in Reliance not really comparable with Bharti's as the former's subscribers have the handset as a 'liability' while considering any shift in operator.

    Reactions from the industry
    While the CDMA faction (led by Reliance Communications, of course) has welcomed the DoT's decision with respect to MNP, the GSM body - COAI - seems visibly disturbed. The COAI chief has fairly indicated that the timing of the MNP implementation coincides with a large CDMA player (Reliance Communications) getting the nod for GSM spectrum throughout the country, thus having the potential to poach existing GSM operators' subscribers.

    What to expect?
    Discussions, confusions, counter attacks, legal suits and more. Considering the kind of favoritism shown by the government on a particular lobby, do we expect anything else till the time MNP actually gets implemented? On the operational front, as we have indicated above, MNP can impact margins of smaller companies considering the costs of technology implementation and subscriber retention. As for the bigger players, we believe that they have the necessary scale to atleast maintain margins at the current levels. The movement of subscribers from smaller players to pan-India operators shall also benefit the latter.

     

     

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