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WiLL: Why the fracas? - Views on News from Equitymaster
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  • Dec 19, 2002

    WiLL: Why the fracas?

    Amidst all speculations about limited mobility and the ongoing tussle between the cellular operators and fixed line players (Reliance!) in the media, we try to analyse the impact of the Supreme Court ruling. But it has to be remembered that the ball is in TDSAT’s (Telecommunication Dispute Settlement Appellate Tribunal) court now.

    The issue of Wireless in Local Loop (WiLL) has gained significant interest among investors. The Supreme Court, in the beginning of the week, upheld cellular operators contention on allowing fixed service providers to launch WiLL (Wireless in Local Loop). The apex court directed TDSAT to look into the grievance of cellular operators. In this context, the cellular operators have won the first round. Infact, Bharti gained 7% on the bourses yesterday. However, the ruling permitted the fixed line operators to provide limited mobility services. While it is a positive for fixed-line operators like MTNL and Reliance, it is imperative now for TDSAT to formulate a policy that provides a level playing field for both the parties concerned.

    More on: Wireless in Local Loop (WiLL)      Domestic Long Distance telephony

    What is the problem?
    As far as limited mobility is concerned, cellular operators’ issues are broadly five fold: unequal level of entry fees, difference in access charges (i.e. access charges payable to a fixed network), difference in interconnection charges, difference in service areas and revenue sharing issues.

    First comes the issue of license fee. Just to put things in perspective, when Bharti, Escotel, Reliance and BATATA won the fourth operator licenses to provide cellular services in 17 states in July 2001, they had to cough up a total of Rs 1.6 bn. Industry estimates peg total license fee outgo from cellular operators at more than Rs 30 bn till now. However, fixed telephony operators, with WiLL, get an indirect entry into the mobile market without paying any license fee. This is the bone of contention.

    Moreover, the issue of how ‘limited’ is limited mobility has also come to the fore. For simplification purpose, limited mobility covers a SDCA (a city like Mumbai). To put things in perspective, cellular operators like BPL and Hutchison have paid significant sums as license fee for providing mobile service for almost the same area. So if somebody were to offer WiLL in Mumbai, because of its low fee structure, it can use that leverage to keep its tariffs so competitive as to drive the existing mobile players out of the market. The threat is also that fixed line operators, with the help of technology, can increase the scalability of the service to widen both coverage and the subscriber base. In this case, cellular players clearly stand to lose.

    While one is clear that customers should not be deprived of any service that is cost effective and therefore beneficial, the interests of telecom majors that have invested large sums for providing basic and cellular services have to be protected. This is based on the assumption that there will be a level playing field. When viewed on a balanced scale, it is upto TDSAT to plug the anomaly in basic and telecom licenses. Achieving this, without succumbing to political pressures, is of greater importance. As we have maintained throughout, this is vital not only for the telecom sector but also for the country as a whole.

    Whether WiLL is a bigger threat to cellular players is arguable. For one, fixed line operators cannot provide value-add services like short messaging services and roaming facility. We also expect mobile tariffs to decline further when fixed line players launch WiLL in the near future. The key entry barrier for a subscriber, be it for cellular or limited mobility, is the handset cost. Given the large black market for the cellular segment, this entry barrier has fallen significantly. Moreover, players like Bharti are planning to launch limited mobility services by the use of GSM technology (this technology is currently used for providing cellular services). International experience, like the graph below for Singapore, suggests that after the initial rise in demand, limited mobility has not made significant inroads in the mobile market. But the Indian experience is a whole new game altogether, where many times set standards fail and new trends are set. Wait and watch.



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