New Delhi: An operation restricted to two metropolises and an inability to scale outside the country may finally be catching up with Mahanagar Telephone Nigam Ltd or MTNL, a bluechip among government-run companies till a few years ago, but now seen by many as a phone firm losing momentum.
The state-run telecom provider in New Delhi and Mumbai has ridden a boom for mobile phone services in the two cities, expanding market share to 18.3% in end-March from 11% two years before. But month after month in the first quarter of this financial year, MTNL has dropped this share.
One of the original navratnas or ‘nine jewels’—the list currently is a dozen-strong—of the public sector, MTNL has seen its revenues and profits on a constant decline for the last three years as voice revenues from landline phones, its mainstay business, was dented by consumer shift to cellular voice services, and the entry of private competitors into what was once a very lucrative space.
Meanwhile, MTNL operates in markets that are fast-approaching the stage when there are as many phones as people, which means scope for further growth is severely cramped.
“For a company in the telecom business, there is no question of surviving on operations in just two circles (or licensed areas),” says Romal Shetty, director of telecom risk assessment services at consultant KPMG India.
MTNL launched its ‘Dolphin’-branded GSM wireless service in 2001 to counter private wireless operators such as Bharti Airtel Ltd, which were beginning to attract the state-run firm’s landline voice customers with mobility, ease of use and declining tariffs.
With more affordable calling rates than most private players, the company’s market-share increased steadily and consistently to around 18% in Mumbai and 16% in Delhi at the start of fiscal 2007. While MTNL’s share of the GSM market in Delhi remained constant at around 16% throughout the last year, it continued to grow its Mumbai market share from 18% to roughly 21% by March 2007. Both have fallen during the first three months of fiscal 2008.
MTNL’s share in Mumbai declined from 20.8% in March to 20.6% in June; Delhi saw a much more drastic drop from 16.3% to 13%, primarily over the disconnection of more than 290,000 pre-paid customers due to inadequate identification documents submitted by them.
Revenues from the GSM service, which had never dropped from one quarter to the next, for the first time, fell during the March 2007 quarter by a tenth compared with the immediately preceding three-month period. It recovered marginally in the June quarter.
KPMG’s Shetty says MTNL was able to garner its share of customers till now as it was able to take advantage of its status as a public sector operator and offer cheaper calling rates, but the rules of the telecom game are changing.
While the shrinking of MTNL’s landline revenues hasn’t stopped—they fell a further 3.6% this quarter over the January-March period—even on the mobile platform, consumers will increasingly prefer private operators who have both a pan-India reach and higher customer service quality, say industry watchers. “They have to up the service levels and go for a nationwide tie-up,” Shetty says.
MTNL’s woes have taken a toll on shareholder wealth. From mid-June last year, since the time stock markets have been on a constant rise (the benchmark BSE Sensex has expanded 75%), shares of MTNL have significantly lagged—they rose just 15% to the Rs150-160 mark they are currently at.
Recognizing MTNL’s inherent troubles, the government had in 2004 suggested merging MTNL and the much-bigger affiliate Bharat Sanchar Nigam Ltd (BSNL) and engaged a consultant the year after to pursue the plan, but little has moved on that idea, thanks to an unenthusiastic response to the proposal from both sides.
The way out for MTNL, says one expert, may be meeting customer demand leveraging an old asset.
MTNL should again focus on the copper cables it has dug in the ground, says Alok Shende of consultant Frost & Sullivan India. “When it is trying to compete with a private player on GSM, it has no inherent advantages... everyone has to put up the networks and so has it. But when it comes to data services, it already has the copper to the home,” he points out.
Though MTNL has tried to give value added services such as broadband, Internet-protocol-based television content distribution network (IPTV) and more recently, managed networks or virtual networking on its ground-based infrastructure, each of them have hit the wall. Its broadband services, which were launched in early 2005, has already exhausted its capacity with just around 13.3% or half a million (from a total customer base of 3.8 million subscribers) availing of it. There is a reported waiting list of 30,000 in Mumbai and another 3,000 in Delhi for whom capacity is expected to be ready by September.
Similarly, its foray into IPTV, which allows users to fast forward, pause and repeat television programmes, has just been extended to all the exchanges under its area—nearly 10 months after it was launched. MTNL is yet to start marketing the service, but its chairman and managing director R.S.P. Sinha says the company will launch the promotions early next month.
In terms of revenues, however, MTNL continues to be heavily dependent on the ever-shrinking voice calls on its landline phones. During the June quarter for example, it received nearly 73% of its service revenues from the rentals, termination charges and call charges of its landline voice customers. All the other services, including mobile and data services, accounted for the remaining.
Broadband, which is expected to get a fillip with the commissioning of nearly 700,000 new lines by September, is expected to be the immediate support for the company as its mobile revenues have stagnated at around Rs200 crore, or one sixth of its service revenues, during the last five quarters. “Other services, such as IPTV, while having potential, are yet to prove themselves in the Indian market,” Frost & Sullivan’s Shende says.