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Number portability may not see big churn, but may still hurt telcos

Number portability may not see big churn, but may still hurt telcos
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First Published: Sun, Jul 05 2009. 10 29 PM IST

Seeking options: Like many others, Jayant Sonrexa is tired of the quality of service provided. But operators may have little incentive to win new customers, given that average revenue per user is as l
Seeking options: Like many others, Jayant Sonrexa is tired of the quality of service provided. But operators may have little incentive to win new customers, given that average revenue per user is as l
Updated: Sun, Jul 05 2009. 10 29 PM IST
New Delhi: Freshly minted engineer Jayant Sonrexa, one among many thousands of irate mobile phone customers, says he is fed up with the quality of service provided by his operator, Bharti Airtel Ltd.
The calls keep dropping, Sonrexa says irritably, leading to more call attempts and an inflated phone bill. He would have changed his operator years ago but that would have meant changing his number of eight years.
Seeking options: Like many others, Jayant Sonrexa is tired of the quality of service provided. But operators may have little incentive to win new customers, given that average revenue per user is as low as Rs300. Harikrishna Katragadda / Mint
“To inform everyone of my new number is impossible,” says the 23-year-old, who’s interning at a tech training firm in New Delhi. The fix, he says, is mobile number portability (MNP), which will allow him “to change my service provider and keep my number”.
In its defence, Bharti Airtel, India’s biggest phone firm by customers and revenues, says phone firms in India have to make do with scarce spectrum that leads to call drops.
There are about 400 million mobile phone customers in India. Data collated by industry lobby group Cellular Operators Association of India in the summer of 2007 show Indian mobile phone firms packed in as many as 3.62 million customers each mega hertz of airwaves, compared with 1.86 million in the Philippines and some 220,000 in Malaysia. The skew, says the association, has only become worse.
MNP is a service that allows a mobile phone user to change a phone service provider without a change in number. The service, which could cost up to Rs300 for each change, is expected to place choice in the hands of customers who want to retain their number.
But, analysts and industry experts say they don’t expect the introduction of MNP to significantly affect what is called churn rate in the industry, or the number of customers changing their mobile phone service providers every month. This is currently at an average of 5% of customer base.
The main reason for a muted impact is that in India, at least 95% of mobile phone customers hold prepaid connections, with nearly all new subscriber additions being prepaid. Such subscribers are generally seen to have little hesitation in changing their numbers.
“Given that the Indian market is predominantly a prepaid market and the entry and exit barriers are low compared with other markets, I don’t see much of an impact of MNP on the Indian market,” says Sanjay Kapoor, deputy chief executive officer of Bharti Airtel, pointing out that already at least one in two mobile phone customers change phone numbers every year in the country.
Also, given that monthly customer billings, or average revenue per user (Arpu), is a low Rs300 in India, there might be less incentive to win over a new customer through MNP, say some, especially since the wooing phone operator will have to subsidize what are called porting charges, or what it costs to change from one service provider to another.
MNP “won’t change the game as the operator will only focus on the high Arpu subscriber which is a very small percentage of the total user base,” Madhusudan Gupta, a principal analyst with the Singapore office of tech researcher Gartner Inc.
Less than 2% of India’s mobile phone customers, second only in numbers to those in China, have Arpu of more than Rs2,000, according to an industry insider, who didn’t want to be identified.
Portability plan
MNP in India is to be rolled out by September in two zones. Zone 1 covers Delhi, Mumbai, Maharashtra and Gujarat service areas, while Kolkata, Tamil Nadu, Chennai, Andhra Pradesh and Karnataka fall under Zone 2. The rest of the country will be covered for MNP by 20 March next year, according to the department of telecommunications (DoT), India’s telecom policy-making administration.
DoT has contracted Syniverse Technologies (India) Pvt. Ltd, a unit of an eponymous MNP service provider globally, and MNP Interconnection Telecom Solutions India Pvt. Ltd, a firm controlled by New Jersey, US-based Telcordia Technologies Inc., to cover Zone 1 and Zone 2, respectively.
Those preparing to offer MNP services in India say they are not sure how the mobile phone market will react to the service. “Given the number of operators, the high competition and low Arpus, no one knows how this market will behave,” says Sanjay Kasturia, India head of Syniverse Technologies.
At least 60 countries have MNP services in their telecom markets; India will be the eighth in Asia to introduce it. The service has had varying impact in different countries.
Of the 12 million mobile telecom subscribers in Hong Kong, around 1.5 million subscribers apply for MNP annually, data compiled in a report by Keynote Capitals Research, a Mumbai research house, shows. Within three years of the introduction of the service in 1999, the number of applications to change service providers rose to nearly one-third of the total subscriber base.
One reason for this could be low porting charges. The porting charges in Hong Kong are set at a low $0.38 (Rs18.24), compared with $43 in UK, according to a report by the research division of Mumbai-based Keynote Capital Ltd.
Telecom Regulatory Authority of India (Trai), India’s telecom regulator, has mandated the time taken to port a number must be less than two days, compared with as much as two months in the Netherlands. Syniverse and MNP Interconnection expect Trai to set porting charges at Rs300 for each time a customer changes service provider.
MNP has been a game changer in some markets, as some operators in the US found. Trai, in its MNP recommendations, quotes the example of the US, where unsatisfied mobile phone customers who want to change their service but not their phone number, switch more to Verizon Wireless than other major carriers. Verizon had the best porting-in to porting-out ratio of 3:1 while AT&T Inc. wireless stood a low 1:5, the regulator noted.
Shifting to MNP
Some phone firms in India, especially late entrants into the business have readied customer acquisition strategies around MNP. Sistema Shyam TeleServices Ltd, which runs the MTS brand of phone service, for instance, is planning aggressive tariff plans around the introduction of MNP to take away subscribers from incumbent operators.
“If you are able to attract the subscriber, then there is a very good chance that the subscriber will stay for a few years,” the firm’s chief executive Vsevolod Rozanov said in an April interview.
Although large operators—Bharti Airtel, Vodafone Essar Ltd and Reliance Communications Ltd—can leverage the scale of their operations to trip Rozanov’s ambitions, their top executives are not sitting on their hands. The firms are already sprucing up network efficiency and marketing strategies to ensure that high Arpu customers in metropolitan cities and high-paying service areas do not leave for rivals.
“There will be a lot of activities to attract new subscribers and loyalty programmes to keep high revenue generating users from shifting networks,” Gartner’s Gupta says. “Markets where saturation is reached like Delhi or Mumbai willsee renewed focus from operators as it (MNP) is not only seen as a threat but also an opportunity.”
Regardless of the MNP-induced churn, marketing incursions by new operators—by this time next year, most of India’s phone service areas will have at least 15 phone firms, up from the current 11—and reactive measures by leading service providers, say analysts, will result in lower tariffs, and, as a result, lower Arpus for customers.
Angel Broking Ltd analyst Harit Shah predicts a further 5% drop in industry-wide Arpus. “The end-impact of this scenario is likely to be a fall in revenue growth and margins for telcos,” Shah wrote in a May report.
MNP implementation will increase competitive intensity in the phone services industry in India and could put an upward pressure on subscriber retention costs and drag down sector margins, says Shobhit Khare, an analyst with Motilal Oswal Securities Ltd.
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First Published: Sun, Jul 05 2009. 10 29 PM IST