Higher costs, scramble to hold on to mobile users seen in 2008

Higher costs, scramble to hold on to mobile users seen in 2008

New Delhi: With the government allowing mobile subscribers to retain their numbers even if they switch service providers, telecom operators such as Bharti Airtel Ltd, Reliance Communications Ltd and Vodafone Essar Ltd now face the challenge of retaining customers even as they have to share the cost of upgrading switches and customer databases.

Independent telecom experts estimate that operators will end up spending about Rs900 crore to upgrade their infrastructure and set up a new central clearing house to enable portability to work well among operators, some of whom use different technology standards.

Some analysts tracking the sector say that churn, or switching, rates for high-end subscribers, typically paying at least Rs800 in monthly bills, could double to 6%.

“The game will change from customer acquisition to customer retention," says Arvind Subramanian of consulting firm Boston Consulting Group.

India, which is home to some 209 million mobile customers, is adding seven to eight million telephone subscribers every month. The department of telecommunications, or DoT, on Monday announced the introduction of mobile number portability in four largest metros by 2008, and asked operators to establish a centralized database through a neutral third party.

“There could be a short term impact on churn rates, but we have analysed that it usually stabilizes within a quarter," said a telecom official who didn’t want to be identified.

Of India’s 209 million mobile customers, around 20% pay between Rs800 and Rs1,000 a month and are seen as the most valuable customers to hold on to.

For subscribers, changing an operator could cost around Rs200, “but even that would go down over a period of time," said Subramanian.

Some industry experts see a positive fallout for customers as telecom companies scramble to retain existing customers: an increased focus on service quality.

Others, such as Yogesh Kirve, a telecom analyst at Mumbai-based Anand Rathi Securities Ltd, see an “imminent price war".

Meanwhile, the Cellular Operators Association of India, or COAI, which is a lobby for service providers that use the GSM standard, such as Bharti and Vodafone, says it views the government’s portability move as aimed at benefiting “a select operator, which is entering the GSM segment and poaching on the subscribers of existing operators," according to T.V. Ramachandran, director general of COAI. It is a not-so-veiled reference to Reliance, which is a major player in the so-called CDMA technology and is entering the GSM side of the industry.