Multiple SIMs multiply amid tariff war

Multiple SIMs multiply amid tariff war

New Delhi: Gaurav Bathla, who runs a small store in a residential neighbourhood in Dwarka in New Delhi, has three mobile phones, one on which customers can call and place orders, another on which he can call distributors who supply him with merchandise, and third for his delivery man.

Multiple connections—or what telcos call multiple SIMs, after the subscriber identity module or chip card that goes into phones—have become the norm in India as customers seek to make the most of free talk time and promotional offers from competing telcos.

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Bathla, for instance, claims he used to spend Rs3,000-4,000 a month when using only one phone and that he now spends around Rs1500-3000 on all three phones.

To be sure, that doesn’t take into account the cost of the phone itself but these are now available for as low as Rs1000.

The telcos didn’t anticipate the phenomenon, but multiple SIMs would appear to be an accidental fallout of the ongoing tariff war in telecom that threatens to wreak havoc on the profitability of most companies. A fifth of India’s 485 million connections at the end of October are either second or third phones, say analysts and executives at telcos. Telecom tariffs in India have fallen to as low as 1 paise a second under some plans.

According to the Telecom Regulatory Authority of India, or Trai, India added 16.67 million wireless subscribers in October.

Tata Teleservices Ltd, the firm largely considered to have started the tariff war has picked up 11 million subscribers in the past three months taking the firm’s total customer base to a little over 50 million. In the same three months, the country’s largest telecom operator by revenues and subscribers, Bharti Airtel Ltd has seen a rise of its subscriber additions by only eight million. The company serves 113.21 million mobile telephony customers.

A telecom executive said that the intensity of the trend seemed higher in India.

“The multiple SIM phenomena does hurt the market on the whole. But now you see it everywhere—you see it in Russia and in many other countries. It’s normal to say that this market will go in that direction. But the size of the phenomenon is amazing. Some subscribers have four to five SIMs," said Leonid Musatov, chief marketing officer at Sistema Shyam Teleservices Ltd, which owns the MTS brand in India.

“In metros, the problem is far worse with around 30-40% of the consumers having more than one SIM card, if not more. The actual subscriber penetration is quite lower than the number published. We can probably easily slash 15-20% of the total wireless subscribers of around 500 million due to the multiple SIM phenomena," he added.

India’s teledesnity or telephone penetration is 41.69% if only mobile phones are taken into account.

Analysts concur.

The increase in “GSM subscriber addition is due to increased incidence of dual SIMs. Indian telecom operators sharply cut tariffs in October," a 16 November report prepared by Shubham Majumder and Nitin Mohta, analysts with Macquarie equities research said.

“We see a sharp increase in incidence of dual SIMs, and the uptick in GSM subscribers (excluding GSM subscribers of two CDMA carriers) would not necessarily result in corresponding increase in wireless revenues, as usage shifts to other players," the report added.

GSM and CDMA are rival wireless technology platforms. GSM is the dominant one in India. Reliance Communications Ltd and Tata Teleservices operate on both platforms. Reliance and Tata, however, are new entrants in the GSM space. Other new entrants in this space that have started operations in the past year or expanded into newer regions include Aircel, MTS, and Idea Cellular Ltd. Some analysts hold these companies directly responsible for the phenomenon.

“This is a phenomena that has started since the entry of Reliance in the GSM market in January this year," said an analyst with a Mumbai-based brokerage. This person, who did not want to be identified, added that at least 40% of the 100 million subscribers signed on this year by telcos are people with multiple SIMs.

“Overcapacity in urban centres has accelerated the dual SIM phenomenon, in our view, as new schemes have allowed for arbitrage opportunities," Rajiv Sharma, an analyst with HSBC Securities and Capital Markets (India) Private Limited said in a report dated 21 October.

While there are signs that the trend is petering out because larger telcos have joined the tariff wars, it has already had an impact on the financials of telcos, said analysts.

“Following the launch of GSM services under Tata DoCoMo brand, we observed the first signs of pressure on revenue share for GSM incumbents and the largest CDMA player in the July-September 2009 quarter. We remain convinced that expansion of Tata DoCoMo to other circles would hurt incumbents in coming quarters," the Macquarie report added.

And the analyst with a foreign brokerage mentioned in the first instance added that the phenomenon has had “an an adverse impact on the revenues of primarily the major incumbent operators as the minutes that would have come to them are going to the other operators."

Still, the phenomenon may have been short-lived, said another analyst.

With existing large telcos entering the fray, the arbitrage opportunity for customers may be over, said this person who works for a Mumbai-based brokerage, and didn’t wish to be identified.

The phenomenon could have helped “new operators building up scale which is key to success in the India telecom market."

Now, by inference, they may find it more difficult to do so.

Graphics by Sandeep Bhatnagar / Mint