Let us visit some eventualities that I foresee as a result of the per-second billing:

 1. The interconnect charges will drop, and not to the 10paisa per minute that our Honourable Minister recently recommended but, to a per-second rate. In fact 0.1 paisa per second is where I see it coming down to shortly.
 2.  The franchisee or the MVNO model will die. With retail sales at 1p/sec what can wholesale prices come down to? Moreover it is just not a question of retail Vs wholesale but the fact that while revenues & profits tumble the OPEX remains almost the same. So Network Owners will not be able to give wholesale prices to MVNOs. However India will witness franchising in the next two years. I feel that with limited slots for 3G there will be some franchisee/ MVNO model created by the players who will lose out on the auction. While for WiMAX we will definitely have franchising sooner, starting with the BSNL tender for the remaining circles (3 have been awarded to SOMA networks).
 3.  The rates will further drop for intra-operator calls. MTS has already launched a 0.25paisa/ second call for MTS to MTS subscribers. This would be an imperative action by the incumbents as a first-step retention strategy. Right now not many are talking about MTS and the main reason is their being a CDMA operator. Though they have launched an extremely competitive tariff the entry cost of handset is a barrier for new subscribers.
 4.  The taxes will reduce. We already have a very high telecom tax structure compared to China & other Asian markets. The tax structure of Revenue share on Licence Fee, Spectrum & Service Tax all adds up to the price to the customer and for some circles it touches 30%. There are two strong arguments in favour – the first being the business case viability for operators and the second, which is stronger, being the fact that the ‘poor rural customer’ who buys micro-prepaid credit has to bear the brunt of these taxes.
 5.  SMS rates will drop drastically as they will start forming a bigger percentage of the ARPU. Maybe the next 4-5 operators will introduce a Free SMS Plan for life as they definitely cannot go below the 1paisa/ second voice billing. However Value Added Services will gain a lot in importance as a service differentiator and this is another space where we should watch out for DoCoMo. VAS in Japan is almost at a Sci-Fi movie level and porting and customising those services for India will be easier for DoCoMo than for others. The place that Operators should focus on is VVAS (Vernacular VAS) – Services for people who cannot read or write English.
 6.  The tower companies’ valuation will increase in the near future and some of the PE players will cash out. Recent months have seen that incumbents can be put under tremendous pressure and that it is never late to launch services if the entry strategy is thought out well. Now others who have long signed contracts with vendors but not mobilised deliveries will speed up their launches. This will lead to several Tower rental agreements being signed – the current sharing ratio of 1.5 will rise to 2.5. Tower companies valued at 50Lacs per tower will start demanding 1Crore. This might however not last. The reason is that OPEX reduction pressure will make the Operator owned tower companies to reduce rental rates. The non-operator-owned Tower companies will have to follow suit. The tower valuation will again come back to normal – giving about a 20% IRR to investors. But some people like I said will make money during this rise & fall.

By and large every time we feel that the Indian Telecom market has become predictable something happens to make it exciting. Sometimes it’s a government regulation and sometimes pure competitive forces. There is a lot to expect from the coming years also. We will see 3G & WiMAX launches, WiMAX Franchising norms will allow more players, USO fund utilization schemes will be there, another mega BSNL tender, consolidation of operators & tower companies.

Keep reading Telegyan.com to stay up to date on the happenings in Indian Telecom.

While there is little that the operators can do to change their Licence & Spectrum Fees or influence their interconnect charges without regulatory intervention, what they can definitely do is take a relook at their Network/IT Costs, Employee Costs & Distribution Costs.

Again though the idea will be to cut down on these Costs the measurement parameters will always be linked to subscribers, minutes & in this case also network elements. Coming to network elements, one of the things that has happened by telcos unlocking value and forming Infrastructure companies to lease back the towers to them is that their Network OPEX/ site has become predictable. Would it not be prudent then to measure some of their achievements on a per site basis?

Subscribers Per Site has been a very discussed parameter. However from my previous blog it is clear that subscriber figures are not the best judge of an operator’s growth or performance in today’s world. His revenue is a pure function of Total Minutes on Network (TMN). So let us see how some of our established players measure on a per site basis on Subscribers & Minutes. Here we see some very different & characteristic numbers for each operator.

Airtel currently has a Subscribers Per Site (SPS) count of 1,116, R-Com with the CDMA advantage has 1,722 SPS, while Idea currently has an SPS of 919. The Minutes Per Site (MPS) value in Millions for Airtel, R-Com & Idea are respectively 1.44M, 1.69M & 0.99M. Clearly the higher the MPS value the lower would be the Network OPEX/ minute. 

If we take a look at the Overall OPEX (Calculated as Revenue – EBITDA) figures of these operators calculated on a Per Minute basis we see a similar pattern. Reliance has the lowest OPEX/ minute at 32 paisa, while Idea has the highest at 43paisa and Airtel’s OPEX/minute is 38 paisa.

While we compare the MPS factor it is also important to mention that though it seems to form a pattern with the OPEX/ minute it has a CDMA Vs GSM factor to consider on the Revenue Per Site (RPS) comparison. While R-Com has the highest MPS of 1.69 it has a lower RPS than Airtel. This is because it WARM is only 47 paisa – to understand this please read my previous Blog on Revenue Parameters.

Another thing to mention here is that the Overall OPEX (Revenue minus EBITDA) on a Per Site basis. This shows the overall efficiency of Operators on not only their Network OPEX but also on their Employee & Distribution costs. The overall OPEX Per Site (OPS) for Airtel, R-Com & Idea are respectively 1.84 Lacs, 1.79 Lacs & 1.41 Lacs. Here we see Idea having the lowest OPS.

Few of the things that operators need to focus on to improve these performance parameters is to see how they can pack more MPS and reduce OPS. The others is also to reduce their Employee costs & Distribution costs.

Talking about these costs Airtel has done amazingly well through a series of decisions. Their network OPEX is outsourced to Ericsson & NSN, their IT is outsourced on an innovative Revenue Share agreement to IBM, their Call Centres are outsourced on a per seat & per minute agreement. All this gives them a very good handle on their OPEX costs allowing them to work towards increasing efficiency through defined SLA parameters.

Another good thing that Airtel has done is that for their distribution (and BTW they have over 1 Million retail outlets to distribute to, more than anyone else) they have removed the Super-distributor model. All their distributors contact them directly through their CRM module managed by IBM. Though this means that they have hundreds of distributors in each circle and thousands in the country directly being managed by them they have increased efficiency through automation and reduced a significant step in the distribution chain making them more competitive in the market and helping them save revenues.

I soon plan to write a series blogs on ways in which OPEX efficiency can be achieved to address all these factors. The first of them is already in my head on ways in which more MPS can be achieved.

But still the telecom stocks are stumbling, there is panic in the investor community and everyone is saying that the great Indian Telecom Story is in its final chapter.

In my previous blog I had mentioned the difference that the current surge in subscriber additions has from the ones we witnessed earlier. Let me elaborate here.

For years now we have been measuring the growth of wireless telecom with the subscriber additions per month. All the while we also acknowledged that the ARPU levels were falling. We attributed this to the fact that the next level of subscribers was increasingly coming from lower & lower in the Pyramid and that is why we were seeing a dip in the ARPU. What was never accounted for was the fact that the Total Minutes on the Network (Let’s call it TMN) was growing substantially. Which in turn made the operators revenue grow proportionately. Everyone was happy – Bharti used to report an EBITDA of 40% and investors were queuing up to invest in India.

We can look at Revenue in 2 ways:

1. ARPU X Subscribers
2. TMN X Weighted Average Revenue per Minute (WARM)

The first has several shortcomings – It does not address the lag in clearing the Subscriber database after churn. It does not account for the fact that in Metros we have crossed 100% teledensity and the SIM/Subscriber ratio is more than One. Both these indicate a multiple reporting of subscribers by different operators.

The second has some ambiguity as to understand it better we need to figure out what the WARM is. Which in turn is an extremely complex function of a) The existing price plans & b) the Average Call Duration for each operator. Surely we cannot determine this before hand and is always a post-facto calculation of total Revenue divided by TMN. However I say that from now onwards these ratios will gain more prominence & mention outside the telecom galleries. And also with the per-second billing pattern the Average Call Duration (ACD) will gain in prominence.

To get a perspective how this translates in numbers please download the presentation, “Some Operator Parameter Comparisons” which is available on this site. A small illustration is that while Airtel’s subscribers grew in the last quarter by 8.8% its TMN increased by just 2.1% while the quarter previous to that the subscriber growth was 8.5% and the TMN growth was 7.7%. In Reliance’s case this slide is even more apparent – Q1 saw R-Com subscribers grow at 9.5% and TMN at 11.4% while Q2 (Sept) saw the Subscriber growth at 8.2% and the TMN growth slid to 1.4%! The panic is that while the additional cost of adding a minute to the network is negligible the additional cost of adding a subscriber is substantial. In the scenario where New subscribers and being added and Old ones being lost to churn and the TMN not keeping pace the MoU/ sub/ month is coming down drastically. Hence the ARPU is coming down even more and now we can’t just wave-off the ARPU decline to the new subscribers being from rural areas.

The WARM for Airtel & Idea in Q1 and Q2 was 58paisa & 56paisa respectively. For R-Com it slid even more and Q2 WARM was 47paisa compared to 58 paisa in Q1.

So let us keep an eye on these new performance parameters of TMN, WARM & ACD. You could also read my next blog on the “Emerging OPEX parameters for Operators”.