Published: March 1 2010 17:07
Financial Times
For a man fighting a war of attrition, Syed Safawi, the head of Reliance Communications’ wireless division, appears remarkably sanguine.
It is a fact of life, he says, that Indian telecom subscribers are becoming more promiscuous when it comes to mobile operators, constantly switching between networks in search of the best deal.
The question is how to get the most out of each subscriber for the few days a month when he might be using the Sim card he or she bought from Reliance, India’s second-largest mobile operator.
“Having multiple Sims … is not necessarily a bad thing as long as we can get revenue out of those multiple Sims,” Mr Safawi says in an interview at Reliance’s headquarters on the outskirts of Mumbai.
Like the rest of India’s mobile operators, Reliance is gearing up for a second year of “hyper-competition”, in which operators are no longer focusing only on adding new subscribers but also on splicing up the business of existing users.
With the auction of third-generation wireless spectrum also expected as early as April, the coming months will be critical in deciding which among the India’s more than 12 operators will emerge victorious in the world’s fastest-growing large mobile market.
Controlled by industrialist Anil Ambani, Reliance is competing with Bharti Airtel, headed by billionaire entrepreneur Sunil Bharti Mittal, Vodafone of the UK, and a host of other operators. These include Tata DoCoMo, backed by Japan’s leading mobile operator; Uninor, partially owned by Norway’s Telenor; and other groups whose investors include Russia’s Sistema and United Arab Emirates’ Etisalat.
India has been adding new subscribers at a rate of nearly 20m a month, bringing the total to 545m at the end of January. The growth of the market is being driven by a price war, in which mobile operators are offering calls at a fraction of a US cent per minute.
Bharti is the market leader with 121.7m users, while Reliance has 96.6m and Vodafone Essar has 94.14m.
But it is newcomers, such as Uninor, which are growing fastest, adding 1.33m subscribers to reach 2.54m in January and the revamped Tata DoCoMo, which added 2.98m to reach 60.31m.
Mr Safawi says that even with the price war, his margin based on earnings before interest, taxation, depreciation and amortisation is at 31-32 per cent. With his networks in place, he just needs to drive up traffic.
“How long will it [the price war] be sustainable? It’s going to be different for different operators,” Mr Safawi says.
“My peak investments are behind me, I’m already at very competitive tariffs and I’m free cashflow positive this year, so my ability to fight this war for another 12 months, 18 months, 24 months is much stronger than a newcomer who’s trying to create a network.”
But analysts argue that the constant churn, with users switching between networks, means operators are paying a high price in terms of subscriber acquisition costs.
“Depending on which carrier it is, they do pay upward of Rs50 into their distribution channels for every subscriber who’s activated,” says Kunal Bajaj, managing director at advisory firm BDA in New Delhi. “At some point, you have to recover that cost.”
Beyond the price war, Mr Safawi is eyeing the forthcoming third-generation spectrum auction, in which the government is expected to sell three pan-India allocations at a reserve price of Rs35bn ($758m).
Reliance already offers data cards for laptops that use 3G mobile technology to provide broadband.
The launch of 3G will further enhance revenue opportunities. In a country in which fixed-line broadband penetration remains negligible, most Indians will access the internet and a range of online services, such as entertainment, banking and payments, social networking and gaming, through their mobiles.
“We’ll be in it very seriously,” Mr Safawi says of the 3G auction.