Impact of Number Portability on Reliance Communications IIPM Thesis 168p (1)

THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENTNEW DELHI

THESIS

ON

“IMPACT OF NUMBER PORTABILITY ON RELIANCE COMMUNICATIONS”

SUBMITTED TO: EXTERNAL GUIDE:PROF. SUMANTA SHARMA MR. KAVNISH GUPTA ASSOCIATE DEAN PRODUCT MANAGERIIPM, NEW DELHI RELIANCE COMMUNICATION

SUBMITTED BY:ANKUR GULATI

BATCH: PGP/FW-2007-09ALUMNI ID: DF79-M-1137

IIPM, NEW DELHI

“Impact of Number Portability on Reliance Communications”

ABSTRACT

The implementation of MNP would be beneficial for mobile subscribers, as it would

provide them with a wider choice (in terms of pricing plans, services, etc.) and

flexibility to change service operators without losing their mobile number. However,

for mobile service operators, the churn that invariably follows MNP implementation

represents both a threat and an opportunity. Post the implementation of MNP, some

operators are likely to witness the erosion of their customer base and the resultant

decline in profitability, however, for some other operators, MNP can provide an

attractive opportunity to gain market share and target high ARPU customers.

In ICRA’s view, MNP would result in higher competitive intensity, increase in churn,

pressure on ARPUs and margins in the short term and telecom operators would have

to increase their focus on improving service quality and offering differentiated

services in order to attract and retain subscribers in the long term. ICRA believes that,

operators with superior quality of service would be the clear winners, while those with

less than satisfactory service quality would stand to lose the maximum by way of

subscriber churn. In our view, the major issues likely to lead to the success (or

otherwise) of MNP in India will be the cost of porting and the time taken to port

numbers. Given the fact that India is a price-sensitive market, the likelihood of MNP

succeeding is quite high. Further, as mentioned earlier, given the significant

dissatisfaction with QoS, particularly in the Metro service areas, the likelihood of

churn rates increasing in these areas is higher. Another factor that is likely to play out

in favour of a successful experience with MNP implementation in India is the absence

of long-term service contracts. In many developed markets like Singapore and

Taiwan, service providers tie down their subscribers with long-term service contracts

ranging from 12 to 24 months. In return, service providers subsidise or provide free

mobile handsets. Subscribers wait until their contract expires, or pay a stiff penalty for

breaking their contracts if they still opt to switch service providers. Operators do this

to prevent customer churn and is a major deterrent to the success of MNP.

Set up a consultative group with representatives from industry and consumer groups

to firm up how NP will be implemented, taking into account technology, commercial

issues, and time frames. TRAI can benefit from the experiences of other countries,

which have already implemented NP and the industry can give inputs based on the

learning of their foreign collaborators in establishing NP in different markets. A

ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

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document describing the possible plan of action is to be prepared by this group, and

comments from consumer groups and other industry players are then to be invited on

this document.

As NP is oriented towards giving the consumers greater choice, TRAI should direct

operators to provide local service provider portability for both mobile and fixed lines.

It should then look at providing these for freephone services (such as the recently

introduced 1600 toll-free numbers). National NP here has lower relevance since

business consumers rarely change their locations. Even if they shift locations they are

likely to inform their consumers and suppliers about the change in address, etc.

Therefore change of telephone numbers will not result in imposition of additional

costs on such businesses. This point is equally relevant for individual consumers also.

TRAI should specify a mechanism whereby the conflicts between consumers and

operators on the one hand and between the operators themselves on the other have to

be resolved. The common mechanism followed worldwide is that the operators have

to form a body which will settle such issues and only revert to TRAI after they have

not been able to arrive at an amicable settlement.

The source network queries the database and finds the latest routing information and

then establishes the call. Direct database: All calls go directly to the database. This

reduces the time for ported numbers but increases the time for non-ported numbers.


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CERTIFICATE OF ORGINALITY

This is to certify that the thesis titled “Impact of Number Portability on Reliance

Communications” is prepared and submitted by me to Indian Institute of Planning &

Management, New Delhi in partial fulfillment for the award of the Master Degree in

Business Administration, and this report has not been submitted elsewhere.

Date: ANKUR GULATI

Place: BATCH: PGP/FW-2007-09ALUMNI ID: DF79-M-1137

IIPM, NEW DELHI


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CERTIFICATE FROM GUIDE


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THESIS APPROVAL LETTER

Dear Ankur Gulati,

This is to inform that the thesis topic “Impact of Number Portability on Reliance

Communications”, as proposed by you, has been approved .This email is an official

confirmation that you would be doing your thesis work under the guidance of

Mr. Kavnish Gupta. Make it a comprehensive thesis; the objective of a thesis should

be value addition to the existing knowledge base.

Please ensure that the objectives as stated by you in your synopsis are met using the

appropriate research design.

You must always use the thesis title as approved and registered with us.

Your Alumni ID Number is DF79-M-1137

You are required to correspond with us by sending the thesis final draft to Prof. Vijay

Kr. Boddu at [email protected]. Ph-0124- 3350714 .

Regards,

Sumanta Sharma

Dean (Projects)

The Indian Institute of Planning and Management

[email protected]


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http://us.mc455.mail.yahoo.com/mc/[email protected]


Phone: 0124 – 3350701,709,713,714,715

ACKNOWLEDGEMENT

The present work is an effort to throw some light on “Impact of Number Portability

on Reliance Communications”. The work would not have been possible to come to

the present shape without the able guidance, supervision and help to me by number of

people.

With deep sense of gratitude I acknowledge the encouragement and guidance received

by Prof. Sumanta Sharma Associate Dean - IIPM, New Delhi. I also convey my

heartfelt affection to external guide Mr. Kavnish Gupta, who helped and supported

me during the course of completion of my thesis.

ANKUR GULATI


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THESIS SYNOPSIS

PERSONAL DETAILS:-

Name : ANKUR GULATI

Batch : PGP/FW 07-09

Specialization : Marketing

Mobile No. : +9199111-71111

Email Id : [email protected]

TITLE OF THESIS:

“IMPACT OF NUMBER PORTABILITY ON RELIANCE COMMUNICATIONS”

PROBLEM DEFINITION:

The present study aims to analyze the effect of number portability towards Reliance

Communication products in NCR Delhi, the study will also analyze the marketing

strategies adopted by Reliance Communication for its GSM Services and products,

once the number portability is established in India.

LITRATURE REVIEW:

Mobile number portability (MNP) enables mobile telephone users to retain current

their mobile telephone numbers when changing from one mobile network to another.

MNP helps in increasing competition between the service providers and acts as a

catalyst for the service providers to improve their quality of service.

Reliance Communications has launched its GSM-based cellular services and has

dropped the entry cost of a lifetime pre-paid card to Rs 49. Particularly Delhi has 4

GSM operators and the lowest lifetime card available in the market at present is


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mailto:[email protected]


priced at Rs 99. Delhi already has 12.4 million mobile users and is not the fastest

growing market any more in terms of new subscribers.

Reliance Communication would be hoping to churn subscribers on the existing

network. According to Mr C.S. Rana, Regional Head of Delhi, Haryana and Rajasthan

Circles for RCom, the company will be offering a combination of superior network

quality and value on tariff plans to attract customers. Reliance Communication has

1,800 base stations across the State and plans to keep adding on it. “The Reliance

Mobile GSM entails offering a unique value proposition fine-tuned as per the needs of

every segment of GSM customers in the country. The Customer Experience

Programme, Reliance Mobile GSM’s first offering, is in line with Reliance

Communications’ Philosophy of making world-class telephony services accessible

and affordable to the masses,” Mr. Rana said.

As a part of its fierce marketing strategy the new GSM plan launched in Delhi offers

450 minutes of talk time on local calls and SMS to any network that can be accrued

by Reliance Mobile GSM customers in daily trenches of Rs 5 spread over 90 days. In

addition, customers choosing the Customer Experience Programme can make

unlimited calls between 11 p.m. and 6 a.m. to any of the 3 million Reliance CDMA

subscribers in Delhi & NCR by taking the night pack for Rs 15.

In a short span of 11 months, Reliance Mobile has created a GSM network in Delhi

whose coverage and capabilities are superior to GSM networks that have been in

existence for 15 years. Over 16 million GSM customers in Delhi can now avail of

state-of-the-art, next-generation, EDGE ready Reliance Mobile GSM Network — the

only network that offers digital voice clarity and up to 50 per cent cost savings for the

cost-conscious mobile user segment.


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Target users: To start with, Reliance Communication is targeting the low-end users

with its lifetime pre-paid card. The sub-Rs 150 segment comprises of the largest and

fastest growing population of mobile customers in the country.

The above strategy of cost competitive sale/offers, used by Reliance Communication

would definitely be of assistance in getting more users via mobile number

portability.

RESEARCH METHODOLOGY:

My research will include:

Primary Data: Interviews and Questionnaires with Officials of Reliance

Communication & Reliance Mobile phone users in New Delhi

Secondary Data: News Papers, Books, Internet, Reports, Marketing Magazines

OBJECTIVE OF THE THESIS WORK:

Objective of the Study

To analyze the effects of Mobile number portability towards the sale of Reliance

Communication Products and analyze Reliance marketing strategies currently adopted

by Reliance Communication to boost the sale of its GSM Services/products in New

Delhi, once the number portability is established in India.

JUSTIFICATION FOR THE TOPIC:

The study will contribute towards identifying the market prospects and market

potential for Reliance Communications for its GSM Services in New Delhi.

Mobile telephony consumers now have a wider choice of operators / networks, with

the launch of number portability in India, it would be interesting to see the effects of


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the same on Reliance Communication which happens to be the biggest CDMA and

GSM service provider in New Delhi. Reliance Communication has been offering

CDMA-based mobile service throughout the country and has recently been allowed

by the government to start GSM service simultaneously. The company has chosen the

national capital to start its services under the dual technology license.

EXTERNAL GUIDE DETAILS

Name : Kavnish Gupta

Company : Reliance Communication

Designation : Product Manager

Ph. Number : 9311156770


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TABLE OF CONTENT

ABSTRACT (ii)

CERTIFICATE OF ORGINALITY (iv)

CERTIFICATE FROM GUIDE (v)

THESIS APPROVAL LETTER (vi)

ACKNOWLEDGEMENT (vii)

THESIS SYNOPSIS (viii)

CHAPTER – 1 INTRODUCTION 1-21

Background

Mobile Number Portability (MNP)/ Introduction

Number portability can be of different types.

Technical details

Number Lookup Services

Some Perspective

The rationale for implementing MNP

CHAPTER – 2 LITERATURE REVIEW 22-102

International Experiences In Number Portability

Overview of NP in Australia

Concerns

Number Portability in U.K.

Number Portability in the USA

MNP in South Asia

Measuring the success of MNP

Policy and regulatory implications

Founder

Vision

India ’s leading integrated telecom company

Mission

Corporate Philosophy

Presence in Jhansi

Market Share


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Wireless segment

Broadband segment

Dhirubhai Ambani Pioneer Offer – Democratizing Mobiles:

Pre-paid Offering - Market Consolidation:

Cost Management - The Inside Picture

Entry strategies

Strategy of delayed-launch

Sales and marketing strategy:

Criticism on strategy adopted by reliance

Strategy to promote Infocomm

Technology

Customer Generation - Tapping in to Internal Resources:

Dhirubhai Ambani Entrepreneurship Programme – A New

Way to Market:

Advertising – Educating Masses and Evoking Passions:

Product Innovations - Connecting with Every Section of

Society:

Customer Service – Icing on the Marketing Cake:

Tackling the problem phase:

Porter’s five compititive forces

Bargaining Power of Suppliers:

Bargaining Power of Customers:

Threats of Substitute Products and Services:

Intensity of Rivalry among competing firms:

Reliance Communications launches Money Transfer on

Mobiles

Impact Of Mnp On Reliance Communication

All Call Query method

Porting charges in other countries

Operators to increasingly focus on improving quality of

service

MNP expected to be a negative for the Indian Telecom

Sector, positive for subscribers

Reasons for operator selection


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CDMA subscribers.

Satisfaction levels with current operators

Preparedness of R- COM to MNP

Reliance Communication finalises Global Number

Portability

Number portability likely to thin margins, foster

competition: RCom

CHAPTER – 3 OBJECTIVES & RESEARCH METHODOLOGY 103-105

Primary Data

Secondary data

CHAPTER – 4 DATA ANALYSIS 106-123

SWOT analysis

Positive catalysts

CHAPTER – 5 CONCLUSIONS 124-126

CHAPTER – 6 RECOMMENDATIONS 127-131

CHAPTER – 7 BIBLIOGRAPHY 132-135

Annexure 136-138

Questionnaire

Thesis response sheet 139-154


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CHAPTER -1

INTRODUCTION


INTRODUCTION

"Our strategy is to make money on scale, not from skimming the market," Anil

Ambani said.

Background

The Indian mobile services market is highly competitive with six to eight players

operating in each of the 23 telecom circles that the country is divided into. The

intensity of competition has increased in recent months following the launch of GSM

services by Reliance Communications (RCom) and Tata DoCoMo, CDMA services

by Sistema Shyam; and the continuing pan-Indian GSM rollout by Aircel, Idea

Cellular (Idea), and Vodafone Essar (Vodafone). The competitive intensity is

expected to increase even further as new licensees launch their services and Mobile

Number Portability (MNP) is introduced in India. The recent increase in competition

in the Indian mobile services market is evident from the aggressive tariff plans being

introduced by players, a move that has led to a decline in the average revenue per user

(ARPU), revenue growth, and profitability of the industry. Besides, profitability of the

mobile service providers is also being impacted by the increasing share of low ARPU

subscribers in incremental additions, the bulk of which is happening in the semi-urban

and rural areas where the mobile penetration rates are still low. The financials of the

telecom companies for the second quarter (Q2) of 2009-10 show the impact of the

ongoing tariff war and increase in competitive intensity in the Indian mobile services

market.

While India remains one of the fastest growing mobile services markets globally by

subscriber addition and still presents an opportunity for further growth, the rates of

revenue growth and margins of the mobile service providers are expected to decline


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as the intensity of competition increases further. Although some of the incumbent

operators with strong financials, extensive networks, and larger share of high paying

customers would be better positioned to withstand the kind of competitive pressures

anticipated, high capital expenditure on 3G may well lead to continued negative free

cash flows and push up funding requirements. Intensified competition and the

aggressive pricing strategies adopted by the existing operators could challenge the

sustainability of the new entrants as breaking even at lower tariffs would take longer.

This would also imply delay in the generation of positive cash flows for the new

entrants. Given this scenario, it is likely that the Indian mobile services market would

see some consolidation over the medium to long term.

Most telecom operators reported a decline in revenues from mobile services in Q2,

2009-10 despite growth in their mobile subscriber base. The all-India mobile

subscriber base continued to expand in Q2, 2009-10, reporting a 10% growth over the

previous quarter. However, because of the increasing competitive intensity, most of

the large telecom operators like Bharti Airtel, RCom, and Idea reported a drop in their

subscriber growth rate in the stated quarter, as compared with the growth rates seen in

the previous quarters. Most telecom operators also reported a decline in revenues

from mobile services during Q2, 2009-10 despite growth in subscriber base primarily

because of a fall in ARPU. According to the data released by the Telecom Regulatory

Authority of India (TRAI) for Q1, 2009-10, nine out of 14 telecom service providers

witnessed a decline in revenues in Q1, 2009-10 over the previous quarter. In Q2,

2009-10 also, Bharti Airtel and RCom saw a 2% and 16% decline in their revenues

from mobile services, respectively, over the previous quarter. The decline in revenues

shows that the decline in ARPU (owing to increased competitive intensity, consequent


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reduction in tariffs, and increasing share of incremental subscribers from semi-urban

and rural areas) has more than offset the increase in subscriber base.

Mobile Subscriber Base and Quarter on Quarter (QoQ) Growth in Subscribers

The intensity of competition in the mobile services market is expected to increase

further with the launch of mobile services by players like Unitech Wireless and

Datacom over the next few months, which would take up the number of telecom

players operating in each circle to 11-12. Moreover, with mobile penetration in the

urban areas having reached high levels already (urban tele-density was 87.18% as

against rural tele-density of 15.35%, both as in June 2009), subscriber additions are

expected to happen largely in the semi-urban and rural areas, which in turn would

impact ARPU further.

With TRAI recommending introduction of MNP, the domestic telecom sector appears

poised for a paradigm shift. The reasons for seeking the introduction of MNP are

compelling: to promote competition among mobile service operators so that service

levels can improve further and to provide users the right to change operators at

minimal cost and with minimal inconvenience. In ICRA’s opinion, with the

introduction of MNP, mobile service providers are likely to face higher competitive


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pressures, especially in the initial phase, as subscribers scout for better wireless deals,

thereby raising the costs of subscriber acquisition and retention. As customers get a

wider choice and are able to switch between service providers easily, mobile services

providers would need to offer more competitive pricing plans. Overall, while

maintaining quality of service (QoS) would be crucial for the retention of high-value

customers, tariffs are expected to play an increasingly important role once MNP is

introduced. Telecom operators spend substantial resources on adding customers and

thus customer retention is of critical importance for them. Loss of subscribers is

measured by “churn”, which is the ratio of subscribers leaving the network to the

current subscriber base. One of the biggest “concerns” for the mobile services

industry is that with the introduction of MNP, the churn rate, which is already quite

high in India, may increase even further, thereby leading to a drop in revenues and an

increase in costs, which in turn would weaken their competitive positions.

Number Portability enables end user to retain their telephone number without

compromising on quality, reliability and operational convenience when they change

their service provider in a service area. It evidently requires the originating network to

determine the correct destination for a given number. This would require a data base

management having information of the networks and associated ported numbers.

Majority of the countries opt for a centralized data base service managed by a neutral

third party. The cost of the data base is to be borne by each operator depending on the

strength of subscribers. There has to be also an arrangement for centralized clearing

house preferably electronic processing approach for processing porting requests. The

design management of clearing house need to be meticulously worked out so as to

minimize the time to port. The other related issues are handset portability (GSM v/s

CDMA), data base updation, SMS routing, routing of NLD/ILD calls, and National


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Numbering Plan modification. The roadmap to MNP requires cooperation of all the

stakeholders.

As ARPUs decline and voice services get commoditised, the challenge for mobile

service providers would be to retain customers, develop alternative revenue streams,

and create a basis for brand/service differentiation. In the light of the changing

dynamics of the Indian mobile services market (mainly because of increasing

competition), value-added service (VAS) presents an opportunity to mobile service

providers to augment their revenues and margins, as is corroborated by the experience

of telecom players in the developed markets. Currently, the contribution of VAS to

the total mobile revenues of Indian telecom operators is just 9-10%, which is

significantly lower than the same of operators in the developed markets. The potential

for VAS revenues appears all the more significant at the present juncture, given that

India is set to introduce 3G, a standard that allows operators to offer users a wider

range of more advances services. On this background, the present study is an attempt

to understand the impact of Mobile Number Portability on the Reliance

Communication.

MOBILE NUMBER PORTABILITY (MNP)/ INTRODUCTION

Introduction

Permanent number portability for consumers has been defined as “the ability of users

of telecommunications services to retain existing telecommunications numbers

without impairment of quality, reliability, or convenience when switching from one

telecommunications carrier to another.” Number portability (NP) can be of the

following types:


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Service Provider Portability: Subscribers can change local service providers

without changing their phone number

Service Portability: Subscribers can change from one type of service to another

(e.g., analog to integrated services digital network [ISDN]) without changing their

phone numbers

Geographic Portability: Subscribers can move from one physical location to

another without changing their phone numbers.

NP affords the following benefits to the consumers and service providers:

Lower costs incurred by parties who change providers

Lower costs incurred by parties in locating the number of an end-user who has

changed providers

Higher productivity and a greater range of services available through increased

competition

Greater ability of end-users to change their provider based on price, quality and

service.

The following costs need to be incurred to implement NP:

Development costs: Development and testing of solutions to number portability

Deployment costs: Capital and operational costs to make number portability

available in a particular area or for a particular service

Transportation costs: Additional costs of call set-up (depending on the solution

there may be additional costs for each call made or for ported calls)

Transfer costs: Costs of transferring ported numbers between carriage service

providers.


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The following conclusions have been derived about NP:

All available studies have concluded that the benefits of NP (both fixed and

mobile) outweigh the costs

This conclusion holds under a wide range of sensitivity scenarios.

Currently both fixed and mobile portability have been implemented in a number of

countries and the experience of these countries in the processes they have followed to

roll out NP and the issues they have faced would be of high relevance to the Telecom

Regulatory Authority of India (TRAI), the agency which would direct this process in

India.

What is this?

Mobile number portability (MNP) enables mobile telephone users to retain their

mobile telephone numbers when changing from one mobile network operator to

another. MNP is implemented in different ways across the globe. The international

and European standard is for a customer wishing to port his/her number to contact the

new provider (Recipient) who will then arrange necessary process with the old

provider (Donor). This is also known as 'Recipient-Led' porting. The UK is the only

country to not implement a Recipient-Led system, where a customer wishing to port

his/her number is required to contact the Donor to obtain a Porting Authorisation

Code (PAC) which he/she then has to give to the Recipient. Once having received the

PAC the Recipient continues the port process by contacting the Donor. This form of

porting is also known as 'Donor-Led' and has been criticised by some industry

analysts as being inefficient. It has also been observed that it may act as a customer

deterrent as well as allowing the Donor an opportunity of 'winning-back' the


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http://en.wikipedia.org/wiki/Porting_Authorisation_Code


http://en.wikipedia.org/wiki/United_Kingdom

http://en.wikipedia.org/wiki/Mobile_network_operator

http://en.wikipedia.org/wiki/Telephone_number

http://en.wikipedia.org/wiki/Mobile_telephone


customer. This might lead to distortion of competition, especially in the markets with

new entrants that are yet to achieve scalability of operation.

Number portability can be of different types.

Location-based: This enables a mobile subscriber to use the same number when

shifting from one geographical area to another.

Operator-based: This makes it possible for a mobile subscriber (or a fixed telephony

subscriber) to shift from one mobile (or a fixed) service provider to another in the

same area and retain his original number too.

Service-based: Enables subscribers of a company to use the same numbers across

different mobile technologies — Global System for Mobile Communications (GSM)

and Code Division Multiple Access (CDMA) based Wireless in Local Loop (WLL).

Convergence-based: Allows usage of the same number while shifting from fixed to

mobile telephony.

Total number portability: Enables usage of the same number across different

technologies, geographical regions and national boundaries and is the ultimate aim of

number portability. It will also be the most difficult to implement and would require a

collaborated effort on the global scale among different service providers. It will be a

combination of different types of portability options.

Number portability when used to transfer numbers from one service provider to

another is called Mobile Number Portability. MNP is already being used in developed

markets, which are mature and have a much higher teledensity. One example is

Singapore where mobile teledensity itself is greater than 80 per cent. MNP has been

implemented in Singapore since 1997 and the next consideration is Fixed Number


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Portability (FNP) and, ultimately, Fixed to Mobile Number Portability. In fact, in the

US, November 24, 2003 has been set as the deadline by the regulatory authorities for

a full implementation of MNP.

In India, the telecommunications regulatory body — Telecom Regulatory Authority

of India (TRAI) — has also realised the importance of this feature and has decided to

look into the issue of MNP and suggest a viable method of implementation. However,

it is necessary to determine the implications of implementing MNP for the mobile

subscribers, the service providers and the regulatory body before commenting

anything on its implementation.

Technical details

A significant technical aspect of MNP (Mobile Number Portability) is related to the

routing of calls or mobile messages (SMS, MMS) to a number once it has been

ported. There are various flavours of call routing implementation across the globe but

the international and European best practice is via the use of a central database (CDB)

of ported numbers. Network operators generally hold local copies of CDB and query

it to find out which network to send a call to. This is also known as All Call Query

(ACQ) and is highly efficient and scalable. Majority of the established and upcoming

MNP systems across the world are based on this ACQ/CDB method of call routing.

One of the very few countries to not use ACQ/CDB is the UK where calls to a

number once it has been ported are still routed via the Donor network. This is also

known as 'Indirect Routing' and is highly inefficient as it is wasteful of transmission

and switching capacity. Because of its Donor dependent nature, Indirect Routing also

means that if the Donor network develops a fault or goes out of business, the

customers who have ported out of that network will lose incoming calls to their


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http://en.wikipedia.org/wiki/Multimedia_Messaging_Service

http://en.wikipedia.org/wiki/SMS


numbers. The UK telecoms regulator Ofcom completed its extended review of the UK

MNP process on 29 November 2007 and mandated that ACQ/CDB be implemented

for mobile to mobile ported calls by no later than 1 September 2009, and for all other

(fixed and mobile) ported calls by no later than 31 December 2012. MNP is basically

a facility to customers for the change of network service used by them on their own

mobile number (MSISDN). For example, if a customer is using AIRTEL India

Number and wants to switch to Vodafone Operator network, then using the MNP

facility, the customer's number will be same but then the customer will become the

customer of Vodafone network.

In India the MNP is still in Implementation phase, not yet commercialized. The

Switch, IN & STP engineers of all the operators are working on it. As per the

Department of Telecommunications (DoT) India this facility has to be available to

customers by 1 April 2010. Implementation of the MNP per MSC takes activity time

of 10 to 15 working days in India. Prior to March 2008 it took a minimum of 5

working days to port a number in the UK compared to 2 hours only in USA, as low as

20 minutes in the Republic of Ireland, 3 minutes in Australia and even a matter of

seconds in New Zealand. On 17 July 2007, Ofcom released its conclusions from the

review of UK MNP and mandated reduction of porting time to 2 working days with

effect from 1 April 2008. On 29 November 2007, Ofcom completed its consultation

on further reduction to porting time to 2 hours along with recipient led porting and

mandated that near-instant (no more than 2 hours) recipient led porting be

implemented by no later than 1 September 2009. In a decentralised model of MNP, a

FNR (Flexible Number Register) may be used to manage a database of ported

out/ported in numbers for call routing.


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http://en.wikipedia.org/w/index.php?title=FNR&action=edit&redlink=1

http://en.wikipedia.org/wiki/Ofcom


http://en.wikipedia.org/wiki/New_Zealand

http://en.wikipedia.org/wiki/Australia

http://en.wikipedia.org/wiki/Republic_of_Ireland

http://en.wikipedia.org/wiki/USA

http://en.wikipedia.org/wiki/India




Service providers and carriers who route messages and voice calls to MNP-enabled

countries might use HLR query services to find out the correct network of a mobile

phone number. A number of such services exist, which query the operator's home

location register (HLR) over the SS7 signalling network in order to determine the

current network of a specified mobile phone number prior to attempted routing of

messaging or voice traffic.

Some Perspective

Except Finland and HK, most countries have witnessed less than 5% of switch in first

12 months of introduction of MNP. More than 90% of Indian mobile users are on

prepaid connections and do not have number loyalty (~churn rate of 4% on monthly

basis) – the switching cost of Rs. 300 is pretty much the same as a monthly rental (or

maybe, more than that).

After years of waiting, Mobile Number Portability has arrived in India. The Telecom

Regulatory Authority of India (TRAI) has issued a draft of regulations for

introduction of mobile number portability (MNP) in the country. If you are not aware

of Mobile Number Portability, it allows subscribers to retain their existing telephone


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number when they switch from one access service provider to another access service

provider irrespective of mobile technology or from one technology to another

technology on the same or any other access service provider. So lets say you are

currently using Reliance CDMA mobile with a phone number 9332221110. You are

tired of your CDMA phones and want to go with some cool GSM phones but those

phones are not offered by Reliance GSM. So you can switch to lets say Vodafone.

You can still keep your number 9332221110.

Mobile Number portability was to be implemented first in Delhi, Mumbai,

Maharashtra & Gujarat Service Areas of Zone-1 and Kolkata, Tamil Nadu (including

Chennai, AP and Karnataka) by Sept 20th 2009 and the rest of the country was

expected to follow the implementation by March 30th 2010. Mobile Number

Portability is a good feature but comes with the cost. The per port transaction fees will

be charged to the customer by the service provider which would be t least Rs 250-

400. Being a customer, you should approach the new operator to port your existing

number. SO if you are with Airtel and want to switch to IDEA mobile, you need to go

to IDEA mobile to ask for your number portability.

Mobile number portability would also work for Indian pre-paid mobile phone

connections. In this case, the balance in the existing pre-paid card would be

exhausted, or would be lost. Donor operator will not be able to use the

ported out number till it is in use by the ported subscriber. After the surrendering of

number by ported subscriber, the number will revert back to the original donor

operator. Mobile subscriber shall be eligible to make a request for "porting"

(changing) his mobile number upon expiry of a period of ninety days from the date of

activation of his present mobile connection. The process of transferring a mobile


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number from one provider to another would involve a break in service when a number

is detached from one provider and added to another. TRAI has said that this period

should not be more than two hours. The recipient operator, within five days of

receiving a written request, has to carry out subscriber verification according to the

guidelines for acquiring a new user. Upon verification, the request is to be forwarded

to the donor operator (to whose network such mobile subscriber number currently

belongs) for seeking its clearance. Upon receipt of the porting request, the donor

operator shall verify and communicate the details to the MNP service provider within

two working days.

One can witness in the coming new year, India may surpass an unthinkable landmark,

it is astonishingly half a billion wireless connections, this figure puts India in the

second place next to China, the most cell phone users in the world. It is estimated that

around 550 million figures will India see as total telephone connections including the

two fixed line and wireless, in term of teledensity, this word frame is used to calculate

phone connections per 100 population, nearly around 45% in total and an astonishing

figure of nearing to 97% in urban areas and teledensity in the rural areas is estimated

at 18%.

By the end of the October, this year India has seen 488.40 million wireless

connections, and in that phase it has already crossed half a billion so for, but this may

exclude the subscribers who owns more than one SIM cards, though they may not use

all of them at the same time, it is learnt that around 6 millions subscribers are joining

this bandwagon of mobile telephony every year. The main reason for such an rapid

growth in mobile telephony users is reduction in the call charges, and affordability of

mobile sets, as it has drastically come down, at present more than 65% of users are

depend on GSM, but it was not so in the earlier years, it was half way in the number


28


of users are concerned, as there was a stiff competition between CDMA and GSM

networks. Few figures have shown that subscribers in India are opting for wireless

connections, which also includes mobile service, as the fixed landline connections has

been dropped drastically to 37.25 million phones, as the wireless and mobile

technology is the most preferred technology among the masses, for its clear advantage

in voice and data communications, but the broadband user in India is still an

abysmally very low as it stood at 7.5 millions users, as it was predicted by the

technologists as the failure of telecom policies, as this has pushed the figures to such a

low one. But the government has express its concern about the divide over digital

usage of mobile telephone between the urban and rural, as the present aim of the

government is to double its customers in short period of time, promoting certain

facilities only to rural areas.

In spite of all these the telephony business trend has seen a increasing line though we

can say a remarkable one, since last two years, as this industry has seen several

litigations and controversies, which ultimately made the telecom industry and the

government on separate sides, as this division was due to some spectrum policies, its

tariffs and moreover the entry of new competitors.

At present India has witness so for about 13-14 operators, who are providing wireless

connectivity, mostly in mobile technology covering around 22 service areas, out of

these only 8 or 9 are at present operational and the remaining are in a way obligated to

start their service just to meet rollout obligations.

From a source it was learnt that the government has earned around 8,307.85 crores

form telecom companies in the name of license fee for the year 2008-09. Few experts

have also opined that the invasion of 3G telephony the services like m-learning is


29


about to become a game learning strategy. The next project to launch to please the

mobiles user is radio bandwidth for 3G spectrum.

In a country of ours the usability of handsets is also better used, due to the knowledge

adopted by the users, and it has pushed them to use the mobile commerce, that is

usage of the plastic card [credit and debit cards] has been minimized. This has

become a way of life now a days. As any one can expect any type of considerations in

the cost value of talk time or in messaging time, from network providers as the

competition has reached the peak level. A new idea of an operator will be followed by

others, and ultimate beneficiary is the user, which is a good sign.

MNP is the latest trend to make subscribers base further in an enhanced way, mobile

number portability in terms of simple usage, this system will allow its subscribers to

retain the same number, even though they changes the network, which means they can

switch over to other networks by retaining the existing numbers. It is assumed that

this mobile number portability on a pilot basis first will be introduced in four cities

they are Delhi, Mumbai, Maharashtra & Gujarat Service Areas of Zone-1 and

Kolkata, Tamil Nadu (including Chennai, AP and Karnataka) which starts from

December 31st and in other cities from March 20th, 2010. Though this facility looks

good, but it comes with a charge and it is guessed at between Rs.200 to Rs.400 per

month per connection. But later it was confirmed by the TRAI as the consumers has

to pay not more than Rs.19/- per connection to avail this facility, subscriber who

wants to change the network has to approach the desired network service operator to

port your existing number, this facility is also available for pre-paid service

customers. Donor operator will not be able to use the ported out number till it is in use

by the ported subscriber. Sometimes this facility of porting a number to another


30


service provider as transferring his number from one provider to another as the

existing number will be detached from existing service provider to new service

provider, and the TRAI has fixed this portability time as it should not exceed more

than 2 hours.

The rationale for implementing MNP

Existing literature on portability contains extensive discussions on the rationale for

introducing these services. Among the most commonly cited motives is the lowering

of switching costs (Smura, 2004; Buehler, Dewenter & Haucap, 2005). Mobile

customers’ who switch operators in return for better quality of service (QoS) and/or

call rates, are benefited by the MNP facility as they do not incur costs to update their

networks about a number change. In addition, they are less likely to miss out on

phone calls (except during the short period when the actual number porting from one

operator to another takes place).

As discussed by Gerpot, Rams & Schindler (2001), customers put a value on their

phone numbers, especially when they have used that number for an extended period

of time, and would rather stay with an unsatisfactory service provider in an effort to

retain that phone number. This in itself is a cost to the user, who has to put up with

poor QoS and maybe even make calls at uncompetitive rates. The existence of

portability, therefore, enables such customers to make a simple change to an operator

of their choice as a result of lower switching costs.

It must be noted, however, that MNP cannot completely remove these costs – mobile

subscribers will almost certainly incur some cost in switching operators, in terms of

time taken to make the switch (it is possible that they may miss a few calls) and

money spent on porting the number (the porting process involves a lot of


31


technicalities, the costs of which must be covered by regulators and operators).

However, these are one time costs, while the costs of a poor service and the

compulsion to carry on may have huge implicit costs and may reduce consumer

welfare.

Following from this discussion, the introduction of the MNP service is said to drive

competition; it must be noted that the service does not create competition but only

improves it. This is based on the theory of contestability which postulates that the

threat of new entrants into a market alone should ensure that existing firms behave

more competitively. As stated in Buehler, Dewenter & Haucap (2005, 1), “the

rationale of introducing mandatory MNP is simple: it is expected to bring about

considerable benefits to consumers of mobile services”. MNP facilitates the

movement of customers between service providers, putting the latter under pressure to

provide greater levels of service. The introduction of MNP entails a rethinking of

business strategies beyond price wars alone, which result in competitive tariffs among

industry players (Buehler & Haucap, 2004), as they will not be enough to retain

subscribers; instead, operators will have to improve their QoS and even offer

innovative services and features in order to prevent customers from changing

networks. This is perceptibly beneficial to mobile subscribers (Katka, 2004), but

operators have to undertake expensive marketing campaigns and advertising costs,

and increase investment costs. The potential for high churn rates and loss of

subscribers adds to this pressure (Keynote Capitals, 2009). While MNP may have a

significant impact on market dynamics, it is difficult to distinguish the absolute effect

of the service on the market.


32


Another benefit from this service is that it helps to create a level playing field for

small and new entrants (Katka, 2004). Market asymmetries will be removed to a

certain extent; and every service provider is given the opportunity to attract customers

regardless of how young or how established the operator is. MNP has effects on

“retail prices, termination charges, price elasticities, market shares, as well as entry

and investment decisions” (Buehler, Dewenter & Haucap, 2005).

While MNP is expected to reduce switching costs and increase competition among

industry players, the extent of these effects is contingent on how accepting operators

are to the introduction of MNP services. Service providers can engage in attempts to

stifle the effects of MNP by penalizing subscribers’ who break their contractual

agreements or by imposing hefty charges for porting their numbers. Operators can

even provide phones that are locked in to their own networks, making it difficult for

subscribers to make a switch to another network, without having to purchase a new

phone. Some are even guilty of suppressing information on porting. It is for these very

reasons that the success of MNP is deemed by the power wielded by the regulatory

and competition authorities.

The service also has implications on the reallocation of property rights (Buehler,

Dewenter & Haucap, 2005), because subscribers become the sole owners of the

mobile phone number that they hold, and therefore control its use. This increases the

value of number or perpetuates a loyalty towards to number that a subscriber obtains.

The MNP service also encourages churn, as mentioned above, which service

providers generally strive to keep at a minimum.

High churn rates are especially useful for new entrants into the mobile market,

because they are able to acquire subscribers to their networks. MNP helps these firms


33


to acquire new subscribers, but operators are faced with the task of having to retain

their existing subscribers, which may sometimes be harder to do (Smura, 2004).

Service providers have to take extra efforts to ensure that they do not lose their own

subscribers while trying to entice subscribers from other networks to take up their

services, and striking this balance can be tricky. There are, therefore, both positive

and negative consequences to high churn rates.

On the other hand, there are several downsides to using MNP services. With the use

of MNP customers will generally be oblivious to the network they are calling. In the

past, operators have had a specific number code before the remaining numbers that

comprise a phone number, in order to make it easy for callers to identify which

network they are calling. With the use of MNP, however, this code serves very little

purpose as it does not mean that a customer with such a code still belongs to the

corresponding network. This, therefore, defeats the purpose of having such a code and

has implications on national numbering plans (Ovum, 2000). Additionally, since

mobile subscribers are most likely to be unaware of which network they are making

calls to and operators can take the opportunity to increase termination charges

(Beuhler & Haucap, 2003). In fact, mobile subscribers will be unable to know the

price of any call and cannot take advantage of on-net and off-net rate differences too;

however, the easiest way to overcome this problem would be to enforce a single rate

tariff plan for all operators (Smura, 2004). The service also tends to be technically

costly to implement and many times the benefits achieved by the introduction of MNP

are far lower than the costs incurred (Aoki and Small, 1999). There are initial one

time costs and recurring costs which are rather high, given the technology involved.

Set-up costs (network set-up, systems development, etc), customer transfer costs

(porting charges including closing and opening new accounts), and call routing costs


34


tend to be the main costs for setting up the MNP service (Lin, Chlamtac & Yu, 2003).

Smura (2004) also considers database management costs, such as upgrading and

maintaining charges.

As mentioned previously, operators can sometimes engage in anti-competitive

behavior to tie in their customers into long-term contracts, and this is an issue that

requires intervention from the relevant authorities. Not only does it stifle competition

to a large extent, but with the introduction of MNP, it can also create large numbers of

unused handsets. In many cases, when people switch operators they have no choice

but to buy a new phone as their old handset is incompatible with the new network

(Telecom Asia, 2004).

Given the benefits of implementing this facility and the drawbacks as described

above, the decision to introduce MNP into a mobile market is a rather significant one.

The tricky part is that its “success” is not guaranteed, as it is dependent on several

exogenous factors.


35



36

CHAPTER -2

LITERATURE REVIEW


LITERATURE REVIEW

INTERNATIONAL EXPERIENCES IN NUMBER PORTABILITY

Overview of NP in Australia

Till 1991, Telstra was the only telephone service provider in Australia. Optus

Communications (Optus) entered the Australian telecommunications market in 1991,

to compete with Telstra in the provision of a range of telecommunications services,

including local services.

In 1995, Optus began construction of its own broadband cable network, via its

subsidiary Optus Vision and it anticipated the provision of telephony on that network.

Since then, Optus supported, and sought, the introduction of local number portability.

Other carriage service providers publicly advised of their intention to offer a local

service and also sought the implementation of local number portability.

The new telecommunications legislation which came into effect on 1 July 1997

removed past regulatory barriers to market entry. There are now no restrictions on the

type of technology, which can be used, no restrictions on entry to any

telecommunications market and an increasing reliance on industry self-regulation.

The local number portability as well as freephone and local rate number portability

has been implemented and deadline for implementation of mobile number portability

is 25th September 2001. In May 1999, the ACA announced its decision to fix 16

November 2000 as the implementation date for local rate and freephone number

portability and confirmed its intention that local rate and freephone number portability

would be implemented via a number pool. Exemptions were made for Telstra for its

international toll free and international country direct services, and Telstra finally

implemented the portability on 12th April 2001.


37


Concerns

There were tradeoffs involved in deciding the date for implementation of NP. ACA

wanted to implement NP as soon as possible but on the other side it could wait and

learn from other countries experiences. Time was also needed to get the technology

for implementing NP. The technological level varied from company to company and

so it had to come with a time limit by which all the companies could implement NP.

In the end a number of exemptions had to be provided to the players in terms of dates

of implementation of local number portability. Since the different players would be

allowed to choose the technology they want for implementing local number

portability, they may not converge at a very efficient solution.

Number Portability in U.K.

Oftel began looking at NP as early as 1993. A cost benefit analysis conducted by

NERA on behalf of Oftel in 1993 calculated the net benefit to the UK economy of

introducing geographic NP at £1.4 billion over ten years. Another study that Oftel

conducted on mobile NP concluded that portability would bring a net benefit to the

UK economy of at least £98 million over a ten year period. The study confirmed that

business users find changing the number as the biggest problem associated with

changing a mobile operator. The number of corporate users willing to switch mobile

operator would more than double from 41% to 96% if portability was introduced.

Concerns

Advance investments burdensome: Some operators felt that implementation of inter

operator arrangements for NP prior to evidence of actual demand for NP between two

operators is a regulatory burden. They stated it would lead to significant additional

costs being borne by operators in certain markets, notably the non-geographic services

market (that is the market for freephone, local and national rate and premium rate


38


services) – and would inhibit new entry. In response, Oftel re-stated its view that

telephone companies marketing or offering services should at this stage proactively

seek to put portability facilities in place with other telephone companies but that a

portability facility must be in place when they contract with a customer.

Intelligent Network (IN) portability: There was a recommendation that Oftel

quickly moves to introducing IN based NP. An IN based NP solution may involve the

use of a separate numbering information database to allow operators to determine,

from the outset, where each call should be routed. This would minimize unnecessary

conveyance involved in delivering calls to a number that has been ported. In turn this

would minimize the need for portability arrangements between operators. Oftel has

stated that it is neutral as to the technology used by operators. Operators will no doubt

consider the cost and benefits of introducing such technology against the costs of

maintaining the existing system.

Rights of operators in a chain: A few companies stated that where several telephone

companies are involved in a ‘chain’ of service provision e.g. where numbers have

been sub-allocated more than once, there may well be situations where there are

competing views as to which company had the right to port the number involved.

Oftel is currently engaged in discussions with industry on ‘Rights of Use’ of numbers

as part of its project of Developing Number Administration. The output from these

discussions should provide useful guidance on this issue.

Average Portable Conveyance Costs (APCC): One or two operators enquired

whether recovering APCC is acceptable. APCC are the costs incurred by a Donor

Operator acting as a transit operator for calls that originate on another operator’s


39


network that are destined for a Recipient Operator. Oftel stated these costs could be

recovered where appropriate.

Subsequent portability: Once a number has been ported to one operator, the

customer may wish to switch again to another operator, still retaining the original

number. Provided the customer is not returning to the operator from whom he first

obtained the number, these subsequent changes of operator are known as ‘Subsequent

Portability’ in this consultation document. Subsequent portability will involve a third

party – a ‘new’ recipient operator. The regulatory obligations would be between the

Licensee and the ‘new’ recipient operator. For regulatory purposes, the ‘previous’

recipient operator is not involved.

Number mobility: Number mobility is a service offered by operators that enables

customers to retain their geographic number when they change their address. This is

sometimes confused with number portability. Geographic numbers are numbers that

refer to a specific geographic area. Oftel has stated that any service offered by

operators to allow a customer to keep his geographic number when he changes

address e.g. within the same local exchange area, will be up to the operator concerned.

Such a service or facility will not be covered by this new number portability

legislation. Operators are still free to provide mobility if they wish.

Existing contracts: Contracts should not prohibit subscribers taking their telephone

numbers to alternative operators.

Personal numbering services: Oftel recognizes the demand for personal numbering

services, and has facilitated its development by providing capacity in the National

Numbering Scheme for personal numbers. Oftel does not consider, however, that the

availability of personal numbering removes the need for number portability. Since


40


personal numbering and number portability are not direct substitutes, the introduction

of mobile number portability should not impact on the demand for personal

numbering. Personal numbering is essentially a premium service for those wishing to

receive calls on different handsets, in different locations, during the course of a day or

week. Oftel considers this to be quite distinct from the majority of subscribers,

business or individual, who may consider changing operator, every couple of years

and wish to retain their number. Those subscribers who simply wish to retain their

number when they change operator do not necessarily want the features or additional

charging arrangements associated with personal numbering.

Number Portability in the USA

Congress enacted the Telecommunications Act of 1996 to establish a national

framework to promote competition and reduce regulation in all telecommunications

markets. Under the Act, Congress directed local telephone companies to offer

telephone number portability in accordance with requirements prescribed by the

Federal Communications Commission (FCC/Commission). In May 1998, the

Commission determined what types of costs local telephone companies will be

allowed to recover through separate charges for establishing and providing telephone

number portability service, and which costs they must treat as part of their overall cost

of doing business. Number portability was first implemented in major metropolitan

areas. Number portability must be made available in other areas within six months

after a new telephone company requests that the incumbent local telephone company

offer number portability in that service area.

The type of number portability being offered is service provider portability, which

allows a customer to change his or her local telephone company without changing

telephone numbers. It does not allow customers to take their telephone numbers with


41


them when they move. Cellular and other wireless carriers are not required to provide

telephone number portability at this time. For this reason, customers cannot retain the

same local telephone number if they change their local service from a fixed local

telephone company to a wireless carrier, like a cellular or PCS service provider.

Likewise, customers cannot switch from a cellular or PCS service provider to a local

fixed service provider and keep the same cellular or PCS telephone number.

Concerns

Some members of the telecommunications industry claim that number portability is

overrated when it comes to competing for consumers. They believe consumers’ main

consideration in switching local access providers is price— not convenience. The

Commission took a more objective approach finding that number portability’s

competitive importance depended upon the value that the consumers assign to their

current telephone numbers. Some companies are worried that the cost of

implementing number portability will affect their ability to compete. US West says

that telecommunications providers should not be required to implement more costly

local route numbering (LRN) methods unless consumers can perceive the difference

and it is enough to justify expenditures of an additional $500 to $700 million to

deploy LRN. This expense is just one of the reasons cited by several companies which

feel that the Commission’s Number Portability Order bars them from using network

technology that could reduce costs and improve efficiency.

Wireless service providers are concerned with how number portability affects their

ability to compete in the local phone service market. The Cellular

Telecommunications Industry Association is seeking clarification of the requirements

placed on wireless service providers as compared to those placed on fixed line

operators, because the number portability order requires wireless carriers to provide


42


number portability in every part of the country while fixed line carriers (i.e., NYNEX,

Bell Atlantic) would have to serve rural areas only if requested. The requirements

placed on wireless carriers appear to be broader. Given the technological complexities

surrounding the provision of number portability across any service providers network,

it is conceivable that the service provider will not be able to meet the Commission’s

goals within the requested time limits.

MNP in South Asia

MNP is considered a must-have facility in most western, developed markets, due to

the flexibility and freedom it provides to mobile subscribers. Unlike the mobile

markets in South Asia, these economies have achieved high levels of penetration and

competition and are able to withstand the policy implications of the introduction of

the service. Countries in South Asia, on the other hand, are yet to achieve universal

service provision and access, and lack the necessary factors that will ensure the

success of MNP. As such, this facility may not be as important as it is in this region,

given the topography, existing market structures and subscribers. Furthermore,

existing market structures in South Asia may not be as suited to MNP because of the

large numbers of prepaid or low-end users. Their phone use patterns and requirements

are rather distinctive, compared to high-end postpaid subscribers, commonly found in

the developed western markets.

In any case, the importance of MNP may be declining, due to falling of switching

costs. Number changes are getting easier and the use of email and other technologies

makes it easier for subscribers to notify their networks about their new numbers. In

the case of business, many use word processor templates for their invoices and

letterheads, which can be edited within seconds, in the case of a change in phone


43


numbers. Additionally, the cost of having multiple SIMs, and running parallel

accounts, is so cheap that subscribers will not miss an MNP facility.

Measuring the success of MNP

The successful implementation of MNP is associated with high porting rates. This is

because high porting rates signify that the facility is being utilized and confirms that

mobile subscribers are in demand of the service. The adoption of MNP in Hong Kong,

South Korea and Australia has been touted among the most successful

implementations of the facility, simply because these countries have achieved high

porting rates, of over 6 percent, and have reaped significant economic returns. Spain

and Sweden have also been as successful.

The reasons for these successes can be attributed to several factors, including low

porting times, low or even no charges allocated to subscribers for porting their

numbers, promotion of the service by regulators and subscriber awareness of the

service (Lago, 2007), and the entrance of new or disruptive operators. In the case of

Hong Kong, waiting time for porting a number was between 1 to 2 days only.

Furthermore, the timing of introducing the MNP facility played a large role in its

success; four new mobile operators entered the market at the same time that MNP was

introduced, resulting in increased competition and therefore high porting rates

(Keynote Capitals, 2009). Similarly, in Australia, the regulator played a significant

role to educate subscribers about the service, and porting times were limited to a

matter of few hours.

However, the adoption of MNP has more often than not, failed to achieve high porting

rates let alone economic success, contrary to the expectations of many. This is true of

Ireland, Finland, Malta, UK and The Netherlands (Iqbal, 2007). MNP has also been


44


rather unsuccessful in Taiwan, Japan and Singapore. Katka (2004) suggests that high

porting charges, long-winded applications, lengthy porting times, and handset

subsidies have suppressed the change of networks on a large scale. He cites the cases

of Greece, UK and France where operators have engaged in these types of activities in

order to curtail the competitive and switching effects of MNP. Taaffe (2004) explains

that operators in France even stipulated that customers who wanted to break their

contracts had to provide upto three months notice before doing so. In UK, only one

operator pushed for the introduction of MNP, and was supported by Oftel, the telecom

regulator at the time. As a result, other operators imposed long porting times and even

expected subscribers to obtain permission for moving from one network to another

(Wieland, 2007). The porting process in The Netherlands took upto 5 weeks resulting

in a failure of MNP in the country (Horrocks, 2007c). The longer the time taken for

porting, it is easier for donating operators (i.e. operators who are giving up a

subscriber) to win back their customers through special promotions and personalised

packages.

Another reason for low porting rates is because subscribers have no need to switch

networks because of the homogeneity of services on offer. The lack of competition in

Ireland meant that subscribers did not perceive any benefits from a move from one

operator to another, leading to low porting rates and economic failure of MNP. In

Finland, operators imposed minimum contract periods which drove down porting

rates from approximately 40 percent to 10 percent (Horrocks, 2007c). In the case of

Japan, mobile Internet use is very popular and many subscribers of NTT DoCoMo,

the largest operator, use their phones for both calls and email. Subscribers are not able

to port their email addresses along with their mobile numbers which has affected

porting rates. Additionally, handsets are locked in by service providers, meaning that


45


customers wishing to change networks have to purchase new phones. The charge for

porting to a different operator is also relatively costly, working out to approximately

USD 83 per port (The Economist, 2007). Singapore and Taiwan both had lengthy

porting times of 4 to 7 days, which led to poor porting rates and therefore the failure

of MNP (Keynote Capitals, 2009). Similarly, it is important that SMS and MMS and

other mobile applications are able to be ported to another network with little routing

issues as possible.

While most of the literature attaches the success of MNP with high porting/churn

rates, this paper argues otherwise. The MNP service can still be considered a success,

even when these rates are low, if the threat of porting leads to improved competition

among operators, and hence, lower tariffs and better services. The purpose of

regulation is to facilitate a level playing field and foster competition so that end-users

are able to acquire the most optimal levels of quality at competitive prices (Melody,

1999; Samarajiva 2002). As such, it could be said that if there has been a substantial

effect on tariffs and QoS post-implementation of MNP, leading to satisfied customers

it may be considered that the implementation of MNP is successful.

In any case, the argument for high porting rates being the sole indicator for the

success of the MNP service is erroneous. Based on intuition, even if high porting rates

are achieved initially, they will slow down eventually until they plateau, once

subscribers are satisfied with the level of service they receive and the tariffs they are

charged. Moreover, low porting rates may be an indicator of the fact that

contestability or the threat of switching is leading to services and tariffs that the

customers are satisfied with.


46


Other indicators of successful MNP include a pleasant porting experience for

subscribers, simplicity and speed of porting, minimized customer complaints and

minimized operator porting overheads (PTA, 2007).

Policy and regulatory implications

There are several aspects of telecom policy that are affected by the introduction of

MNP. Regulatory authorities have to be concerned on the technical aspects of

implementation, and pricing and payment mechanisms (Gans, King & Woodbridge,

2001). The latter is especially important if porting rates and churn is low among

operators, because it raises the question of who will bear the costs (Haucap, 2003).

Another consideration will be the national numbering plans of a country; this will

need to be streamlined and regulators may have to reallocate numbers in order to

ensure the efficient use of phone numbers.

Implementing MNP requires technical proficiency and it is important for the regulator

to have the relevant expertise in this area. The call and message routing system (all

call query, onward routing, call drop back, query on release, or call forwarding), the

type of number portability database (centralized, decentralized or hybrid), and the use

of ENUM and next generation networks (NGN) and other such decisions are

dependent on factors like regulatory independence and power sharing among industry

players. The database is a crucial tool in providing MNP facilities as it holds a record

of all existing mobile numbers; it is important that all mobile service providers are

given the necessary incentives to link to this database. As technology develops,

regulators need to stay on the ball and ensure that the technical solution they have

implemented does not become obsolete.


47


Most countries that have adopted MNP have opted for a centralized database, with

very few using a decentralized or hybrid (centralized and decentralized) database.

According to Katka (2004), both operators and regulators are under the impression

that a central database with a direct routing system is what works best most of the

time; and this technology has been successfully utilized around the world. In many

cases, an independent entity or company has been created in order to handle the MNP

service and manage the routing and database functions. This is so, especially in

countries where the regulatory authority has limited control over the sector and/or if it

lacks the internal resources to carry out these tasks (Horrocks, 2007b). Such an

arrangement has worked well in many countries too.

With the changes in call routing as a result of MNP, the regulatory authority should

ensure that interconnection agreements between service providers remain fair and that

no one operator is treated unjustly. Regulatory authorities are also required to make

decisions with regards to pricing and allocating costs incurred by the implementation

of MNP. As with the technical decisions, these are dependent on how willing

operators are to accept the introduction of MNP, the strength of the regulator and

expected churn or porting rates. Given the complex technological requirements for

providing this facility, there are many direct and indirect costs incurred in setting up,

developing and implementing. While the setting up and implementation of MNP

incurs costs such as both non-recurrent and recurrent costs such as actual porting

costs, additional conveyance costs, and costs incurred due to the lack of transparency

in calling destinations (as explained above, callers are unable to determine which

network or service provider they are calling if MNP is implemented; Buehler,

Dewenter & Haucap, 2005), the actual numbers are based on the technical solution


48


adopted. Each technical alternative has varying costs and therefore it is a very

important decision that regulators will have to make.

As a result of the competition brought on by MNP, regulatory bodies might find that

they need to invest less to regulate prices. They may find that time consuming and

resource intensive regulatory tools for setting prices, such as rate of return regulation,

etc, can be done away with, except unless there is no tariff regulation at all.

Alternatively, regulatory authorities may have to expend greater resources on

regulating interconnection rates as a result of the introduction of the MNP facility.

There is also significant amount of debate on how the costs of MNP are allocated

among subscribers, operators and maybe even regulators, and this has implications on

the billing procedures and systems of all the operators involved. Gans, King &

Woodbridge (2001) state that users should not be burdened with these costs because it

plays a role in their decision to change networks. If the charge is excessive,

subscribers are unlikely to port their numbers even if it means better service or call

rates. Lin, Chlamtac & Yu (2003) agree that operators should bear the costs of MNP,

but concede that both equity and efficiency are important factors that should be taken

into account when making the actual decision. These authors suggest that all operators

should pay for the initial costs of setting up the facility, while the actual porting costs

should be borne by the donor and recipient operators.

On the other hand, it could be said that it is not fair for a donor operator to pay for

porting because they are the ones losing a subscriber, and it is the receiver operator

who should pay for porting. Some even recommend that porting should be totally paid

for by a subscriber because it is initiated from their end. In such a situation, service

providers charge an initial fee for porting a number and in some instances subscribers

are liable to pay a monthly fee to cover the administrative costs involved. Most


49


countries, however, have adopted the allocation as described by Lin, Chlamtac & Yu

(2003). From a policy perspective, making operators pay for the service can seem like

a disincentive for them to provide an efficient MNP service. Regulators have to

ensure that sufficient incentives are offered to operators to encourage them to

advertise and keep their subscribers in the know about their options for switching

networks.

With regards to the national numbering plan, MNP calls for a reallocation of numbers.

As explained before, it was the general practice for operators to be assigned a short

code identifiable with the operator’s network and brand. With the use of MNP, this

code serves no purpose and therefore several combinations of numbers are freed for

use. This is particularly useful in countries with large numbers of subscribers because

the more numbers available for use, the better. Non-assignment of blocks of numbers

can reduce allocation inefficiencies and curtail the distortion of distort competition;

alternatively, this can also mean that there is less structure in the numbering plan

(Bernardi & Nuijten, 2000). As a result of these changes in number allocations,

ownership rights to numbers are seemingly passed from operators to subscribers, who

control the use of the number(s) they have been assigned. This could lead to users

valuing their number more than before, and as discussed, will rely on the existence of

MNP to avail of the best mobile telecom services in the market (ibid).

IS THE TIMING RIGHT IN INDIA?

India, the largest economy in South Asia with a GDP of approximately USD 3.288

trillion in 2008 (International Monetary Fund, 2009), has been considering the

adoption of MNP since 2006. The Telecom Regulatory Authority of India (TRAI), the

independent regulatory body, has indicated their plans to introduce the service but is


50


yet to show results. While initial requests to launch MNP by early 2007 were vetoed

by the Department of Telecommunications (DoT), the decision was rescinded and the

service was then due to be launched by the end of the year. The launch was later

moved to mid-2008. Since then, several reports by the media and statements by TRAI

claimed that the facility will be in operation by the end of 2009, but the date has and

still keeps moving forward. The expected date for launching has now moved beyond

March 2010.

Initially, TRAI was to stagger the introduction of the facility and launch in selected

cities in two separate zones by September 2009, while the whole country was to have

access by May 2010 (Indiaserver.com, 2009). Zone 1 comprised of locales of the

North and West and Zone 2 covered the South and East of India. The metropolitan

areas in both zones were to be provided with the facility before being introduced in

rural areas (Krish, 2009). Two MNP providers, Syniverse Technologies and MNP

Interconnection Telecom Solutions – selected through a ‘beauty parade’ – were

established to operate and maintain the databases in Zone 1 and 2 respectively (Das

Gupta & Zarabi, 2008; Indiaserver.com, 2009). The delays in launching the service

have been attributed to DoT’s delays in amending the National Numbering Plan

(Philip, 2008), as well as the lack of readiness by operators and the two MNP

providers (cellular-news, 2009; CIOL Bureau, 2010). With so many deferments, the

planned incremental launch will be done away with and MNP will be made available

all across the country in one go (Ribeiro, 2009).

According to the MNP Guidelines defined by TRAI, new mobile subscribers who

have had a connection for a minimum period of three months (or 90 days) only can

port their numbers. Once a number has been ported to a new operator, the subscriber

is required to use their services for 90 days before being able to port out again. This


51


has both merits and demerits, because a subscriber is stuck for three months with one

operator, but also cannot arbitrarily port whenever he/she feels like it, or to avail of

short term promotional fares on different networks (MediaNama, 2009a). The time

taken for porting has been specified as a maximum of four working days; weekends

are excluded from this timeframe. The duration for having no service between porting

from one operator to another is expected to be a total of two hours in all.

The introduction of MNP is expected to increase churn rates and force service

providers to stay competitive through product and service differentiation. Prepaid

churn rates are said to be between 3- 4 percent per month but the regulator is looking

to increase it to about 8-10 percent, in order to force incumbent operators to be more

competitive (Business Standard, 2007). Although competition is high in the Indian

mobile sector, regulators feel the need for more intense competition for the benefit of

subscribers. This is supported by the findings of a recently released market study on

the potential for MNP in India, conducted by Keynote Capitals Research (2009),

which indicates that as penetration has increased in the metropolitan areas of India,

growth of the sector has slowed down, underscoring the importance of MNP as a

driver of competition.

TRAI also hopes that it will drive prices lower, and the same study asserts that MNP

will intensify price competition within the sector (Business Standard, 2007; Keynote

Capitals, 2009). Although this may be true to a certain extent, it may not be the case

given the pricing models that are employed in India (and South Asia) at the moment.

Regulators also hope that MNP will create a more level playing field for all existing

operators (Business Standard, 2007). As explained by the Keynote Capitals Research

study (2009), MNP will give the five new entrants into the mobile sector and four

existing operators who have been allowed to provide services in new circles, a chance


52


to survive in the already competitive marketplace. Given the anticipated growth in the

mobile market to more than 500 million subscribers, one of the largest in the world

and second only to China, regulators feel that the introduction of MNP in India is

imminent and deem it a suitable time to set the stage to push subscriber numbers up.

Taking into considerations the predefined preconditions for MNP, it is clear that, like

in Pakistan, the Indian telecom market does meet the necessary requirements to

introduce this service. For one, being one of the largest mobile markets in the world

and having a population of over 1.18 billion (India Stat), the Indian marketplace

exceeds the minimum threshold market size of 10 million by a large margin. Even

though access paths per 100 people is relatively low, with only 40.31 having access to

mobile phones in the country (TRAI, 2010), the market is large enough to guarantee

that demand for MNP can be economically viable.

At the same time, there is still relatively intense competition in the Indian telecom

market, nevertheless, data suggests that competition between operators at a circle

level, as gauged by HHI, has fallen between 2003 and 2007 (TRAI 2), while overall

competition at the national level was said to have stagnated at 0.16 in 2009. ARPUs

have also been falling in the last few years and prepaid ARPUs are now as low as

USD 2-3 as of 2007 (Pluggdin 2007). According to a study by LIRNEasia (2009a),

India has a low monthly total cost of ownership (TCO), with average prepaid

subscribers spending as little as USD 6.04 per month. This indicates that operators

probably follow a budget telecom network model, and operate on very low cost

margins.

On the regulatory side, TRAI, which was set up in 1997, has played a significant role

in the performance of the sector in the last decade. Although it falls under the


53


jurisdiction of the DoT and does not have unchecked independence to make its own

decisions in order to regulate the telecom sector, TRAI has been key in the

development of the wireless market. The Authority has functioned efficiently and has

worked alongside the Cellular Operators Association of India (COAI) and the

Association of Unified Telecom Service Providers of India (AUSPI) to develop the

mobile sector into a profitable one. The opposition for MNP in 2006 was sustained

because of the influence of COAI, who argued that MNP would be too costly for the

market and would ultimately lead to an increase in tariffs (Das Gupta, 2006).

However, this was retracted after an IDC survey, cited by TRAI in its MNP

Consultation Paper, provided evidence that there would be sufficient demand to

ensure the economic success of the service. According to the survey "30 per cent of

mobile subscribers are likely to shift to an operator offering better services, if given

the option" (The Hindu, 2005).

As consumer trends evolve and there is a growing need for the regulator to protect

their interests, it seems like an obvious move for TRAI to have called for the

implementation of MNP in 2007. With a growth and investment potential far

exceeding most other telecom markets in the world, the Agency has been adopting as

many measures as it can to establish its market as one that has arrived. While

opponents of the service argue that the market is still young with much potential for

significant growth in the coming years and no need for MNP at this time. They argue

that network coverage only accounts for about 40 percent in the country and there are

more pressing matters that regulators should look into. Proponents, on the other hand,

are sure that MNP will only help to develop the market further and give subscribers

the flexibility they need, even at this adolescent stage. In response to the question

posed on whether the timing is right, TRAI and other proponents are of the view that


54


if not now, in any case MNP is a facility that will have to be adopted later in a

telecom market. Since the sector is still growing, in terms of demand and supply (with

the entry of more operators in select circles), and subscriber telecom behaviour is still

evolving, it may not be a bad time to adopt it.

On the other hand, though, the question should be asked of whether TRAI is

considering location portability, along with MNP, as this is possibly more of value to

both prepaid and postpaid subscribers (MediaNama, 2009a). With increasing rates of

migration from rural areas to the cities, it is more likely that location based portability

– for example, porting from a mobile operator in Delhi to an operator in Chennai, will

be more useful to internal migrants and those moving from rural areas to the metros.

Introducing MNP alone will not be sufficient to meet future mobile subscriber needs

and ideas of flexibility.

In any case, as a result of the way MNP has been handled in India, there seems to be a

lot of hype and expectations from all stakeholders involved. However, the repeated

postponements have put doubt into the minds of many if TRAI will be successful in

introducing MNP any time soon. In addition to this, there has been some confusion

and vagueness on how much subscribers will have to pay for the service, once it

comes into effect. TRAI expects that subscribers will have to pay between INR 20-

200 (approximately USD 0.43-4.34), which for some low-end prepaid users is higher

than their monthly spend on telecoms. Other reports suggest that the cost will be

between INR 250-400 (about USD 5.42-8.66). There is still no information on how

much operators will charge for porting and this can dampen porting rates further.

With such misgivings, there is too much uncertainty to be convinced that MNP is

right for India at this time.


55


RELIANCE COMMUNICATIONS- A PROFILE

Recognising the crucial role that can be played by the telecommunication sector in

India’s development, the Government of India in 1999 initiated a number of changes

in the telecommunication and regulatory and policy framework. Through these the

Government hoped to facilitate an increase in telecommunication penetration, which

stood at 1.3% in 1995. The reforms, with an eye on a telecommunication penetration

of 15% by 2010, resulted in a flurry of private operators entering the market breaking

the monopoly of the incumbent operator Bharat Sanchar Nigam Limited (BSNL).

Reliance Infocomm was born in the year 2000 as a child of this market liberalisation

process with a vision to provide the latest telecommunication facilities to every Indian

at the price of a post card. Reliance Infocomm helped the mobile phone penetration in

India to grow from 0.25 percent in early 2001 to about 5.7 percent in June 2005.

Reliance Communications has a reliable, high-capacity, integrated (both wireless and

wireline) and convergent (voice, data and video) digital network. It is capable of

delivering a range of services spanning the entire infocomm (information and

communication) value chain, including infrastructure and services — for enterprises

as well as individuals, applications, and consulting. Today, Reliance Communications

is revolutionising the way India communicates and networks, truly bringing about a

new way of life.

Founder

Few men in history have made as dramatic a contribution to their country’s economic

fortunes as did the founder of Reliance, Sh. Dhirubhai H Ambani. Fewer still have left

behind a legacy that is more enduring and timeless. As with all great pioneers, there is

more than one unique way of describing the true genius of Dhirubhai: The corporate

visionary, the unmatched strategist, the proud patriot, the leader of men, the architect


56


of India’s capital markets, the champion of shareholder interest. But the role

Dhirubhai cherished most was perhaps that of India’s greatest wealth creator. In one

lifetime, he built, starting from the proverbial scratch, India’s largest private sector

enterprise. When Dhirubhai embarked on his first business venture, he had a seed

capital of barely US$ 300 (around Rs 14,000). Over the next three and a half decades,

he converted this fledgling enterprise into a Rs 60,000 crore colossus—an

achievement which earned Reliance a place on the global Fortune 500 list, the first

ever Indian private company to do so.

Dhirubhai is widely regarded as the father of India’s capital markets. In 1977, when

Reliance Textile Industries Limited first went public, the Indian stock market was a

place patronised by a small club of elite investors which dabbled in a handful of

stocks. Undaunted, Dhirubhai managed to convince a large number of first-time retail

investors to participate in the unfolding Reliance story and put their hard-earned

money in the Reliance Textile IPO, promising them, in exchange for their trust,

substantial return on their investments. It was to be the start of one of great stories of

mutual respect and reciprocal gain in the Indian markets.

Under Dhirubhai’s extraordinary vision and leadership, Reliance scripted one of the

greatest growth stories in corporate history anywhere in the world, and went on to

become India’s largest private sector enterprise. Through out this amazing journey,

Dhirubhai always kept the interests of the ordinary shareholder uppermost in mind, in

the process making millionaires out of many of the initial investors in the Reliance

stock, and creating one of the world’s largest shareholder families.


57


3 of 17

Reliance Communications

World’s largest network roll-out covering almost a billion people in India

World’s largest IP enabled optic fiber cable network - 230,000 Rkms

Pioneered wireless affordability in India

Submarine cable assetsOf 110,000 Rkms

Terrestrial fiber cable metro & intercity

Handset prices down from>$ 50 to <$ 20

Driven call rates down from >10 cents to <1 cent

per minute

Coverage increasing from 10,000 to 23,000 towns

Covering almost 100% of rail & roadway routes

Coverage + Affordability = Profitable growth

Launching nationwide GSM services

Vision

“We will leverage our strengths to execute complex global-scale projects to facilitate

leading-edge information and communication services affordable to all individual

consumers and businesses in India. We will offer unparalleled value to create

customer delight and enhance business productivity. We will also generate value for

our capabilities beyond Indian borders and enable millions of India's knowledge

workers to deliver their services globally”.

Reliance Communication (earlier launched as Reliance Infocomm) was launched as a

very ambitious project. The project was conceived at the convergence of

communication and information technology. It was designed to connect every home

and office in India with each other and the world through an overarching terabit optic

fibre digital distribution system. It was developed to provide a range of services to

every citizen, company and community. It was envisaged to earn for India leadership

in the knowledge age. Reliance Communication aimed to create new paradigms in


58


enterprise, entrepreneurship and engagement. To achieve all these objectives Reliance

Communication rolled out a complex architecture of domains, functions, facilities,

coverage and services, through the latest technology, aiming to add value through

messaging, facilitating business transactions, videoconferencing, music and movie

download services. According to a comparison cited by Mukesh Ambani, former

Chairman of Reliance Infocomm, the United States currently has only about 100 out

of 700 cities with the CDMA2000 1X2 technology that provides the benefit of mobile

voice, data and video, while Reliance Infocomm by 2008 provided these services to

100% of Indian cities.

According to the Chairman, Reliance Communication is building the largest

infrastructure in the information and communications sector by any new entrant. To

begin with, Reliance Communication networked 673 towns and cities. Currently it has

a presence in 1,850 towns and cities and 75,000 villages touching about 550 million

Indians. This gigantic effort involving more than 8,500 BTS (Base Transceiver

Station) towers covering about 91% of the country's national highways and 85% of

the rail routes is compared by the company officials to the scale of effort involved in

building virtually the entire railway system in India.

India ’s leading integrated telecom company

Reliance Communications is the flagship company of the Anil Dhirubhai Ambani

Group (ADAG) of companies. Listed on the National Stock Exchange and the

Bombay Stock Exchange, it is India’s leading integrated telecommunication company

with over 74 million customers. Our business encompasses a complete range of

telecom services covering mobile and fixed line telephony. It includes broadband,

national and international long distance services and data services along with an

exhaustive range of value-added services and applications. Our constant endeavour is


59


to achieve customer delight by enhancing the productivity of the enterprises and

individuals we serve.

5

Market Leader Across Multiple Segments

# Largest carrier of wireless data

Largest in enterprise data services: >50% market share

Largest private PCO operator: >50% market share

Largest carrier of international voice: >40% market share

Largest international data provider in India/Middle East/Asia

Largest retailer of wireless handsets

Largest independent wireless infrastructure provider

“Youngest, Fastest, Largest”

Reliance Mobile (formerly Reliance India Mobile), launched on 28 December 2002,

coinciding with the joyous occasion of the late Dhirubhai Ambani’s 70th birthday,

was among the initial initiatives of Reliance Communications. It marked the

auspicious beginning of Dhirubhai’s dream of ushering in a digital revolution in India.

Today, we can proudly claim that we were instrumental in harnessing the true power

of information and communication, by bestowing it in the hands of the common man

at affordable rates. We endeavour to further extend our efforts beyond the traditional

value chain by developing and deploying complete telecom solutions for the entire

spectrum of society.

Reliance – ADA Group’s flagship company, Reliance Communications, is India's

largest private sector information and communications company, with over 74 million

subscribers. It has established a pan-India, high-capacity, integrated (wireless and


60


wireline), convergent (voice, data and video) digital network, to offer services

spanning the entire infocomm value chain. Other major group companies — Reliance

Capital and Reliance Infrastructure — are widely acknowledged as the market leaders

in their respective areas of operation.

Mission

"Make the tools of infocomm available to people at an affordable cost, they will

overcome the handicaps of illiteracy and lack of mobility", Dhirubhai Ambani charted

out the mission for Reliance Infocomm in late 1999.

Corporate Philosophy

The corporate philosophy that reliance Infocomm follow is short, simple and succinct

- "Think big. Think differently. Think fast. Think ahead. Aim for the best".

Alliances:

Reliance Communication and Intel join hands to accelerate the Internet revolution

in India. Intel powered PCs and laptops to provide users instant Internet

connectivity through Reliance India Mobile and other wireless products.

Reliance Communication brings Railway Booking windows to your mobile

handsets. Reliance Communication launches Railway Ticket Booking as part of R

World in New Delhi, in association with Indian Railways

Easy menu driven navigation on R World makes ticket booking most

convenient ...from anywhere, anytime. No need to remember train names and

reservation codes.

No need to plan your visit to the reservation counter or wait in queues.


61


Use any credit card - Master, Visa, Diners or Amex to book your ticket and get it

delivered at your door step

Facilities to be extended to other cities in keeping with the rollout plans of IRCTC

Presence in Jhansi

Jhansi is a city of Uttar Pradesh state of northern India. Jhansi is a major road and rail

junction, and is the administrative seat of Jhansi District and Jhansi Division. The

original walled city grew up around its stone fort, which crowns a neighboring rock.

Jhansi city has 77th rank among the most populated cities of India, according to 2001

Census.

2001 Census Total: 504,292

Nagar Nigam Total: 470,212

Male: 249,592

Female: 220,620

Cantonment Board Total: 18,582

Male: 10,239

Female: 8,343

Jhansi Railway Settlement Total: 15,499

Male: 8,395

Four operators in Fixed and Fixed Wireless Line telephony are found here.

BSNL (Fixed and Fixed Wireless)

Tata Indicom (on CDMA platform, Wireless)

Reliance Communications (on CDMA platform,Wireless)

AirTel Series

All the above mentioned companies are Broadband internet service providers too.


62


These are the operators in Mobile Telephony, in Jhansi city.

BSNL(on GSM platform)

Vodafone Essar (on GSM platform)

AirTel (on GSM platform)

Tata Indicom (on CDMA platform)

Reliance Communications (on CDMA platform)

Reliance Communications (on GSM platform)

Idea cellular (on GSM platform)

Market Share

Reliance Communications Ltd. (RCOM)’s net sales grew 5.9% qoq to Rs. 55.4 bn on

the back of healthier global revenues and better operational metrics (MOU and ARR)

in the mobile services. In our view, an aggressive pan-India GSM services roll-out

would boost RCOM’s market share to 20% by FY10. We expect RCOM to edge out

other entrants in subscriber net additions, capitalising on a prominent presence in 22

circles and high brand recognition. Furthermore, the Company is likely to replicate its

CDMA-rollout strategy of attractive tariff offerings, prompting a steep cut in the

ARPU at ~21% p.a. over FY08–10E. In the middle period of FY2013- 25, our

expectation of an average 12% growth in cash flows is based on the assumption of

population growth of ~1.4%; inflation at ~5.5%, and a volume growth of ~5%,

supported by lower mobile penetration in the country as against China and Brazil.

Wireless segment

In the second quarter of FY09, wireless revenue grew by 5.3% qoq as the Company

was able to control the drop in the minutes of usage (MOU) to 423 minutes on the

back of its multiple usage expansion initiative. Moreover, the revenue per minute


63


(ARR) was also stable at roughly 64 paisa. With CDMA losing its charm, we do not

expect better subscriber net adds in the second half of the year. However, we expect

that RCOM’s aggressive GSM rollout at the pan-India level will result in a 250-bps

improvement in the market share, from the current 17.8% to 20.3% by the end of

FY10. However, the roll-out will result in poorer realisations due to competitive

pricing and a steeper decline in the MOUs due to the late-mover disadvantage.

Therefore, we expect the ARPU to decline at a CAGR of 21% to Rs. 219 in FY10.

The EBITDA margin is expected to continue southward as network costs and roaming

charges will rise with the spread of the GSM network. Moreover, the integration of

Vanco has swelled up employee costs (as a percentage of sales) to 8.3%, a rise of 156

bps. Factoring the above, we expect the margin to decline to around 39.7% for FY09

and 38.9% for FY10.

Broadband segment

Revenues from the broadband segment grew at 7.5% qoq to Rs. 6 bn, as against a

9.9% growth last quarter. However, the EBITDA margin improved by 39 bps to

48.8%, helped by high-quality networking solutions and IT infrastructure services.

With an addition of 112,000 access lines in Q2’09, we find growth slightly sluggish at

~10% qoq in the first two quarters; thus, we have cut down our estimate by 1.5% and

expect ~1,523 thousand lines by the end of FY09 and 2,209 thousand lines by the end

of FY10. On the positive side, RCOM has been able to limit the drop in the average

revenue per line (ARPL) to ~2.7% qoq. Therefore, we expect the ARPL to drop by

only 12% yoy to Rs. 1,628 and Rs. 1,426 for FY09 and FY10, respectively, as tariffs

will continue to fall due to increasing competition.


64


Q3FY10 Result Update

RCOM recently declared its Q3FY10 results. It reported revenues of Rs.5,309.8 cr

down by 9.2% Y-o-Y and down 6.9% Q-o-Q. EBIDTA for the quarter fell by 23% Y-

o-Y and 10.3% Q-o-Q to Rs.1,812.6 cr. PAT margins dipped by 320 bps Y-o-Y but

rose by 790 bps Q-o-Q to 20.9%.

RCom reported a 9.2% y-o-y and 6.9% q-o-q degrowth in revenues to

Rs.5,309.8 cr.

Wireless revenues fell 8.8% y-o-y but was flat q-o-q at Rs.4,022.5 cr despite

strong subscriber growth of 53.3% y-o-y and 8.9% q-o-q to 93.8 mn. The

management attributed the poor performance in the wireless business to lower

ARPUs on the back of pressure put by use of multiple SIMs. Despite hyper

competition and pressure on tariffs, RPM has declined only by 2 paise q-o-q.

Wireless PBIT margin fell 700 bps y-o-y and 150 bps q-o-q to 31.2% on account

of sharp 43.2% y-o-y jump in network costs owing to GSM rollout. RCom saw


65


weakest minute growth among listed peers at 5.3% q-o-q to 89bn. Wireless

ARPUs crashed to Rs.149 in Q3FY10 vs. Rs.161 in Q2FY10.

The global business segment revenues improved by 18.1% y-o-y to Rs.1,981.8

cr but fell by 12.5% q-o-q. NLD traffic grew by 59.1% y-o-y to 13.6 bn minutes

while ILD traffic rose by 48.1% y-o-y to 2.82 bn minutes. PBIT margins dipped

q-o-q by 190 bps whereas on y-o-y basis they fell by 190 bps to 21.2% in

Q3FY10.

Broadband segment revenues sharply improved by 7.7% y-o-y but dropped by

8.5% q-o-q to Rs.704.5 cr with ARPL flat y-o-y and down by 8.5% q-o-q to

Rs.1,642. PBIT margins declined to 39.1% from 41.5% in Q2FY10. It has bagged

22 projects in the enterprise data segment from global and domestic players.

RCom has said that the poor show by global and broadband divisions reflects

the gaps observed by its vendors before renewing the annual contracts. The

divisions are likely to resume growth in the coming quarters and it claims that it

has not lost any of the clients.

RCom had 2.23 mn DTH subscribers in Q3FY10 and market share of 12%.

Consolidated EBIDTA margins dipped by 610 bps y-o-y and 130 bps q-o-q to

34.1% on the back of high network operating costs. Network costs increased by

1160 bps y-o-y and 360 bps as a percentage of sales to 31.5%. Another reason for

fall in EBIDTA margins was the sharp drop in wireless revenues.

SG&A cost declined by 34% q-o-q. The management indicated that the reason

for this fall was reduction in outsourced manpower; reduction in losses/costs

pertaining to Vanco restructuring and lower costs in globalcom business.


66


Depreciation and amortization charges dropped sharply by 18% y-o-y due to

assumed increase in useful life of certain telecommunication equipment to 18

years. Q3FY10 witnessed interest income of Rs.407.5 cr vis-à-vis income of

Rs.149.6 cr in Q1FY10. RCom reported tax of Rs.200.3 cr during the quarter.

Lower revenues and higher tax outflow led to net profit moving down by 21.5%

y-o-y to Rs.1,107.7 cr in Q3FY10.

RCom has guided for a capex of Rs.4,500 cr excluding of a provision for cash

outgo towards the upcoming auction of 3G spectrum in FY10. Excluding 3G

spectrum and Wi-max, the capex for FY11 stands at Rs.3,000 cr. Till 9MFY10,

RCom has incurred capex of Rs.3,200 cr of which 80% is for wireless. It has

invested over Rs.40,000 cr in the last four years towards expansion of network

and operations across businesses in India and internationally.

RCom’s net debt now stands at Rs.189 bn and cash at Rs.43.8 bn.

The ‘Simply Reliance’ plan launched in October 2009 is doing well and was

initially launched as a 50 paise plan. Now RCom is customizing plans as per

needs of customers and plans to target GSM and postpaid users i.e. those with

high ARPU.

RCom has signed 3 new deals through its wholly owned subsidiary Globalcom.

RCom has won contracts worth ~Rs.400 cr through this subsidiary. The new deals

include a NLD lease contract worth Rs.210 cr, and another contract worth Rs.170

cr in the wholesale data segment.

RCom, which has got the market regulator's approval for its proposed initial

public offering (IPO) of its tower unit Reliance Infratel, has initiated pre-IPO talks


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with strategic and financial investors. It is looking to sell a 3-5 % stake and is

hoping to rake in around Rs 1,500 to Rs 2,500 crore, depending on how much it

sells. However, the management has indicated that the timing of the IPO would

depend on the industry scenario.

Etisalat DB and RCom announced a long term passive infrastructure sharing

agreement which will accelerate Etisalat DB Telecom's forthcoming roll-out of

telecom services in India on July 22, 2009. This deal could result in higher

margins due to savings in power and fuel cost. This agreement could start booking

revenues in Q4FY10/Q1FY11.

The management has indicated that the industry consolidation could take 12-18

months to take effect given the high pressure on tariffs due to hyper competition.

The management believes that MNP could be a growth driver given its reach in

GSM and CDMA and its need based Simply Reliance plan made available to suit

all customers.

Key Events

RCOM launched its DTH service, BIG TV, in August 2008 across 4,000 towns

and 103,000 outlets. By September end, the Company was able to bag half a

million customers; latest data put the figure at a million customers by the end of

November.

Besides launching various value-added services, RCOM signed a partnership deal

with ZMQ Software Systems, a New Delhi-based gaming, e-learning, and

edutainment software company, for developing and launching mobile games on

various social themes and programmes.


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Key Risks

The following factors can pose a risk to our rating:

Higher-than-expected auction prices for the 3G spectrum

Weaker-than-expected response to the GSM roll-out

Continued tariff cuts

Outlook

The launch of GSM operations will drive the revenue growth for Reliance

Communications in the near-to-medium term. We have assumed RCOM’s market

share in FY10E to touch 20%. However, any delay in tower installation and addition

of spectrum in the 1800 MHz band could be the key constraints for RCOM in its

GSM foray. While subscriber growth would likely accelerate, we expect a fall in

pricing to hurt revenue growth. Furthermore, we believe RCOM is unlikely to match

the breadth of Bharti’s network coverage in the next 24 months.

Rcom is looking at the global opportunity for telecommunication and managed

services quite actively. It has presence in about 50 countries (>90% of world

population) and has more than 1.5 million customers. The company caters to 200

large carriers and about 1,000 enterprises. The overall market potential, as guided by

the company, stands at US$275bn. We can expect a positive surprise from this

segment, but the management is still not forthcoming with the actual break-up of

revenue in this segment.

PRICING STRATEGY

“My vision is to provide the latest telecommunication facilities to every Indian at the

price of a post card” – Dhirubhai Ambani.


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“A monthly telecom spend of Rs 2503 (US$5.6) would usher in a telecom revolution

in India. At that rate, the telecom market will be around 600 million lines,” said group

president, Reliance Communication. Reliance Communication challenged

conventional cost structures in the telecommunications industry. Historically,

telecommunication services have been the privilege of a small section of society.

Reliance Communication broke this mould with a tariff that can be described as the

most ambitious ever listed by a telecom company in India. It aimed for prices as low

as the cheapest alternative – the postcard. While other operators aimed for the higher

value market, Reliance Communication realized that there is a market in driving

volumes and aimed at creating a completely new market. “According to estimates,

there are around 320 million [people in] households with an annual income of Rs 1.5

lakh (US$3,333) [and above]. Of that, half are in rural areas with similar purchasing

power. And this segment is expected to grow to 602 million by 2010” the group

President, Reliance Communication, hinting about the market that Reliance

Communication aimed to capture.

Dhirubhai Ambani Pioneer Offer – Democratizing Mobiles:

Announcing its launch of mobile services in December 2002 Reliance

Communication offered an introductory scheme called the 'Dhirubhai Ambani

Pioneer' offer. Under this scheme consumers were given a free digital mobile phone,

unlimited free incoming calls, billing at 15-seconds pulse rate, for a one-time fee of

Rs 3000 (US$66.7) as membership charges and Rs 600 (US$13.3) per month (paid in

advance) as telephony charges. All incoming calls were offered free and outgoing

calls were charged at 10 paise (0.2 US cents) for 15 seconds. The cost of a national

long-distance call to any Reliance phone in the country was 40 paise (0.8 US cents)

for a minute. In addition, the monthly charge included 400 minutes of outgoing calls.


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Only calls over and above this were charged extra. Value added services like voice

mail, call waiting, call hold, call divert, call identification, call conferencing, dynamic

locking and text messaging were offered for free. Internet access through the phones

was also offered free initially. "The pricing system is in line with Dhirubhai Ambani's

dream and directive of making phone calls affordable for every Indian. It has been

made possible due to the significant capital productivity achieved," said Ambani.

The Dhirubhai Ambani Pioneer offer unlocked the demand for telecommunication

services in India by challenging many accepted practices. The biggest entry barrier till

that point was the handset prices. The mobile handsets in the market were priced at

Rs.7500 (US$166.7) upwards, which made them unaffordable for most Indians.

Handsets were to be purchased separately since the operators until then offered only

services, and never dealt with handsets. For a customer this meant dealing with two

suppliers – one for the service and another for the handset. Reliance Communication,

for the first time in India, offered handsets free of charge, along with the service. The

phones offered were Java-enabled and multimedia ready with polyphonic sound and

features like 3-way conferencing. For a customer this meant access to a fancy handset

without the initial price barrier, and dealing with just one supplier.

Reliance Communication managed this free handset offer in three ways. Firstly,

Dhirubhai Ambani Pioneer offer had a built-in contract of three years for every

customer. This guaranteed cash flows and minimized churn allowing them to discount

the cost of the phone. Secondly, Reliance Communication entered into exclusive

agreements with handset vendors like LG and Samsung. For a guaranteed purchase of

huge volumes (between 1 million and 8 million phones) the prices were negotiated

down to rock bottom. Thirdly, Reliance Communication reduced the choice available

to the customer to just two models per brand, thus ensuring mass production and


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further reduction in prices. Internal estimates say that the handset model which was

available on the open market at a price of Rs.10,500 (US$233) was procured at a price

of Rs.800 (US$17.8) by Reliance Communication. In addition, Reliance offered to

exchange existing handsets for international long distance time valued between Rs

5,000 (US$111) and Rs 7,000 (US$155.6). Through this exchange offer Reliance

ensured that many of the existing subscribers of the competitors could come into its

fold, without having to bear the guilt associated with discarding a costly handset. By

offering international long distance time, instead of cash or discounts, this ensured

that the services were used for bringing in more revenue. Reliance Communication

challenged the practice of charging for incoming calls. The existing mobile players

until then charged all the incoming calls at almost half the rates of outgoing calls

keeping many potential users at bay. Through the Pioneer Offer, Reliance

Communication made all the incoming calls free of charge. The competitors had been

discussing the advantages of ‘Calling Party Pays’ (CPP) for the previous three years

or so. But Reliance Communication was bold enough to put that pricing regime into

practice. Reliance Communication also reduced the rates of outgoing calls at a point

of time when they were being charged at rates as high as Rs.7 (US$0.15) per minute.

Three strategies helped in cutting call costs. Firstly, Reliance charged a higher rental –

Rs.600 (US$13.3) per month – compared to the rest of the players. But it ensured that

the user received about 400 minutes of free usage, while the competitors offered none.

For a user this means that his or her outflow is fixed, while allowing the flexibility of

a moderate amount of minutes. Secondly, Reliance Communication reduced the pulse

rates to 15 seconds from the earlier one minute. For a user this meant more control

over the costs, while for Reliance, it meant higher volumes of calls. The lower pulse

levels allowed the low income users to pass on information through short duration


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calls. Thirdly, Reliance Communication ensured that calls to any Reliance phone in

India were charged at Paise 40 (0.8 US cents) a minute – a rate which people could

not even imagine before that time. For Reliance Communication this meant faster

adoption of Reliance services across India, because of the very low long distance

rates, made possible by low costs, since the calls would be carried entirely through the

Reliance owned network, thus avoiding profit sharing with any other carrier.

Value added services like voice mail, call waiting, call holding, call divert, call

identification, call conferencing and dynamic locking were charged at a premium by

all the other players in the market. Reliance Communication offered all these services

free of charge. In addition all text messaging was offered free of charge. Access to R

World - offering music, video and utilities – and access to the Internet through the

phones – both a first in Indian mobile communications - were offered free of charge.

Through these Reliance customers got a taste of the future, hooking them onto the

service and paving the way for revenue streams in addition to plain vanilla telephony.

Reliance Communication 's Monsoon Hungama offer of a phone for Rs 501 (US$11)

was a runaway success. Monsoon Hungama pushed Reliance to the top of the telecom

market in terms of subscribers. It was the biggest promotional success in the history

of mobile telephony in India. 1 million subscribers joined Reliance Communication in

just 10 days after the launch of the Monsoon offer. The ripples of the offer were not

limited to Reliance. This offer led GSM handset prices to fall to as low as Rs 1,500

(US$33.3). In the footsteps of Reliance Communication, during the same period,

many competitors started offering flexible pre-paid options at less than Rs 500

(US$11.1) per month for their GSM mobile services.


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Pre-paid Offering - Market Consolidation:

As the market for post-paid mobile services started stabilizing, Reliance

Communication launched its first pre-paid offer. The pre-paid offer marked a

fundamental shift in Reliance's strategy where it had built a post-paid customer base

of over 6 million through the Pioneer and Hungama schemes. At a time when

Reliance was finding it hard to manage its post-paid customers, the new strategy

offered two advantages. First, there was the obvious advantage that cash is collected

beforehand. Second, the cost of collecting bills - which is 1 to 3 per cent of revenue -

vanished.

In February 2004, Reliance Communication announced another set of prepaid

schemes, quite different from the earlier schemes. The schemes gave customers free

recharge vouchers worth nearly the cost of a Reliance IndiaMobile (RIM) prepaid

handset that they buy. In simple terms it meant that customers were getting the phone

free rather than having to buy it as they would if they opted for a GSM pre-paid

scheme. Also, the customers were allowed to remain connected for a full year without

having to buy new recharge vouchers. Under the Prepaid launch scheme, a customer

had to pay Rs. 3,500 (US$77.8) for a Motorola C131 handset and received free

Reliance Prepaid connection and recharge vouchers worth Rs. 3,240 (US$72) valid

for six months and with additional six-month grace period. In this scheme, all local

calls, intra-circle calls and inter-circle calls of less than 50 km to another mobile

phone had a flat rate of Rs. 2.49 (US$0.06) per minute. All inter-circle calls of above

50 km to another mobile phone had a flat rate of Rs. 2.99 (US$0.07) per minute. All

local calls, intra-circle calls and inter-circle calls of less than 200 km to a fixed phone

had a flat rate of Rs. 2.99 (US$0.07) per minute and all inter circle calls of above 200


74


km had a flat rate of Rs. 3.99 (US$0.09) per minute. International calls were billed at

Rs. 16.99 (US$0.38) per minute.

Other features of Reliance Prepaid included automatic roaming in the pan-India

Reliance network at no extra charge, a nationwide recharge facility with any available

denomination (starting from Rs.165 or US$3.67), a national long distance and

international long distance facility, and call forward and voice message service at

local mobile call rates from anywhere in the Reliance network. Also, customers with

Java enabled handsets were able to use their phones as modems for RConnect Internet

connectivity and to access RWorld data applications. This scheme was different from

the earlier schemes in two ways. Firstly, though the handset came virtually free of

charge, the entry barrier was definitely higher since the customer committed to a

higher volume of calls. Secondly, the customers who were hoping that Reliance

would bring prices substantially down, as in the past, were disappointed. Airtime

tariffs (the price of calls per minute) of this scheme (discussed above) were almost the

same as those offered by the GSM operators.

Cost Management - The Inside Picture

The Reliance Communication’s pricing system was always in line with Dhirubhai

Ambani's dream and directive of making phone calls affordable for every Indian, and

has been possible due to the meticulous planning, ‘out of the box’ thinking in touch

with reality, and significant capital productivity achieved on the strength of Reliance's

track record in project management.

Reliance Industries, the parent company of Reliance Communication, is the largest

private sector corporation in India with stakes in Petroleum, Petrochemicals,

Engineering, and Finance. This scale of operations provided great leverage as the


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company ventured into telecommunications. Reliance Communication, in the initial

stages, shared all Reliance resources to ensure cost effectiveness in every service that

it provided. Reliance Communication operated out of existing Reliance Industries

offices and utilized the capital and personnel resources to the extent possible.

Reliance Engineering Associates Ltd, an associate company, made sure that the

engineering and manpower costs were maintained at the bare minimum. According to

the Group President of Reliance Communication “… in developed countries human

resource costs account for 22 per cent of a telco’s operating cost as against 5 per cent

in India…But we utilize all our internal resources in large numbers which further

reduces the cost”. In addition Reliance centralized most of its operations. Citing

Reliance Communication’s strategy, he said: “80 per cent of our administration and

operation is centralised. Compared to the best telecom networks in the world we have

deployed only half the number of people per 1,000 lines making our human resources

the highest productive resource.” Reliance also exploited the extensive petroleum

distribution channels that it had set up in promoting and distributing Reliance

Communication services.

A group company, Reliance Telecom Limited, which uses the GSM technology to

provide services to seven telecom circles4 across 11 North Eastern states of India,

helped Reliance Communication in learning and managing cost structures during the

initial stages. Reliance Telecom and Reliance Communication synergy helped in the

optimum utilization of their networks in two ways. Firstly, Reliance Communication

network started routing all the calls originating from Reliance Telecom, which

guaranteed traffic and revenues from day one and, secondly, the network of Reliance

Telecom helped Reliance Communication in gaining a foothold in the North Eastern

market, where it did not possess telecommunication licenses.


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Provision of multiple services is another strategy which Reliance Communication

used to manage costs. When most other mobile operators focused exclusively on the

provision of mobile services, Reliance Communication, in a phased manner, started

offering all the services which could utilize their network and other resources

optimally. Apart from the basic mobile services, Reliance Communication currently

offers landline, broadband Internet, leased line, VPN (Virtual Private Network), IPLC

(International Private Leased Circuit), Centrex and IDC (Internet Data Centre)

services, thus achieving lower costs per service and more revenues.

Another factor that worked in favour of Reliance Communication was the state of the

world economy. During the period of Reliance Infocomm start up, in 2000 to 2002

again from 2008, the world economy experienced a time of turmoil. There was a

deepening and reinforcing of the global economic slowdown that had begun to set in

from the end of 2000. According to the IMF estimates5, world output recorded a mere

2.4 percent growth during 2001, compared to 4.7 percent during 2000. The growth in

world trade volume also declined sharply to about 1 percent during 2001, as against

12.4 percent in 2000. The global slowdown was accentuated further by the terrorist

attacks in the United States on September 11, 2001. These ripples were reflected in

the telecommunication industry.

After a steady growth throughout the 1990s, the United States telecom industry saw a

decline for the first time in 10 years in 2001. US imports of telecom equipment

recorded a decline of 9 percent, and exports a decline of 7 percent in 2001 over 2000.

But in the case of Reliance Communication these negative events had a positive

impact. The world economic and telecommunication meltdown helped it to negotiate

better prices for equipment. Since Reliance Communication placed huge orders they

were in an advantageous position to command lower prices from nearly all vendors


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who were trying to push out equipment from their warehouses. According to internal

rumors, Reliance Communication procured discounts of up to 90 percent on the

market prices from vendors like Lucent and Nortel.

Since the global meltdown ensured rock bottom property prices across India, Reliance

Communication was able to own, lease and rent property required for the offices,

showrooms and equipment installation at minimum cost. Added to this, careful

planning ensured that the structures including the telecommunication towers were

made and erected at minimum cost. The fibre optic cables were procured from

Reliance-owned factories resulting in further cost reduction. Anil Ambani claimed

that Reliance Communication 's "…capital costs per subscriber are about 50 to 70 per

cent lower than those of all new global telecommunication deployments in recent

times''.

Reliance Communication also exploited loopholes in the Indian telecommunication

policy to cut costs. This problematic episode is discussed further in section 5. The

GSM licenses were offered for the four metropolitan cities and 18 circles after a

tendering and bidding process. These licenses were procured by various mobile

operators from the period of 1995-97 for a license fee as hefty as US$7 billion. The

New Telecom Policy 1999 reduced this license fee significantly, incorporating a

revenue sharing arrangement. In January 2001, a policy was announced for additional

licenses in Basic and Mobile services. The entry fee for the basic services was fixed at

US$0.2 million to US$25.5 million, while for the fourth mobile operator (since in

most circles there were three operators already) it was fixed at US$0.2 million to US$

45 million, depending on the area of service provision. According to this policy, WLL

service was considered a byproduct of basic service and could be provided by basic

telecom operators at no extra license fee. As Reliance Communication studied the


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balance sheets of the existing mobile operators they found that the actual revenue

realizations were far short of projections, leading to mobile operators being unable to

arrange finance for their projects and complete rollouts. This created a vicious circle

of high subscription charges and low penetration for the mobile operators. Reliance

Communication, instead of applying for the fourth mobile license went for the

Wireless Local Loop license (WLL) based on Code Division Multiple Access

(CDMA) technology. While other GSM players took years to break even because of

the high entry costs, Reliance Communication ensured this cost would be minimized.

All these measures ensured that the capital and operating expenditures of Reliance

Communication were minimized as compared to its competitors, helping it to offer

cheaper services.

ENTRY STRATEGIES

By deciding to use PDAs for high end market they have not only done value addition

to their services but also they have decided to cater for the segment where margins are

high. Reliance Communication's strategy from the beginning was simple. It started

operations late, after the market had stabilised to a degree. But eventually when it did,

it did it with a splash. Its aim was to acquire critical mass quickly by undercutting

competition. This was because it saw that the telecom industry was heading towards

an oligopoly. Although this meant huge losses in the short term, Reliance understood

that only a few telecom operators would remain in the next few years.

STRATEGY OF Delayed-Launch

Reliance has launched the network on 27 December, 2002, and was planning to

launch services on 14 January, 2002. By end of March 2003, plans are to cover 637

towns and cities. Since the services rollout had got delayed, Reliance was trying to


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entice customers by saying that subscribers can access the network for free till March,

while services would be commercial only from April 2002.

This tactic appeared to be aimed at capturing those potential subscribers who would

have opted for Tata Teleservices’ CDMA services or other GSM services because of

Reliance’s delayed launch. They didn’t mind using the service free of cost for a

couple of months. As that happened, Reliance was be able to start commercial

services with a large number of subscribers from day one. Meanwhile, it also got time

to test the quality of the network and iron out interconnect and other such issues

before doing the commercial launch of the service.

SALES AND MARKETING STRATEGY:

Reliance Communication radically redefined marketing models in India and engaged

homes and enterprises directly by having the ability to deliver physical and virtual

products and services as part of one system. Reliance Communication through its

aggressive, unconventional tactics changed the rules of the mobile marketing game.

Reliance preferred DSA over channel partners. The DSA model offers several

advantages. Firstly, the DSA and his staff can do personalized, direct marketing—in a

manner not achievable by channel partners—at no expense to Reliance. Secondly,

DSAs are utilizing all tools like fax, e-mail, telephone, cable TV network, and one-to-

one meetings to tell prospective customers about ‘Reliance India Mobile’. Thirdly,

this is also building more hype for the service and allowing Reliance to spend a lot

less on advertisement, but more importantly, enabling it to reach out to the optimally

potential audience. Fourthly ,from customer acquisition to verification and validation

of the supporting documents, to collection of cheques and depositing them at the


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Reliance collection center, DAEs will handle all the back-end operations. Reliance is

thus saved of huge amount of time, effort and money.

The very appointment of a DAE ensures one connection for Reliance, as that’s one of

the conditions for becoming a DAE. Thus, even before the start of the service, the

company has a base of around 200,000 subscribers, whereas BSNL was able to get the

same number four weeks after the launch of its Cell One cellular services. The model

neatly combines the best features of the traditional channel model and the ‘Amway’

model. Reliance gets a ready subscriber base of 200,000 DAEs by default. Moreover,

a whole bunch of backend operations is ‘outsourced’ to the DAEs for no fee.

Reliance Communication lacks Transparency at end user level and is not spreading

Technological Awareness. The company is also subjected to the thefts and forgery

regarding Handsets provided by company. It is also facing many legislative barriers

form government as well as its competitors.

CRITICISM ON STRATEGY ADOPTED BY RELIANCE

Reliance has come in for criticism for its recent back-door entry into the booming

wireless market. While global system mobile communications companies with

international investors like AT&T and Singapore Telecommunications bid for cellular

licenses that have averaged hundreds of millions of dollars each in public auctions,

Reliance received limited mobility rights along with fixed-line licenses sold by the

government at a fraction of the cost. By interconnecting different circles of limited-

mobility services, Reliance has assembled a nationwide network comparable to that of

the G.S.M. operators' systems. Cellular operators accused Reliance of breaching

regulations on limited mobility phones. But Reliance turned the commercial dispute


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into a technological one, settled out of court, and became the prime beneficiary of a

changed regulatory regime.

New, Effective Marketing Model

Earlier, Reliance had considered appointing channel partners, but dumped the plan

once the DSA idea cropped up. (The DSA(direct sellers associations) model is

applicable only for a few months.) The DSA model offers several advantages. One,

the DSA and his staff can do personalized, direct marketing—in a manner not

achievable by channel partners—at no expense to Reliance. Reports are that DSAs are

utilizing all tools like fax, email, telephone, cable TV network, and one-to-one

meetings to tell prospective customers about ‘Reliance India Mobile’. This is also

building more hype for the service and allowing Reliance to spend a lot less on

advertisement, but more importantly, enabling it to reach out to the optimally

potential audience. From customer acquisition to verification and validation of the

supporting documents, to collection of cheques and depositing them at the Reliance

collection center, DAEs will handle all the back-end operations. Reliance is thus

saved of huge amount of time, effort and money.

The very appointment of a DSE ensures one connection for Reliance, as that’s one of

the conditions for becoming a DSE. Thus, even before the start of the service, the

company has a base of around 200,000 subscribers, whereas BSNL was able to get the

same number four weeks after the launch of its CellOne cellular services. The model

neatly combines the best features of the traditional channel model and the ‘Amway’

model. Reliance gets a ready subscriber base of 200,000 DAEs by default. Moreover,

a whole bunch of backend operations is ‘outsourced’ to the DAEs for no fee.


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STRATEGY TO PROMOTE INFOCOMM

VALUE CHAIN

TECHNOLOGY

Reliance Communication uses Qualcomm Inc.’s Code Division Multiple Access

(CDMA) 2000 1 X technology. This technology handles better voice quality & higher

data rates as compared to GSM. Reliance Communication has tied up with Kyocera

for supply of high end PDAs. Reliance has procured around 50,000 PDAs. The PDAs

will be focused for high end users whereby one can use it both as a phone as well as a

PDA. The phone will be used for making voice calls whereas PDA will be utilized to

provide wireless data access for web clippings, HTML, SMS and e-mail. Using

speakerphone facilities one can use PDA while one is making voice call.

Customer Generation - Tapping in to Internal Resources:

Reliance targeted internally as it looked for the first set of customers. Officials of

Reliance Communication realized that an employee base of more than 50,000 and a

shareholder base of about 3.3 million was the best place to start as far as customers

were concerned. Every employee was offered 10 connections at a discounted rate.

While the normal monthly charges would be Rs.600 (US$13.3), for the employees

they were offered at Rs.500 (US$11.1). Many employees bought Reliance

connections for many of their relatives and friends. During the annual general meeting


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the Reliance Chairman offered shareholders a discount package. The company offered

a Rs.850 (US$18.9) discount on initial payments on subscription per connection. In

addition, the shareholders were offered free usage worth Rs.100 (US$2.2) for six

months. This amounted to a total discount of Rs 1,450 (US$32.2) per connection. In

addition the shareholders were encouraged to promote Reliance Communication

connections in their circles of influence. If a shareholder subscribed to two

connections, he or she would get free usage worth Rs.100 (US$2.2) per connection for

12 months, in addition to the Rs.850 (US$18.9) per connection discount. This

amounted to a total discount of Rs.4,100 (US$91.1) for two connections.

Dhirubhai Ambani Entrepreneurship Programme – A New Way to

Market:

In the case of marketing channels, instead of resorting to the tried and tested means,

Reliance Communication created a completely new model. As a tribute to Dhirubhai

Ambani, the acknowledged icon of a new entrepreneurial wave in India, Reliance

Communication fostered a new breed of entrepreneurs, as channel partners. The

Dhirubhai Ambani Entrepreneur Programme began with an aim of enrolling 200,000

individuals who are committed to acquiring new customers and creating a new

experience for them, based on flawless service and feelings of satisfaction. About

50,000 individuals were recruited in a matter of weeks who were guided and

supported by 900 Reliance executives across the country. In 673 towns and cities,

Reliance trained these entrepreneurs in basic skill sets, so that they are able to deliver

value to customers at their doorsteps. Reliance Communication envisaged spending

over Rs.1000 million (US$22.2 million) per year in training and competency building

programmes for these entrepreneurs. Through this programme, in addition to

contributing to society by encouraging other enterprises, and creating economic


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opportunities for millions of young Indians, Reliance leveraged goodwill and

networks.

To complement the Entrepreneurship Programme, Reliance Communication started

retail outlets in prime commercial and residential areas. In retail spaces ranging

between 800 and 2000 sq ft, in major Indian cities, district headquarters and towns

that would number over 500, the company leased or purchased areas and set up Web

Worlds. At the Web Worlds the customer could interface directly with the company

officials, see, touch and try the products and then buy. At the phone stores, the

customers could buy the phones directly across the counter. The company envisaged

that ultimately there would be at least one WebWorld in all the towns where Reliance

Communication has a presence.

The vision of Dhirubhai Ambani - a mobile phone in every Indian’s hand - drove

Reliance Communication further to reach out to places hitherto untapped by any

telecom company in India. Reliance Communication aggressively promoted its

limited mobility telecom service by participating in or having partnerships at various

shopping malls, book fairs, community functions, kiosks, letting people have a mobile

phone connection. To build the customer base Reliance Communication went where

the customers were going – to grocery stores, gas stations, music stores, departmental

stores, street side vendors, bookshops and even hotels and restaurants. To ensure that

the product was available at the customer's doorstep, Reliance stocked its handsets in

about 15,000 outlets across the country, while 70,000 outlets sold the recharge

coupons. It also appointed 600 exclusive distributors who sold only the pre-paid

offering. Retailers like FabMall, Planet M, HP, Music World and Timex started to

bundle their products along with Reliance India Mobile. Phones were distributed at

discount prices with many products the consumer bought. Additionally the company


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conducted nationwide product demonstrations and announced that the Pioneer

Scheme would be a limited period offer, which further enhanced the interest of the

consumers.

Advertising – Educating Masses and Evoking Passions:

Advertising was a marketing strategy which complemented the unconventional use of

channels by Reliance Communication. The Reliance mobile brand was branded as

IndiaMobile to cash in on patriotic feelings. Bundling of handsets along with the

service – a first time in India – allowed Reliance Communication to resort to a co-

branding exercise with the handset makers. The Reliance Communication brand name

embossed on every handset gave it a unique cachet, while the costs of many of the

advertisements were discounted since they were also borne by the handset makers. A

mega advertising campaign was launched across the media to mark the launch. The

blitzkrieg coincided with the world cup cricket tournament, ensuring a huge audience.

The main theme of the first campaign built on the vision of Reliance Communication

in bringing the power of telecommunications to every person. This campaign helped

to educate people on the importance of telecommunication services. The next set of

campaigns talked about the innovative product features which differentiated Reliance

Communication from its competitors. The advertisements announced that Reliance

India Mobile was 'Kabhi mobile, kabhi computer' (Sometimes Mobile, Sometimes

Computer). In the subsequent campaigns Reliance started riding on movies and

cricket as themes.

Overall three observations emerge from the way Reliance handled the media. Firstly

Reliance built a huge public relations exercise around the launch of the product. The

public relations effort gave much leverage to the advertising and gave rise to a word

of mouth campaign. Secondly, Reliance Communication utilized every media vehicle


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very effectively. It advertised on every TV channel available and in most newspapers,

thus making sure that the product was being promoted across India – a nation very

much divided by language and market conditions. At the peak Reliance

Communication booked about 5,000 spots on 40 TV channels, 1 million sq ft of space

on hoardings across the country and inserted ads in over 70 publications in national

and regional languages. Thirdly, Reliance Communication capitalized on the passions

of Indians when framing advertisements. The campaigns had an emotional pitch,

piggy backing on Cricket and Bollywood (equivalent of Hollywood in India) thus

effectively connecting with almost every Indian.

For marketing promotions Reliance again used unconventional strategies. The mobile

service was promoted aggressively through every marketing channel. Huge signs

were put up in front of every gas station and office space in addition to the prime

spots booked across the nation. The bulk purchase of signboards ensured that the cost

was lower as compared to that available to competitors. Reliance Communication also

utilized their telecom towers by putting up glow sign boards on them which lit up

during the night – an innovative, but cost effective, strategy since most of the towers

were in highly populated and visible areas.

RWorld – Reliance Way of Putting the World in Your Hands:

Another important marketing strategy that Reliance Communication used was product

differentiation by mixing data applications with voice. Reliance WebWorld is the

retail interface initiative of the Communication juggernaut and a part of Reliance's

strategy of vertical integration. Through RWorld – an inbuilt Java enabled data

feature of all Reliance phones - the company guaranteed download speeds of up to

144 kbps from an applications suite which has over 120 applications ranging from

interactive Guides such as TV programme guides and City Guides, Live News and


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TV news clips from channels like NDTV, CNBC, Aaj Tak and India TV to contests,

video songs, Ring Tones, Cricket Information, Women's World and Kidz World. It

introduced numerous applications like news, streaming audio and video of movies and

music clips, city & TV guides, exam results, astrology and stock prices. Apart from

these, data applications again rode on the passions of India – cricket, movies and

festivals. RWorld launched specific festival services for the Durga Puja and Dusshera

festivals. On 20 September 2003, the first day of introducing "Navratri" - a multi-

media mobile service offering ring tones, greeting cards, pictures and video clips of

Navratri Festival - in the R World, over 10 million Navratri specific content

downloads were reported. Viral marketing and word-of-mouth references drove traffic

buildup. In the world of movies Reliance Communication embarked on a mega movie

promotion and tied up with the movies of many famous directors in the country. It

heavily promoted Reliance mobile ShowTime – the first of its kind concerted movie

promotion through Reliance mobile R World and Reliance Web Worlds. It aimed to

bring the world of movies not only on mobile screens of Reliance mobile phones but

also offered special outlets at its WebWorld stores across the country. The company

joined hands with the producers of hit films for promotion of their latest blockbusters.

This concept of movie promotion opened up many new marketing avenues for

Reliance Communication. In the world of Cricket, Reliance Communication tied up

with national and international Cricket tournaments and started providing real time

scores.

Reliance Communication did not stop at this. Through the Dhirubhai Ambani

Developers Programme (www.dadp.com), it aimed at opening the Reliance platform,

on an open source basis, so that ideas can be converted into applications - where the

power of thousands of minds could be harnessed to create unique products and


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services. These Dhirubhai Ambani Developers converted ideas into products as

Reliance Communication provided the infrastructure, unlimited access to

comprehensive technical documentation and support and special rate plans designed

for the developer community. According to Reliance, this programme is aimed at

creating wealth for 100,000 young developers who could leverage their success in

India to win markets globally. Over 16,000 individual developers and 800

Independent Software Vendors (ISVs) in addition to scores of small and medium

enterprises have so far enrolled in the programme.

Product Innovations - Connecting with Every Section of Society:

Reliance Communication leveraged its product innovation skills, applications

development skills and partnerships to find new solutions to conventional and

contemporary problems - from managing queues in temples, and connecting all police

stations, to delivering e-governance solutions to citizens. Reliance Communication

applications also facilitated the provision of education and health services to rural

areas at an affordable cost. Reliance Communication attempted to offer something for

every section of the society. In a significant initiative to connect with the huge farmer

and trader community of India, communities that are traditionally left out of

telecommunication strategies, Reliance Communication brought the Mandi (market)

onto mobile handsets. The company tied up with National Commodity & Derivatives

Exchange Limited (NCDEX) to disseminate its spot and future commodity prices

through its R World suite of mobile applications. "This joint initiative is a major step

taken by NCDEX and Reliance Communication in providing a convenient way to

access commodity prices," said Mr Narendra Gupta, Chief Business Officer, NCDEX

Limited. "Price information is very critical for all traders, and given that one would

like to take advantage of price changes in a dynamic world, such real-time quotes will


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help to leverage such situations even while on the move." The innovative application

"NCDEX Quotes" was made available on RWorld, to meet the needs of mobile users

who want the ease and convenience of anywhere, anytime tracking prices of

commodities.

To tap into the retailer community Reliance deployed India's first Wireless Point of

Sale (POS) Terminal for processing credit card transactions in July 2003 in

association with HDFC Bank - an important milestone in the history of retail credit in

India. Wireless POS enabled banks to expand exponentially the number of merchant

outlets accepting credit cards and speed up penetration of credit card services to

smaller towns. To connect with vehicle drivers Reliance introduced the Vehicle

Tracking System. Reliance Vehicle Tracking System provided real time tracking and

monitoring of road consignments and vehicles across India from anywhere, anytime;

consignment location display on Global Information Systems (GIS) map with

assigned route data; routing and location finder capability; real time text messaging to

remote vehicle from application interface; automatic exception alerts via e-mail; short

messaging service (SMS) in case of geofence violation, speed, delay etc.

Through R-Connect services, Reliance Communication offered India's only

nationwide wireless Internet connectivity by leveraging its pan-India high speed

CDMA2000 1X wireless network. R-Connect helped it to connect to the growing

community of Internet users, enabling it to gain over 300,000 subscribers in less than

seven months. Subscribers could connect to Internet ‘on the move’ at data speeds of

up to 144 Kbps from their laptops or other mobile computing devices using an R-

Connect Cable with their Reliance phones.


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Customer Service – Icing on the Marketing Cake:

Reliance Communication followed up the product innovation and marketing tactics

with good customer service. A 24 by 7, 365 days a year customer service was set up

in a central location in Mumbai. Taking into consideration the languages and cultural

diversity of India, service was offered in 10 languages. This ensured that many

customers, who are primarily people without much fluency in English, have a smooth

experience. Additionally the company set up customer service departments in every

town and tied up with 10,000 retail chain services. While other mobile operators took

more than two days for initial service provision, Reliance Communication ensured

that customers could walk into any of the retail outlets and buy a fully provisioned

mobile phone within 15 minutes.

TACKLING THE PROBLEM PHASE:

The success of Reliance Communication and its impact on the Indian mobile

telecommunication scenario does not mean that the growth of the company was

without problems. Control issues and performance problems forced Reliance

Communication to phase down the Dhirubhai Ambani Entrepreneurs, who paid

around Rs 10,000 (US$222.2) each to obtain dealerships, to a few thousands by April

2003, about a year after the launch.

Reliance was much criticized for circumventing many of the existing

telecommunication policies in a ruthless manner. According to the Telecom

Regulatory Authority of India (TRAI), WLL mobility should be within the local area,

that is in a range of about 20-25 kilometers with no roaming. Reliance overcame the

policy shackles and roaming problems associated with Limited Mobility by enabling

the customer to use the same handset in areas other than where it was registered.

Through a multiple registration scheme, it provided connection to the Reliance


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network in other areas. This led the Department of Telecom (DoT) to issue a notice to

Reliance Communication to discontinue offering roaming-like services on its WLL

mobile phones. Reliance Communication got into many more legal difficulties with

the policy-making body, the incumbent operator and the other operators in the Indian

telecommunication sector. But eventually strong political clout and lobbying saw it

through. Though opposed by the GSM Cellular lobby, based on the recommendation

of the TRAI, as approved by the group of Ministers on telecom and then the Cabinet,

the Unified License was introduced in India, benefiting Reliance Communication the

most. The Unified Licensing allowed Reliance Communication, which held the

Limited Mobility license, to migrate to the new regime to offer both basic and mobile

services, putting it on a par with the other operators in the country. The Monsoon

Hungama offer fetched one million applications within the first ten days of its launch,

but this did not happen without problems. "This unprecedented response gave rise to

logistics, billing and collection problems," said Mr Ambani, at the Reliance Industries'

annual general meeting. Reliance Communication 's provisioning for bad debts for the

year 2003-2004 amounted to 16 per cent of service revenues, among the highest in the

industry, according to telecom experts. "This lends credence to the rumours in the

market that many customers were cheating the company by disappearing, not paying

up, not even receiving bills, and so on," said an analyst with a brokerage firm.

Reliance Communication also saw a leadership crisis emerge between the former

Chairman – Mukesh Ambani and present Chairman – Anil Ambani. The crisis

emerged during March 2004 and assumed a high profile in media and public spaces.

As a result Reliance Communication slipped to the second position in terms of

subscriber numbers among the Indian mobile operators. Still, Reliance

Communication played a major role in ushering in a new era in Indian


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telecommunications. Despite the problems, Reliance Communication remains one of

the frontrunners in the Indian telecommunication industry. The marketing channel

problems have been tackled and the company currently has a strong mix of own and

outside channels including Dhirubhai Ambani entrepreneurs, direct sales agents,

retailers, WebWorlds and WebWorld Expresses. Reliance Communication has

licenses to offer telecom services in 20 of the 22 circles under the Unified Access

license. In addition, it has received a Letter of Intent for the Jammu and Kashmir

circle. This has enabled the company to offer services across the length and breadth of

India's vast geography through its next generation fibre optic network backbone

spanning 60,000-route km. It has recovered a high percentage of the bad debts. Also

the fact that Reliance Communication had taken out insurance on the handsets it was

selling to customers on an installment basis worked in its favour.

In January 2004, Reliance Communication acquired 100 per cent of the undersea

cable company, FLAG Telecom, for US$ 211 million. This acquisition provided

Reliance Communication with an international gateway to global markets. The FLAG

acquisition also means that Reliance Communication is the only Indian operator to

own an international undersea cable network with a global footprint. The company,

after running up losses for two years, has also turned a profit. It earned a profit of Rs.

510 million (US$11.3 million) for the fiscal 2004-05 reversing the loss of Rs. 3900

million (US$86.7 million) in 2003-04. Cellular Operators Association of India’s

(COAI) 2004 report indicated that Reliance Communication’s monthly average

revenue per user of Rs.523 (US$11.6) was substantially higher than the largest GSM

player Bharti’s Rs.444.43 (US$9.9). Trust in the Reliance mobile brand was

confirmed as it emerged as the most trusted telecom brand in the country. The control

of the company has been taken by Anil Ambani who has confirmed Reliance


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Infocomm’s commitment to put the power of information and communications in the

hands of all people at an affordable cost. He continues to believe that this will help

empower them and overcome the handicaps of illiteracy and lack of mobility.

PORTER’S FIVE COMPITITIVE FORCES

Threat of New Entrants:

Many new entrants like Tata Indicom, Hutch, Airtel etc. are becoming major concern

for thought. These companies are providing threats to Reliance Communication.

Therefore the Reliance Communication has changed its strategy accordingly in the

past also. Up to now, Reliance has the benefit of less call rate and strong brand image.

But with the entrance of Tata in this field increases the problems of Reliance

Communication. Reliance Communication is following the strategy of market

penetration by providing low cost service but Tata Indicom also adopt this strategy

and provide services at cheaper rate than Reliance Communication. Besides this,

Reliance Communication has a strong customer base which has strong faith in

Reliance Group. Thus Reliance is able to compete with its competitors easily.

Bargaining Power of Suppliers:

Reliance Communication purchases handsets from LG, Samsung and Nokia. They

purchase handset in such a bulk quantity that every supplier want to sell their product.

Thus the bargaining power of suppliers is very less.

Bargaining Power of Customers:

Reliance Communication is already providing services at a cheaper rate. Therefore the

bargaining power of its customer is very less. But now Tata Indicom launches its

mobile service at very cheaper rate. Thus customers have more options now. It would

increase the bargaining power of customers.


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Threats of Substitute Products and Services:

Reliance Communication is providing mobile services as well as landline connections

to its customers. Many substitute mobile services are providing threats to Reliance

Communication. It includes BSNL, Hutch, Airtel etc. These services are more costly

than the Reliance Communication mobile service.

Intensity of Rivalry among competing firms:

Reliance Communication has intense rivalry with BSNL, Airtel, Hutch, Tata Indicom.

These all are trying to attract the customers by providing more and more benefits.

Reliance Communications launches Money Transfer on Mobiles

In a path breaking initiative, Reliance Communications has launched ” Money

Transfer ” through mobile phones across the country through it’s tie- up with ICICI

Bank. This initiative offers Reliance Communications subscribers a modern and easy-

to- use alternative means of account to account transfer generally associated with,

banks and other agencies, in the most talked about ‘Money Transfer’ space. Money

Remittance market opportunity is estimated to be in the range of $24Billion annually

including global remittances to India.

Reliance Mobile World (RMW) has gained popularity as a one-stop-shop for

entertainment, communication, gaming and m-commerce. Thanks to the wide range

of applications, it has endeared itself to users from all walks of life. Reliance Mobile

World applications include mobile TV, videos, cricket updates, music, ringtones, m-

commerce, mobile mail, messaging, city and TV guides, railway reservations,

banking, bill payments and examination results. Dial 1234, which is the voice

interactive service of the RMW suite, has a bouquet of services such as Talking

Message Service (TMS), My Tunes (Caller Ringback Tones), apart from the popular


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find-a-friend, play-a-song, ringtones, cricket and other services. Over 2,500 useful

applications on RMW make the lives of the subscribers simple, productive and

efficient.

RCOM has established a pan-Indian, next generation, integrated (wireless and

wireline), convergent (voice, data and video) digital network that is capable of

supporting best-of-class services spanning the entire Infocomm value chain, covering

over 10,000 towns and 300,000 villages. RCOM owns and operates the world's largest

next generation IP enabled connectivity infrastructure, comprising over 165,000

kilometers of fibre optic cable systems in India, USA, Europe, Middle East and the

Asia Pacific region. RCOM has recently acquired Ethernet service provider Yipes

Holdings Inc, USA, through FLAG Telecom.

IMPACT OF MNP ON RELIANCE COMMUNICATION

Mobile Number Portability (MNP) will be introduced in India in a phased manner

starting next year, a move that is expected to further intensify competition in the

already crowded mobile services market. With the implementation of MNP,

subscribers would get a wider choice and would be able to switch between service

providers easily, thereby compelling service providers to offer competitive pricing

plans and offer higher service quality to attract and retain subscribers.

A direct fallout of implementation of MNP is the increase in customer churn. Change

in mobile number has been a major deterrent in switching service operators in the

past, especially for high usage customers; however, with the implementation of MNP,

customers can easily switch from one service provider to another without changing

their mobile number. Moreover, the low porting charges (maximum of Rs. 19 per

porting to be paid by the subscriber) and low porting time (4 days for all circles


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except Jammu & Kashmir, Assam and North East where the maximum time period

for completing the porting process would be 12 days) are expected to drive the

adoption of MNP in India. Increase in the churn is expected to increase the customer

acquisition and retention costs of operators, which coupled with competitive tariff

plans and falling ARPUs is expected to result in a decline in the operating margins of

the telecom operators especially in the short term.

As all telecom operators in the market quickly react to match competitor pricing, tariff

may not be a differentiating factor in the choice of operator. Hence, the quality of

service and customer experience will play an important role in a customer’s choice for

an operator rather than pricing. ICRA expects that customer retention, especially in

the high paying post-paid segment, would become the focus area for operators, as

these contribute significantly to revenues, even if they form a small portion of an

operators overall subscriber base. Operators would have to increasingly focus on

offering differentiated services and improving quality of service (in terms of better

customer care and improved network and coverage) in order to attract and retain

customers. Offering differentiated services like 3G would also be important for

retention of high usage high ARPU customers. Thus, the implementation of MNP

would be beneficial for mobile subscribers, as it would provide them with a wider

choice (in terms of pricing plans, services, etc.), flexibility to change service operators

without losing their mobile number and most likely an improvement in the quality of

services offered by operators. Operators with superior quality of service would be the

clear winners, while those with less than satisfactory service quality would stand to

lose the maximum by way of subscriber churn.

Mobile Number Portability (MNP) to be implemented through the ‘All Call Query’

method in India Mobile Number Portability (MNP) allows subscribers to retain their


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existing mobile telephone number when they switch from one Access Provider

(Mobile Service Operator) to another, irrespective of the mobile technology. In other

words, it enables the subscriber to retain his / her phone number, when switching

subscription from one mobile service provider to another. In India, MNP would be

implemented through the ‘All Call Query’ method, which is technologically the most

efficient method of implementing MNP.

All Call Query method

MNP to be implemented in India in a phased manner MNP would be implemented in

India in two phases – it is expected be launched in Metro and Category A Circles by

early next year and thereafter in Category B and C Circles. MNP would be governed

by the Regulations issued by the Telecom Regulatory Authority of India (TRAI).

Low porting charges and low porting time to drive adoption of MNP in India Low

porting charges and low porting time are critical factors for the successful

implementation of MNP. As per the Regulations issued by TRAI, the porting charges

to be paid by the subscriber for porting of mobile number would be decided by the

recipient operator. However, these would be subject to a maximum of Rs. 19 per

porting. Nevertheless, as the porting charge of Rs. 19 is only a ceiling, operators’ can

offer discounts in porting fees to attract customers.


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Porting charges in other countries

Competitive Intensity to further increase with the introduction of MNP; subscriber

churn rates are expected to increase. The Indian mobile services market is highly

competitive with six to eight players operating in each of its 22 telecom circles. The

intensity of competition has increased in the recent months following the launch of

GSM4 services by Reliance Communications (RCom) and Tata DoCoMo, CDMA5

services by Sistema Shyam; and the continuing pan-Indian GSM rollout by Aircel,

Idea Cellular (Idea), and Vodafone Essar (Vodafone). The intensity of competition in

the mobile services market is expected to increase further with the launch of mobile

services by new players like Unitech Wireless and Datacom over the next few

months, which would take up the number of telecom players operating in each circle

to 11-12. In ICRA’s view, with the introduction of MNP, mobile service providers are

likely to face higher competitive pressures, especially in the initial phase, as

subscribers scout for better wireless deals, thereby raising the costs of subscriber

acquisition and retention. As customers get a wider choice and are able to switch

between service providers easily, mobile service providers would need to offer more

competitive pricing plans and offer higher quality services to attract and retain

subscribers. Mobile operators spend substantial resources to add customers; and thus,

customer retention is critical for them. One of the biggest challenge for the Indian

mobile service industry is that the churn rate, which is already high, could increase


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even further with the introduction of MNP. This would lead to a drop in revenues and

increase in costs for telecom operators, thereby affecting their financials.

Operators to increasingly focus on improving quality of service

The Indian telecom industry continues to witness buoyant growth with around 14.15

million new subscriber additions per month (average from January 2009 to October

2009). However, there is room for improvement in the quality of service offered by

mobile service operators. Spectrum constraints in metros and category A circles

results in frequent call drops and network congestion. Almost all the major GSM and

CDMA operators are facing spectrum congestion in the Metro circles, and have

crossed the upper limit on the number of subscribers per MHz as recommended by

DoT. This has affected quality of service and has also led to sub-optimal customer

experience. With tariffs in India already the lowest in the world, there is limited scope

to compete on the pricing front. Moreover, as all players in the market quickly react to

match competitor pricing, tariffs will not be a differentiating factor in the long term.

Hence, the quality of service and customer experience will play an important role in a

customer’s choice for an operator rather than pricing. Operators would have to

increase their focus on improving customer care and network quality and coverage –

Customer care: customer care is an area where service providers can gain competitive

advantage. As competing telecom offerings tend to be similar in price and scope,

customer care will become even more important post-portability, as that will be seen

as a key differentiator between operators. Thus, operators would need to set high

standards to ensure customer satisfaction. Further, with the competitive intensity

increasing, the success of customer acquisition and customer retention strategies

(especially, for heavy users) would hinge on understanding customer demographic


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characteristics, lifestyle behaviours, and purchase preferences — factors that drive

customers to change or retain the existing operator.

Network quality and coverage: equally important to customer acquisition and

retention efforts is the level of network service and coverage provided to current

customers. Prior to MNP, the prospect of change in mobile number served to deter

customers from switching between service providers. With Number Portability,

mobile operators that do not meet customer satisfaction benchmarks for network

availability, billing and coverage will be affected significantly.

MNP expected to be a negative for the Indian Telecom Sector,

positive for subscribers

An IMRB study, entitled “Switch”, which looked at 40,000 subscribers with a

connection of upto three months in seven cities around India, found that 70-90 percent

of all sampled subscribers are number loyal, with only 20 percent who will make a

switch to a different operator when MNP is introduced. Only 10-20 percent of all

prepaid subscribers indicated that they would be willing to port their numbers (Kar,

2009). These findings are also corroborated by the Nielsen Mobile Consumer Insights

study (2009) on the attractiveness of MNP for postpaid and high-spending users in

India – accordingly, only 18 percent of the 12,500 sampled subscribers will port their

numbers if the service is in place. As mentioned previously, in many cases prepaid

subscribers tend to be lower-end, non-premium customers, whose chief objective in

using the mobile phone is to make cheap calls. Cost saving is the main driving factor

behind the decision to obtain a phone and use it too; furthermore, compared to

postpaid subscribers, prepaid subscribers are less number loyal. Given that the bulk of

the mobile market is made up of prepaid subscribers, approximately 94.8 percent


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(TRAI, 2010), the effects of MNP on this market may not be as high as expected.

TRAI, in fact, has been realistic enough to estimate that annual porting will be 2

percent for 5 years after launching the service (MediaNama, 2009b).

The Keynote Capitals Research study (2009) confirms that non-metropolitan locales

comprise of subscribers with lower per capita incomes, who spend less time and

money than their metro counterparts on mobile use. In support of this, the Switch

study found that the largest percentage of switching will be in the urban areas of Delhi

and other large metros, among postpaid subscribers (Kar, 2009). The Nielsen study

also confirms this, with the most number of subscriber ports to be in the Mumbai and

Delhi Metros as well as other large cities countrywide (The Nielsen Company, 2009).

It is evident then that the effects of MNP will be felt most in the metros, where

subscribers are more dynamic and likely to switch networks in order to acquire a

variety of functions and services. Additionally, competition within these circles is

higher, as subscriber numbers are limited and operators will try to hold on to every

customer; it is expected that the introduction of MNP will facilitate further

competition (Keynote Capitals, 2009).

The Keynote Capitals Research study (2009) is also in line with TRAI’s expectation

that MNP will increase mobile price competition. However, as mentioned, India

follows a budget telecom network model and already has some of the lowest call rates

in the world (Nokia, 2008). Therefore the impact of MNP on price, while true, may

not lead to as great a drop in prices as expected. The question that begs to be asked is:

how low can operators reduce prices in order to be both competitive and profitable at

the same time? With dwindling ARPUs and the recurring high costs of maintaining

the MNP facility, there is little that operators will be able to do to compete on tariffs.

Although the most likely reason for porting in India will be to avoid network


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congestion, the second most likely reason is to avail of better tariff plans (Kar, 2009).

Since the larger proportion of prepaid subscribers, will be hoping for further

reductions but it is unlikely that any will be forthcoming, there will be little

attractiveness to port their numbers to other operators, and the prepaid market will not

witness as much churn as is expected. Except for those who already intended to make

a switch, there will be limited reasons for most prepaid users to do so. Another reason

for low porting among prepaid users will be the fact that the balance on the prepaid

connection will be lost when ported (TRAI, 2009).

Instead, operators should focus their efforts on postpaid subscribers, who are less

likely to be price sensitive but keener on better QoS and a variety of VAS; operators

will have to focus on the strength of their brands and utilize other tactics in order to

tie in these high-ARPU subscribers to their networks. As stated in the Switch study,

the fight for customers will be based not on tariff plans and price wars but on what a

subscription/connection with the operator will mean; there will be an increased

emphasis on quality and service (Kar, 2009).

Another implication, as identified in the Switch study, is that there will be many

subscribers, especially high volume ones, porting from CDMA to GSM once MNP is

launched. However, in addition to switching costs, these users will also have to invest

in new handsets that are GSM compatible. The study also warns that in any case, any

churn caused by the introduction of MNP will last for about two to six months, after

which the rate is said to dwindle down (Kar, 2009).

We believe the implementation of MNP would be a negative for the Indian Telecom

Sector from an operator point of view, while for subscribers it would be a key

positive. Churn rates, already in the region of 4-5% monthly (pre-paid subscribers) are


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likely to increase even further. Given the spectrum crunch in the key Metro service

areas, on account of which call drops are frequent and QoS poor leading to low

customer satisfaction rates, these areas in particular could witness higher churn rates.

This is a negative, given the higher ARPUs and Revenues that subscribers in these

circles provide to operators. For instance, while the Metro service areas (excluding

Chennai) accounted for less than 11% of Bharti Airtel's total mobile subscriber base at

the end of March 31, 2009, these circles accounted for over 16% of the Adjusted

Gross Revenues (AGRs) of the Mobile Segment in 4QFY2009. For the industry, in

3QFY2009, ARPUs of the Metro service areas for the GSM Segment, as per TRAI

data, stood at Rs270 per user per month as compared with the overall figure of Rs220,

thus implying a 23% premium. Thus, these are a few examples of the importance of

high usage subscribers in the key Metro circles, the loss of which could hurt telcos'

Revenues and Profitability significantly.

MNP introduction is also likely to result in higher subscriber acquisition and retention

costs for operators. The likelihood of high-end post-paid subscribers and heavy users

porting to other operators' networks is certainly not a desirable outcome for telecom

operators. Post-paid subscribers are typically high usage customers that generate

higher ARPUs, have higher usage of value-added services and are typically stickier in

nature as compared with pre-paid subscribers. Even though these users account for a

fairly low proportion of overall subscribers (5.8% for Bharti Airtel, 6.5% for RCOM,

5.4% for Idea Cellular ex-Spice), they contribute more significantly to the Revenues

of these companies.

In 3QFY2009, as per TRAI data overall blended ARPUs of the GSM Segment stood

at Rs220 per user per month. However, post-paid GSM ARPUs stood at a

significantly higher Rs559, which is over 291% of the pre-paid GSM ARPUs of


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Rs192. Assuming a 5% share of post-paid subscribers, calculations show that the

Revenue share of these subscribers is considerably higher than the subscriber share, at

13.3%, as compared with 86.7% Revenue share for pre-paid subscribers. Thus, the

Revenue share divided by the subscriber share of the post-paid segment, which gives

an indication about the quality of subscribers of the segment, stands at 2.66 (13.3

divided by 5), as compared with just 0.91 for the pre-paid segment (86.7 divided by

95). This is a reflection of the fact that post-paid users contribute more substantially to

Revenues as compared with their subscriber share, thus underlining the significant

importance of these users.

Consequently, to ensure that such users stay connected to their networks, mobile

operators will have to likely slash rates, offer more freebies and resort to large-scale

bundled offerings and value-added services. Greater expenditure on SG&A and

higher capex investments to improve QoS are also expected. Thus, even as MNP

implementation is likely to be a zero-sum game, the end-impact of this scenario is

likely to be a fall in Revenue growth and Margins of telcos. Given the likely fall in

ARPUs, Revenue growth would further slow down, with telcos likely to resort to

handset subsidies and long-term service contracts to reduce customer churn, along

with attendant benefits like lower calling rates, flat-rate data plans, on-net calling

benefits, etc. On the other hand, on account of the likely increase in capex on account

of investing in more base stations to improve QoS and rise in SG&A expenses,

Margins could get impacted by

100-150bp. On account of this potential fall in ARPUs and Margins, we estimate

EPS to get impacted by 9-21%.


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Mobile Number Portability More Attractive To India's Postpaid Users and High

Spenders: Nielsen Study

The introduction of Mobile Number Portability is considered good news for

consumers, but presents a looming threat for mobile operators since it presents

consumers with the choice of retaining their current mobile phone numbers even if

they change their operator. And according to a recently conducted Mobile Consumer

Insights study conducted by The Nielsen Company to gauge consumer attitudes and

behavior towards mobile operators in India, it seems that close to one in five (18%)

Indian mobile phone subscribers would change their mobile operator if Mobile

Number Portability is introduced into the market.

Among the respondents, one in four Reliance and Tata Indicom subscribers would be

keen to change their operator if Mobile Number Portability is introduced, followed by

close to one in five (19%) of BSNL subscribers. In the third consecutive round of the

Mobile Consumer Insights study by Nielsen in India, 12,500 mobile subscribers were

surveyed across 50 centers in India. Nielsen augments the study with objective

measurement of network performance, with the Consumer Insights part of the study

measuring metrics such as satisfaction, willingness to recommend, reasons for churn

and reasons for operator selection. ”Mobile Number Portability represents a powerful

opportunity for operators to drive in-bound porting of high-value subscribers provided

they have a good understanding of who is more likely to switch and why,” said

Shankari

Panchapakesan, Executive Director, Telecom Practice, The Nielsen Company, India.


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According to the Nielsen Mobile Consumer Insights study, high spenders, postpaid

subscribers and business subscribers show a greater tendency to switch if Mobile

Number Portability is introduced. Prepaid, low and medium spend users are not

motivated to switch. Postpaid subscribers have almost double the minutes of usage

compared to pre-paid subscribers and the incidence of data application usage is also

higher among postpaid and high spenders. Vodafone has the highest postpaid

subscriber base in India. “When Mobile Number Portability was introduced in the US,

price/promotions were by far the leading drivers of acquisition. Ultimately the

operator who leveraged the propensity of subscribers to choose based on

price/promotions was successful in riding the Mobile Number Portability wave. In

India, Mobile Number Portability can be leveraged by operators through smart,

targeted marketing and promotions to coincide with the introduction of the facility,”

continued Panchapakesan.

Reasons for operator selection


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http://www.watblog.com/wp-content/uploads/2009/07/game-for-mnp.jpg


Are the current operators satisfied?

More than half (55%) of all respondents were generally satisfied with their mobile

operator and 48 percent were satisfied with the network quality. Satisfaction scores on

network quality dropped for almost all operators, with Airtel, BSNL and Reliance

registering the greatest drops. 46 percent were satisfied with the network coverage

area of their operator and 43 percent were satisfied with the price they paid for the

mobile phone service by their operator. Other areas of satisfaction included customer

service experience and quality of voice (both 42%), strength of signal, Voice & Data

tariff options and accuracy of bills (all 41%), indoor coverage (40%), dropped calls

(32%).

Loyalty to operators is seen to be higher among lower socio-economic groups, older

age groups, and among females. The circles in which subscribers are more likely to

shift are Mumbai and Delhi Metro, UP East and West, Gujarat, Rajasthan, Andhra

Pradesh, Karnataka, Kerala, and Rest of West Bengal (does not include Kolkata

Metro).

Circles in which subscribers show higher retention levels are Chennai Metro,

Haryana, Himachal Pradesh, Punjab, UP East, Rest of Maharashtra (does not

include Mumbai Metro), Rest of Tamil Nadu (does not include Chennai Metro),

Bihar, and Jharkhand.

In the previous wave of the Nielsen study, Network Quality was a bigger driver of

operator choice, driven by GSM subscribers, whereas Price was the primary

consideration for value-conscious CDMA subscribers. In this round, Price is the

primary driver for selecting an operator across all subscribers, but still to a greater

degree among


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CDMA subscribers.

According to the Nielsen study, among those subscribers who selected a mobile

operator in the past year, Price was the motivator for close to two in five (39%), and

Network Quality the driver of choice for over a third (36%). Promotion,

Reputation/Recommendation and Customer Service were among other considerations

before selecting a mobile operator.

Satisfaction levels with current operators

More than half (55%) of all respondents were generally satisfied with their mobile

operator and 48 percent were satisfied with the network quality. However, satisfaction

scores on network quality dropped for almost all operators, with Airtel, BSNL and

Reliance registering the greatest drops. 46 percent were satisfied with the network

coverage area of their operator and 43 percent were satisfied with the price they paid

for the mobile phone service by their operator.

With Mobile Number Portability (MNP) coming into its play, lot more is expected by

consumers for service adoption and price benefits. Today Indian service provider

strategies have moved from current commoditized voice towards VAS as a

differentiating factor for having space in consumer’s mind. Mobile Number

Portability is a boon for VAS application service providers giving them an added

advantage to create differentiation for operators’ offerings. MNP is surely a positive

sign for any new operators like Telenor, Etisalat etc to re-frame their strategies for

grabbing bigger subscriber chunk.

Tata DoCoMo is a trend setter in introducing one second pulse. Consumer is

obviously benefitted with one second pulse, now followed by other operators. Over


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month Tata DoCoMo was able to pick up around 3.5 million connections pan India

just by this trick. This clearly indicates how price-sensitive Indian consumers are.

The misconception brooded over MNP implementation is that operator would be a

losing party with heavy churn. In realistic scenario this may not be the case. For a

consumer to switch between operators, he/she has to register for this shift. Any

balance in his prepaid accounts may not be carried forward from donor to acceptor

network. For postpaid accounts, the consumer has to clear all his dues before he is

shifted to any network of his choice.

In India, every operator has around 85% - 90% prepaid customer base. These

subscribers are highly price sensitive and reluctant to lose out any balance in their

accounts for mere shift of operator. Hence, possible operator shift are more

susceptible in postpaid segment. Postpaid consumers are more focused on service and

cost advantages. They are more worried on the continued service availability. As also

proved by Nielsen research, there will not be any major churn reported by operators.

But the retention factor will surely result from enhanced and innovative VAS

experience.

Frost and Sullivan believes that MNP will not be implemented in India in the near

future. The market will be allowed to grow at the tremendous pace and the emphasis

will be on improving the services on offer. Newer VAS will be introduced, but these

will not require heavy investments. Once the market matures and growth rates slow

down, MNP can be introduced as a valuable offering for subscribers. It will prove to

be a tool for the regulator to keep the service providers on their toes. For the moment,

the regulator can start off by studying markets where MNP has been implemented and

make a smooth introduction of this feature. That should provide a big relief to the


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business class customers. Number portability can be introduced in stages in India.

Simpler portability options such as operator- and location-based portability can be

introduced, followed by service-based and ultimately convergence-based portability.

One interesting possibility to look for is the use of this feature as a competitive

weapon by the GSM service providers against the WLL operators. The former can use

this feature to attract and retain customers. However, moving up the ladder into the

era of service- and convergent-portability, this advantage will be nullified.

In the future, convergence-based portability would allow players such as Bharti, Tata

or Reliance to offer the same numbers across their fixed and mobile networks. The

regulator must ensure that there is absolute transparency in the charges for the person

calling a ported number and another receiving the call on a ported number. Only such

clarity will ensure widespread usage among the Indian mobile users and make MNP a

widely used feature.

Preparedness of R- COM to MNP

Reliance Communications offers 1-paisa-per-SMS plan: Reliance

Communications, led by Anil Ambani, has announced that it will charge its customers

only 1 paisa per SMS. In a statement, Reliance Communications said that it will offer

SMS at 1 paisa each or unlimited SMS at 1 rupee a day. The new SMS tariffs,

according to the company, are add-on plans and will be applicable to all Reliance-

mobile customers – both for the GSM and CDMA network as well for pre-paid and

post-paid customers.

Irrespective of the current tariff plan, the customers of the Reliance network can avail

of the 1paisa-per-SMS plan by subscribing to a standard tariff voucher of Rs 11 a

month. The facility of unlimited SMS plan can be availed on a daily deduction of 1


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rupee a day from the customer’s pre-paid balance. Newspaper reports had revealed

recently that while it cost mobile-service providers less that 1paisa to send one SMS,

the companies have been charging from 50 paise to 1 rupee per SMS from their

customers. The newspaper reports had prompted several representations to the

Telecom Regulatory Authority of India (TRAI), the country’s telecom regulator, by

consumer groups as well as members of Parliament seeking TRAI’s urgent

intervention to reduce SMS tariffs. So, since the cost of sending one SMS is only a

fraction of a paisa for the mobile-service provider, the 1-paisa-per-SMS plan will

benefit both the telecom company as well as the customers. According to statistics

available with the Telecom Regulatory Authority of India, an average mobile-phone

customer sends 25 SMS each month – which at present costs about Rs 25 a month. As

per the new tariff plan, the customer will have to pay only 25 paise a month for 25

SMS, which means a reduction in cost of as much as by of 99%. Mahesh Prasad,

president of Reliance Communications, told reporters that the “competitive step” that

Reliance has taken may prompt the Telecom Regulatory Authority of India to

reconsider its intention to intervene in the tariffs on SMS.

The lower costs of the SMS would be especially appreciated by the youth as well as

the office-goers, who constitute the majority of SMS users. This move by Reliance

Communications would, in turn, is bound to put pressure on other telecom operators

such as MTNL/BSNL, Idea, Tata Teleservices, Bharti Airtel, Vodafone, and Aircel, to

come out soon with similar offers.

It is to be noted that the lowering of tariffs drastically by Reliance fly in the face of

claims by both the telecom operators and the government that the telecom sector in

India is offering the lowest tariffs in the world because, in October 2009 alone, both


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the pay-per-second voice-call plan and the 1-paisa-per-SMS plan demonstrated that

there is scope for further cuts in tariffs.

Besides, the voluntary lowering of tariffs by the telecom companies amply proves that

the Telecom Regulatory Authority of India is capable of influencing the mobile-phone

tariffs by just taking a consumer-oriented stand.

The country's second largest mobile operator, Reliance Communications, added 2.8

million subscribers in November, expanding its user base to 91 million in both the

GSM and CDMA platforms. The Anil Ambani led company said its November

subscriber addition is 32 per cent higher than that of October. The company attributed

this to the three variants of 'Simply Reliance' plan across the CDMA and GSM

services which follow a per second billing. This has four plans-- 1paise/sec, 50 paise/

min, Rs 1/ 3min and 1paise/sms. On the GSM front, Bharti Airtel, the largest service

provider in the country, added 2.8 million new users in November, while Vodafone

Essar added 2.7 million, according to figures released by the Cellular Operator's

Association of India (COAI). Idea Cellular move to the third position from the fourth

in terms of subscriber addition, notching up 2.5 million users in the month. Reliance

Communications shares were trading at Rs 173.50, down 0.05 per cent, in the

afternoon trade at the BSE.

Reliance Communication finalises Global Number Portability

Telecom service provider Reliance Communications is close to awarding a

contract for implementation of mobile number portability (MNP) integration across its

network to eight global telecom companies. The deal is estimated to be worth Rs 700-

800 crore. The eight are Tekelec, HP, Intec, Huawei, ZTE, Ericsson, Lucent and


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Radio Telecom. The deal would involve network and information technology

infrastructure deployment across RCom's network.

MNP has to be offered to all subscribers in metro cities and Category-A circles by

every telecom service provider from January 1, 2010 (and in the rest of the country by

March). It would allow mobile users to change their service providers while retaining

their numbers.

RCom's MNP implementation would cover its entire network, spanning 24,000 towns

and over 600,000 villages. The entire implementation is expected to be completed in

two phases. In the first phase, RCom would implement MNP integration across Delhi,

Mumbai, Maharashtra, Gujarat, Kolkata, Tamil Nadu, Andhra Pradesh and Karnataka

circles. The network testing in these is expected to be completed by the end of

December. In the second phase, RCom would implement MNP in rest of the circles

by March 2010. Under the contract, HP would provide the gateway infrastructure for

MNP implementation and Tekelec would offer the integration set-up. Tekelec's

solution would enable the Reliance network to find out the correct serving operator of

the called party and re-route the call correctly. It would also enable RCom in

interworking different network applications, technologies and protocols. UK-based

Intec Telecom Systems would cover capacity enhancement and scale-up of RCom's

IT infrastructure through its business support system solution (BSS). The BSS

solution will manage RCom's billing or revenue stream from end to end. The contract

for network core solution required to perform MNP look-up has been awarded jointly

to China's Huawei and ZTE, Sweden's Ericsson and France-based Lucent. The

solution would ensure All Call Query (ACQ for routing of calls to correct serving

operator) based MNP implementation across RCom's network. UK-based Radio


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Telecom System will be RCom's IT partner for MNP implementation and

maintenance.

Number portability likely to thin margins, foster competition: RCom

With the mobile number portability (MNP) expected to be launched between

September 2009 and March 2010, the migration portends a squeeze on margins and

dilemma on capex decisions between improving quality of service to retain customers

and increasing the subscriber base at a time when the wireless service is on a rapid

growth path. Number portability allows subscribers to retain their existing mobile

number when they switch their mobile service provider.

Coming at a time when TRAI had, in a recent report, made adverse remarks about the

quality of service (QoS) by telecom players, and the falling blended ARPU (Average

Revenue Per User of pre-paid and post-paid categories), estimated at less than Rs 400

a month, MNP could contribute in putting pressure on margins by allowing frequent

migration by users. Customers will be able to switch between operators for better

QoS. Rather than continuing with price wars, service providers will start customer

loyalty programmes, focus on renewal incentives, reduce hold times and work to

improve network coverage. It is pertinent to say that Reliance Communications is the

only telecom operator in India that has the advantage of operating in both GSM and

CDMA space. Once MNP is implemented, we will be in the best position to leverage

our dual-technology to offer customer the choice to shift from CDMA to GSM

network and vice-versa. The first beneficiary of MNP is the customer and

subsequently the service provider. Customers are seeking a change of service provider

for the sake of better value, better QoS — out of which a section of the customers also

want to retain the number. Operators offering better value and better quality of service

factors, such as network, billing etc, will stand to gain. Eventually, the market will


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attain maturity with QoS elements stipulated by TRAI gaining more focus among the

service providers.

The MNP will be a gateway for the Indian telecom industry to progress towards a new

level of competitiveness. The current churn trend in the industry is due to lack of

value to customers, quality of network, billing and customer hand-holding (Reliance’s

churn rate is only 2 per cent). MNP will allow customers the flexibility of choosing

service providers with ease, which might lead to an additional churn. However, the

same will also entail improving QoS offered by operators, thus lifting any barrier to

competition. Once again due to superior quality of Reliance Network on both the

technologies — CDMA and GSM, we believe that Reliance Mobile will attract the

biggest inflow of customers from other networks. Operators will compete to offer a

better quality of service in the event of MNP rollout. Whoever offers better service

will stand to gain. The cost of MNP is in the form of a maintenance fee of the

database of numbers to be borne by the service provider and the porting fee that has to

be paid by the subscriber who wishes to change the operator. Service providers such

as Reliance Communications has already invested in a pan-India 3G-ready network.

The other service providers, who wish to match customer expectations, should be

ready with a network with suitably similar capabilities. Customer acquisition and

retention will be even more competitive with the real qualitative elements coming to

the fore. Reliance Communications pioneered the concept of bundled handset offers

— at a time when the handset prices were still high. Over the last few years, all the

other operators have emulated the bundling offers we pioneered.


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CHAPTER -3

OBJECTIVE &

METHODOLOGY


OBJECTIVES

The present study has made an attempt to analyse and answer to the following

objectives:

To understand the Mobile Number Portability.

To analyse the impact of MNP on the leading telecom operators in India and the

industry in general.

To analyse the impact of MNP on Reliance Communication and the strategy of

the company to deal with this.


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RESEARCH METHODOLOGY

The present study has exploited both the secondary and primary sources of data. The

secondary sources of data include the relevant policy documents, available literature

and books and magazines pertaining to the problem of the study. The primary sources

of data is based on a set of open ended unstructured questions directed to a list of 50

senior officials of Reliance Telecommunication firm and 50 customers of the said

service who were randomly selected in consideration of the problem of the study. To

be very humble, the present study is both qualitative and quantitative and I hope this

as per the requirement of the Problem of the study.

Primary Data:

Interviews and Questionnaires with some of the employees of the Reliance

Communications and its customers.

Sample Size: 100

Sample Area: Delhi, NCR

SECONDARY DATA:

Secondary data that is already available and published .it could be internal and

external source of data. Internal source: which originates from the specific field or

area where research is carried out e.g. publish broachers, official reports etc. External

source: This originates outside the field of study like books, periodicals, journals,

newspapers and the Internet.


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119

CHAPTER -4

DATA ANALYSIS


DATA ANALYSIS

1. Do you agree that presently in the Indian telecom market, private players

like Reliance Communication are playing a dominant?

Agree ---------------------------------- 67 per cent

Disagree ------------------------------ 24 per cent

Do not know/ Can not say --------- 09 per cent

Interpretation:

With the operation of globalization, liberalization and privatization in the Indian

market, the telecom sector is not an exception to this. May be due to these reasons the

private players like the Reliance Communication are playing an important role in the

present day Indian telecom market.


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2. What are the Market strengths and weaknesses of Reliance as a brand in the

telecom sector?

Strengths:

Largest customer base -------------------------- 47 per cent

Improved network connectivity --------------- 24 per cent

Better value added services -------------------- 18 per cent

Others --------------------------------------------- 11 per cent


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Weaknesses:

High tariff structure --------------------------- 35 per cent

Lack of rural penetration -------------------- 30 per cent

Poor Customer service ------------------------ 25 per cent

Others ------------------------------------------ 10 per cent

Interpretation:

Reliance Communication needs to strike a balance between customer satisfaction and

tariff structure and between larger connectivity and better service. Adoption of these

skills may help the R- Com to widen its base further.


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3. Are you aware about the impact of Mobile Number Portability in the Indian

telecom market?

Yes ------------------------------------------------ 93 per cent

No ------------------------------------------------- 03 per cent

No Response---------------- --------------------- 04 per cent

Interpretation:

The awareness level about the mobile number portability in the telecom sector is

relatively high.


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4. Do you agree that MNP will be beneficial to the Company?

Yes ------------------------------------------------- 38 per cent

No -------------------------------------------------- 40 per cent

Do not know/ Can not say ---------------------- 22 per cent

Interpretation:

The respondents have opined that mobile number portability may not be beneficial to

the Reliance Communication.


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5. Do you agree that MNP will be beneficial to the customers?

Yes -------------------------------------------------- 72 per cent

No --------------------------------------------------- 10 per cent

Do not know/ Can not say ----------------------- 18 per cent

Interpretation:

The respondents have opined that mobile number portability will be beneficial to the

customers in the industry.


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6. Do you agree that the customers are satisfied with the services provided by

your company?

Agree -------------------------------------------- 45 per cent

Strongly Agree --------------------------------- 15 per cent

Disagree ----------------------------------------- 30 per cent

Strongly Disagree ------------------------------ 07 per cent

Do not know/ Can not say -------------------- 03 per cent

Interpretation:

The officials of the company believe that their customers are satisfied with the

services offered by the company.


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7. Do you agree that the customers are satisfied with the cost structure of the

company?

Agree --------------------------------------------- 50 per cent

Strongly Agree ---------------------------------- 22 per cent




Interpretation:

The officials of the company believe that their customers are satisfied with the

services cost factor or the charges for the company’s products and services.


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8. Do you agree that customers will shift away from the company after MNP?

Agree -------------------------------------------- 35 per cent

Strongly Agree --------------------------------- 12 per cent




Interpretation:

The respondents are apprehensive that the customers may shift away from the

company thickening the customer base after introduction of mobile number

portability.


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9. According to you, which segment of the customers will be affect you the

most?

Pre-paid --------------------------------- 23 per cent

Post – paid ------------------------------ 62 per cent

Do not know/ Can not say ------------ 15 per cent

Interpretation:

The respondents have believed that post –paid segment customers are more prone to

shift their loyalty to the company than the pre-paid customers.


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10. Does the company have any plans to retain the customer base after MNP?

Yes ------------------------------------------------------- 90 per cent

No -------------------------------------------------------- 04 per cent

Do not know/ Can not say ---------------------------- 06 per cent

Interpretation:

Reliance Communication is in no mood to let its customers go. It has several plans on

store to retain the customer base after MNP.


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11. Will the company introduce more VAS features post MNP?

Yes -------------------------------------------------------- 73 per cent

No ----------------------------------------------------------- 18 per cent

Do not know/ Can not say --------------------------- 09 per cent

Interpretation:

Reliance Communication has plans to launch more Value Added Services to attract

the new customers and to retain the existing customers after introduction of MNP.


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12. How does the company place it self after MNP in India?

Well placed ----------------------------------------------- 30 per cent

Placed in a challenging situation ---------------------- 42 per cent

Placed in a dis-advantage position -------------------- 10 per cent

Do not know/ Can not say ----------------------------- 18 per cent


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SWOT ANALYSIS

Strength:

There is much strength that Reliance Communication can count on and boast off.

The state-of-art technology Reliance Communication is offering-CDMA

technology.

The strong subscriber base over 10million subscriber’s in their kitty.

Mobile with in the reach of common man. Affordable schemes.

Comprehensive Network-The strong back bone high capacity network(terabit

capacity) supported by fiber optic cables laid all over the country(60,000km)

Offering Value Added services to it’s customer’s almost free of cost or with

nominal charges.

Reliance Communication was the first service provider to introduce finance option

on handsets.

Value Added Services: First Call Center of 2,000 seats in Mumbai

Aggressive roll out to capture dominant market share and create an entry barrier

CDMA 1x Technology

Weakness:

Marketing strategy.

Restricted mobility through its WLL services.

Hidden Cost- Not able to retain the roped in customers.

It only catered to the needs of post paid customers.

Fewer varieties of handsets available offering CDMA technology.

Lacks Transparency at end user level

Lacks to spread Technological Awareness


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Opportunity:

Reliance Communication has timely and effectively used the technology where

the Indian Telecom Market was lacking behind-Broad Band technology (CDMA)

at affordable prices, thus capturing the market significantly.

Using the CDMA technology, it has revolutionized the data transfer rates and low

cost tariffs.

In the area of E-Commerce, Video on Demand, VoIP(Voice over IP), Speech

Recognition, Interactive Television, Intelligent Homes, Virtual Reality.

Providing instant connection to the customers making a happy and satisfied

customer base.

Reliance Signs Amalgamation Agreement To Acquire Flag Telecom Group

Limited-- Plans to acquire submarine network cables from FLAG Telecom($220

million dollars) which will drastically reduce the ISD rates.

Reliance Communication and Microsoft TV to work together on Next- Generation

- India's Largest Private Sector Enterprise to Prototype and Trial Next- Generation

TV Services On a New End-to-End IPTV Solution from Microsoft TV.

Threats:

The threat from BSNL for the calls being blocked or barred at LDCA level.

Easy convertibility of the mobile handsets and reselling of lithium ion batteries.

Thefts and forgery regarding Handsets provided by company

To face many legislative barriers form government as well as its competitors

Risk involved in financing the handsets.(Defaulters/Bad debts)

Threat from operators such as BSNL, Aircel, Tata Tele Services each with the

expanding networks to sustain the competitive market situation.


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POSITIVE CATALYSTS

Flag Telecom listing: The listing of Flag Telecom, Reliance Communications'

wholly-owned subsidiary, is expected to unlock value for Reliance Communications.

Deutsche Bank and Goldman Sachs have been appointed as lead managers for this

proposed listing at London Stock Exchange. The details are sketchy at this point, but

10-15 per cent of equity may be issued. Reliance Communications has turned around

the performance of Flag Telecom and it is now on a high growth path, with significant

expansion plans such as its recently announced FLAG Next Generation Network.

Fundamentals intact: Reliance Communications may have lost out the Hutchison

Essar deal to Vodafone, but its consolidated financials remain healthy. Not only have

its operating margins and returns improved over the past three quarters, the company

have also lined up aggressive network expansion plans. It currently has tower-sharing

agreements with Hutchison, Idea, Bharti Airtel, Spice and MTNL for Mumbai and

Delhi.

UNCERTAIN VARIABLES

GSM Spectrum Allocation: Reliance Communications will be disappointed with the

Hutchison Essar outcome as, among the bidders, the company stood to gain the most

from the acquisition. This would have fulfilled its aspirations of switching to GSM in

a single stroke, with hardly any overlapping circles. The acquisition could have also

helped Reliance march past Bharti to garner a dominant market share. This has

inevitably brought the focus back to its organic strategy of growing its GSM business.

While the company has lined up expansion plans for its GSM business on a pan-India

basis, its execution will hinge on the availability of spectrum. Since Reliance is

straddling both GSM and CDMA, the possibility of a slowdown in mobile subscriber


135


addition during the transition phase and the seamless growth in GSM subscribers over

the next year remains a live risk.

Intensifying competition: The entry of Vodafone through Hutchison Essar and the

listing of Idea Cellular may have the potential to shake up the mobile market share in

terms of incremental subscriber additions. Since Reliance Communications operates

both GSM and CDMA technology, it may be exposed to a greater risk of market share

erosion. It is likely to face the heat from Vodafone on several fronts that include

aggressive promotional campaigns and schemes, lower price points and pan-India

competition, once Hutch Essar completes its expansion programme.


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137

CHAPTER -5

CONCLUSIONS


CONCLUSIONS

The implementation of MNP would be beneficial for mobile subscribers, as it would

provide them with a wider choice (in terms of pricing plans, services, etc.) and

flexibility to change service operators without losing their mobile number. However,

for mobile service operators, the churn that invariably follows MNP implementation

represents both a threat and an opportunity. Post the implementation of MNP, some

operators are likely to witness the erosion of their customer base and the resultant

decline in profitability, however, for some other operators, MNP can provide an

attractive opportunity to gain market share and target high ARPU customers. Thus,

managing churn, especially one involving premium customers, is crucial in the initial

years, as during this period customers are more likely to switch because of:

Past dissatisfaction over quality of service

Innovative pricing plans, freebees and new offerings by competitors

Moreover, the inertia to change operator usually increases after the initial

switchover

In ICRA’s view, MNP would result in higher competitive intensity, increase in churn,

pressure on ARPUs and margins in the short term and telecom operators would have

to increase their focus on improving service quality and offering differentiated

services in order to attract and retain subscribers in the long term. ICRA believes that,

operators with superior quality of service would be the clear winners, while those with

less than satisfactory service quality would stand to lose the maximum by way of

subscriber churn. In our view, the major issues likely to lead to the success (or

otherwise) of MNP in India will be the cost of porting and the time taken to port

numbers. Given the fact that India is a price-sensitive market, the likelihood of MNP

succeeding is quite high. Further, as mentioned earlier, given the significant


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dissatisfaction with QoS, particularly in the Metro service areas, the likelihood of

churn rates increasing in these areas is higher. Another factor that is likely to play out

in favour of a successful experience with MNP implementation in India is the absence

of long-term service contracts. In many developed markets like Singapore and

Taiwan, service providers tie down their subscribers with long-term service contracts

ranging from 12 to 24 months. In return, service providers subsidise or provide free

mobile handsets. Subscribers wait until their contract expires, or pay a stiff penalty for

breaking their contracts if they still opt to switch service providers. Operators do this

to prevent customer churn and is a major deterrent to the success of MNP. Thus,

given the absence of such arrangements in India, where over 90-95% of the subscriber

base is pre-paid, there is greater likelihood of the success of MNP. As per various

media reports, the cost of porting is likely to be around Rs300 or less per port. As

regards the time frame, it could take less than two days to change the service provider.

Thus, if these figures are correct and if the final figures are within or close to this

range, customers would find it much easier to change their service providers. We

expect the introduction of MNP to be a negative for the Indian Telecom Sector and

for Telecom stocks, even as it would be beneficial for subscribers. In terms of a

company-specific impact, we believe Bharti Airtel and RCOM 'could' be less

impacted, given their larger scale and country-wide network. Companies like Idea

Cellular, given their lower scale compared to Bharti and RCOM, are likely to be

impacted more, especially in the event of it losing high-value and more sticky post-

paid subscribers. Overall, we believe MNP will be an additional 'pressure point' for

Telecom companies and even as it is overall a zero-sum game, it will be Margin-

dilutive. As mentioned earlier, we estimate a likely 5% further decline in ARPUs, a

100-150bp negative impact on Margins and consequent EPS declines of 9-21%.


139



140

CHAPTER -6RECOMMENDATI

ONS


RECOMMENDATIONS

Industry Forum:

Set up a consultative group with representatives from industry and consumer groups

to firm up how NP will be implemented, taking into account technology, commercial

issues, and time frames. TRAI can benefit from the experiences of other countries,

which have already implemented NP and the industry can give inputs based on the

learning of their foreign collaborators in establishing NP in different markets. A

document describing the possible plan of action is to be prepared by this group, and

comments from consumer groups and other industry players are then to be invited on

this document.

Type of NP:

As NP is oriented towards giving the consumers greater choice, TRAI should direct

operators to provide local service provider portability for both mobile and fixed lines.

It should then look at providing these for freephone services (such as the recently

introduced 1600 toll-free numbers). National NP here has lower relevance since

business consumers rarely change their locations. Even if they shift locations they are

likely to inform their consumers and suppliers about the change in address, etc.

Therefore change of telephone numbers will not result in imposition of additional

costs on such businesses. This point is equally relevant for individual consumers also.

Time Table for Implementation:

Having taken feedback from both the industry and the consumers and having reflected

their views in the documents TRAI should develop a time frame indicating when

fixed and mobile operators have to implement NP. TRAI has to carefully monitor


141


adherence to timetable and take penal action against those operators who do not stick

to the schedule. The actual time table will depend on factors such as:

The speed with which the service providers (mainly BSNL and MTNL) can

acquire the required technology

Implementation can be done in a phased manner depending upon the density of

traffic in different regions/circles, with the more dense ones being covered first

Not many fixed line competitors have started their operations as yet; hence TRAI

could mandate that NP should be incorporated in their system when they

commence operations.

Obligations of Service Providers:

TRAI has to specify the obligations that the service providers have to consumers

and to each other.

Customer Service:

Based on the Oftel model, after the NP implementation deadline the telephone

companies marketing or offering services must have tied up a portability facility with

the customer’s existing telephone company by the time they contract with a customer.

Operators are expected to inform customers that number portability will be provided

and the time frame within which it will be provided. Action should be taken against

those companies that are using delays in establishing porting arrangements to seek to

persuade customers to transfer without porting. Equivalent Service Criteria, as defined

in the ACA model, should be established for both local and mobile number

portability.

The criteria for Number Portability (Local as well as Mobile) may be based on:

Post dialing delay

Call failure, end-to-end blocking and circuit availability


142


Services and features

End-to-end connectivity

No barriers to entry for new participants

Inter-operator Obligations:

Continuing with the Oftel model, operators and service providers must provide

portability on request to each other in order to allow customers to keep their number

when they change supplier of telecommunication services. This will involve putting in

place a facility to enable either the transfer of numbers to the ‘new’ operator or

service provider or the reception of numbers from the ‘old’ operator or service

provider.

In deciding how to provide a portability facility to allow customers to keep their

telephone number when they change operator, operators may consider whether they

should have a direct porting facility or interconnection between operators or

alternatively arrange to make use of available transit products that allow the transfer

of numbers between operators using another operator’s network.

Cost Sharing Mechanism:

The basis or the formula which the operators have to use to decide which costs are to

be absorbed by them and which costs are to be passed on to the consumers has to be

established.

Technology:

TRAI can suggest one of four different mechanisms to implement NP.

Simple routing: The donor network simply routes the call to the new routing number.

This is simple and easy to implement, but the resources of the donor network are

being used throughout the call. Call dropping: The donor network drops the call and


143


informs the source network about the new routing number. The issue is that there will

be a delay and the donor network will have to permanently keep the mapping.

Query on release: All operators establish a database. A call connection goes to the

original operator which replies that it no longer serves the number. The source

network queries the database and finds the latest routing information and then

establishes the call. Direct database: All calls go directly to the database. This reduces

the time for ported numbers but increases the time for non-ported numbers.

Although TRAI’s stance should be technical neutrality (i.e the operators should

decide which technology they want to implement), it should be aware of the pros and

cons of these mechanisms so as to establish whether the technology is appropriate.

Dispute Resolution Mechanism:

TRAI should specify a mechanism whereby the conflicts between consumers and

operators on the one hand and between the operators themselves on the other have to

be resolved. The common mechanism followed worldwide is that the operators have

to form a body which will settle such issues and only revert to TRAI after they have

not been able to arrive at an amicable settlement.

Amendment to TRAI Legislation:

The above implementation of NP may necessitate changes in the legislation

governing the operations of TRAI. The Authority needs to investigate this to

determine whether amendments are required.


144



145

CHAPTER -7

BIBLIOGRAPHY


BIBLIOGRAPHY

Aoki, R. and Small, J. (1999), The Economics of Number Portability: Switching

Costs and Two-Part Tariffs. Working Paper, University of Auckland, November

1999.

Bernardi, M. & Nuijten, J. (2000). Final report on the effect of number portability

on national number administration & management. ECTRA, November 10.

Bhatti, B. (2006, March 21). GSM Award - a true recognition of Pakistan's

telecom sector.

Bühler, S. & Haucap, J. (2003), Mobile Number Portability. Working Paper,

University of Zurich, March 2003.

Buehler, S., Dewenter, R., & Haucap, J. (2006). Mobile Number Portability in

Europe. Telecommunications Policy, 30(7), 385-399.

Business Standard. (2007, November 13). Change your operator, not your mobile

number.

Das Gupta, S. (2006, December 5). Mobile number portability? No, says DoT.

Retrieved from: http://www.rediff.com/money/2006/dec/05mobile.htm

Das Gupta, S & Zarabi, S. (2008, August 1). DoT to grant 2 licences for number

portability.

Dick, A.S. & Basu, Kl. (1994). Customer Loylty: Toward Integrated Conceptual

Framework. Journal of the Academy of Marketing Science, 22(Spring), 99-113.

Galpaya, H. (2008). Telecom Regulatory and Policy Environment in the

Maldives: Results and Analysis of the 2008 TRE Survey. LIRNEasia.


146


Domain B, Reliance Infocomm targets 20 million users by 2006, At

http://www.domainb.

com/companies/companies_r/reliance_infocom/20050125_targets.htm, 25

January 2005,

DRI, Operator Profile: Reliance Infocomm – Growth Through Disruption, At

http://www.dri.co.jp/auto/report/instat/in0501861gm.htm, 2002.

Hindu Business Line, Reliance package for shareholders — Offers discounts

on mobile phone connections, At

http://www.thehindubusinessline.com/bline/2003/06/17/stories/200306170270

0100.htm, MUMBAI, June 16, 2007

Hindu Business Line, Reading The Revenue Picture, At

http://www.thehindubusinessline.com/ew/2004/05/31/stories/20040531000301

00.htm, May 31, 2006.

Hindu, Reliance Infocomm Unveils Plans For Prepaid Service, At

http://www.hindu.com/2004/02/10/stories/2004021002271500.htm, Feb 10,

2004.

ITU, World Telecommunication Development Report 2002, 2003.

Only Punjab, Reliance Infocomm Turns Profitable; RIL Net Up 47 Percent,

April 2005.

Physorg, Indian Telecom Presses the Red Button, At

http://www.physorg.com/news9115.html, December 2005.


147

http://www.physorg.com/news9115.html


PR Domain, Reliance Infocomm Ushers a Digital Revolution in India, At

http://www.prdomain.com/companies/r/reliance_ind/news_releases/200212de

c/pr_20021227.htm, Dec, 2007.

Websites

www.businessworldindia.com

www.ril.com

www.relianceinfo.com

www.businessstandard.com

www.economictimes.com


148

http://www.prdomain.com/companies/r/reliance_ind/news_releases/200212dec/pr_20021227.htm

http://www.prdomain.com/companies/r/reliance_ind/news_releases/200212dec/pr_20021227.htm


ANNEXURE

QUESTIONNAIRE

1. Do you agree that presently in the Indian telecom market, private players

like Reliance Communication are playing a dominant?

Agree ----------------------------------

Disagree ------------------------------

Do not know/ Can not say ---------

2. What are the Market strengths and weaknesses of Reliance as a brand in the

telecom sector?

3. Are you aware about the impact of Mobile Number Portability in the Indian

telecom market?

Yes ------------------------------------------------

No -------------------------------------------------

No Response---------------- ---------------------

4. Do you agree that MNP will be beneficial to the Company?

Yes -------------------------------------------------

No --------------------------------------------------

Do not know/ Can not say ----------------------

5. Do you agree that MNP will be beneficial to the customers?

Yes --------------------------------------------------

No ---------------------------------------------------

Do not know/ Can not say -----------------------


149


6. Do you agree that the customers are satisfied with the services provided by

your company?

Agree --------------------------------------------

Strongly Agree ---------------------------------

Disagree -----------------------------------------

Strongly Disagree ------------------------------

Do not know/ Can not say --------------------

7. Do you agree that the customers are satisfied with the cost structure of the

company?

Agree ---------------------------------------------

Strongly Agree ----------------------------------

Disagree -----------------------------------------



8. Do you agree that customers will shift away from the company after MNP?

Agree --------------------------------------------

Strongly Agree ---------------------------------

Disagree -----------------------------------------




150


9. According to you, which segment of the customers will be affect you the

most?

Pre-paid ---------------------------------

Post – paid ------------------------------

Do not know/ Can not say ------------

10. Does the company have any plans to retain the customer base after MNP?

Yes -------------------------------------------------------

No --------------------------------------------------------

Do not know/ Can not say ----------------------------

11. Will the company introduce more VAS features post MNP?

Yes --------------------------------------------------------

No -----------------------------------------------------------

Do not know/ Can not say ---------------------------

12. How does the company place it self after MNP in India?

Well placed -----------------------------------------------

Placed in a challenging situation ----------------------

Placed in a dis-advantage position --------------------

Do not know/ Can not say -----------------------------


151


THESIS RESPONSE SHEET

RESPONSE SHEET-1

Collecting literature about mobile number portabilityMobile number portability (MNP) enables mobile telephone users to retain their mobile telephone numbers when changing from one mobile network operator to another.

General overview

MNP is implemented in different ways across the globe. The international and European standard is for a customer wishing to port his/her number to contact the new provider (Recipient) who will then arrange necessary process with the old provider (Donor). This is also known as 'Recipient-Led' porting. The UK is the only country to not implement a Recipient-Led system, where a customer wishing to port his/her number is required to contact the Donor to obtain a Porting Authorisation Code (PAC) which he/she then has to give to the Recipient. Once having received the PAC the Recipient continues the port process by contacting the Donor. This form of porting is also known as 'Donor-Led' and has been criticised by some industry analysts as being inefficient. It has also been observed that it may act as a customer deterrent as well as allowing the Donor an opportunity of 'winning-back' the customer. This might lead to distortion of competition, especially in the markets with new entrants that are yet to achieve scalability of operation.

Technical details

A significant technical aspect of MNP(Mobile Number Portability) is related to the routing of calls or mobile messages (SMS, MMS) to a number once it has been ported. There are various flavours of call routing implementation across the globe but the international and European best practice is via the use of a central database (CDB) of ported numbers. Network operators generally hold local copies of CDB and query it to find out which network to send a call to. This is also known as All Call Query (ACQ) and is highly efficient and scalable. Majority of the established and upcoming MNP systems across the world are based on this ACQ/CDB method of call routing. One of the very few countries to not use ACQ/CDB is the UK where calls to a number once it has been ported are still routed via the Donor network. This is also known as 'Indirect Routing' and is highly inefficient as it is wasteful of transmission and switching capacity. Because of its Donor dependent nature, Indirect Routing also means that if the Donor network develops a fault or goes out of business, the customers who have ported out of that network will lose incoming calls to their numbers. The UK telecoms regulator Ofcom completed its extended review of the UK MNP process on 29 November 2007 and mandated that ACQ/CDB be implemented for mobile to mobile ported calls by no later than 1 September 2009, and for all other (fixed and mobile) ported calls by no later than 31 December 2012. MNP is basically a facility to customers for the change of network service used by them on their own mobile number (MSISDN). For example, if a customer is using AIRTEL India Number and wants to switch to Vodafone Operator network, then using the MNP


152


http://en.wikipedia.org/wiki/Multimedia_Messaging_Service

http://en.wikipedia.org/wiki/SMS




facility, the customer's number will be same but then the customer will become the customer of Vodafone network.

In India the MNP is still in Implementation phase, not yet commercialized. The Switch, IN & STP engineers of all the operators are working on it. As per the Department of Telecommunications (DoT) India this facility has to be available to customers by 1 April 2010. Implementation of the MNP per MSC takes activity time of 10 to 15 working days in India. Prior to March 2008 it took a minimum of 5 working days to port a number in the UK compared to 2 hours only in USA, as low as 20 minutes in the Republic of Ireland, 3 minutes in Australia and even a matter of seconds in New Zealand. On 17 July 2007, Ofcom released its conclusions from the review of UK MNP and mandated reduction of porting time to 2 working days with effect from 1 April 2008. On 29 November 2007, Ofcom completed its consultation on further reduction to porting time to 2 hours along with recipient led porting and mandated that near-instant (no more than 2 hours) recipient led porting be implemented by no later than 1 September 2009.

In a decentralised model of MNP, a FNR (Flexible Number Register) may be used to manage a database of ported out/ported in numbers for call routing.


Service providers and carriers who route messages and voice calls to MNP-enabled countries might use HLR query services to find out the correct network of a mobile phone number. A number of such services exist, which query the operator's home location register (HLR) over the SS7 signaling network in order to determine the current network of a specified mobile phone number prior to attempted routing of messaging or voice traffic.


153

http://en.wikipedia.org/w/index.php?title=FNR&action=edit&redlink=1






http://en.wikipedia.org/wiki/USA



RESPONSE SHEET-2

Mobile number portability by country

America

Country Implementation

dateyyyy.mm.dd

Time to port

days Price Short notes

Brazil 2008.09.01 5 Free The plan started in March 2007

Dominican Republic

2009.09.30 3–1080.00 DOP

Ecuador 2009.10.12 4 FreeASCP handled by Systor, Telconet and JR Electric Supply

Mexico 2008.07.05Service handled by Telcordia Technologies and Neoris

Peru 2010.01.01 7-9 Free

The user will assume the cost of the new sim card of the new mobile company that will cost around 15 PEN

Asia Pacific

Country Implementation date

yyyy.mm.dd

Time to port


Australia 2001.09.25 1 Free

Previously prefixes04x1, 04x2, 04x3 referred to Optus04x4, 04x5 and 04x6 referred to Vodafone043x, referred to Vodafone Hutchison Australia formally known as Hutchison 3G Australia.04x7, 04x8, 04x9 and 0410x referred to Telstra

Hong Kong 1999.03.01 2Service handled by Office of the Telecommunications Authority (OFTA)

India 2010.03.31 max 19 INR

To be implemented in the four metros and category-A circles first and later to be rolled out in rest of the country by 20 March 2010.Not yet


154

http://en.wikipedia.org/wiki/INR


http://en.wikipedia.org/wiki/Hong_Kong

http://en.wikipedia.org/wiki/Telstra

http://en.wikipedia.org/wiki/Vodafone_Hutchison_Australia

http://en.wikipedia.org/wiki/Vodafone_Hutchison_Australia

http://en.wikipedia.org/wiki/Vodafone

http://en.wikipedia.org/wiki/Optus


http://en.wikipedia.org/wiki/Peruvian_nuevo_sol

http://en.wikipedia.org/wiki/Peru

http://en.wikipedia.org/wiki/Neoris

http://en.wikipedia.org/wiki/Telcordia_Technologies


http://en.wikipedia.org/wiki/Mexico

http://www.jrelectricsupply.com/

http://www.jrelectricsupply.com/

http://www.telconet.net/

http://www.systor.st/

http://en.wikipedia.org/wiki/Ecuador

http://en.wikipedia.org/wiki/DOP

http://en.wikipedia.org/wiki/Dominican_Republic

http://en.wikipedia.org/wiki/Dominican_Republic

http://en.wikipedia.org/wiki/Brazil

http://en.wikipedia.org/wiki/Mobile_number_portability









implemented.The regulator-DOT-has issued Letter Of Intent(LOI) to Syniverse Technologies and Telcordia Technologies on March-5'th 2009. As per LOI, these companies should start the services with in six month s of getting LOI(i.e Sep-2009).[6][7]

April 29, 2009, India 3, a joint venture with Telcordia Technologies, was awarded a license by the Department of Telecommunications (DoT)to implement a mobile number portability clearinghouse for Zone 2 in India, which includes the following 11 circles: Kolkata, Tamil Nadu including Chennai, Andhra Pradesh, Karnataka, Kerala, Madhya Pradesh, West Bengal, Assam, Bihar, North East, and Orissa.[8] Trai announced the rules and regulations to be followed for the Mobile Number Portability in their draft release on September 23, 2009. Mobile Number Portability (MNP) allows users to retain their numbers, while shifting to a different service provider provided they follow the guidelines set by TRAI. Users are expected to holding the mobile number with a given provider for at least 90 days, before they decide to move to the other provider.[9]

Malaysia 2008.08.29 25.00 MYR

The nationwide launch of the service in October 2008

Previous prefixes DiGi - 016, 014-32, 014-35, 014-30, 014-31 and 014-6; maxis - 012, 017 and 014-2; celcom - 013,


155

http://en.wikipedia.org/wiki/MYR

http://en.wikipedia.org/wiki/Malaysia

http://en.wikipedia.org/wiki/Mobile_number_portability#cite_note-8




http://www.mnpindia.in/index.html






019 and 014-8; u mobile - 018. Service handled by Telcordia Technologies

New Zealand 2007.04.01 Free

Can port numbers between 021, 027, 029 and the new 022 mobile networks. Customers can port between prepay and post pay options. Mobile numbers are in blocks associated with the service provider. Some mobile plans include credit minutes for calls within the network, you may be charged unexpectedly for a call to a mobile that has been ported form a different network.

Pakistan 2007.03.234 working

DaysFree

Customers can port between prepay and post pay options. On port-In, the Donor company provides, free balance and on-net free minutes. Service handled by Pakistan MNP Database (Guarantee) Limited [13]

Singapore 2008.06.13Vendor for database installation is Syniverse

Taiwan 2005.10.??

Thailand 2010.??.??

Europe

Country Implementation date

yyyy.mm.dd

Time to port


Czech Republic 2006.01.15

Belgium 2002.10.?? FreeThe central solution CRDC has been re-implemented


156

http://en.wikipedia.org/wiki/Belgium

http://en.wikipedia.org/wiki/Czech_Republic

http://en.wikipedia.org/wiki/Thailand

http://en.wikipedia.org/wiki/Taiwan

http://en.wikipedia.org/wiki/Singapore


http://en.wikipedia.org/wiki/Pakistan_MNP_Database_(Guarantee)_Limited

http://en.wikipedia.org/wiki/Pakistan_MNP_Database_(Guarantee)_Limited

http://en.wikipedia.org/wiki/Pakistan








several times. First time it was implemented by Telcordia Technologies US, second time by Cap Gemini Sweden and Belgium, third time by Porthus Belgium. Access to DB: setup fee : €11 000, annual fee: € 3000.

Bulgaria 2008.04.?? 2.56 EUR

Greece 2004.??.??Service handled by Telcordia Technologies

Denmark 2001.??.?? 30-60 0-29 DKKThe central solutions is called OCH - Operators Clearing House

Estonia 2005.01.01

Finland 2003.07.25 FreeHandled by the company Numpac

France 2003.06.?? 10

Heavily improved since May 2007 with a 10-days maximum lead time (was taking 2 months in most cases beforethen)

Germany 2002.11.01 25 EUR

The average price charged is about € 25. The exact amount depends on the old provider. A price limit of € 30.72 was set by the Bundesnetzagentur.

Ireland 2003.??.?? Free


157


http://en.wikipedia.org/wiki/Bundesnetzagentur

http://en.wikipedia.org/wiki/Euro

http://en.wikipedia.org/wiki/Germany

http://en.wikipedia.org/wiki/France

http://en.wikipedia.org/wiki/Finland

http://en.wikipedia.org/wiki/Estonia

http://en.wikipedia.org/wiki/Denmark



http://en.wikipedia.org/wiki/Greece

http://en.wikipedia.org/wiki/Euro

http://en.wikipedia.org/wiki/Bulgaria

http://en.wikipedia.org/w/index.php?title=Porthus&action=edit&redlink=1



Italy 2002.01.15 3

Latvia 10

Lithuania 2005.??.??Service handled by Telcordia Technologies

Luxembourg 2005.02.01 1

Managed by the G.I.E Telcom E.I.G. operator group and developed, installed and operated by Systor Trondheim AS.

Macedonia 2008.09.01

The reference database was developed, installed and is presently operated by Seavus Group.

Norway 2001.04.01 5NOK 0 -

200

Administrated by the National Reference Database (NRDB). The reference database was developed, installed and is presently operated by Systor Trondheim AS.

Poland 2006.02.?? Free

To be administrated by the National Central Database (PLI-CBD) run by Office of Electronic Communications (UKE). 30-day max porting time is to be reduced to 1 day.

Portugal 2002.01.01

Operated by Portabil S.A. Solution implemented by Systor Trondheim AS of Norway.

Romania 2008.10.21 7-30 FreeDeveloped by UTI Systems based on the Porthus implementation


158


http://en.wikipedia.org/wiki/Romania


http://en.wikipedia.org/wiki/Portugal

http://en.wikipedia.org/wiki/Poland



http://en.wikipedia.org/wiki/Norway

http://en.wikipedia.org/wiki/Republic_of_Macedonia



http://en.wikipedia.org/wiki/Luxembourg



http://en.wikipedia.org/wiki/Lithuania

http://en.wikipedia.org/wiki/Latvia

http://en.wikipedia.org/wiki/Italy


Slovenia 2005.??.?? 5 EUR5 EUR is a maximum possible price

Spain 2000.??.??

Sweden 2001.09.01 21 Free

The largest operators formed independent company, SNPAC AB, to procure central database (CRDB) solution. Implementation of CRDB is carried out by Cap Gemini & Oracle.

Turkey 2008.11.09 6 Free

AVEA and Vodafone hired Gantek to implement central database (CRDB) solution and donated it to Turkish Telecommunications Regulatory Authority. Number Portability Clearinghouse service handled by Telcordia Technologies

United Kingdom Free

Middle East and Africa

Country Implementation

dateyyyy.mm.dd

Time to port


Egypt 2008.04.??

NPC serves the centralized administrative and provisioning role of MNP. Number Portability Clearhouse is handled by Telcordia Technologies, where Giza Systems is the system integrator.

Israel 2007.12.03 Free


159

http://en.wikipedia.org/wiki/Israel

http://en.wikipedia.org/w/index.php?title=Giza_Systems&action=edit&redlink=1


http://en.wikipedia.org/wiki/Egypt




http://en.wikipedia.org/wiki/Turkey

http://en.wikipedia.org/wiki/Sweden

http://en.wikipedia.org/wiki/Spain

http://en.wikipedia.org/wiki/Slovenia






Jordan 2010.06.01 1 7 JOD

Service is not implemented, but is still planned. TRC started the process in 2005 and released the official bid to implement and operate MNP during September 2009.

Nigeria 2007.??.??

Oman 2006.08.26

Implemented as a decentralized solution by Porthus for Nawras, and by Gulf Business Machines/Telcordia for Oman Mobile.

Saudi Arabia 2006.07.08

Managed by the Centralized Clearinghouse Approach, through the NPC (Number Portability Clearinghouse), a product of Telcordia Technologies. The implementer and system integrator is Giza Arabia.

South Africa 2006.11.10

The three operators, Vodacom SA, MTN SA, and Cell C, formed an independent company for the implementation and management of the central solution. After delays, the implementation of this solution was awarded to local company Saab Grintek teamed up with Telcordia Technologies.


160


http://en.wikipedia.org/wiki/Cell_C

http://en.wikipedia.org/wiki/MTN_Group

http://en.wikipedia.org/wiki/Vodacom

http://en.wikipedia.org/wiki/Vodacom

http://en.wikipedia.org/wiki/South_Africa


http://en.wikipedia.org/wiki/Saudi_Arabia


http://en.wikipedia.org/wiki/Oman

http://en.wikipedia.org/wiki/Nigeria

http://en.wikipedia.org/wiki/JOD

http://en.wikipedia.org/wiki/Jordan


RESPONSE SHEET-3

Reliance Communication finalises Global Number Portability

Telecom service provider Reliance Communications is close to awarding a contract for implementation of mobile number portability (MNP) integration across its network to eight global telecom companies. The deal is estimated to be worth Rs 700-800 crore. The eight are Tekelec, HP, Intec, Huawei, ZTE, Ericsson, Lucent and Radio Telecom. The deal would involve network and information technology infrastructure deployment across RCom's network.

MNP has to be offered to all subscribers in metro cities and Category-A circles by every telecom service provider from January 1, 2010 (and in the rest of the country by March). It would allow mobile users to change their service providers while retaining their numbers.

RCom's MNP implementation would cover its entire network, spanning 24,000 towns and over 600,000 villages. The entire implementation is expected to be completed in two phases. In the first phase, RCom would implement MNP integration across Delhi, Mumbai, Maharashtra, Gujarat, Kolkata, Tamil Nadu, Andhra Pradesh and Karnataka circles. The network testing in these is expected to be completed by the end of December. In the second phase, RCom would implement MNP in rest of the circles by March 2010.

Under the contract, HP would provide the gateway infrastructure for MNP implementation and Tekelec would offer the integration set-up. Tekelec's solution would enable the Reliance network to find out the correct serving operator of the called party and re-route the call correctly. It would also enable RCom in interworking different network applications, technologies and protocols.

UK-based Intec Telecom Systems would cover capacity enhancement and scale-up of RCom's IT infrastructure through its business support system solution (BSS). The BSS solution will manage RCom's billing or revenue stream from end to end. The contract for network core solution required to perform MNP look-up has been awarded jointly to China's Huawei and ZTE, Sweden's Ericsson and France-based Lucent. The solution would ensure All Call Query (ACQ for routing of calls to correct serving operator) based MNP implementation across RCom's network. UK-based Radio Telecom System will be RCom's IT partner for MNP implementation and maintenance.


161


RESPONSE SHEET-4

RESEARCH METHODOLOGY

A Research Methodology defines the purpose of the research, how it proceeds, how to measure progress and what constitute success with respect to the objectives determined for carrying out the research study. The appropriate research design formulated is detailed below.Exploratory research: this kind of research has the primary objective of development of insights into the problem. It studies the main area where the problem lies and also tries to evaluate some appropriate courses of action. The research methodology for the present study has been adopted to reflect these realties and help reach the logical conclusion in an objective and scientific manner. The present study contemplated an exploratory research

RESEARCH DESIGNThe research design is the basic framework, which provides guidelines for the rest of the research process. The present research can be said to be exploratory. The research design determines the direction of the study throughout and the procedures to be followed. It determines the data collection method, sampling method, the fieldwork and so on.

NATURE OF DATAPRIMARY DATA: Primary data is basically fresh data collected directly from the target respondents; it could be collected through Questionnaire Surveys, Interviews, Focus Group Discussions Etc.

SECONDARY DATA: Secondary data that is already available and published .it could be internal and external source of data. Internal source: which originates from the specific field or area where research is carried out e.g. publish broachers, official reports etc.External source: This originates outside the field of study like books, periodicals, journals, newspapers and the Internet.

DATA COLLECTIONPrimary data: Primary data was selected from the sample by a self-administrated questionnaire in presence of the interviewer.

SAMPLE SIZE:

The survey is conducted among 100 respondentsSample Area: New DelhiSample unit: Mobile phone users in New Delhi were questioned in regard to the

current research study

SECONDARY DATA: Secondary data has been collected through Articles, Reports, Journals, Magazines, Newspapers and Internet


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SAMPLING PROCEDURE ACTUALLY EMPLOYED:The process employed to select the sample was simple random sampling. Simple random sampling refers to that sampling technique in which each and every unit of the population has an equal and same opportunity of being on the sample. In simple random sampling, which item gets selected is just a matter of chance.

ANALYTICAL TOOLS: Simple statistical tools have been used in the present study to analyze and interpret the data collected from the field. The study has used percentiles method and the data are presented in the form of tables and diagrams.


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RESPONSE SHEET-5

FINDINGS

As per a survey conducted by A C Nielsen (12,500 mobile subscribers were surveyed across 50 centers in India), 1 in four Reliance and Tata Indicom subscribers would be keen to change their operator if Mobile Number Portability is introduced, followed by close to one in five (19%) of BSNL subscribers.

Couple of interesting insights

High spenders, postpaid subscribers and business subscribers show a greater tendency to switch if Mobile Number Portability is introduced.

Prepaid, low and medium spend users are not motivated to switch. Postpaid subscribers have almost double the minutes of usage compared to

pre-paid subscribers and the incidence of data application usage is also higher among postpaid and high spenders.

More than half (55%) of all respondents were generally satisfied with their mobile operator and 48 percent were satisfied with the network quality.

46 percent were satisfied with the network coverage area of their operator and 43 percent were satisfied with the price they paid for the mobile phone service by their operator.

Leasy Loyal Subscribers are in following Circles: Mumbai and Delhi Metro, UP East and West, Gujarat, Rajasthan, Andhra Pradesh, Karnataka, Kerala, and Rest of West Bengal (does not include Kolkata Metro)

High Retention Circles: Circles in which subscribers show higher retention levels are Chennai Metro, Haryana, Himachal Pradesh, Punjab, UP East, Rest of Maharashtra (does not include Mumbai Metro), Rest of Tamil Nadu (does not include Chennai Metro), Bihar, and Jharkhand.

Except Finland and HK, most countries have witnessed less than 5% of switch in first 12 months of introduction of MNP. More than 90% of Indian mobile users are on prepaid connections and do not have number loyalty (~churn rate of 4% on monthly basis) – the switching cost of Rs. 300 is pretty much the same as a monthly rental (or maybe, more than that).


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RESPONSE SHEET-6

Conclusion & Recommendation

CONCLUSIONSThe implementation of MNP would be beneficial for mobile subscribers, as it would provide them with a wider choice (in terms of pricing plans, services, etc.) and flexibility to change service operators without losing their mobile number. However, for mobile service operators, the churn that invariably follows MNP implementation represents both a threat and an opportunity. Post the implementation of MNP, some operators are likely to witness the erosion of their customer base and the resultant decline in profitability, however, for some other operators, MNP can provide an attractive opportunity to gain market share and target high ARPU customers. Thus, managing churn, especially one involving premium customers, is crucial in the initial years, as during this period customers are more likely to switch because of: Past dissatisfaction over quality of service Innovative pricing plans, freebees and new offerings by competitors Moreover, the inertia to change operator usually increases after the initial switchover In ICRA’s view, MNP would result in higher competitive intensity, increase in churn, pressure on ARPUs and margins in the short term and telecom operators would have to increase their focus on improving service quality and offering differentiated services in order to attract and retain subscribers in the long term. ICRA believes that, operators with superior quality of service would be the clear winners, while those with less than satisfactory service quality would stand to lose the maximum by way of subscriber churn. In our view, the major issues likely to lead to the success (or otherwise) of MNP in India will be the cost of porting and the time taken to port numbers. Given the fact that India is a price-sensitive market, the likelihood of MNP succeeding is quite high. Further, as mentioned earlier, given the significant dissatisfaction with QoS, particularly in the Metro service areas, the likelihood of churn rates increasing in these areas is higher. Another factor that is likely to play out in favour of a successful experience with MNP implementation in India is the absence of long-term service contracts. In many developed markets like Singapore and Taiwan, service providers tie down their subscribers with long-term service contracts ranging from 12 to 24 months. In return, service providers subsidise or provide free mobile handsets. Subscribers wait until their contract expires, or pay a stiff penalty for breaking their contracts if they still opt to switch service providers. Operators do this to prevent customer churn and is a major deterrent to the success of MNP. Thus, given the absence of such arrangements in India, where over 90-95% of the subscriber base is pre-paid, there is greater likelihood of the success of MNP. As per various media reports, the cost of porting is likely to be around Rs300 or less per port. As regards the time frame, it could take less than two days to change the service provider. Thus, if these figures are correct and if the final figures are within or close to this range, customers would find it much easier to change their service providers. We expect the introduction of MNP to be a negative for the Indian Telecom Sector and for Telecom stocks, even as it would be beneficial for subscribers. In terms of a company-specific impact, we believe Bharti Airtel and RCOM 'could' be less impacted, given their larger scale and country-wide network. Companies like Idea Cellular, given their lower scale compared to Bharti and RCOM, are likely to be impacted more, especially in the event of it losing high-value and more sticky post-


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paid subscribers. Overall, we believe MNP will be an additional 'pressure point' for Telecom companies and even as it is overall a zero-sum game, it will be Margin-dilutive. As mentioned earlier, we estimate a likely 5% further decline in ARPUs, a 100-150bp negative impact on Margins and consequent EPS declines of 9-21%.

RECOMMENDATIONSIndustry Forum: Set up a consultative group with representatives from industry and consumer groups to firm up how NP will be implemented, taking into account technology, commercial issues, and time frames. TRAI can benefit from the experiences of other countries, which have already implemented NP and the industry can give inputs based on the learning of their foreign collaborators in establishing NP in different markets. A document describing the possible plan of action is to be prepared by this group, and comments from consumer groups and other industry players are then to be invited on this document.

Type of NP: As NP is oriented towards giving the consumers greater choice, TRAI should direct operators to provide local service provider portability for both mobile and fixed lines. It should then look at providing these for freephone services (such as the recently introduced 1600 toll-free numbers). National NP here has lower relevance since business consumers rarely change their locations. Even if they shift locations they are likely to inform their consumers and suppliers about the change in address, etc. Therefore change of telephone numbers will not result in imposition of additional costs on such businesses. This point is equally relevant for individual consumers also.

Time Table for Implementation: Having taken feedback from both the industry and the consumers and having reflected their views in the documents TRAI should develop a time frame indicating when fixed and mobile operators have to implement NP. TRAI has to carefully monitor adherence to timetable and take penal action against those operators who do not stick to the schedule. The actual time table will depend on factors such as: The speed with which the service providers (mainly BSNL and MTNL) can

acquire the required technology Implementation can be done in a phased manner depending upon the density

of traffic in different regions/circles, with the more dense ones being covered first

Not many fixed line competitors have started their operations as yet; hence TRAI could mandate that NP should be incorporated in their system when they commence operations.

Obligations of Service Providers: TRAI has to specify the obligations that the service providers have to

consumers and to each other.Customer Service: Based on the Oftel model, after the NP implementation deadline the telephone companies marketing or offering services must have tied up a portability facility with the customer’s existing telephone company by the time they contract with a customer. Operators are expected to inform customers that number portability will be provided and the time frame within which it will be provided. Action should be taken against those companies that are using delays in establishing porting arrangements to seek to


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persuade customers to transfer without porting. Equivalent Service Criteria, as defined in the ACA model, should be established for both local and mobile number portability.The criteria for Number Portability (Local as well as Mobile) may be based on: Post dialing delay Call failure, end-to-end blocking and circuit availability Services and features End-to-end connectivity No barriers to entry for new participantsInter-operator Obligations: Continuing with the Oftel model, operators and service providers must provide portability on request to each other in order to allow customers to keep their number when they change supplier of telecommunication services. This will involve putting in place a facility to enable either the transfer of numbers to the ‘new’ operator or service provider or the reception of numbers from the ‘old’ operator or service provider.In deciding how to provide a portability facility to allow customers to keep their telephone number when they change operator, operators may consider whether they should have a direct porting facility or interconnection between operators or alternatively arrange to make use of available transit products that allow the transfer of numbers between operators using another operator’s network.Cost Sharing Mechanism: The basis or the formula which the operators have to use to decide which costs are to be absorbed by them and which costs are to be passed on to the consumers has to be established.Technology: TRAI can suggest one of four different mechanisms to implement NP. Simple routing: The donor network simply routes the call to the new routing number. This is simple and easy to implement, but the resources of the donor network are being used throughout the call. Call dropping: The donor network drops the call and informs the source network about the new routing number. The issue is that there will be a delay and the donor network will have to permanently keep the mapping.Query on release: All operators establish a database. A call connection goes to the original operator which replies that it no longer serves the number. The source network queries the database and finds the latest routing information and then establishes the call. Direct database: All calls go directly to the database. This reduces the time for ported numbers but increases the time for non-ported numbers.Although TRAI’s stance should be technical neutrality (i.e the operators should decide which technology they want to implement), it should be aware of the pros and cons of these mechanisms so as to establish whether the technology is appropriate.

Dispute Resolution Mechanism: TRAI should specify a mechanism whereby the conflicts between consumers and operators on the one hand and between the operators themselves on the other have to be resolved. The common mechanism followed worldwide is that the operators have to form a body which will settle such issues and only revert to TRAI after they have not been able to arrive at an amicable settlement.


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Impact of Number Portability on Reliance Communications IIPM Thesis 168p (1)

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