Вы находитесь на странице: 1из 168

THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT NEW DELHI

THESIS ON
IMPACT OF NUMBER PORTABILITY ON RELIANCE COMMUNICATIONS

SUBMITTED TO: PROF. SUMANTA SHARMA ASSOCIATE DEAN IIPM, NEW DELHI

EXTERNAL GUIDE: MR. KAVNISH GUPTA PRODUCT MANAGER RELIANCE COMMUNICATION

SUBMITTED BY: ANKUR GULATI BATCH: PGP/FW-2007-09

Impact of Number Portability on Reliance Communications

ALUMNI ID: DF79-M-1137 IIPM, NEW DELHI

ANKUR GULATI

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 ICRAs 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

Impact of Number Portability on Reliance Communications

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

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: Place:

ANKUR GULATI BATCH: PGP/FW-2007-09 ALUMNI ID: DF79-M-1137 IIPM, NEW DELHI

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

CERTIFICATE FROM GUIDE

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

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 boddu.vijay@iipm.edu. Ph-0124- 3350714 .

Regards, Sumanta Sharma Dean (Projects) The Indian Institute of Planning and Management Sumanta.sharma@iipm.edu Phone: 0124 3350701,709,713,714,715

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

THESIS SYNOPSIS
PERSONAL DETAILS:Name Batch Specialization Mobile No. Email Id : : : : : ANKUR GULATI PGP/FW 07-09 Marketing +9199111-71111 ankur_gulati86@yahoo.com

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

10

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 GSMs 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

11

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

12

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 Company Designation Ph. Number : : : : Kavnish Gupta Reliance Communication Product Manager 9311156770

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

13

TABLE OF CONTENT
ABSTRACT CERTIFICATE OF ORGINALITY CERTIFICATE FROM GUIDE THESIS APPROVAL LETTER ACKNOWLEDGEMENT THESIS SYNOPSIS CHAPTER 1 INTRODUCTION CHAPTER 2 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 22-102 (ii) (iv) (v) (vi) (vii) (viii) 1-21

LITERATURE REVIEW 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications ANKUR GULATI Presence in Jhansi Market Share Wireless segment Broadband segment Dhirubhai Ambani Pioneer Offer Democratizing 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 Dhirubhai Ambani Entrepreneurship Programme A

14

Mobiles:

Resources: New Way to Market: Advertising Educating Masses and Evoking Passions: Product Innovations - Connecting with Every Section of Customer Service Icing on the Marketing Cake: Tackling the problem phase: Porters 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 Impact Of Mnp On Reliance Communication All Call Query method DF79-M-1137 IIPM, NEW DELHI

Society:

Mobiles

Impact of Number Portability on Reliance Communications Porting charges in other countries

15

Operators to increasingly focus on improving quality of MNP expected to be a negative for the Indian Telecom Reasons for operator selection CDMA subscribers. Satisfaction levels with current operators Preparedness of R- COM to MNP Reliance Communication finalises Global Number Number portability likely to thin margins, foster

service Sector, positive for subscribers

Portability competition: RCom CHAPTER 3 OBJECTIVES & RESEARCH METHODOLOGY CHAPTER 4 Primary Data Secondary data 106-123 103-105

DATA ANALYSIS SWOT analysis Positive catalysts

CHAPTER 5 CHAPTER 6 CHAPTER 7

CONCLUSIONS RECOMMENDATIONS BIBLIOGRAPHY Annexure Questionnaire Thesis response sheet

124-126 127-131 132-135 136-138

139-154

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

16

CHAPTER -1 INTRODUCTI ON ANKUR GULATI DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

17

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 as ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

18

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

19

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 ICRAs opinion, 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, ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

20

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

21

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:

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

22

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications The following conclusions have been derived about NP:

23

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

24

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

25

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

26

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

27

Number Lookup Services


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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

28

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 250400. 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

29

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

30

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

31

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

32

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

33

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

34

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

35

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

36

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

37

CHAPTER -2 LITERATURE REVIEW DF79-M-1137 ANKUR GULATI

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

38

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. ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

39

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

40

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 operators

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

41

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

42

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

43

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 portabilitys 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 Commissions 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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

44

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 Commissions 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

45

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

46

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

47

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

48

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

49

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

50

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

51

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 operators 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

52

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 DoTs 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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

53

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

54

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

55

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

56

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 20200 (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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

57

RELIANCE COMMUNICATIONS- A PROFILE


Recognising the crucial role that can be played by the telecommunication sector in Indias 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 countrys 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

58

of Indias capital markets, the champion of shareholder interest. But the role Dhirubhai cherished most was perhaps that of Indias greatest wealth creator. In one lifetime, he built, starting from the proverbial scratch, Indias 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 colossusan 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 Indias 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 Dhirubhais extraordinary vision and leadership, Reliance scripted one of the greatest growth stories in corporate history anywhere in the world, and went on to become Indias 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 worlds largest shareholder families.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

59

Reliance Communications

Worlds largest network roll-out covering almost a billion people in India


Coverage increasing from 10,000 to 23,000 towns Covering almost 100% of rail & roadway routes

Worlds largest IP enabled optic fiber cable network - 230,000 Rkms


Submarine cable assets Of 110,000 Rkms Terrestrial fiber cable metro & intercity

Pioneered wireless affordability in India


Handset prices down from >$ 50 to <$ 20 Driven call rates down from >10 cents to <1 cent per minute

Launching nationwide GSM services

Coverage + Affordability = Profitable growth


3 of 17

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

60

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 Indias 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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

61

to achieve customer delight by enhancing the productivity of the enterprises and individuals we serve.

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


5

Reliance Mobile (formerly Reliance India Mobile), launched on 28 December 2002, coinciding with the joyous occasion of the late Dhirubhai Ambanis 70th birthday, was among the initial initiatives of Reliance Communications. It marked the auspicious beginning of Dhirubhais 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 Groups 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

62

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

63

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

64

All the above mentioned companies are Broadband internet service providers too. 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 RCOMs 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 FY0810E. 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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

65

back of its multiple usage expansion initiative. Moreover, the revenue per minute (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 RCOMs 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 Q209, 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

66

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% Yo-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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

67

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 qo-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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

68

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--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% yo-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. RComs 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

69

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

70

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 RCOMs 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 Bhartis 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

71

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

72

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

73

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

74

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

75

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

76

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 Communications 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

77

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 telcos operating cost as against 5 per cent in IndiaBut we utilize all our internal resources in large numbers which further reduces the cost. In addition Reliance centralized most of its operations. Citing Reliance Communications 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

78

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

79

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

80

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

81

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 Reliances delayed launch. They didnt 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 marketingin a manner not achievable by channel partnersat no expense to Reliance. Secondly, DSAs are utilizing all tools like fax, e-mail, telephone, cable TV network, and one-toone 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

82

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 thats 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 limitedmobility 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

83

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 marketingin a manner not achievable by channel partnersat 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 thats 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

84

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

85

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

86

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 Indians 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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

87

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 cobranding 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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

88

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 TV news clips ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

89

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 services. These Dhirubhai Ambani Developers converted ideas into products as

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications Reliance Communication provided the infrastructure, unlimited access

90 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 help to leverage such situations even while on the move." The innovative application

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

91

"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 RConnect Cable with their Reliance phones.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

92

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

93

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

94

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 Indias (COAI) 2004 report indicated that Reliance Communications monthly average revenue per user of Rs.523 (US$11.6) was substantially higher than the largest GSM player Bhartis 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

95

Infocomms 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.

PORTERS 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

96

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 its tie- up with ICICI Bank. This initiative offers Reliance Communications subscribers a modern and easyto- 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, mcommerce, 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

97

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

98

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 customers 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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

99

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

100

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 ICRAs 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

101

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 customers 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

102

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

103

(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 TRAIs 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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

104

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

105

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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

106

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%.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

107

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

108

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


ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications Are the current operators satisfied?

109

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

110

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 consumers 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

111

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

112

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 Reliancemobile 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

113

rupee a day from the customers 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 countrys telecom regulator, by consumer groups as well as members of Parliament seeking TRAIs 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

114

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 700800 crore. The eight are Tekelec, HP, Intec, Huawei, ZTE, Ericsson, Lucent and

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

115

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. ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

116

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 attain maturity with QoS elements stipulated by TRAI gaining more focus among the service providers.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

117

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 (Reliances 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.

CHAPTER -3 OBJECTIVE & ANKUR GULATI DF79-M-1137 METHODOL


IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

118

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

119

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

120

CHAPTER -4 DATA ANALYSIS DF79-M-1137 ANKUR GULATI

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

121

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 ----------------------------- Do not know/ Can not say --------24 per cent 09 per cent

70% 60% 50% 40% 30% 20% 10% 0%


Agree Disagree Do not know/ Can not say 67% 24% 9%

Agree Disagree Do not know/ Can not say

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

122

2. What are the Market strengths and weaknesses of Reliance as a brand in the telecom sector?

Strengths:
Largest customer base ------------------------- Improved network connectivity -------------- Better value added services ------------------- Others --------------------------------------------47 per cent 24 per cent 18 per cent 11 per cent

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%


Largest customer base Improved network connectivity Better value added services Others 47% 24%

Largest customer base Improved network connectivity Better value added services Others

18% 11%

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

123

Weaknesses:
High tariff structure --------------------------- 35 per cent Lack of rural penetration -------------------30 per cent

Poor Customer service ------------------------ 25 per cent Others -----------------------------------------10 per cent

35% 30% 25% 20% 15% 10% 5% 0%


High tariff structure Lack of rural penetration Poor Customer service Others 35% 30% 25% 10%

High tariff structure Lack of rural penetration Poor Customer service Others

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

124

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

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Yes No No Response 93% 3% 4% Yes No No Response

Interpretation:
The awareness level about the mobile number portability in the telecom sector is relatively high.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications 4. Do you agree that MNP will be beneficial to the Company? Yes ------------------------------------------------ No ------------------------------------------------- Do not know/ Can not say ---------------------38 per cent 40 per cent 22 per cent

125

40% 35% 30% 25% 20% 15% 10% 5% 0% Yes No Do not know/ Can not say 38% 40% 22% Yes No Do not know/ Can not say

Interpretation:
The respondents have opined that mobile number portability may not be beneficial to the Reliance Communication.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications 5. Do you agree that MNP will be beneficial to the customers? Yes ------------------------------------------------- No -------------------------------------------------- Do not know/ Can not say ----------------------72 per cent 10 per cent 18 per cent

126

40% 35% 30% 25% 20% 15% 10% 5% 0% Yes No Do not know/ Can not say 38% 40% 22% Yes No Do not know/ Can not say

Interpretation:
The respondents have opined that mobile number portability will be beneficial to the customers in the industry.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

127

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

45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Agree Strongly Agree Disagree Strongly Disagree Do not know/ Can not say 45% 15% 30% 7% 3% Do not know/ Can not say

Agree Strongly Agree Disagree Strongly Disagree

Interpretation:
The officials of the company believe that their customers are satisfied with the services offered by the company.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

128

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 Disagree ----------------------------------------- 15 per cent Strongly Disagree ------------------------------ 10 per cent Do not know/ Can not say -------------------- 03 per cent

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Agree Strongly Agree Disagree Strongly Disagree Do not know/ Can not say 50% 22% 15% 10% 3%

Agree Strongly Agree Disagree Strongly Disagree Do not know/ Can not say

Interpretation:
The officials of the company believe that their customers are satisfied with the services cost factor or the charges for the companys products and services.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

129

8. Do you agree that customers will shift away from the company after MNP? Agree -------------------------------------------- 35 per cent Strongly Agree --------------------------------- 12 per cent Disagree ----------------------------------------- 40 per cent Strongly Disagree ------------------------------ 10 per cent Do not know/ Can not say -------------------- 03 per cent

40% 35% 30% 25% 20% 15% 10% 5% 0%


Agree Strongly Agree Disagree Strongly Disagree Do not know/ Can not say 35% 12% 40% 10% 3%

Agree Strongly Agree Disagree Strongly Disagree Do not know/ Can not say

Interpretation:
The respondents are apprehensive that the customers may shift away from the company thickening the customer base after introduction of mobile number portability.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

130

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

70% 60% 50% 40% Pre-paid 30% 20% 10% 0% Pre-paid Post paid Do not know/ Can not say 23% 62% 15% Post paid Do not know/ Can not say

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications 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

131

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Yes No Do not know/ Can not say 90% 4% 6% Yes No Do not know/ Can not say

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications 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

132

80% 70% 60% 50% 40% 30% 20% 10% 0% Yes No Do not know/ Can not say 73% 18% 9% Yes No Do not know/ Can not say

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications 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

133

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%


Well placed Placed in a challenging situation Placed in a disadvantage position Do not know/ Can not say 30% 42%

Well placed Placed in a challenging situation Placed in a dis-advantage position Do not know/ Can not say

10%

18%

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

134

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 subscribers 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 its customers 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

135

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

136

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

137

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

138

CHAPTER -5 CONCLUSIO NS ANKUR GULATI DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

139

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 ICRAs 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 ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

140

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%.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

141

CHAPTER -6 RECOMMENDATI ONS


ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

142

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

143

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 customers 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications Services and features End-to-end connectivity No barriers to entry for new participants Inter-operator Obligations:

144

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 operators 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

145

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 TRAIs 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

146

CHAPTER -7 BIBLIOGRAP HY ANKUR GULATI DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

147

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. Bhler, 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

148

Galpaya, H. (2008). Telecom Regulatory and Policy Environment in the Maldives: Results and Analysis of the 2008 TRE Survey. LIRNEasia. Domain B, Reliance Infocomm targets 20 million users by 2006, At http://www.domainb. com/companies/companies_r/reliance_infocom/20050125_targets.htm, 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 25

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

149

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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

150

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 ---------------------------------------------------

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications Do not know/ Can not say -----------------------

151

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 ---------------------------------------- Strongly Disagree ----------------------------- Do not know/ Can not say --------------------

8. Do you agree that customers will shift away from the company after MNP? Agree ------------------------------------------- Strongly Agree -------------------------------- Disagree ---------------------------------------- Strongly Disagree ----------------------------- Do not know/ Can not say --------------------

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

152

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 -----------------------------

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

153

THESIS RESPONSE SHEET RESPONSE SHEET-1


Collecting literature about mobile number portability Mobile 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

154

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. Number Lookup Services 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

155

RESPONSE SHEET-2
Mobile number portability by country America Country Brazil Dominican Republic Ecuador Mexico Implementation date yyyy.mm.dd 2008.09.01 2009.09.30 2009.10.12 2008.07.05 Time to port Price days 5 310 4 Free 80.00 DOP Free ASCP handled by Systor, Telconet and JR Electric Supply Service handled by Telcordia Technologies and Neoris The user will assume the cost of the new sim card of the new mobile company that will cost around 15 PEN Short notes The plan started in March 2007

Peru

2010.01.01

7-9

Free

Asia Pacific Country Implementation date yyyy.mm.dd Time to port days Price Short notes

Australia

2001.09.25

Hong Kong India

1999.03.01 2010.03.31

Previously prefixes 04x1, 04x2, 04x3 referred to Optus 04x4, 04x5 and 04x6 referred to Vodafone Free 043x, referred to Vodafone Hutchison Australia formally known as Hutchison 3G Australia. 04x7, 04x8, 04x9 and 0410x referred to Telstra Service handled by Office of the Telecommunications Authority (OFTA) max 19 To be implemented in the four INR metros and category-A circles first and later to be rolled out in rest of the country by 20 March 2010.Not yet implemented.The regulator-

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

156

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] The nationwide launch of the service in October 2008 Previous prefixes DiGi - 016, 014-32, 014-35, 014-30, 01431 and 014-6; maxis - 012, 017 and 014-2; celcom - 013, 019 and 014-8; u mobile 018. Service handled by ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Malaysia

2008.08.29

25.00 MYR

Impact of Number Portability on Reliance Communications

157

New Zealand

2007.04.01

Free

Pakistan

2007.03.23

4 working Days

Free

Telcordia Technologies 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. 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] Vendor for database installation is Syniverse

Singapore

2008.06.13

Taiwan Thailand Europe

2005.10.?? 2010.??.??

Country

Implementation date yyyy.mm.dd

Time to port days

Price

Short notes

Czech Republic

2006.01.15

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

158

Belgium

2002.10.??

Free

The central solution CRDC has been re-implemented 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

The central solutions is called 0-29 DKK OCH - Operators Clearing House

Estonia

2005.01.01

Finland

2003.07.25

Free

Handled by the company Numpac Heavily improved since May 2007 with a 10-days maximum lead time (was taking 2 months in most cases beforethen)

France

2003.06.??

10

Germany

2002.11.01

The average price charged is about 25. The exact amount 25 EUR depends on the old provider. A price limit of 30.72 was set by the Bundesnetzagentur.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

159

Ireland

2003.??.??

Free

Italy

2002.01.15

Latvia

10

Lithuania

2005.??.??

Service handled by Telcordia Technologies Managed by the G.I.E Telcom E.I.G. operator group and developed, installed and operated by Systor Trondheim AS. The reference database was developed, installed and is presently operated by Seavus Group. Administrated by the National Reference Database (NRDB). NOK 0 - The reference database was 200 developed, installed and is presently operated by Systor Trondheim AS. To be administrated by the National Central Database (PLI-CBD) run by Office of Free Electronic Communications (UKE). 30-day max porting time is to be reduced to 1 day. Operated by Portabil S.A. Solution implemented by Systor Trondheim AS of Norway.

Luxembourg

2005.02.01

Macedonia

2008.09.01

Norway

2001.04.01

Poland

2006.02.??

Portugal

2002.01.01

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

160

Romania

2008.10.21

7-30

Free

Developed by UTI Systems based on the Porthus implementation

Slovenia

2005.??.??

5 EUR

5 EUR is a maximum possible price

Spain

2000.??.??

Sweden

2001.09.01

21

Free

Turkey

2008.11.09

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. 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 Middle East and Africa Implementation Country date yyyy.mm.dd

Free

Time to port Price days

Short notes 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.

Egypt

2008.04.??

Israel

2007.12.03

Free DF79-M-1137 IIPM, NEW DELHI

ANKUR GULATI

Impact of Number Portability on Reliance Communications

161

Jordan

2010.06.01

Service is not implemented, but is still planned. TRC started the process in 2005 and released the 7 JOD official bid to implement and operate MNP during September 2009.

Nigeria

2007.??.?? Implemented as a decentralized solution by Porthus for Nawras, and by Gulf Business Machines/Telcordia for Oman Mobile. 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. 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.

Oman

2006.08.26

Saudi Arabia

2006.07.08

South Africa

2006.11.10

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

162

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 700800 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

163

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 DESIGN The 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 DATA PRIMARY 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 COLLECTION Primary data: Primary data was selected from the sample by a selfadministrated questionnaire in presence of the interviewer. SAMPLE SIZE: The survey is conducted among 100 respondents Sample Area: New Delhi Sample 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

164

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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

165

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).

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

166

RESPONSE SHEET-6
Conclusion & Recommendation 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 ICRAs 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-paid subscribers. Overall, we ANKUR GULATI DF79-M-1137 IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

167

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%. 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 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 customers 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

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Impact of Number Portability on Reliance Communications

168

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 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 operators 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 TRAIs 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.

ANKUR GULATI

DF79-M-1137

IIPM, NEW DELHI

Оценить