The Buzz: Cell To Hardsell

PRICING, it seems, is the name of the cellular game. Whether the service providers across the country are offering peak tariffs (the ceiling of Rs 16.80 per minute being charged by the Delhi duo, Airtel and Essar) or a rock bottom of Rs 2.70 a minute by Koshika Telecom in Bihar, UP and Orissa, all telecom companies prefer to believe they have hit upon the right formula to maximise revenues. For instance:

The Volumes Over Margins Strategy: Says Navaid Khan, senior vice president, Koshika: "The airtime rates are bound to come down shortly, much below the Rs 16.80 and Rs 8.40 being offered now." According to him, the rates are higher in the four metropolitan cities since there are no long-distance calls being made on the network. In comparison, other telecom circles—each circle is roughly analogous to a state—can have long-distance intra-circle calls at rates that compete with those of the department of telecommunication (DOT).

Koshika has adopted volumes over margins as its competitive strategy. "We want to break the barrier in the minds of the subscriber that cellular phones are not a common man's communication tool," says Khan, adding that cellphones are being used more like pagers today. And if the company—which is hoping that four lakh subscribers would make calls on its network in the next three years—does deliver on its promise, rivals will certainly be given a run for their money.

Predictably, the other players are not impressed. Says an executive with a Calcutta-based cellular firm: "Rs 2.70 a minute cannot be sustained. We wish them (Koshika Telecom) luck." Another executive in New Delhi forecasts: "Their prices will have to go up, rather than others' coming down."

The Low-Use High-Price Strategy: The present scenario of a variety of rates has, however, thrown up an interesting paradox: while Delhi has the highest number of subscribers (over 1.85 lakh of the total 5 lakh all over the country), the airtime rates are also among the highest. In addition, some operators have recently started levying monthly charges on providing subscribers with additional services—callers' line identification and voice mail service, for instance—suggesting that hidden costs are slowly creeping into the customers' bills.

A Delhi-based telecom executive says that one reason why rates aren't expected to fall in the near future is because DOT has fixed a ceiling of Rs 16.80 per minute, partly resulting in low airtime usage in Delhi and Mumbai. "If charges higher than Rs 16.80 could be levied, the rates during off-peak hours could come down," he says.

While not quite agreeing that airtime rates will come down,Andreas Schelling, chief operating officer of Essar Telecom, says "there will be different tariff packages", adding that Essar doesn't want to compete in the price market. It would be in the interest of the cellular companies, he says, if the airtime usage graph becomes a little flatter, so that better revenues are earned for other, non-peak hour times of the day as well. Schelling, like several other service providers, is not quite willing to share details of the revenue being earned per subscriber.

The officials of his immediate rival, Airtel, feel that the low airtime usage all over the country is a cause for concern. According to Hemant Sachdeva, vice president (marketing and corporate communication), Airtel is targeting a monthly revenue of Rs 1,350 per subscriber, and hopes to touch the 150,000-subscriber mark by March 1997.

In Mumbai, BPL Mobile's rates are Rs 16.80, Rs 8.40 and Rs 4.20 for peak hours, off-peak hours, Sundays and national holidays, respectively. Its competitor Hutchinson Max too has a similar rate card. Of course, both the companies offer a variety of packaged airtimes with various handsets.

The Price Variety Strategy: Escotel—the licencee for western UP, Kerala and Haryana—is charging only Rs 3 for incoming calls round the clock in UP, with a peak rate of Rs 15.96 during peak hours. In its two other circles, the company is promoting the scheme where subscribers pay a monthly membership fees and cheaper airtime rates—the higher the membership fee, the cheaper the airtime rates.

The CEO of one of the service-providing companies has another solution to bring down the prices marginally, which could also result in an increase in the usage of airtime. He says that some tests are being carried out which will allow corporates to instal their own cell sites, which could, for example, be located at their corporate headquarters. As long as the company's telephones are located within the range of this cell site, the charge of the calls will be almost comparable to the landline phones.

Several cellular companies are in the process of selling this idea to large corporate houses. Another option, according to the CEO of a telecom enterprise, would be to charge very low rates for "home-based users". This would mean that those subscribers who rarely roam within the network be offered such a low price that they would prefer to make calls on their cellular than on the landline phones. Since GSM networks, which is the protocol on which the cellular maze in India is built, can identify the location of a subscriber, charging home location tariffs is not a problem.

KOSHIKA had found its own ways of ensuring a steady flow of revenues,despite the low tariffs. For smaller cities like Allahabad, Patna, Muzaffarpur and Varanasi, the company believes customers would certainly be unwilling to shell out the peak rate of Rs 16.80 per minute. In addition to the lowest airtime rates in the country, Koshika is also offering a bonus: a free handset if the subscribers assure the company a revenue of Rs 604 a month for the next two years (about Rs 15,000 for the whole deal).

But What About Profits? All this leads to a crucial question: since airtime tariff in circles other than the metros is not very high, are the cellular companies operating in the states bleeding? "No," says an executive with Birla-AT&T, operators in Gujarat and Maharashtra, "since there is a lot of money to be made in intra-circle long-distance calls. And if inter-circle calls are allowed to be carried on the private operators' network later (a review of the government policy is expected in a couple of years), that would also be a big money spinner." To corner a share of the intra-circle long-distance market, a number of companies, including Birla-AT&T, Essar and Koshika, are carrying out field tests for installing GSM payphones—booths that will require pre-paid calling cards to be used.

Two other areas where companies can hope to rake in the moolah are data communication and telebanking. According to Essar's Schelling, in future, data communication will be more important than voice communication. Since GSM networks can differentiate between data and voice transmission, the rates that will be charged should be much lower than those of voice calls. The emergence of telebanking as a revenue stream depends on the banks. Already, Swiss Telecom, in association with the French electronics giant Gemplus, has designed an encrypted interface between the SIM card and the cellular phone. This will ensure the data cannot be tampered with during the interface.

With the market expanding so fast, just where will the great cellular war end? Perhaps with an obscure villager in a remote village.