India Phone Call Prices Plummet on Threat to Licenses

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Photographer: Dhiraj Singh/Bloomberg

A man speaks on a mobile phone in front of advertisements for different mobile providers in Mumbai.

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Photographer: Dhiraj Singh/Bloomberg

A man speaks on a mobile phone in front of advertisements for different mobile providers in Mumbai. Close

A man speaks on a mobile phone in front of advertisements for different mobile providers in Mumbai.

Photographer: Dhiraj Singh/Bloomberg

An employee waits for clients in a mobile phone shop in Mumbai. Close

An employee waits for clients in a mobile phone shop in Mumbai.

Photographer: Dhiraj Singh/Bloomberg

A worker walks past by advertisements for mobile phone network providers in Mumbai. Close

A worker walks past by advertisements for mobile phone network providers in Mumbai.

Photographer: Dhiraj Singh/Bloomberg

Pre-paid recharge coupons from different mobile phone network providers are seen on a counter of a mobile phone shop in Mumbai. Close

Pre-paid recharge coupons from different mobile phone network providers are seen on a counter of a mobile phone shop in Mumbai.

Photographer: Dhiraj Singh/Bloomberg

Different phone chargers hang in front of an advertisement for Uninor in a mobile phone shop in Mumbai. Close

Different phone chargers hang in front of an advertisement for Uninor in a mobile phone shop in Mumbai.

A mobile-phone licensing scandal that may have cost India’s government $31 billion has become a boon for people buying SIM cards at Vijay Singh’s Mumbai storefront.

Two companies that may lose their licenses for second- generation airwaves -- Videocon Telecommunications Ltd. and Telenor ASA’s India unit -- now offer domestic long-distance rates of a half-cent a minute. That’s half the prevailing rate in the world’s fastest-growing major mobile-phone market, where the number of subscribers surged 45 percent in 12 months, according to the latest government data.

Prices are dropping as the government considers forcing companies to surrender at least 69 licenses that it says were sold for as little as a 10th of their value. The regulatory uncertainty is discouraging consolidation and curbing foreign investment in the industry, forcing companies to emphasize pricing to gain subscribers, according to Kunal Bajaj, head of Analysys Mason India Pvt. in New Delhi.

“As desperation increases, we’ll see some last salvos,” Bajaj said. “The only thing that’s going to slow down competition is when consolidation actually starts happening, and that’s now, unfortunately, further delayed.”

The telecommunications industry was India’s second-busiest takeover market last year, with 27 deals worth $7.7 billion. The biggest was GTL Infrastructure Ltd.’s $1.7 billion purchase of 17,500 phone towers from Aircel Ltd.

Second-Largest

India had 706.7 million mobile-phone users as of Oct. 31, the Telecom Regulatory Authority of India said last month, making it the world’s second-biggest mobile-phone market. That is a 45 percent increase from 488.3 million a year earlier, fueled by economic growth that the Finance Ministry said may reach 9.1 percent in the fiscal year ending March 31.

China is the world’s largest mobile-phone market with 850.3 million as of Nov. 30, according to government data.

The rivalry goes beyond pricing. Manuj Sharan, assistant sales manager for Idea Cellular Ltd., tears down a poster from Aircel advertising new calling rates in Mumbai. Sharan and his neighborhood salesmen compete with 14 operators in a market that may have 993 million subscribers by 2015, according to an estimate by Stamford, Connecticut-based Gartner Inc.

“Competition is cutthroat,” Sharan said before slipping away into the crowd. “The margins are wafer-thin.”

Urban Poor

Bharti Airtel Ltd., India’s biggest mobile phone company, fell 4.2 percent, the biggest decline in almost eight months, to 338.50 rupees at the 3:30 p.m. close of trading in Mumbai. Idea dropped 3.2 percent, the most in almost two weeks.

The target audience is the urban poor, who typically buy SIM cards with a set amount of minutes for a set price and have little brand loyalty, said Kamlesh Bhatia, a principal research analyst at Gartner. Price pressures will continue because the rate at which India subscribers switch phone companies was 53 percent in 2009, and that is expected to reach 60 percent by 2013, Gartner said in a report last year.

“You have practically the entire subscriber base rotating every year,” said Abhishek Gupta, an analyst with IDFC Securities Ltd. in Mumbai. “They’ll have to keep coming up with new offers to retain those subscribers.”

Word-of-Mouth

Videocon, an affiliate of India’s biggest consumer- electronics maker, last month introduced a promotional rate of 25 paise a minute for domestic long-distance calls. The plan is marketed through kiosks and fliers, and doesn’t use TV ads or billboards, said Sunil Tandon, vice president of mobile services for the Gurgaon-based company.

The carrier added 1.1 million subscribers in November for a total of 6.7 million since launching service in March, it said. Bharti had 149 million subscribers.

“We’re specifically going to areas where the migrant population lives,” Tandon said. “Word-of-mouth has worked brilliantly for us.”

Uninor, the Indian mobile phone brand of Fornebu, Norway- based Telenor, offers a pricing plan with discounts of up to 60 percent depending on the time and location of the call. The cheapest rate is 20 paise a minute, or less than a half-cent.

“It puts the power of tariff in the customers’ hands,” Sharad Goswami, a spokesman for the unit, called Unitech Wireless, said in an e-mail. “A customer can choose what rate he wants to call at.”

Government Review

China Mobile Ltd., the country’s biggest wireless carrier, charges some customers in its Beijing division 0.19 yuan (3 cents) a minute for local calls, according to its website.

Phone companies in India must buy government licenses to operate mobile and fixed-line services in each of 23 telecommunications zones.

India’s government is reviewing the 2008 awarding of 2G licenses after the chief auditor said in November they were sold for an “unbelievably low” $2.7 billion when they may have been worth at least 10 times more. Telecommunications minister Andimuthu Raja resigned, and the government is investigating.

The Telecom Regulatory Authority of India recommended scrapping 38 licenses sold to Aircel, Dishnet Wireless Ltd., Etisalat DB Telecom Pvt., Loop Telecom Ltd., Sistema Shyam Teleservices Ltd. and Unitech Wireless.

Additional Scrutiny

It also recommended additional scrutiny for 31 licenses held by Aircel, Etisalat DB, Loop, Sistema Shyam and Videocon, saying they failed to meet their rollout obligations. Etisalat DB, Unitech Wireless, Aircel, Loop and Videocon have paid fines totaling more than 835 million rupees ($18.4 million), according to the companies and government.

Many of the customers buying phone cards at Singh’s store are migrant workers from the countryside. He sells 70 SIM cards a week from various carriers for prices starting at 10 rupees (22 U.S. cents) each.

Videocon, which has been asked by the government to justify keeping its 2G licenses, is Singh’s best seller, he said. Its cards outsell those of India’s top three operators -- Bharti Airtel, Reliance Communications Ltd. and Vodafone Essar Ltd.

“They don’t think about which companies might have their licenses canceled,” Singh said, pointing at the crowd outside. “They are thinking about which companies give the best tariffs.”

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net.

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net.

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