Telecom Sector
Indian telecom industry, like many others, is in the process of implementing mobile number portability (MNP) which allows subscribers to switch operators while retaining the number. The DoT has recently selected Telcordia & Syniverse as 3rd party neutral operators for providing porting services in the two zones, and has plans to introduce MNP beginning from Metros in August-09, which we believe would be delayed beyond 2009.
While MNP implementation is underway, the street has allayed fears of rise in competitive intensity, tariff war, market share loss by large telcos, etc. Therefore to understand the the likely implications in India, we have studied and analyzed the impact of MNP in few international markets like Canada, Japan, France, South Korea and Taiwan where MNP has been experienced. From our study it is evident that post MNP (1) the churn rate in most of the markets have clearly shown an increase, but only for short-term (6-12 months) (2) majority of countries have seen large operators losing subscriber market share to competition (3) operators have increased focus on subscriber acquisition and retention measures including, aggressive advertising, higher distribution commissions, improving quality of networks, tariff reduction, etc. which has led to fall in EBIDTA margins (4) Porting charges and porting time are critical as the two are inversely proportional to the use of MNP.
Few advantages may partially nullify the MNP impact in India…
Few characteristics of Indian wireless market act advantageous to existing operators and may partially nullify the MNP impact, such as (1) low penetration (~33%) might allow all players to grow (2) lowest tariffs (US$0.02) provide limited scope for pricing war (3) 92% of subscribers use pre-paid services where churn rate is already high at 45-54% (4) High competitive intensity with ~10 players in each circle where top 5 control 80% of the market, limiting scope of meaningful market share shifts.
Market share shifts wouldn’t really matter…
The launch of low entry-cost schemes by RCOM and Idea has resulted in extraordinary subscriber growth, but is mainly aimed at getting additional spectrum in our view. Such subscriber additions and market share gains would have little importance given very low revenue and profit contribution from such subscribers. In such a scenario, we believe that couple of percentage point shift in subscriber market share would not really concern.
Operators focus to increase towards post paid and retention
We believe that in post MNP business environment operators would focus on (1) loyal and number sensitive post-paid subscribers, who form ~8% of industry subscriber base but ~35% of industry revenues (2) Subscriber retention than acquisition as it is more rewarding in terms of revenues and also cost (subscriber acquisition cost).
…But watch out for margins
Similar to the trend witnessed globally, we believe that there could be around 100bps contraction in EBIDTA margins of all major mobile operators post MNP due to one or more of the following reasons (1) aggressive advertisement spend (2) higher distribution commissions (3) more bundled offerings to attract/ retain subscribers resulting in lower RPMs and hence margin drop (4) Improving network quality and service experience resulting in both higher capex and higher network opex.
Porting Time & Porting Charges are critical to success of MNP
Porting charge & porting time are inversely proportional to the usage of porting services in a country. For instance, high porting charge of say Rs1000 or high porting time of about 10-15 days could discourage subscribers from using MNP, affordable and faster service could encourage more use/ misuse of MNP. While the porting time globally has only reduced over time, we believe that porting charges would be critical to the success of MNP in India as well.
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