Why Anil Ambani wants to ride two horses in telecom

: It happened almost simultaneously. Just when Reliance Communications applied to the government for a pan-India GSM spectrum, it announced a mega deal with Nokia for two million CDMA handsets.

The two parallel developments have sent out mixed signals to the industry on whether Anil Ambani’s Reliance Communications, which is the leading CDMA player with around 23 million subscribers, is interested in GSM or CDMA or both.

A few months ago, the company had applied for spectrum in six circles to operate GSM (global system for mobile communications) service. But it has now upped the ante by applying for a pan-India GSM presence, except in two circles (north-east and

).

Reliance maintains that it is “committed to pursue the world’s leading mobile technologies, whether CDMA or GSM, to provide the best and competitive services to our many million customers”. Reliance Communications runs GSM services through a subsidiary, Reliance Telecom.

Will Reliance then ride two horses at the same time? A source in the GSM camp said that Reliance may progressively tone down the CDMA focus. The company may target additional growth in GSM, he said.

Over a period of time, it may even look at shifting its CDMA subscriber base to the GSM platform, the source added.

Subsequently, introduction of dual mode world-phones (common for GSM and CDMA) in

will make things easier, he claimed. Another industry insider, however, argued that Reliance would not leave CDMA, where it has such a strong subscriber base.

“A dealer who sells all kinds of products is the best dealer,” he said. The company’s aim seems to be to multiply faster than others so that it becomes the top player in the country.

There are four reasons for Reliance’s strategy shift. One, thanks to handset limitations, higher-end users tend to prefer GSM, especially since international roaming is better on GSM.

Two, GSM operators continue to bill about 40% more than CDMA subscribers, indicating that they have better pricing power.

Three, by offering both CDMA and GSM, Reliance can design different schemes targeting different segments of the market.

And for, GSM is by far the dominant technology worldwide and in

, outnumbering CDMA 2.5:1 in

.

The evidence from circles where Reliance offers both CDMA and GSM suggests that one does not cannibalise the other. In the six circles where both are available (MP,

, Kolkata,, Orissa and Himachal), Reliance has 3.5 million subscribers and 2.1 million GSM ones.

The GSM subscriber base is much higher, both in

and globally, thereby making it logical for Reliance Communications to focus on GSM technology, according to PricewaterhouseCoopers’ associate director Arpita Pal Agrawal.

“The economies of scale are much better in the case of GSM,” she said. She also pointed out that while CDMA is very effective for high-speed data applications, the current Reliance base includes a large number of low-cost customers.

As for government policy, a senior official in the department of telecommunications (DoT) told DNA Money that “licences are technology neutral”.

He gave this reply when asked whether Reliance required to surrender some of its CDMA spectrum to expand in the GSM space. However, there are concerns within the government and the industry over the additional spectrum allocation sought, as spectrum is considered a scarce resource.

Also, a senior representative of DoT recently told the media, “the government policy is not to shut doors (on any player)”. He added that BSNL and MTNL also offered both GSM and CDMA in some common circles.

Interestingly, Reliance Communications is learnt to have told DoT recently that its decision to expand in GSM is linked to government’s teledensity target.

The company indicated that it aimed to have the largest marketshare in the Indian telecom sector by 2010 end, and that it must opt for GSM expansion to reach there, according to sources.

While communications minister Dayanidhi Maran has set a target of 250 million phone connections by the end of 2007 and 500 million by the end of 2010, Reliance Communications is understood to be eyeing anything between 110 million and 125 million subscribers by then, representing a marketshare of around 25%.

Even as the CDMA growth has been robust, in terms of absolute numbers it is nowhere near GSM. As against 1,820 million GSM users across the world as of March, 2006, CDMA had only 250 million subscribers, excluding the 3G user base.

If 3G users are taken into account, the GSM base has crossed 2 billion and CDMA 318 million.

In

, GSM is way ahead with 86.6 million users, while CDMA has managed over 35 million, including its wireline and fixed wireless subscribers.

GSM players in

include Bharti, Hutch, Idea and BSNL, while Reliance Telecom has over 2 million GSM users in eight circles. CDMA is represented mainly by Reliance Communications and Tata Teleservices.

From December, 2001, to December, 2002, the CDMA base in

grew 125%, against 92.5% in GSM during the corresponding period. From December, 2002, to December, 2003, CDMA recorded a growth of 800% against 110.5% in GSM.

(It was in December, 2002, that Reliance launched its CDMA service). From December, 2003, to 2004, the CDMA growth rate was 75.3%, against 70.3% in GSM. From December, 2004, to 2005, CDMA showed a growth of 76%, against 56.8% in GSM. However, from December, 2005, to May, 2006, the CDMA growth rate has been lower at 26% against 28.5 per cent in GSM.

Global numbers also indicate a better growth trajectory for CDMA, as opposed to GSM.

From the fourth quarter of 2001 to the corresponding period in 2002, CDMA growth rate was 819.4% against 46.3% in GSM. From Q4 of 2002 to Q4 of 2003, CDMA recorded a growth rate of 158%, against 25% in GSM.

From Q4 of 2003 to Q4 of 2004, the global CDMA user base grew 70.9% against 28% in GSM. From Q4 of 2004 to Q4 of 2005, the CDMA growth rate was 54.1% against 31.8% in GSM.

From the fourth quarter of 2005 to the end of first quarter of 2006, the CDMA growth rate was 11.2% against 6.4% in GSM. The 3G figures have not been taken into account for calculating the global growth rate in GSM and CDMA.

Source- http://www.dnaindia.com

Technorati : Airtel, CDMA, GSM, Hutch, Idea, India, Mobile, Reliance Telecom
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