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[Contn.] Telecom's Toreador The New Equations The resurgent competition only compounds the already difficult act that the fourth licence holder must make. For instance, in the second round, Bharti bid Rs 203.66 crore for Mumbai, where BPL and Hutchison are already well entrenched. Starting off afresh would mean nearly a year of launch time, especially if the quality of services is to be ensured. What that means in effect is that Bharti will be facing a situation where its core businesses will be under threat and the new ones won't be generating any cash flow. ''In any case, Bharti shouldn't expect more than 18 per cent market share even after five years of launch,'' says a Mumbai-based analyst. ''That's the norm the world over, and not unique to India,'' he adds. Agrees Dilip Modi, head of Modicorp's cellular businesses: ''There is a premium for the first two movers.''
Small wonder, then, that Mittal's rivals-none of whom plans to invest in more than two or three fresh circles-have opted for fresh licences only to fill gaps in their footprint, and not to drive growth. Taking on six or seven fresh networks would require an enormous amount of cash and management energy. And Mittal's cellular operations will necessarily get only a limited amount of either, given that he has other businesses across the telecom spectrum: fixed line, broadband, domestic long distance, submarine cable, and Internet. Even as Mittal takes care of all this, he will have to watch over his shoulder for the wiLL competitors. While the issue is under litigation at the moment, if the soft terms now proposed for wiLL operators are made final, cellular operators like Bharti will come under immense price pressure. For example, a wiLL operator in Delhi would be able to offer rates of Rs 1.20 for a three-minute outgoing call and free incoming calls, compared to Bharti's and Essar's average of over Rs 6 for the same duration. A price war between the two services would spell bad news for both, but more so for cellular companies. ''We Know These Animals'' If Mittal is worried about the competition, he isn't showing. He is nearly nonchalant when he says that the recent spate of consolidation hasn't made competition much tougher, but only clearer to him of who he is up against. ''We are in a unique position,'' Mittal claims. ''We will be defending in some territories and attacking in some...we know these animals.''
What works against Mittal in the new circles, works for him in his bastions. Most analysts agree that no new competitor with the same kind of service can set rates lower than those of the existing player. The decisive factors, then, will be the quality of network and customer service. But what TELCOs are really banking on is the promised explosion in the number of cellphone users. Over the next five years, the subscriber base is expected to balloon 10 times to 40 million. ''The market is just exploding now,'' says Rana Kapoor, Managing Director of Rabo India Finance, ''We could have a cellular services market similar to Hong Kong's. Where four of the six operators are making money.'' Things could have been worse for Bharti if the government-which holds the third licences all over India through Bharat Sanchar Nigam Ltd-had been any quicker at launching its services. Or if Mahanagar Telephone Nigam Ltd, which operates the third licences in Mumbai and Delhi, hadn't made such a mess of its Dolphin service. What also works to Mittal's advantage is that Batata-BPL are taking time to merge their operations. Points out an investment banker: ''The new entity has yet to present a united picture of what it wants to do. We don't know yet who will be the CEO or the driving force behind it. On the contrary, we get to hear that Kumar Mangalam Birla may want to pull out.'' Batata's CEO, Sanjeev Aga, admits that he doesn't yet have an idea of who will drive the merged entity or what his own role will be. ''We are still discussing the structuring of the company with our advisors,'' he says. It could be another 10 months before the structure falls into place, Aga reckons. None of this, however, has made Mittal complacent. Far from it, he has moved swiftly to effect a sharp cut in his time to market. He plans to have the Madhya Pradesh licence up and running in an unheard-of three months-not more than four, in any case. All the other fresh licences, too, will go on stream by March 2002. To his critics, he points to the record eight months in which he rolled out the network in Delhi. Simultaneously, Mittal has refocused his resources and rearranged his priorities. As a result, while Bharti will retain its portfolio play in telecom, its primary focus will be on the cellular space. But within cellular, it has slightly modified its pan-Indian intent and decided to keep away from Bihar, Orissa, and the North-East. Given the long gestation of fixed line operations, Mittal is being choosy in operationalising the basic licences he is in the running for and has decided to stay confined to Delhi, Haryana, Tamil Nadu, Karnataka, and Chandigarh. At least in the foreseeable future. ''It remains to be seen whether we would go into Andhra Pradesh, Kerala, Punjab, and Maharashtra,'' he says. And while Mittal has remained neutral on the wiLL-vs-cellular controversy-largely because of his basic services, of which wiLL is a part-he now says that Bharti may not set up wiLL networks. ''We are open to will, but not tied to it,'' he says. In the final analysis, Mittal will be measured on how long his various projects take to break even. If that period becomes inordinately long, a telecom investor and operator like SingTel may not get edgy, but somebody like Warburg Pincus-or Dalal Street, if the IPO happens-certainly will. Given that, half-baked projects across the country in various kinds of services is the last thing Mittal or his investors would like to see. Because when they start asking questions-not necessarily at the dinner table-it's more than just embarrassment that Mittal may experience. Big-Ticket Investments 1
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