Computers Today, November 1-15, 1999, Telecom; Two Steps Back

Jittery private cellular mobile operators and an overwhelming customer response greet the CDMA-based mobile service launched by MTNL. But is it a case of dumping old technology on unwary customers?

They came in droves in their Mercedes, Opel Astras and Esteems, and queued up for the 'poor man's cellular phone'. Flashing wads of cash and even bank drafts, thousands of Delhites shoved, jostled and lunged for the prize-a limited coverage mobile phone from MTNL. The public sector enterprise responded in time-honoured fashion. It panicked at the site of the crowds, ran out of forms, failed to give proper information and finally called the police.

Welcome to the Code Division Multiple Access (CDMA)-based mobile service of MTNL. What fed the frenzy was the fact that MTNL offered the lowest tariff of Rs 1.40 for three minutes with a returnable deposit of Rs 10,000 for handsets. Privately run cellular services in Delhi and Mumbai charge anything between Rs 4 and Rs 6 per minute. Boasted MTNL chairman S. Rajagopalan, "MTNL will expand the reach of its service in the next few months by increasing the number of base stations from five at present to 14. Around 5,000 connections will be activated in the next few weeks. By December 1999, we expect to have around 9,000 customers." With MTNL's entry, a price war seems inevitable with AirTel and Essar Cellphone contemplating cuts in their mobile service tariff. But, critics have pointed out that MTNL's service is not 'cellular' after all. It is based on WLL (wireless in local loop) technology and not the worldwide popular GSM standard and this has a limited mobility of 2-3 km from the base station. The mobility of WLL is restricted to a radius of 2-3 km from the base station. Moreover, WLL is an analogue service as compared to the prevailing GSM standard offered by other cellular operators. While WLL operates at a frequency of 800 MHz, GSM in India operates at a frequency of 900 MHz. In addition, Telecom Regulatory Authority of India (TRAI) has pointed out that MTNL's service has been launched without the necessary approval for its tariff structure from the regulatory authority (See box).

TRAI Cries Foul

While MTNL's CDMA-based mobile phone service has evoked a positive response from consumers, an unfortunate by-product has been a nasty confrontation between MTNL and the TRAI. The TRAI contends that MTNL's offering is a new service for which tariff ceilings have not been specified-the TRAI finalises tariffs through a transparent mechanism including publication of a consultative paper, which specifies the issues which need to be addressed, followed by an open house session before announcing the final tariff ceilings. The idea behind this exercise is to find out the cost of the service in order to set tariff ceilings.

MTNL, on its part, says that the current service is merely an extension of an existing WLL service it used to offer some time ago. As such, it is not a new service and does not require the telecom watchdog's approval. From a purely technical point of view, MTNL is correct since the technology and coverage of the service is identical to the earlier service. However, no transparent estimation of the total cost of a WLL-based service has been carried out so far and MTNL's entry provided an opportunity to do so.

There is also an important procedural requirement, which seems to have been flouted. Operators have to inform the TRAI about any tariff change which they wish to make. MTNL, had, in fact, notified the TRAI about the tariffs it proposed to charge but then went ahead and launched its services anyway on the ground that the TRAI was asking for too many clarifications.

While MTNL's eagerness to get going is understandable, its actions however set an unhealthy precedent. Some time ago, TRAI has pulled up one of the cellular operators in Calcutta for offering free incoming calls without informing it. MTNL's action may now encourage other leading operators-who may be similarly impatient to introduce a new tariff package-to launch without obtaining the TRAI's approval.

The MTNL episode points to the volatility and competition in the wireless market. As telecom companies scramble to bring basic telephony service, the usage of WLL systems is surpassing wireline solutions, thanks to the significant advantages they hold over wire in terms infrastructure, expense and speed of deployment. Over a short period, competition has spurred technological advances in mobile communications. It has also brought about a paradigm change in the systems: the shift from the pioneering analogue mobile systems such as AMPS (Advanced Mobile Phone system), TACS (Total Access Communications Systems), and NMT (Nordic Mobile Telephone) to digital cellular technology such as GSM (Global System for Mobile Communication), CDMA and PDC (Japan's digital standard). (See Box)

Spearheading the WLL battle are standards like DECT (Digital European/Enhanced Cordless Telecommunications), CDMA (Code Division Multiple Access), and CT2, which have become buzzwords in the industry circles. Initial deployment has begun in countries like China, India, Russia and other CIS countries. By the year 2000, WLL is expected to reach 60 million subscribers; India itself could have eight million users.

According to B.A. Majmudar, vice president, India Operations, Qualcomm International, "WLL systems are ideal for delivering telephony services at much reduced costs and will meet the vast unfilled demand for these services." The International Telecommunications Union (ITU) forecasts that countries like India, China, Russia, Brazil and Indonesia are expected to account for a significant share of the worldwide WLL market.

Compare this to GSM, the world's most popular mobile communications technology, which accounts for about 120 million customers with 296 networks operating in 111 countries.

The current controversy surrounding the mobile venture of MTNL is a repetition of what happened two years ago. All the old issues of cross-subsidisation, interconnection advantages and below-cost pricing which MTNL enjoys with its CDMA technology are once again being aired. But there is one crucial difference: In 1997, the operators had contested the validity of MTNL's license without obtaining the telecom watchdog's recommendations on terms and conditions. Now, private mobile operators say that under the new Telecom Policy, MTNL can offer mobile services like any other company but a level playing field has to be ensured.

What worries private operators is MTNL's price advantage. At Rs 1.40 for a three-minute call (as against GSM rates of Rs 4 to Rs 6 per minute), a nominal rental of Rs 10,000 as a refundable deposit for a handset, MTNL will be the newest price warrior in the mobile telephone services market. Sunil Mittal, chairman, Bharti Enterprises, which owns Bharti Cellular's Delhi operations says, while the operators welcome competition, they also want a level playing field. "We are among the more profitable of the mobile operators, yet we have sizeable accumulated losses. At the tariff that MTNL has proposed can the mobile operations ever be profitable?" TRAI officials too point out that after paying out the interconnection charge of Rs 1.20, the company would earn less than 10 paise per minute. "How can they survive," the official points out.

Rajagopalan says, "Prices of CDMA equipment today are comparable to fixed lines prices. Therefore, why shouldn't we offer both at the same prices." MTNL's recent expansion of the CDMA network to 10,000 lines reportedly cost the company $200-250 per line (all inclusive), which is a couple of times lower that the per line cost of mobile companies who invested a few years ago. MTNL officials say that the business plan is workable since it is hinged on volume-driven growth.

At their end, mobile cellular operators say that state-owned MTNL's costs are artificially low since many of the costs, such as power back-up, air conditioning, billing, real estate and maintenance are shared with the fixed line network. The CDMA network's base station is co-located with the basic network at two points in Delhi.

Although MTNL has invested in an integrated base station controller that also performs switching functions, MTNL could also set up a V5.2 radio interface between the base station controller and its filex line switches to route calls within the two networks. The industry says that this could result in cost savings of around 30 to 40 percent, which are not available to private operators.

MTNL has decided to provide 50,000 WLL connections during the first phase of its operations. Qualcomm will be providing the WLL systems. To add to their woes, MTNL plans to launch its GSM-based mobile service by March 2000.

Across the country, five out of the seven private basic service operators have signed contracts for the purchase of equipment. Bharti Telenet, the country's first private basic operator is implementing a Motorola CDMA system in its network; Hughes Ispat is utilising the Hughes Network Systems' WLL equipment for its project in Maharashtra; Tata Lucent Technologies has received a $340 million contract from Tata Teleservices in Andhra Pradesh. The deal is for the supply of 50,000 fixed wireless terminals. Other operators like Shyam Telelink in Rajasthan, and Essar commvision in Punjab are in favour of Qualcomm.

Going against the worldwide technology trend, CDMA-based WLL system wins the first round of low-cost mobile service.