rights and walked out of the venture after pocketing a cool $40 million. In the next round of licensing, the government awarded cellular licenses for circles, which broadly correspond to states. Currently, there are a total of 42 networks with two private operators providing service in each of the four metro cities and 17 circles (with the exception of West Bengal where Reliance is the only service provider and Punjab and the Northeast where the second operators-Evergrowth and Hexacom respectively-are yet to start service). The two operators, after an initial skirmish, decided to collude and formed a cosy duopoly. The government has sought to COlTectthis by subjecting the duopolistic cellular services market to competition from the state-owned companies MTNL/ BS L (Bharat Sanchar Nigam Limited) and a fOUlthprivate operator. After a slow and uncertain stalt, cellular services have taken off in India. Barely six years after they were introduced, the number of cellular phones has passed the 4 million mark. The four cities of Delhi, Mumbai, Chelmai and Kolkata account for 1.57 million subscribers. During 2000, the number of cell phones doubled from 1.6 million to 3.2 million. In June this year, 200,000 new subscribers were added. The spurt in demand has been fueled by falling prices. When opening for business, cellular operators set high entry costs and prohibitively high air time rates of Rs. 16 per minute in an effort to recover the exorbitant license fees they had committed to pay to win the license. The cellular phone was promoted as a lifestyle product for the status-conscious user. Operators soon realized that this strategy was myopic and when the Indian Government very generously agreed to waive the license fees and replace it with a revenue share arrangement, the operators changed track. Faced with a stagnant market, the operators repositioned the cellular phone as a common utility product and through the use of prepaid cards and aggressive distribution attracted a whole new set of users. The cards made cellular phones affordable since subscribers no longer had to pay monthly rentals or security deposits. The
operators were helped by the government's reduction in customs duty from 25 percent to 5 percent. The no frills, valuefor-money cell phone that is preferred by the Indian consumer is now available at a price range of Rs. 3,500 to Rs. 6,000. Motorola, which had an early lead in the Indian market, has been overtaken by Nokia and Ericsson. Meanwhile, the cell ular industry is changing with deregulation and consolidation. Private operators with ambitions of becoming national-level operators have begun increasing their footprint through takeovers and bidding for new licenses. Two of the most aggressive players in this game are the Sunil Mittal-promoted Bharti Enterprises, which is now backed by Singapore Telecom, and Hutchison Whampoa. However, it is the AT&T-led consortium that has emerged as the leading cellular operator in India, through a series of deft mergers and acquisitions. Birla AT&T-Tata is an equal partnership three-way venture formed last year by the merger of Birla AT&T, a 51:49 joint venture of the Aditya Birla Group and AT&T, with Tata Cellular. Subsequently, the merged entity bought over the entire stake in RPG Cellcom, which operated cellular services in Madhya Pradesh. In June this year, it announced a second merger-this time with the BPL group. The merged
million
Dec. Dec. Dec. Dec.
1997 1998 1999
2000 Jan. 2001
0.79 1.07 1.59 3.10
4.07
entity is now the biggest cellular operator with nearly a million subscribers and a footprint that covers Tamil Nadu, Kerala, Andhra Pradesh, Gujarat, Maharashtra, Madhya Pradesh-all contiguous states. The merged entity, with over 24 percent of all subscribers will cover 38 percent of
the country's population. In order to complete the footprint in the entire southern and western palt of the country, the new joint venture has bid for fourth cellular licenses in Chennai, Bangalore and Delhi. An obvious target for takeover is the Sterling Infotech promoted Aircel in which the U.S.-based Century Telephone Enterprises has a 10 percent stake. The company, which provides cellular service in Tamil Nadu, got off to a blazing stmt. Its aggressive roll out and subscriber acquisition plan led to 50,000 subscribers in the first 14 months. It has kept up the scorching pace and has over 123,710 subscribers as on April 30 last.
Fixed Line Service It was us West which pioneered the entry offoreign firms into telecom services in India. Even before India had formally opened provision of fixed line service to private investors, US West made a bold and unsolicited proposal to the Indian Goveml11ent for setting up basic services in the southern state of Tamil Nadu. Unfortunately, the proposal, which found support among the top echelons of the Indian Govemment, kicked up needless controversy and the bureaucracy torpedoed its implementation. Nonetheless, the proposal helped prise open the market. The National Telecom Policy, am10unced in May 1994, formally opened fixed basic services to private participation. The introduction of competition and the need for interconnection with the DoT and MTNL networks led to the fOlmation of the Telecom RegulatOly Authority of India (TRAI). Six private operators are currently providing fixed line services in Maharashtra, Madhya Pradesh, Gujarat, Punjab, Andhra Pradesh and Rajasthan. Among them is Hughes Tele.com, a joint venture of Hughes Electronics CorpOl'ation of the U.S., Altel! Corporation and the P.K. Mittal-controlled Ispat Group. Hughes Tele.com launched its service in November 1998 by setting up an exchange at Turbhe in Navi Mumbai and has been targeting the high usage business