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Cell phone companies shift strategy

This would mean that the cellular operators currently offering various incentives and promotional packages to woo new subscribers will now be concentrating on existing subscribers to increase airtime revenue.

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This is a fallout of their contractual obligation with the Department of Telecommunications according to which all the metro operators will have to pay Rs 5,000 per subscriber a year as license fee from the next financial year.

According to the chief executive of a cellular company, every subscriber paying airtime bill of less than Rs 10,000 a year will be a loss making proposition and the companies will have to shift focus from acquiring new customers to existing customers by evolving innovative packages to promote more airtime usage.

Rather than offering subsidies on handsets and free airtime to new consumers, the metro operators will offer value-added services and airtime bundle to existing subscribers at discounted rates to promote more use of airtime and make sure every subscriber pays a minimum Rs 10,000 a year to break even if not make a profit.

The problem is two-fold. One; the airtime revenue per subscriber is falling, as the number of subscribers is increasing. Two; the companies will have to part with Rs 5,000 a subscribers as license fee from the fourth year of operation. This will squeeze the net revenue per subscriber substantially.

At present, the average annual revenue of a subscriber comes to around Rs 12,000 a year, which according to the operators has already started falling and will be below Rs 10,000 by the beginning of the next financial year. This is because the new subscribers who are coming in due to lower handset prices and promotional packages are not heavy users.

"With operators, having to pay Rs 5,000 per subscribers there will be little point in adding low usage customers to the network anymore." Said a senior marketing official of a metro cellular company.

Most of these metro operators will be completing three years of commercial operation by the end of the next year and their license fee, payable to the government, will increase many times from the fourth year.

For instance, in Delhi, cellular operators, who are currently paying just Rs 20 million, Rs 40 million and Rs 80 million for the first second and third years will have to shell out around Rs 1 billion in the fourth year as the subscriber base is expected to go up to 200,000.

- Compiled from the Indian media

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