Competition, subscriber churn rate to rise now: ICRA

The Indian mobile services market is highly competitive with six to eight players operating in each of its 22 telecom circles. The intensity of competition has increased in the past few quarters following the launch of GSM4 services by Reliance Communications (RCom) and Tata DoCoMo, CDMA5 services by Sistema Shyam; and the continuing pan-Indian GSM rollout by Aircel, Idea Cellular (Idea), and Vodafone Essar (Vodafone).

The intensity of competition in the mobile services market is expected to increase further with the expanding footprint of new players like Uninor and Videocon, which would take up the number of telecom players operating in each circle to 11-12. In ICRA's view, with the introduction of mobile number portability (MNP), mobile service providers are likely to face higher competitive pressures, especially in the initial phase, as subscribers scout for better wireless deals, thereby raising the costs of subscriber acquisition and retention. As customers get a wider choice and are able to switch between service providers easily, mobile service providers would need to offer more competitive pricing plans and offer higher quality services to attract and retain subscribers. Mobile operators spend substantial resources to add customers; and thus, customer retention is critical for them. One of the biggest challenges for the Indian mobile service industry is that the churn rate, which is already high, could increase even further with the introduction of MNP. This would lead to a drop in revenues and increase in costs for telecom operators, thereby affecting their financials. For complete report, see attachment.

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