Private Cell Operators Worried Over Mtnl Pricing Strategy

Ever since Mahanagar Telephone Nigam Ltd (MTNL) announced its intentions to offer cellular services in Delhi and Mumbai, private cellular operators have accused it of intending to indulging in anti-competitive business practices while rolling out its cellular network.

The accusations acquired a new-found momentum after the service provider announced that it would offer the service at Rs 2 a minute, just a fraction of the average Rs 6-7 that the private cellular providers have been hawking their service at. "There is no way they can do that, unless they use the profits from basic operations to subsidise the cellular service," was the protest.

However, the telecom PSU's business plan for its proposed cellular network does not envisage this. It is, instead, planning for a huge capacity _ both in terms of subscriber numbers and traffic density _ for its cellular network. The sheer size of the proposed network dwarfs the existing networks of the cellular operators.

The MTNL network is to have 100,000 subscribers each in the two cities in the first year of operations, which will rise to a million each by the fifth year of operations. To put this in perspective, the four cellular operators in Delhi and Mumbai have a capacity of just 150,000 each just as they enter the fourth year of operations.

The traffic handling capacity of the MTNL network is the key parameter with which the PSU plans to beat private operators at their own game. The MTNL equipment tender _ which vendors responded enthusiastically to _ envisages traffic capacity of its system pegged at 40 milli-Erlang as against conventional 20-25 milli-Erlang systems used by operators in India currently. In fact, cellular companies in the country are clocking only 12-15 milli-Erlang traffic which they are trying to raise by announcing heavy discounts on call charges. To handle such a high-level of traffic and support subscribers, MTNL has proposed to set up 150 radio base-stations to cover Delhi _ a good one-fourth more than the number of base-stations that each of the operators (Bharti Cellular and Essar Cellphone) have in the city.

Explains a senior executive with an international telecom vendor: "The whole system is structured to support a huge amount of subscribers and traffic. At such a high number and (traffic) density, the per minute cost of the service becomes low." The logic is simple: once MTNL sets a target of a substantial subscriber base and high usage, it has to price the service low enough to achieve the target.

In addition, MTNL has received among the lowest-priced quotes in response to its tender. Seven cellular equipment vendors _ Ericsson, Motorola, Nokia, Alcatel, Siemens, Tata-Lucent Technologies and Nortel _ quoted among the lowest prices in the world for the system MTNL wants to buy.

Sources said they had bid in the band of $200-225 (Rs 8,400-9,450) free on board cost per subscriber in the MTNL tender. The price translates into an over 60 per cent drop since 1994-95 when the Mumbai and Delhi cellular operators bought their equipment.