Tata Teleservices plans to move away from bundled CDMA services

Tata Teleservices is planning to slowly phase out the process of offering handsets and mobile connections together, a popular practice in CDMA business.

The company’s CDMA business, which runs under the Tata Indicom brand, offers a majority of its new connections in bundled form, where a new connection comes with a SIM card and a mobile handset.

The reason for moving away from bundled services is the cost pressure that handset makers put on operators. In bundled services, handsets are partially subsidised, even though consumers get them at the market price. As handsets are bundled with free talktime, the value that consumers gain is higher and this is recovered by operators as consumers remain with their respective operators for a certain period of time.

“There is a cost implication for the company when we offer bundled services,” said a Tata Teleservices spokesperson. Typically, companies which offer bundled services procure handsets in bulk and pass on the cost advantages to consumers. This process is tedious and the companies have to maintain an inventory.

Analysts point out that it is a natural trend to move way from bundled services. “If customers do not use your service beyond a point, the operator will lose money. Earlier, bundled handsets were locked, now they are not locked to the operator.

Margins that an operator makes could be lower as their revenues are deferred, as one cannot make the money up front, while the operator spends it initially and the subscriber should be on network till particular age,” said Romal Shetty, head-telecom, KPMG.