Hike In Cellular Rentals Suggested

The Bureau of Industrial Costs and Prices (BICP) has suggested a hike in cellular monthly rentals from Rs 156 to Rs 600 as part of its prescription to revive the ailing industry. The department of telecommunications (DoT) had asked the agency to study the financials of the cellular operators in May.

The BICP has also recommended a review of future investment plans by inefficient operators, allowing cellular operators to operate on a higher frequency spectrum to reduce capital costs, and time-bound clearances from government agencies for efficient implementation of projects.

The BICP recommendations are significant since the government is preparing a bailout package for beleaguered operators, who are reeling under the dual pressure of a low-usage cellular market and gross over-estimation of consumer demand.

 

According to the BICP study, most of the cellular operators _ 18 networks spread over seven circles (mostly analogous to a state) and two metros _ would become viable if the higher rental charge were introduced. Five operators are still not viable mainly because of the projection of a lower subscriber base, lower air time usage and higher capital expenditure.

"The proposed increase in the monthly rental from Rs 156 to Rs 600 per subscriber may result in a temporary drop in the number of subscribers. However, the demand of cellular phones is expected to increase as the price of the handset activation fees, security deposit etc are lowered," the report says.

"The price elasticity of demand indicates that a 10 per cent fall in the price of the handset alone leads to a 19 per cent increase in the demand. Therefore, any decrease in the subscriber base due to increase in the monthly rental could be compensated in the long run by the increase in demand... With a slight adjustment towards capital expenditure with a uniform foreign exchange rate and 85 per cent network utilisation, eight of the selected operators would become viable," it adds.

Commenting on the five networks _ Skycell in Chennai, Birla AT&T in Gujarat and Maharashtra, BPL US West in Maharashtra, Aircell Digilink in Uttar Pradesh (East) _ which will remain unviable (with a minimum 16 per cent internal rate of return) despite an increase in the monthly rental charges, the report argues: "The analysis of their cost data reveals that the non-viability of these operators is due to high airtime cost as compared to their competitors in the respective areas of operation. These operators should strive to improve their performances by reducing their overheads and increasing the subscriber base and the airtime usage."

In its conclusion the Bureau of Industrial Costs and Prices says that it "is of the view that the promotion of efficient network utilisation through a more aggressive marketing and airtime usage policy, reduction in the cost of operations and increase in the monthly rental to Rs 600 per subscriber would improve the financial viability of the cellular operators".