The country’s second largest fixed line operator, Mahanagar Telephone Nigam Limited (MTNL), is struggling to hold on to its subscribers in the two most competitive markets in India ?? Mumbai and Delhi.
In the fixed line segment, where the company accounts for around 9 per cent of the all-India subscriber base, MTNL lost 20,000 users in December 2007 alone, as a result of which its subscriber base fell to 3.59 million.
Though all fixed line operators ?? Bharti Airtel, Bharat Sanchar Nigam Limited (BSNL) and Tata Teleservices Limited (TTSL) ?? have been grappling with declining numbers for a while because users favour mobile connections, MTNL is feeling the heat more as wireline is its mainstay.
Yet, company officials are optimistic about the tide turning in its favour. Their trump card could well be IPTV and broadband. In broadband, the company has been making significant inroads. In end-2007, it had about 512,000 broadband subscribers in its two circles as against Bharti Airtel’s 715,000 and TTSL’s 500,000 (broadband and internet) subscribers across India.
Two years ago, MTNL forged the winning combination of bundling fixed line services with internet and broadband services. By doing so, it not only stemmed the loss in its wireline business but also opened up the possibility of upping the subscriber base in the future.
MTNL also kept its tariffs deliberately low. This helped control the churn to a large extent. Even today, the rate of fixed line phone surrenders is far lower than it was in 2004-05 when the company was losing 50,000 or more subscribers a month.
MTNL recently tied up with Huawei Technologies to upgrade its MPLS backbone and has pegged a target of more than 2 million broadband users by 2008. “We will expand broadband capacity by 1 million connections in Delhi and Mumbai. The capacity will be scalable to 2 million,” says Chairman and Managing Director R.S.P. Sinha.
To achieve this, MTNL has put aside an investment kitty of Rs 15 billion for 2008 (which will also be used to upgrade its GSM network). The amount, Sinha says, can be increased by another Rs 2 billion depending on the capacity requirement.
While broadband will continue to be the main thrust area for the next few years, MTNL is also betting massively on IPTV or triple-play services. Through 2006, it undertook successful trials in several pockets of Mumbai and Delhi. “We have 2,000 IPTV users already and 1,200 waitlisted customers,” says Sinha.
On January 1, 2007 it launched bundled plans in Mumbai under its service banner, Triband, combining landline with broadband, 150 IPTV channels, and/or VoIP (a service it introduced in 2007) in the tariff range of Rs 400 to Rs 750 a month.
Hoping that the service will generate enough prospects for the company, MTNL is targeting 50,000 IPTV users by December 2008. This, according to Sinha, should not be difficult. “We have the latest IPTV technology in the world and 100 per cent ADSL2+ connectivity. In fact, unlike other operators, we use the latest MPEG 4 technology and can provide 8 Mbps broadband connectivity up to 3 km on the same copper wire.”
For MTNL, leveraging its biggest asset ?? its extensive telecom network ?? is the best way forward. As the incumbent since inception, it has had the first-mover advantage in both the metros. “It could put up a robust backhaul of copper network. Therefore, from a fixed line perspective, MTNL has excellent coverage in both copper and fibre optic, which allows the company to extend its reach to SMEs, SOHOs and large enterprises,” says Romal Shetty, executive director, KPMG.
But in the face of severe competition, MTNL will need to do more. Market analysts seem to believe that there is a fair chance that the company could improve its fortunes because it is intrinsically strong on infrastructure and experience.
Being a sister concern of BSNL also helps. It can access BSNL’s network strength to offer some excellent incentives to customers. It can also work on a very good pricing strategy, which it has done with its broadband and GSM services.
In fact, over the last few years, MTNL has steadily managed to carve out a niche for itself. It has spruced up its operations, improved service quality, introduced more value-added services at competitive rates, and given special attention to an expanded product portfolio including internet, broadband, wireless broadband (Wi-Fi, Wi-Max), GSM and CDMA services.
Its strength lies in the fact that it is a long-standing player and its brand recall is extremely high. On the flip side, ever since it was set up in 1986, it has remained a monopoly. The liberalisation of the telecom sector came as a rude shock and upset the company’s applecart by bringing in intense competition.
In fact, the company’s “sarkari” image has become its biggest stumbling block. It is a common perception that MTNL is not changing fast enough compared to its rivals. It carries the usual baggage of a public sector unit ?? huge manpower and complacency. “MTNL’s weak point is the perception of its quality of customer care. It is riddled with bureaucratic processes. And it is still subject to political pressures because of its proximity to the government,” notes telecom analyst Mahesh Uppal.
The other major roadblock is its huge workforce, which holds it back from responding to market forces quickly. Further, the earning prospects and profit outlook of the company look discouraging, primarily because the teledensity in its existing circles is high, resulting in a very low subscriber growth rate. “With frequent tariff cuts and a low subscriber growth rate, the earnings prospects of MTNL do not present a favourable picture,” says Shetty.
In the third quarter of 2007, for instance, MTNL posted a net profit of Rs 976.3 million, a steep decline of 53.19 per cent compared to Rs 2.08 billion in the corresponding period of 2006.
This was mainly on account of a 5.59 per cent fall in net sales to Rs 11.89 billion compared to Rs 12.6 billion in the corresponding quarter in 2006. The company’s total income for the reporting quarter fell to Rs 13.26 billion from Rs 14.28 billion.
To change this situation and increase its subscriber base, MTNL has recently announced massive rate reductions across all services ?? mobile, landline, broadband, IPTV and VoIP. It has dropped international call rates to Re 1 per minute for its VoIP users, for calls to about 100 countries including Saudi Arabia, Pakistan, Japan, Malaysia and Kuwait. It has also reduced landline rates from Re 1 per minute to Re 0.90 in the two metros.
In order to be even more competitive, it will need to increase the focus on its mobile (GSM) business. “This is one area where MTNL could be left behind,” cautions Uppal. “No one really buys Garuda.”
In the Delhi circle, MTNL’s mobile subscriber base was 1.36 million as of December 2007 compared to Bharti’s 3.7 million, Vodafone’s 3.13 million and Idea’s 1.9 million. Similarly, in the Mumbai circle, MTNL’s subscriber base of 1.59 million was low compared to, say, Vodafone’s 3.18 million.
To be fair, MTNL is fettered by a protracted tendering process and frequent delays in GSM equipment delivery from the state-owned vendor, ITI Limited. It has often had to divert base station equipment from Delhi to Mumbai to keep up with demand.
Consequently, Sinha has announced a major expansion of the GSM networks, especially in Mumbai, where he promised 1 million GSM subscriber capacity. “In the next two years, we are focusing on GSM and CDMA. We intend to add 3 to 4 million subscribers to take our total up to 7 to 8 million subscribers,” says Sinha.
To improve the quality of service, MTNL plans to add 750,000 switching capacity in its mobile network to the existing 1,325,000 as well as 300 base transmission stations for the radio network to its existing 512.
For the future, MTNL is focusing on Wi-Max, the popular technology that is making waves. It has started talks with the New Delhi Municipal Corporation (NDMC) to make all NDMC areas WiFi enabled.
The company is also aiming at taking advantage of its fixed line capacity on the optic fibre network. “We will increase the efficiency of our optic fibre network in order to enable higher bandwidth. We will launch metro Ethernet network apart from fixed-mobile convergence. Our fixed line exchange capacity is 6 million connections while we have 3 million customers. Thus, we have spare capacity,” says Sinha.
Going global is the other option. The company is already present in Nepal and Sri Lanka where it provides fixed, GSM and international long distance services. With a budget of Rs 5 billion, the company is scouting for acquisitions in developing countries to strengthen its revenue flow.
In short, MTNL is busy reinventing itself in order to seize every opportunity that comes its way.
