Jiteshbhai, a trader from south Mumbai, commutes from a far-away suburb in Mumbai and sports a sleek Nokia 5110 handset and has two calling cards. One, he explains with great verve, is a regular calling card and the other a pre-paid one, which he can pick up from any decent grocery store. This he tells, has saved him hours of valuable travelling and business time and made his family a happier lot as they now know his whereabouts. With pride he adds, "I’ve got call identification and voice mail so I can sort messages. After all one really does not want to talk to everybody. Right!"

Right indeed! Jiteshbhai probably does not know that he is one amongst every twenty people in the world that own and use a mobile phone. And the tribe is growing rapidly. According to the International Telecommunications Union (ITU), an UN organisation, a quarter of a million people subscribe to mobile telecom services everyday.

The overall growth has been phenomenal to say the least. From 11 million subscribers in 1990, today there are over 300 million and the ITU expects this figure to hit the half billion mark by the end of the decade. A feat that was accomplished by fixed lines in more than 130 years.

The mobile services industry now commands revenues worth $154 billion. Keeping the subscriber growth in mind, mobile revenues will takeover fixed line revenues by 2004. Globally, as a matter of fact, fixed line growth rate is on the decline since 1996. Importantly, the mobile business has also seen the rise of a $40 billion handset market and a $37 billion equipment market.

Better ahead
But the best, according to many, is yet to come. The mobile technology is undergoing a transformation that may ignite another bout of growth.

The emergence of third generation technologies will add a new dimension to the convergence phenomenon. The fact that the telephone handset can offer more than plain conversations has the potential to displace even the seemingly invincible PC.

Third generation or the 3G technologies will see that users will be able to browse the Internet at amazingly high speeds on their mobile handsets, even while zipping through their cars. They would be able to video conference at a shopping mall, book tickets for the cinema or carry out a banking transaction. The list is endless and it will certainly boggle Jiteshbhai.

There are many countries that will start offering the latest 3G services in the next year itself. Finland and Japan have already auctioned off licences for players to offer 3G technologies in their countries and many other European countries are on their way.

Players in the industry are gearing up to provide the 3G technologies. They have ganged up and formed coteries like the Wireless Application Protocol (WAP) Forum, Symbian and Bluetooth, to have uniform standards. The ITU has set up the IMT 2000, a uniform standard for 3G technologies, to make them global. There is an air of enthusiasm as almost everyday there are new mind-boggling plans being announced.

Indian predicament
While the world looks ahead with optimism, there is a strange resignation and cynicism present amongst the players in the Indian mobile industry. Almost all the players have been bleeding since they started operations, somewhere around mid-1995. This is despite the fact that there are now more than 1.2 million subscribers. And, for the period ending March 1999, the cellular subscriber base in India had grown by 27 per cent in a year. But then there is a flip side. The subscriber base in the metros actually fell in 1998-99 by 5.8 per cent. It was the subscriber base in the circle or non-metro licence areas that witnessed growth. But even in the circle areas, almost all were losing money.

There are various well-documented reasons for this. They include the gross over-estimation of the Indian market by the mobile players. The long waiting list at the local telephone exchange prompted many players to inflate figures of the expected demand that didn’t materialise.

Then the government, in its earnest desire to garner funds from a seemingly attractive market, started auctioning blocks to players for handsome licence fees. The new entrants in the cellular market paid the first tranche upfront. But as operations started, harsh realities of the market dawned on them. The estimated usage time according to the mobile companies was in the range 220 to 250 minutes. But the actual average air time was much lower at 150 to 180 minutes a month. Similar was the case with the average revenue per user (ARPU). To make matters worse, they were saddled with a bag of bad debts.

There were many who feared a shakeout. Analjit Singh, the Max India chief, the group which previously had a large equity stake in Hutchison-Max, decided to pull out in early 1998. Recently, in a press conference Singh mentioned being vindicated, "given the current policy scenario, mobile telephony is not going anywhere," he asserted.

Good intentions?
A lot many would support Singh’s view. The policy makers’ priority was to have a system of mobile communications in place to increase the pathetic telephone penetration and provide the people of India with the infrastructure to communicate. But then the lure of the lucre saw this priority being replaced by the urge to fill in coffers. High licence fees are usually transferred to the customers by way of higher tariffs. And high tariffs restrict increase in penetration. According to industry experts, the licence fees accounted for 40 per cent of costs incurred by the mobile operators.

Then the government also auctioned off blocks or circles to many players. This saw that there was no national player in the business. Licences were offered in such a way that players did not get contiguous circles. Essentially, this meant that players did not have economies of scale and the market was fragmented.

It was an attempt to follow the US market model where there is local or regional competition and no national player. But one differentiating factor is that every local circle in India has a duopoly. In the US after 1994, the market has been thrown open to competition.

However, the most restrictive part in the mobile business has been the regulatory aspect. The Department of Telecommunications (DoT), the player, rule-maker and referee has had continuous tussles with the independent regulator the Telecom Regulatory Authority of India (Trai). There have been umpteen instances of both the bodies dragging each other to the courts.

The recently announced tariff changes and a move to align India with the practice of calling party pays (CPP) was snubbed as Mahanagar Telephone Nigam Ltd (MTNL), and DoT got the order stayed on October 28, just a few days away from the D-Day -- November 1.

CPP has been the dominant practice in the global industry. Switching on to the CPP regime has seen cellular penetration grow. Countries like Paraguay have seen mobile penetration more than double in a year’s time.

According to the World Telecommunications Report -- 1999, "The concept of the user paying for something received is absurd. What if people that received flowers had to pay for them? Then there is a question of equity, why should mobile and not the fixed users pay for incoming calls." This sums it all.

Mobile magic
There has been a prevalent perception that a mobile is a "premium product". True, mobile phones offer convenience. But then this convenience can be extremely productive for developing countries.

Consider the case of Cambodia. After being devasted by war, it opened up the mobile sector to competition and this saw telephone penetration zoom. Cambodia has surpassed 31 other countries over all telephone penetration in the last six years. In fact, it has as telecom experts say "crossed over"; the mobile connections have exceeded the fixed line connections. Similar is the case with Lebanon.

Bangladesh is another vibrant example of mobile usage. Bangladesh, with a lower penetration level than India has these "mobile ladies". These ladies buy expensive state-of-the-art mobile phones. Bangladeshi farmers use the mobile services offered by these "mobile ladies" to stay in touch with the business prospects at markets.

The mobile ladies loan funds from Grameen Bank, a private company famous for lending to the villagers to buy cattle. Its subsidiary, Grameen Telecom, now specialises in lending for mobile phones and has supplied mobile phones to around 300 villages. The company claims that everybody in Bangladesh would be within a two kilometer range of a mobile phone.

With such schemes, the developing world’s share has risen from under 5 per cent in 1990 to more than 20 per cent now. No reason why India should lag behind.

Competition, the key
The ITU report sums the role of the policy makers, "Their primary goal, should be to ensure that citizens in their country have access to telecom services that are universally available and accessible and affordable."

To increase mobile penetration, to make it universally acceptable and accessible, the government would require to usher in competition. All over the world, increased competition has lowered tariffs.

Moreover, fragmentation of the market has led to higher costs for the mobile players and lower penetration. The US and Canada are two examples where fragmented markets have not spurred penetration despite low tariffs.

As from May 1999, a revenue sharing agreement has been put in place whereby for the domestic long distance calls, revenue would be shared on a 60:40 basis between the origin and transit provider for the domestic long distance calls and 45:55 for international calls, but that the terminating service provider would not gain from the revenue sharing.

This corresponds roughly to Rs.0.48 per domestic long distance call and Rs.0.66 for international calls. And an added complication is that the regulator has also proposed that some 15 per cent of the revenue raised be shared with the DoT in lieu of licence payments on which many of the operators had defaulted as of August 1999. It has been observed that the sender keeps all practice, and benefits the development of mobile.

Great governance
The ITU report adds, "As mobile telephony emerges as the preferred mode of voice telephony, the regulatory obsession with using fixed lines to extend telecom access is open to question."

The report further suggests that the regulator should allow as many operators as the spectrum constraints would allow. The government could award multiple national licences and set coverage targets to see that the rural and under-developed areas get covered as well. A certain amount of latitude should be allowed to mobile users to set their fixed backbone infrastructure.

The fallout
For the mobile players in India, competition would not sound the right word. But, overall increase in competition sees that eventually the business grows. In the US where there exists massive competition, the top-10 mobile operators provided $10 billion in cash profits and recorded an return on investment of 17 per cent, above the telecom industry average of 10 per cent.

Many could say that lack of competition in the Indian market, the duopoly, has made certain players complacent. Industry sources do confirm to a cartelisation of sorts. No wonder, all the tariff plans offered by the mobile companies are almost the same. Usha Martin, the cellular service provider had introduced `free-incoming’ services, but the TRAI shot it down.

Be that as it may, competition will eventually set in as the DoT and the MTNL have concrete plans to offer mobile services in the next few months. The recent aborted move by MTNL to offer limited mobile services in New Delhi using the Wirelss in Local Loop (WLL) technology sent shivers down the spine of mobile operators.

The WLL technology uses the Fixed Wireless Access concept wherein WLL instruments can roam within city limits. The larger trunk lines are linked by cables.WLL is a cheap replacement for mobiles -- prices are low but the quality is not as superior as other digital standards like GSM.

Now, there is a dire need for mobile companies to increase the subscriber base. For this, they would have to price the products attractively. According to the ITU,"The secret of attractiveness of mobile pricing can be summed up in one word: options."

There are few innovations and options being offered to the Indian customer. The only noteworthy one was the pre-paid cards. A revolution in distribution that shocked the world, pre-paid cards are now available at grocery stores in India and at the paan cigarette shops as well. According to estimates coughed up by Phillips Tarficia, an independent research agency, pre-paid cards account for only 12 per cent of the business.

This is a very low level as compared to international standards. It is often seen that pre-paid cards are popular in the low income countries. In Mexico, 60 per cent of the business is handled by pre-paid cards. In fact, the ITU report boldly states that regulators should make it mandatory for operators to offer pre-paid cards.

There are a few value-added services that are on the tap. Some of the companies have started offering the short message service (SMS) and Skycell in Chennai offers to download and send e-mails. SMS accounts for 20 per cent of global mobile revenues. Phillips Tarficia adds that value-added services would enable a company to attract and retain customers.

On the other side, as revenues per subscriber fall, there are costs to handle. On the face of things, the capital costs and operating costs associated with the mobile business should be low. After all, they do not have to dig roads to lay copper nor do they have to make expensive installations.

The most intelligent part of the network is the handset and that whose cost has to be borne by the customer. But then in reality, this is not the case as most of the times the fixed line operators have been in the market for a long time and have more or less recovered their costs. The mobile players are newer and the need to remain profitable and competitive eats into margins.

But many of the players in this business have been able to maintain profitability because they have been able to reduce costs as well. Interestingly, costs have been reduced by leveraging a high subscriber base.

As the total number of subscribers increase, the marginal cost per subscriber functions -- transmission switching acquisition of cell sites and billing -- will fall. Canada’s Bell Mobility saw costs fall from $37 in 1990 to $19 in 1998. This and a jump in the subscriber base, took care of Bell’s fall in tariff from 60 cents a minute in 1993 to 37 cents in 1998.

The costs that take the toll are the non-operational costs. The mantra for cost control and increased mobile penetration is to lower the share of fixed charges and increase revenues from high usage charges.

For this purpose, companies would have to foster the marketing function. According to the ITU, "Marketing mobile services means listening to customers, understanding the segmentation of the market, and following closely the moves of competitors. The best way to do that is to discriminate between ever more narrow groups of people and develop multiple pricing options which address their needs. Ultimately, what the customer wants the customer gets."

There is no reason to sulk in a business which sees clients doubling every 20 months. Worldover, mobile connections are growing at a frenetic pace and experts expect the mobile penetration to "cross over" fixed line by 2004. The Indian mobile players have been rather complacent and there has been some amount of bickering amongst themselves in public. This has reduced their ability to bargain as one force with the government.