Telecom industry is getting ready for a makeover this festive season. New operators have entered the already crowded telecom space, seeking a slice of the market pie where Bharti and Reliance dominate the GSM and CDMA space respectively. These new operators have introduced innovative and attractive tariffs such as per second billing, which has forced existing operators to match or even come up with better offerings. Others such as Reliance, who have not opted for per second billing, have decided to lure and retain customers with hard-to- believe 50 paisa per minute tariff plans.

To add to the excitement, mobile number portability is round the corner and has the potential to radically shake-up the market. Telecom operators are already preparing for a significant subscriber churn, especially among prepaid users. There could be a consolidation among telecom operators too.

Already, telecom regulator Telecom Regulatory Authority of India (Trai) is readying new merger and acquisition (M&A) norms. Broad contours of the emerging landscape are this: chaos could well run supreme unless the issues are handled carefully.

Mobile number portability was first expected to be rolled out in September 2008. Since then, the deadline for its implementation has already been extended twice, following resistance from operators who fear losing their high value subscribers. Interestingly, the delay has pushed it to coincide with feverish pace of action and could cause a bigger churn.

At a rudimentary level, mobile number portability allows subscribers to retain their existing mobile phone number when they move from one service provider to another in a licensed service area, irrespective of the mobile technology. It is thus a highly consumer-friendly initiative as it helps to increase competition between service providers and catalyses improved quality of service (QoS).

?It will empower the customers with choices and the tariff war will raise its bar which will go against operators. Telecom operators will have to differentiate their offerings by focusing more on value added services. In the initial stages, tariff will be main differentiator but over a period of time, quality of service and tariff will go hand in hand,? says Nitish Mittersain, CEO, Nazara Technologies. ?End user will always be in win-win situation,? he adds.

According to the telecom regulator, mobile number portability will be launched in metros and ?A? category circles on December 31 this year and in the rest of the country by March 20, 2010. However, analysts remain skeptical on its introduction in the stipulated time period. After missing its deadline of September 20, its implementation before the first half of 2010 looks unlikely, they feel.

The department of telecom (DoT) has awarded the mobile number portability license to Syniverse Technologies in Zone 1 and mobile number portability interconnection in Zone 2. According to DoT officials, mobile number portability was to be implemented in Delhi, Mumbai, Maharashtra and Gujarat service areas of Zone I and Kolkata, Tamil Nadu, Chennai, Andhra and Karnataka of Zone 2, with effect from September 20.

The department of telecom had targeted a complete rollout of the facility throughout the country by 20 March, 2010. However, chances of mobile number portability implementation to be delayed again are remote and industry veterans feel that it will be introduced in urban areas between January and June 2010. Interestingly, even in the absence of mobile number portability the churn rate is as high as 50% per annum.

Already congested networks, ever increasing subscriber base and limited availability of spectrum has taken a toll on quality of service.

Therefore going forward, better quality of service will be a major differentiating factor for most high-end postpaid and corporate subscribers. ?Postpaid subscribers are mostly the ones who are quality conscious. These are high paying customers who don?t want to shift their network because they would lose out on their number. With mobile number portability and in-flow of new tariffs, it is very likely that these subscribers would move on to better networks?either to other incumbent?s network or to new entrant network,? says an analyst from Credit Analysis and Research Ltd (CARE).

Nevertheless, incumbent operators will have to match the quality of service provided by new entrants as quality of service would be better on new networks. Also, improvement in quality of service is likely to result in better on-road coverage and in-building solutions, lower call drops and lower tariffs.

?We see mobile number portability largely positive for subscribers and hence are in full support. It would strengthen our position and help us to increase our market share and position in the market,? says Lloyd Mathias, CMO, Tata Teleservices (TTSL). ?We rolled out our GSM service recently and hence can get the old GSM customers who are trapped in the rival networks to move to our GSM network,? he adds.

With several new players entering the market, the Indian wireless market is expected to witness further tariff decline. Mobile number portability would enable new entrants to churn subscribers from incumbent operators by providing better pricing or better quality of service.

?However, new entrants may face difficulties in gaining any significant marketshare from incumbents due to late entry, highly penetrated metros resulting in low average revenue per user (ARPUs) customers from Class B and C circles, high subscriber acquisition costs and lack of adequate spectrum quality and regulatory constraints on spectrum sharing,? says Nitin Soni, an analyst with Fitch Ratings.

Mukund Rajan, managing director, Tata Teleservices Maharashtra says, ?In all the other markets where mobile number portability has been implemented has witnessed an initial euphoria which settled after two to three months. In the beginning, the churn would not be humongous but will shape the market for incumbents.? In a mobile number portability scenario, Rajan feels that a new player like Tata Teleservices Maharashtra would have the advantage as it would be able to churn in the subscribers who were sucked up in the early years by other operators.

Meanwhile, the exact amount of porting charges applicable for switching a number has not yet been decided by the government. Moreover, a high porting fee (Rs 300) would make mobile number portability unattractive for a large portion (80%) of the subscriber base.

?We believe that mobile number portability will largely be neutral for operators. Yes, the large percentage of churn in India that some estimates put as high as 30% to 40% make for an attractive case for mobile number portability. However, a large percentage of subscribers are on pre-paid and not so significantly affected by mobile number portability. Having said that, mobile number portability is important, as is any policy that encourages competition on a level playing field and gives more choice to the consumer,? says Stein Erik Vellan, managing director, Unitech Wireless.

The Indian wireless market is largely prepaid?more than 94% of subscribers are already on prepaid plans?with a high level of churn typifying the market, which implies little attachment to existing phone numbers by prepaid subscribers.

?It will definitely be more relevant for the postpaid subscribers as these are 10-12 years old subscribers and have immense number stickiness. These subscribers are not happy with the network or lack of network capacity, or irritated with the customer service issue,? feels Nilanjan Mukherjee, CMO, Reliance Communications.

?They are also on a plan which is more costly than the current one. Moving on to the recent one would help them save around 30-35% of their monthly bills. There would be an increase in the churn rates for the first six months. At a later stage, it will depend on factors like price of porting or how easy it is to port in and port out,? says Mukherjee.

Typically, key GSM operators run an annual churn of 25-65%. The prepaid churn is 3.2% per month for Bharti Airtel, 2.1% for Vodafone Essar and 5.2% for Idea Cellular.

A recent Macquarie report says, ?We are factoring in a sharp decline of between 22% and 39% year-on-year in our postpaid average revenue per user assumptions for Bharti and Idea, following introduction of mobile number portability. Even on a blended basis, our average revenue per mobile forecast is reflecting the increased pressure on incumbents. Similar to our conservative stance on subscriber market share for incumbents, we expect Bharti and RCOM to deliver positive surprises on the following metrics.?

As mobile number portability makes it easier for subscribers to switch networks, conventional understanding from developed markets is that mobile number portability would lead to an increase in churn and marketing costs. In the long term, however, mobile number portability has seen mixed performance in most markets?including most developed markets, where postpaid or contract subscribers make up the majority?with the dominant outcome being very minor changes in market share compared to what was seen before mobile number portability implementation.

In addition, the process of number porting and the time (three to four days) and cost (Rs 250-300) involved may prevent consumers from churning to other operators. Still, the impact may be higher in the metros, which have more postpaid subscribers (with higher ARPU), which will push up the rate of subscriber acquisition and retention cost in the form of lower tariffs, promotional schemes and value added services.

Overall, outlook for the telecom industry remains positive: expect a major customer churn, stronger players would emerge and some players might get wiped out, while subscribers will continue to be lured with attractive tariff plans. In such tumultuous times, the challenge for government and telecom operators alike is to keep chaos from coming centrestage and threaten to derail the telecom growth story even in the short term.