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Help MNP to have Limited Impact on Indian Telcos
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Fitch Ratings has commented today that the introduction of mobile number portability (MNP) in India's wireless market is unlikely to have a significantly negative impact on the operators, considering the market's dominant pre-paid nature and existing

high churn rate. MNP is likely to intensify competition in the post-paid segment, and as this segment only represents 5% or less of total wireless subscribers, the agency anticipates that the negative impact of higher subscriber acquisition and retention costs for this segment on overall operating margins will be limited.


The implementation of MNP in India, originally scheduled for 2009, will now be implemented in a phased manner starting with the state of Haryana, where MNP services commenced from 25 November 2010, and reaching the entire country by 20 January 2011. The agency expects that the pricing pressure, which has so far been more on the pre-paid segment of the market, will spread to the post-paid segment with MNP, though to a lesser extent. Also, new entrants and smaller wireless telcos will now be afforded a stronger chance to compete against incumbent leaders in the post-paid segment, where the annual churn rate is only 12%-24% compared with 50%-70% in the case of prepaid. The post-paid segment boasts an approximately 40% higher Average Revenue per Minute (ARPM) than the pre-paid segment. While subscriber acquisition as well as retention costs may increase in this segment over the next 12 months, Fitch anticipates that they will normalize over the medium-term. The agency also expects post-paid subscribers to display a certain level of stickiness towards the strong brand names of the leading players, and hence is unlikely to churn only for minor pricing reasons, considering that the differential in mobile calling expenses would be negligible as percentage of a subscriber's disposal income.


The Telecom Regulatory Authority of India (regulator) announced the details of MNP in November 2009, and stated that the maximum porting charge to be INR19 (paid by the subscriber to the recipient operator). Even though this is only 10%-20% of current average revenue per user (ARPUs), the operators, however, can choose to charge a lower price. The per port transaction charges (paid by the recipient operator to the MNP service provider) has been decided at INR19; while the dipping charges (paid by international long distance (ILD) operators or access providers to MNP service providers) will be decided mutually by the MNP service providers and ILD operators/access providers. The regulator initially set the porting time to a maximum of four days, but has now extended this up to a maximum of seven days except for the states of Jammu and Kashmir, Assam and

North-East, wherein it will be a longer 15 days.


So far the impact of MNP has been moderate to low across Asia-Pacific. While competition intensified in Malaysia and Korea, there was a low impact in Singapore, Japan and Taiwan. In Korea, MNP led to higher marketing expenses due to an entirely post-paid market with a low annual churn rate of 12%-24%. In Malaysia, stronger aggression by the second largest operator snatched some market share from the largest operator. However, the impact of MNP was low in Singapore due to limited tariffs cuts by any operator, low in Japan and Taiwan due to high porting charges of 70% and 30% of ARPUs respectively. Overall, Fitch expects the impact of MNP to be limited on Indian incumbents, considering that ARPM have already bottomed out (1USD cent per minute), that India is a pre-dominantly pre-paid market with over 95% pre-paid subscribers, and existing high churn rate.


Bharti Airtel Ltd. (Bharti, 'BBB-'/Stable) currently leads the revenue market share pie with a 31% market share, followed by Vodafone Essar Ltd at 21%, Reliance Communications Ltd at 14% and Idea Cellular Ltd at 13% at end-September 2010.

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