Monday, March 25, 2013

Perfect Technology, Flawed Destiny

The Launch of MNP has seen Significant churn by users of CDMA towards GSM. Is this indeed The Death Knell for a Technology that’s already falling out of Favour in India?

CDMA (Code Division Multiple Access) technology has been at loggerheads with the far more widespread GSM (Global System for Mobile Communications) technology since quite a long time. The irony is that basic technological common sense has always favoured CDMA, since it can handle many more calls per MHz. and has a better data transfer rate. However, GSM has been able to cover around 75% of the world’s cellular phones; partly because it is supported by a global entity, the GSM Association. On the other hand, CDMA is promoted by American firm Qualcomm and has not gone much further beyond North America.

In India, however, CDMA came with a lot of hope, albeit for a different set of reasons, as RCOM used it to disrupt the entire pricing structure in the industry. The technology brought down tariff rates to a few paise per minute from a few rupees. Players like RCOM and Tata Teleservices have offered handsets at incredibly low prices, thus connecting the common man with the telecom revolution. Lately, it has also transformed the way we surf internet on the move. CDMA has a peak download speed of 2MB/s compared to 384 kbps for GSM.

However, this great technology appears to be dying a slow death in India, due to lack of spectrum. The shift made by major CDMA players including Tata Teleservices and Reliance to the GSM platform has also cost the technology dear. RCOM and TTSL, after getting 3G spectrum, are focusing more on the GSM business, as the chances of increasing data revenue on the network are high. The third major player MTS is currently looking for M&A partners in India.

The allowance of Mobile Number Portability (MNP) has also hit CDMA technology hard. The first 10 days of port in and port out, after the implementation of MNP on January 20, 2011, suggested that a large number of subscribers are moving out of the CDMA platform and opting for GSM. Data available till January 31 suggests that more than 50,000 subscribers opted out of CDMA, wherein only 2,000 people chose to give up GSM in favour of better voice & data services. “A large number of people are porting just for the experience for now. In the long term, MNP would not make much of a difference, as the handsets and tariff rates of CDMA technology are cheaper then GSM,” says S. C. Khanna, General Secretary, AUSPI (association of CDMA players) to B&E. Hemant Joshi, Partner, Deloitte, Haskins & Sells, supports, “Since the future is in data services and CDMA banks on having good quality data services on their network, it is likely that subscribers will stabilise after the initial churn (of CDMA users post MNP), which could be due to several reasons,” said.

However, the fact is that the trend of preferring GSM is not new over the past few years. As per TRAI data, GSM subscribers for September 2010 numbered 578.49 million (84.12% market share) compared to 109.22 million (15.88% market share) for CDMA. This is in fact a morose scenario for CDMA, since it commanded a share of 26.35% in September 2007. Interestingly, out of six players in CDMA, four have around 12% market share and continue to see a fall in their subscriber base. A major chunk of market share in this space is commanded by RCOM & TTSL.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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