Telecom Lead India: India is the second most populous
nation, one of the BRIC (Brazil, Russia, India, and China) emerging economic
powers, and the second largest and fastest growing mobile market in the world
with nearly one billion subscribers. With a lack of physical infrastructure,
evidenced by a low penetration of fixed telephony, most in India regard mobile
communications as a critical element in today’s environment. The Telecom
Regulatory Authority of India (TRAI) introduced Mobile Number Portability (MNP)
in early 2011. This paper describes the mobile telecommunications market in
India, examines the implementation of MNP, and provides a brief comparison to
the United States’ MNP market, concluding that there are significant
differences between the two countries’ approach and results.
India’s Mobile Telecommunications Market
The telecommunications market in India is unlike any
other country. India has 15 mobile carriers in a highly competitive,
predominantly pre-paid market that is largely driven by the subscriber’s
unremitting efforts to secure better pricing. About 96 percent of all mobile
subscribers elect for a prepaid service, and those subscribers are constantly
transitioning between mobile service providers to realize incrementally lower
prices. Unlike most developed markets, including the United States, many mobile
subscribers in India have the option of using devices with multi-service/SIM
card capability. This allows the mobile subscriber to switch service providers
simply by activating the SIM card associated with the most preferential rates
at the time. It is reported that 57 percent of all handsets shipped in India in
2011 had multiple-service/SIM capabilities, which provide a choice of up to
four mobile carriers within a single device.
Consumers’ propensity for rapidly switching service
providers places significant challenges on mobile carriers in India. These take
the form of high churn rates and declining revenue per subscriber. The monthly
churn rate in India averages approximately 6 percent. Airtel, the largest
mobile operator in India, will see substantial customer churn, which in the
aggregate equates to almost its entire customer base of 179 million
subscribers, in a single year. The Average Revenue Per User (ARPU) in India is
$3.103 a month, compared with about $504 a month in the United States.
Because India is overwhelmingly a prepaid market, there
is little loyalty between subscribers and mobile carriers. As a result, one of
the implications of the preponderance of multi-SIM device (in combination with
no-contract pre-paid accounts) is that mobile carriers have little incentive to
invest in the overall consumer experience, including that surrounding MNP.
Mobile subscribers in India forgo the simplicity of retaining their identity
through a single telephone number that is relevant far beyond personal
identification for voice calls or text messages.
India’s Mobile Number Portability System
Mobile Number Portability (MNP) enables subscribers to
keep their telephone numbers when switching from one mobile provider to
another. It has the potential to convey significant benefits to the consumer by
lowering barriers to competition. MNP was licensed in India in April 2009, and
was launched in January 2011.5 By the time India fully embraced MNP, over 70
countries worldwide had already implemented portability solutions. The local
regulator, TRAI, adopted an unconventional, multiple-administrator solution for
MNP, making India one of only two countries worldwide to adopt such an
approach. Two MNP administrators are dually responsible for orchestrating the
transfer of telephone numbers between mobile carriers, each using a distinct
platform and infrastructure in distinct service areas (zones).
As described in detail, India’s MNP system has the
following attributes:
The MNP system is limited in scope in that it only allows
mobile subscribers to transfer their telephone numbers when moving to a new
mobile carrier. Similar services do not extend to fixed wireline or voice over
Internet protocol (VoIP) services.
The MNP process is initiated by the new mobile carrier at
the request (via SMS) of the subscriber.
Information is downloaded to all carriers and access
providers in all circles6 via periodic file transfers to enable updated
routing.
TRAI requires that the entire process for subscribers to
switch carriers be completed within seven days.
The process tolerates the subscribers to be out of
service for up to two hours during the transition to their new mobile carrier.
After the first year of MNP, provisional conclusions can
be drawn as to its success. The number of subscribers opting for MNP as a
percentage of overall churn is relatively small, suggesting that MNP has had
limited impact on competition. Furthermore, evidence has emerged of significant
subscriber dissatisfaction with the process, as measured by long delays and
high volumes of complaints to the regulator. Over 25 percent of consumers’
requests to transfer their telephone numbers between January 2011 and November
2011 were rejected or abandoned. TRAI acknowledged that there was very high
porting rejection rates and directed the operators to address the issue.
Comparison of Number Portability in the United States and
India
The number portability environment for the United States
is significantly different from that in India. The combination of substantial
adoption of fixed, mobile, and VoIP communications; a largely post-paid
subscriber base; and a strong consumer interest in number portability
contributes to a wholly different experience in the United States when compared
with India.
To illustrate the differences, consider the following:
Number portability in the United States spans network
technologies, allowing subscribers to transfer their telephone numbers among
fixed line, mobile, and VoIP services.
Mobile and simple fixed line ports are generally
completed within a single day or less.
In the vast majority of cases, the subscriber experiences
no disruption of service during the transfer of her number to a new carrier.
The LNP registry in the United States is also used to
preserve national numbering resources, i.e., to transfer smaller inventory
ranges between carriers for more efficient utilization.
The LNP registry can also be used by service providers to
perform important network management activities (i.e., technology migrations,
load balancing, and emergency preparedness/disaster recovery).
Most critically, portability makes up a significantly
larger percentage of overall subscriber churn in the United States’ mobile
market about four times larger than in India. Evidence bears out that a
subscriber in a post-paid contract with richer services (3G/4G, smart phones,
etc.) tends to maintain a higher affinity for their telephone number than does
a pre-paid subscriber who carries multiple SIM cards for a single device. The
data implies that portability in the United States is far more critical to
sustaining expected levels of competition, and furthermore, that any
disruptions or issues with the porting process would have a far more
deleterious effect for the consumer.
The differences between the United States and India are
evidence of the fact that communications markets and the drivers of consumer
demand are not the same worldwide. The United States and India are both large
democracies with growing telecom markets, but the experience of one
communications market with number portability is not transferable to another
market. Indeed, the factors leading to a successful mobile number portability
experience could not be more distinct between the two countries. One need only
compare the post-paid and pre-paid nature of the two marketplaces. As such,
regulators and service providers should rely on the characteristics of their
respective markets when making decisions regarding number portability in the
future.
India is the world’s largest democracy with a population
of over 1.2 billion people. Unlike the United States and other developing
countries, India suffers from poor private and public infrastructure. This,
along with ranking second behind China as the most populated country in the
world and other factors, has led to a proliferation of mobile phone growth with
nearly one billion subscribers in India today.
India: An Urban Wireless Market
The Indian mobile phone market is made up of 22 service
areas, often referred to as circles.” Calls between circles are categorized as
long distance calls. Currently, there are 15 mobile carriers in India though
not all of these carriers serve all of the geographic circles.”
The subscriber base in India is predominately urban
(65.20 percent) and mobile (96.57 percent) due to, among other factors, poor
private and public infrastructure. Only 3.43 percent of subscribers have
wireline service, and this percentage is declining as subscribers are dropping
wireline service and replacing it with mobile service.
By comparison, in the United States, the number of
residential wireline service connections is about 98 million (connecting about
80 percent of the population) due to the reliable physical infrastructure that
has been put in place for a significant number of years. Moreover, in the
United States, the percentage of individuals who have both wireline and mobile
service is also much higher than in India.
B. 2G Wireless Domination in India
In India, mobile subscribers have access to predominantly
2G services and feature phones. As depicted below, the penetration of 3G mobile
phone subscribers in India is in its infancy compared to the United States
market. An expansion to 3G/4G services tends to stabilize and increase ARPU. It
is projected that by 2016, 3G penetration in the United States will be
approximately 68 percent compared to about 16 percent in India.
Prepaid Subscribers in India
In India, mobile subscribers are predominantly prepaid,
typically consuming voice and SMS bundles. For GSM, which comprise nearly 87
percent of all subscribers, and CDMA services, the percentage of prepaid
subscribers was 96.9 percent and 93.8 percent, respectively, in September
2011.15 Mobile subscribers in India choose prepaid because they like to
pay-as-they-go, are price-sensitive, and enjoy the freedom to switch carriers.
The prepaid experience in India is in sharp contrast to
the United States mobile market. In the United States, approximately 78.3
percent of mobile services are post-paid contracts whereby subscribers are
locked into the same carrier because these service contracts often link steep
discounts for mobile devices to the length of the contract. Long-term service
contracts often result in low churn, high retention, and high ARPU for the
carriers.
Multi-SIM Card-Enabled Devices
Unlike mobile devices in the United States, many mobile
devices in India accommodate two SIM cards. Some of the newer models
accommodate as many as four SIM cards, which may be a combination of GSM and
CDMA technology. The growth in multi-SIM card phones has been phenomenal. In
the second quarter of 2009, multi-SIM card phones were less than 1 percent of
all handsets shipped in India, increasing to 38.5 percent in the second quarter
of 2010. In 2011, 57 percent of the total shipments of phone handsets were
capable of holding multi-SIM cards.
Subscribers in India use multiple SIM cards to facilitate
switching from one carrier to another, as prepaid subscriptions terminate. In
essence, multi-SIM card phones, in combination with prepaid and unlocked service,
lead to low ARPU and low barriers to exit for subscribers. Their use highlights
a low subscriber affinity for retaining a single phone number. In contrast to
the United States market, where a phone and phone service tend to be sold as a
bundled product typically by the operator, the handset and the phone service
are sold unbundled in India. In addition, the United States bundled product is
sold for a ‘lock-in’ duration; two year contracts are usual. This tends to tie
the United States’ subscriber to the carrier for the period of the contract.
E. High Churn in India
Mobile carriers in India experience tremendous churn by
subscribers every month. A key catalyst for increasing churn in India is
aggressive price competition, facilitated by the large proportion of prepaid
customers. The following chart depicts the monthly mobile churn for the top
three and four mobile carriers in India and the United States, respectively,
from September 2009 – September 2011.
As an example, Bharti Airtel had an annual uncompounded
churn rate of 94.8 percent and a compounded yearly churn rate of 149 percent
based on the monthly churn rate of 7.9 percent in December 2011. This means
that a carrier’s whole customer base can more than turn over in a single year,
although many carriers show positive net adds per year (meaning the numbers of
customers leaving are replaced by churning in customers plus some more).
Subscribers that churn are the potential candidates for
number portability, and in India, a subscriber is permitted to port their
number every 90 days if they wish. However, when one looks at the proportion of
churning subscribers that take their telephone numbers with them, it is evident
how insignificant MNP is to the mobile subscriber in India. This appears to be a
fundamental difference in how the subscribers in the two markets react to MNP.
In contrast to the United States, in India subscribers are moving to new mobile
carriers without taking their phone numbers with them.
Minutes of Use and ARPU
A mobile subscriber in India can prepay for service for
as low as $1 and get 500 minutes of use. Mobile phone service in India only
entails paying for outgoing calls (as opposed to paying for both incoming and
outgoing calls as in the United States), with calls being billed by the second
(as opposed to being billed by the minute in the United States). With typically
shorter call durations, a $1 prepay can last for quite some time. As shown in
the chart below, the average minutes of use for a typical subscriber of AT&T
is about 1.5 times that of Airtel and about 2.8 times that of Reliance.
The ARPU in India has declined rapidly over the last five
years – by 71 percent and 66 percent for GSM and CDMA services respectively.
This is mainly due to aggressive price competition among mobile carriers, high
penetration of prepaid customers, and lack of 3G infrastructure and services.
In the United States, for the larger mobile carriers,
ARPU has been increasing and overall the blended ARPU is approximately 16 times
higher than that of the larger mobile carriers in India (using the exchange
rate of 50 rupees to the dollar). This is partly attributed to subscriber
adoption of data services.
The preceding discussion demonstrates that the
telecommunications market in India is significantly different than that in the
United States.
II. India’s Mobile Number Portability System
Mobile Number Portability enables subscribers to keep
their telephone numbers when switching from one mobile provider to another. MNP
raises the level of competitiveness among carriers to retain their subscribers
with the best network quality, price, and other offers.
By the time India fully embraced MNP, over 70 countries
worldwide had already implemented portability solutions. Of all the worldwide
number portability implementations, India is only one of two countries in the
world where MNP is licensed to two vendors (the other being Sweden). TRAI
selected Syniverse to provide MNP services in Zone 1 (North/West regions) and
selected MITS, a joint venture with Telcordia (now owned by Ericsson) to
provide MNP services in Zone 2 (South/East regions). After a series of delays
(that were partly related to unanticipated security concerns) MNP was made
available nationally on January 20, 2011.
A. Key Steps in the Mobile Number Portability Process
Subscribers cannot begin the porting process without
first procuring a Universal Porting Code (UPC) from their regional MNP
administrator (MITS or Syniverse), and presenting that code to their new mobile
carrier. The UPC is delivered via SMS. Only upon verification of subscriber
identity (which in most cases requires a photo ID) will the new mobile carrier
formally initiate the porting request to the MNP administrator. The photo ID
requirement and flaws in the SMS process are contributing factors that impact
the success rates of MNP.
Upon successful initiation of the port request, the MNP
administrator orchestrates a series of information exchanges between the new
and existing mobile carrier20 to transfer the telephone number. When that is
completed, the information is then downloaded to all carriers and access
providers in all circles via a periodic file transfer that ultimately enables
updated routing. The end-to-end process tolerates subscribers being completely
out of service for up to two hours during the transition to their new mobile
carrier.
The entire process for subscribers to switch carriers is
required by TRAI to be completed within seven days in most service areas21,
although evidence suggests that it has taken weeks to successfully complete
switching to the new mobile carrier.
B. Slow Rollout of MNP
At the time MNP was launched, only 200,000 subscribers in
all of India requested their number be moved to another carrier. In the first
twelve months (from February 2011 through January 2012) requests for numbers to
be ported grew to 17.4 million in Zone 1 and 15.3 million in Zone 2, resulting
in a cumulative port rate of 3.66 percent far less than the TRAI projection.
While it is too early to definitively predict the growth
of MNP, evidence suggests that the majority of prepaid subscribers are not
concerned about retaining their number and change between networks for
short-term gains as their credits run out.” Once the majority of the already
small post-paid pool is accounted for, this would imply low porting rates going
forward.
Port rates in India are expected to be low because of the
low penetration of post-paid subscribers.
C. Why is MNP Not Fulfilling Industry Expectations in
India?
Although MNP was recently introduced, a number of
variables appear to be influencing the way MNP adoption is shaping up in India.
Subscriber, Device, and Social Factors in India
Indian subscribers frequently switch carriers to achieve
better pricing. Prepaid plans with few lock-in requirements and wide adoption
of multiple SIM devices have influenced the subscriber away from attaching
importance to telephone numbers. Furthermore, subscribers are unlikely to wait
for seven days or more to retain their telephone numbers when they can switch
providers in minutes by giving up their telephone number.
Carrier Reject Factors and Rejected Ports
According to TRAI in a report to the Indian Parliament,
25.8 million MNP requests had been made by November 2011. Of these requests, 19
million (or 73.6 percent) subscribers had successful ports of their numbers to
their new carrier – implying 6.8 million requests (or over 25 percent) had been
rejected, abandoned, or not completed. Mobile carriers are empowered to reject
the port requests for a number of reasons. The top reasons for port rejection
are incorrect unique porting code, ports requested within restricted 90 day
period, and existing contractual obligations and outstanding dues.
D. Subscriber Complaints
The complexity and uncertainties with the overall porting
process have led to a variety of complaints by subscribers.27 The reject rate
referenced above – over 25 percent in the first ten months of porting – has
resulted in a significant number of subscriber complaints. Furthermore, in
light of subscriber complaints, the TRAI, in recent months has initiated
actions, including court proceedings, against major mobile carriers to address
the issue and improve the subscriber experience.
Comparison of Number Portability in the United States and
India
The MNP environment for the United States is
significantly different from that in India. The combination of market saturation,
a large post-paid subscriber base, and a consumer-focused legislative mandate
has created high affinity for consumers and businesses with respect to their
telephone numbers (as evidenced by comparably high port-to-churn ratios).
Noting this, and recognizing that disruptions in portability have a significant
impact on competition, the United States communications industry, in
cooperation with the FCC, has placed a high premium on the porting experience.
For example:
Number portability in the United States can span network
technologies, allowing customers to transfer their telephone numbers at will
between fixed, mobile, and VoIP carriers.
Mobile and simple fixed line ports are completed in the
United States within a single day or less, and, in the vast majority of cases,
there is zero service disruption when a number ports to a new carrier (as
contrasted with the break before you make” paradigm in the India market).
The portability infrastructure in the United States is
also used to preserve national numbering resources, as the registry can be used
to engender more efficient utilization of large number ranges.
The United States registry is also used by service
providers to perform important network management activities (i.e., technology
migrations, load balancing, and emergency preparedness/disaster recovery).
The United States portability environment is governed in
an ongoing fashion by a series of technical and policy committees ultimately
answerable to the FCC. These committees (the Local Number Portability Working
Group and the North American Numbering Council) are designed from the ground up
to be transparent and open to all parties with a role to play in LNP – notably
service providers, software and network vendors, consumer advocacy groups, and
state/federal regulators. The goals of these consortia are to maintain a high
level of operational performance, flexibility, and neutrality with regard to
number portability, and to ensure that innovations in the communications market
are proactively reflected in the porting experience itself.
In India, competition in communications is driven by a
relentless drive for incrementally lower pricing. It appears therefore that
many of the items that receive a high level of focus in the United States (e.g.,
a rapid and reliable porting experience, flexibility for carriers, a
growth-focused architecture) may be less critical for India, which leads to
different priorities for the regulator and service providers in India. Many
decisions related to the deployment of MNP, including, but not limited to the
reliance on multiple LNP administrators, also reflect the fact that performance
and innovation are not the highest driving concerns.
Communications markets are not the same worldwide, and
the experience of one communications market with portability is not likely to
produce anything transferable to another market. The United States and India
are both large democracies with growing telecom markets, but the factors which
drive a successful mobile number portability experience could not be more
distinct between the two countries. Therefore, regulators and service providers
should rely solely on the characteristics of their respective markets when
making decisions regarding number portability in the future.
W. Bruce Allen, professor of Business and Public Policy,
The Wharton School, University of Pennsylvania and visiting professor, Indian
School of Business
