MUMBAI -- Reliance Communications Ltd. Monday launched third-generation mobile phone operations in four major cities, becoming the second private company to offer the services in India, the world's fastest growing telecommunications market.
The Reliance-Anil Dhirubhai Ambani Group company, India's second-largest mobile phone operator by subscribers, launched the services in the northern cities of Delhi and Chandigarh, western India's Mumbai and Kolkata in the east.
Its smaller rival Tata Teleservices Ltd. launched 3G services in November. Market leader Bharti Airtel Ltd. plans offer 3G by the end of this month and the local unit of Vodafone Group PLC during the January-March quarter.
Telecom companies expect 3G services to offset the effects of the fierce competition and a tariff war, which have hurt their profitability.
While they may be able to charge a higher rate from subscribers for using 3G services such as faster access to Internet and video calls on mobile phones, competition may not be as stiff as several companies couldn't acquire the required airwaves in a hotly contested auction in May.
Still, they are unlikely to make any immediate profits on the service due to the high cost--including interest expenses on debt--on bandwidth acquisition.
Reliance Communications had won bandwidth to offer 3G services in 13 of India's 22 telecom service areas, paying 85.85 billion rupees [$1.9 billion].
It will launch the service in all the 13 areas by end of the current financial year through March, the company said in a statement. It expects to cover the remaining areas through tie-ups with other 3G licensees during 2011, the statement added, without elaborating.
Reliance Communications currently offers second-generation services under the global system for mobile communications and code-division multiple access technologies in all the 22 service areas. It had more than 117.3 million subscribers at the end of September.
Shares of Reliance Communications rose on the news. They closed 2.0% up at 128.65 rupees on the Bombay Stock Exchange, outpacing the benchmark Sensitive Index that gained 0.9%.
Syed Safawi, president and chief executive of wireless business at Reliance Communications, said he expects 3G services to boost the company's average revenue per user, or ARPU.
ARPUs at Indian telecom companies have been steadily declining as competition dragged tariffs to as low as less than a cent a minute. Expansion into rural areas, which generate lower income, has also hurt the ARPUs.
State-run Bharat Sanchar Nigam Ltd. and Mahanagar Telephone Nigam Ltd.--which didn't have to participate in the auction and were allocated bandwidth in 2008--launched 3G services in early 2009, but have so far got a lukewarm response.
Apart from Bharti, Reliance Communications, Vodafone Essar Ltd. and Tata Teleservices, other 3G auction winners included Idea Cellular Ltd., Aircel Ltd. and S Tel Pvt. Ltd.
Meanwhile, Mr. Safawi said price wars may not extend into the 3G segment.
"We don't see any price wars in the 3G circles. As we have seen, even the prices in the 2G circles have stabilized," Mr. Safawi said. "The real war would be in the content and innovation space."
The company has already placed orders with Nokia Siemens Networks, a unit of Nokia Corp., and L.M. Ericsson Telephone Co. to build and maintain high-speed data access networks, a company official said, speaking on condition of anonymity.
Executives at Nokia Siemens and Ericsson couldn't be immediately reached for comment.
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