In Business Model, Internet Access, Mobile, News

The always hyper-difficult India mobile market is in the midst of a key challenge. Frustrated by call drop performance, the Telecom Regulatory Authority of India (TRAI) wants to require user compensation for call drops at the rate of one rupee per call drop (about 1.5 U.S. cents), up to a maximum of three calls per day.

There are potentially significant revenue implications.

The average revenue per user in India is not more than Rs 125 (about US$1.93). So compensation for three dropped calls a day equals Rs 90 in payments, potentially reducing revenue 72 percent.

Perhaps more realistically, earnings before interest, tax, depreciation and amortization (EBITDA) could shrink by seven percent to eight percent. That might be all or most of the actual profit margin for some providers.

You won’t be surprised that COAI opposes the proposed measure. The larger issue is how to prevent the problems in the first place. And many would argue that willingness to invest in new towers is not lacking.

Given the skimpy amount of bandwidth the typical provider possesses, building new towers with smaller cell radii is a necessity. But suppliers say they are constrained by siting problems. Nobody really wants a cell tower on their property. And property managers often bar access.

As always, there are carrots and sticks. Better networks should mean happier customers. Happier customers should churn less, buy more and cost less to serve. That is the best case outcome. Some carriers might be able to better finance the upgrades. Perhaps they gain market share, while less-fortunate carriers lose customers and revenue at the same time their operating costs increase.

The worst-case scenario is something more like “sticks and bigger sticks.” Perhaps nothing mobile operators do will necessarily boost revenue, directly or indirectly, as they invest more to fix the call drop problem. In that case, there will simply be more fixed cost to recover.

Unfortunately, you can guess what will happen. As difficult as it might be to raise prices in a hyper-competitive environment, that will happen.

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