Russian Roulette

It may be the eighth largest mobile operator in the world with a subscriber base of 97 million spread across Russia and other CIS countries. It also has an enviable record of seeking and establishing market dominance in all its major markets. But the $13.7-billion Sistema Corporation could be tested severely in India as it rolled out its MTS brand in the country and launched CDMA-based mobile operations, to start with, in Tamil Nadu towards March-end.

Already, Sistema offers CDMA services in Rajasthan under the “Rainbow” brand. Earlier, in September 2007, it acquired a controlling stake in Shyam Telelinks, which has since been renamed Sistema Shyam Teleservices Ltd (SSTL). The new entity bid (Rs 1,650 crore) for and bagged licences to operate CDMAbased mobile services in all the 22 circles in the country. It plans to launch services in more than half the circles by 2009-end.

Can Sistema make a significant impact in the market? “Yes, we can,” says Vsevolod Rozanov, President and CEO, SSTL. He offers Rajasthan as a case in point. “We launched our services late, but today we have almost half a million subscribers and our share in the new customers added is 12.5 per cent. The quality of service that we offer is the differentiator,” he says.

But low tarrifs, declining average revenues per user (ARPU), falling minutes of usage, urban markets close to saturation and cut-throat competition among existing players pose an immense challenge to SSTL. “We are aware of these challenges. While tariffs may be low, the costs are low, too. The profit margins of some of the top Indian cellular players will make operators in high-tariff markets jealous. Also, globally mobile markets have continued to grow till teledensity has touched 80 per cent and India is expected to be no different.

So, we believe there is significant head room,” says Rozanov. SSTL’s choice of CDMA technology surprised many. Experts feel that delay in release of GSM spectrum forced the company to opt for CDMA.

“CDMA offers the best solution for most of India’s population. Also, setting up a pan-Indian CDMA network costs at least three times less compared to the GSM network. It would need 2.5 times lesser base stations. It is a win-win technology,” he explains. 

SSTL’s inaugural tariff could set the market on fire. It is offering a life plan with a free talk-time of a million minutes (for calls between MTS subscribers and restricted to 150 minutes/day) with its Rs 499 MCard. But market excitement need not necessarily mean profits as some of the players have painfully realised. “With intense competition and rock-bottom tariffs, SSTL will necessarily have to burn cash to get subscribers. Economies of scale is crucial to defray your costs. Profitability will be quite some time away,” says a Chennai-based analyst.

SSTL, however, claims to have a solid business plan. “We will breakeven in the fourth or fifth year of operations,” says Rozanov adding, “We are looking at stock market listing opportunities in a year or so. Current (equity) market conditions are not conducive.”