Spectrum, costs behind Reliance Comm move to dial GSM expansion

The company can claim 5×5 MHz of spectrum in a circle to kick-start its GSM operations, but the DoT has only been releasing spectrum in small amounts, resulting in severe capacity constraints for GSM and CDMA expansion.

Reliance is yet to inform the DoT about how large the GSM foray will be, but it is evident that spectrum constraints as well as total cost of ownership reasons are driving the shift from CDMA to GSM.

Only three years ago, CDMA was the technology of choice for those who wanted quality wireless services at lower tariffs. But total cost of ownership issues clearly have pronounced GSM the victor of the first round.

Reliance is the biggest CDMA operator and has a substantial share in the GSM market in lesser connected parts of West Bengal, Madhya Pradesh, Himachal Pradesh, Bihar, Orissa and North East, besides Assam and Kolkata.

The company is about to expand its GSM network in Mumbai and Delhi and possibly other areas.

According to sources, a key warrant for the firm’s GSM upswing is the chance to enter rural markets with more affordable GSM handsets just before a boom.

Sources said a key advantage from the GSM foray will be lower costs. Analysts have found that the cost base of GSM services turns out lower than for CDMA, despite competitive pricing by CDMA operators.

This, it appears, is largely on account of royalty payments made to Qualcomm for CDMA chipsets, which make up 35 per cent or more of a phone’s price. If this payment did not have to be made, ARPUs would increase by around 10 per cent, sources said today on the reasoning behind Reliance’s GSM push.

Earlier this year, BSNL, Reliance and Tata Teleservices bagged a Rs 8,000 crore government-sponsored project to provide 8 million phones in rural areas by 2007. BSNL has already announced it will be using CDMA technology to provide these phones, as will Tata Teleservices.

Industry sources said that the Reliance strategy could be to use GSM for this project as well, arguing that the highly-competitive Indian market will only support the lowest possible cost base.

If in this rural project alone royalty payments did not have to be made, the government could save the cost of providing another 1.5-1.8 million lines at the Rs 8,000 crore cost itself, they said.