ICRA Reports Short Term Effects On Telcos Profitability Due To MNP

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ICRA’s has come up with a report which they believe that the implementation of MNP, subscribers would get a wider choice and would be able to switch between service providers easily, thereby compelling service providers to offer competitive pricing plans and offer higher service quality to attract and retain subscribers.

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In ICRA’s view, direct fallout of implementation of MNP would be an increase in customer churn. Change in mobile number has been a major deterrent in switching service operators in the past, especially for high usage customers.

However, with the implementation of MNP, customers would be able to easily switch from one service provider to another without changing their mobile number.

Moreover, ICRA expects, the low porting charges (maximum of Rs. 19 per porting to be paid by the subscriber) and low porting time (7 days for all circles except Jammu & Kashmir, Assam and North East where the maximum time period for completing the porting process would be 15 days) to drive the adoption of MNP in India.

Increase in the churn is expected to increase the customer acquisition and retention costs of operators, which coupled with competitive tariff plans and falling average revenue per user (ARPUs) is expected to result in a decline in the operating margins of the telecom operators especially in the short term.

Under such a scenario, telecom operators with stronger financial profile would be better placed to cope with the increasing competitive intensity.In ICRA’s view, as all telecom operators in the market quickly react to match competitor pricing, tariff may not be a differentiating factor in the choice of operator.

Hence, the quality of service and customer experience will play an important role in a customer’s choice for an operator rather than pricing. ICRA expects that customer retention, especially in the high paying post-paid segment, would become the focus area for operators, as these contribute significantly to revenues, even if they form a small portion of an operators overall subscriber base.

Operators would have to increasingly focus on offering differentiated services and improving quality of service (in terms of better customer care and improved network and coverage) in order to attract and retain customers. Offering differentiated services like third generation (3G) services would also be important for retention of high usage high ARPU customers.

The implementation of MNP would be beneficial for mobile subscribers, as it would provide them with a wider choice (in terms of pricing plans, services, etc.), flexibility to change service operators without losing their mobile number and most likely an improvement in the quality of services offered by operators.

However, for mobile service operators, the churn that invariably follows MNP implementation represents both a threat and an opportunity. Post the implementation of MNP, some carriers are likely to witness the erosion of their customer base and consequently a decline in profitability, however, for some other operators, MNP can provide an attractive opportunity to gain market share and target high ARPU customers.

Thus, MNP would result in higher competitive intensity that would be reflected in an increase in churn, pressure on ARPUs and margins in the short term and telecom operators would have to increase their focus on improving service quality and offering differentiated services in order to attract and retain subscribers in the long term. ICRA believes that, operators with superior quality of service would be the clear winners, while those with less than satisfactory service quality would stand to lose the maximum by way of subscriber churn.

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