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Bye CDMA, hello GSM

It’s a long battle that the two have been fighting globally, but at least in India, one seems to be pulling farther ahead of the other. That is, GSM—or global system for mobile communications—could be beginning to decisively win the mobile race.

Why cellular operators are gravitating towards GSM.

It’s a long battle that the two have been fighting globally, but at least in India, one seems to be pulling farther ahead of the other. That is, GSM—or global system for mobile communications—could be beginning to decisively win the mobile race against American company Qualcomm’s proprietary standard CDMA.

What ought to make Qualcomm nervous is the fact that two of its biggest customers in India, Reliance Communications and Tata Teleservices, seem to be gravitating towards the rival mobile standard. While Tata Tele only offers CDMA-based mobile services, Reliance Comm has a GSM business as well. But both queued up at Delhi’s Sanchar Bhawan, home to the Department of Telecommunications (DOT), for GSM licences and Anil Ambani’s Reliance Comm received the DOT’s approval to launch nationwide GSM services recently.

Qualcomms Jacob: Losing ground?
Qualcomms Jacob
 

Why is CDMA losing its sheen? There are several reasons for it, but all boiling down to one point, which is that GSM seems to make more business sense. To begin with, it’s the government that has facilitated the shift to GSM by allowing existing players to get licences for dual spectrum. That means, if you are a CDMA operator, you can get spectrum in the GSM band to offer services on that platform. However, five years after CDMA debuted in India, it has become apparent to operators that GSM is a better horse to back. “GSM covers 72 per cent of the Indian market and the revenues drawn per minute by operators are much more than CDMA operators,” points out a senior official of one of the top CDMA operators in the country.

Worse, GSM’s huge market share also means that the CDMA operators have no access at all to that market. The biggest barrier is the handset, since CDMA handsets are operator specific. In contrast, GSM allows users to change handsets at will, since the service is delivered via a small removable chip.

Also, the CDMA operators have to manage handset inventory, unlike GSM operators, who only have to sell the SIM card. “Besides, there is a very big population of ‘monthly shoppers’ who keep changing services every month that we have no access to. These customers usually look for the best available plan in the market during that particular month,” says the executive at the CDMA operator. That probably explains why in five years, while GSM has gone from 10.5 million subscribers to 180 million subscribers, CDMA has only managed to jump from 0.8 million to 85 million.

An additional reason for CDMA operators to look enviously at their GSM rivals is the whole issue of valuation, which is higher in the case of GSM. How does one explain that? Not only is the average subscriber revenue in CDMA lower than that in GSM, CDMA operators also get less spectrum than GSM players.

For instance, GSM operators get an initial spectrum allocation of 4.4 MHz, while CDMA operators are only allowed 2.5 MHz. And, apparently, spectrum plays an important role in stock market valuation of the operators. Analysts say that the valuation per subscriber for the top GSM players is 10-15 per cent higher than those of top CDMA operators. Not surprisingly, then, CDMA operators say that it doesn’t make sense for them to stick with CDMA even if the technology were to be incentivised by Paul Jacob-led Qualcomm, which couldn’t be reached for comment.

The interesting bit, however, is that CDMA is actually the better technology, since it is a more efficient user of bandwidth. “The way things are shaping up, it seems that GSM’s headstart (it debuted in India prior to CDMA) continues to be its advantage,” says Harit Shah, analyst Angel Broking. Eventually, though, analysts like Shah expect the technologies to merge. But for now, Qualcomm would need a strategy to stem its slide in India.