GSM operators fear that the latest Reliance offer will throw up three types of customers -- a one-time user turning into an intentional defaulter, a wary subscriber who may stop using it realising mobile telephony is a costly proposition, and those who may continue with the CDMA service, or migrate to cellular service in due course.
Cell operators in Karnataka are of the view that the first two categories of customers will pose a bigger threat to Reliance from its Hungama offer.
"We don't understand the logic behind this strategy. The scheme does not make any business sense though it is directed to achieve volumes in a short period.
In order to provide competitive tariff, it is important for Reliance to get volumes. Considering the profile of its customers who are grabbing the handsets with a down payment of just Rs 501, the likely number of defaults is bound to hit its bottomline.
"When the first-time user gets to know the hidden costs from the initial bills, it will be a shocker at the amount the user would have to cough up for the wireless in local loop service. As a result, the first-time user will find it hard to reconcile using mobile telephony," a spokesperson of the leading GSM operator told Business Standard.
Reliance officials here did not reply to queries on the number of subscribers the company was able to hook in the first week.
But rival operators admit that the mobile market has begun to expand with the Hungama offer.
The low-income profile of its new customers, who are making a beeline to the Reliance outlets, however, is a cause for worry, as many of them may not be able to sustain the subsequent cost of the service or owning the trendy handset.
As mentioned in the terms and conditions of the offer, if the subscriber decides to exit the service, he will have to shell out Rs 8,000 in the first year; Rs 6,000 in the second year, and Rs 5,000 in the third year.
At the same time, the company plans to recover the cost of the handset through its monthly bills along with the Budget 149, which requires a minimum payment of Rs 449 by the subscriber.
According to the conditions in the offer, by paying upfront Rs 501, the subscriber is not only assuring Reliance of a monthly payment of Rs 449, but much more.
As its break-up shows, Rs 149 will be the monthly rental, including Rs 100 for free talk-time; Rs 100 for the monthly plan charge, Rs 200 will be the club membership charge.
When the club membership of Rs 200 is paid over 36 months, its cumulative amount of Rs 7,200 covers the cost of the handset, which is advertised as being given for Rs 501 with connection.
In fact, the advertisement does not reveal the actual cost compared with the company's earlier Dhirubai Ambani Pioneer Offer, in which the break-up of the installments and what they meant was clearly mentioned.
And when the subscriber uses the WLL mobile beyond the free-call limit worth Rs 100, he automatically comes under the company's existing tariff plans, which will result in paying upwards of Rs 449.
Interestingly, the Reliance handset is configured in such a way that it cannot be used with another service provider's connection.
According to another cellular operator, the subsequent bills will clearly reveal the hidden costs of the hungama campaign.
"Our experience in this business indicates that a minimum of 25 per cent return on investments is what makes it viable. The average revenue per user has to be in the range of Rs 800- Rs 1,000," the operator claimed.
While it remains to be seen how Reliance would handle these new customers on board, yet another operator feels the Ambanis may have already decided to sacrifice the bottomline at the cost of reducing the marketing expenditure.
"Even if 50 per cent of the subscribers default, Reliance would have acquired the remaining as their new customer base. The strategy also indicates that they may have decided to sacrifice a portion of their marketing spend for the coming years. At this cost, they may succeed in getting volumes despite default accounts," the operator hoped.
