Over the past few months the Indian wireless market entered into a new phase of severe price competition with many companies ushering in pay-per-second billing plans, compared to the earlier industry standard of charging per minute. The pricing war that began with introductory offers from Reliance Communication (RCOM) and Tata-DoCoMo in order to popularize their GSM services has now spiraled into a market share game, as the incumbents had no choice but to respond to protect their market share. In light of this, MTNL recently announced its pay-per-second plan, under which both prepaid and postpaid subscribers will have voice and video calls at rates of just ½ paisa/sec for calls made to the MTNL network and one paisa/sec for calls made to any other network across India. Furthermore MTNL introduced the lowest-in-the-industry data usage rate of 1 paisa/10KB, applicable to both its GPRS & 3G services. We believe these decisions stem from panic rather than carefully considered strategic decisions considering the company’s declining market share. Over the past nine months the company has been consistently cropping its 3G pricing in order to attract customers and has only managed to acquire 0.165 mn 3G subscribers. Going forward we do not believe these positive steps to be fruitful for boosting the company’s market share in light of MNP and 3G auctions due in FY 2010. In light of this, coupled with ever degrading Wireline revenues, we expect the decline in top-line to continue over the next two years. Conversely, considering the company’s success in suppressing the insurmountable staff costs during 2Q 10, we expect company to continue with these efforts going forward leading to positive EBITDA margin over the next two years diametrical to the negative EBITDA margin expected in our last update report.

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