Indian Telecom Market

Market Penetration
Every one in four Indians has a phone now, thanks to the scorching pace at which the burgeoning telecom services sector grew in the last fiscal, says an annual survey. With the total wireless subscriber base crossing 261 million as on March 31, wireless connectivity forms 22 percent of the total tele-density at 25 percent across the country, the survey adds. The annual survey by Voice and Data of CyberMedia group revealed that the Indian telecom subscriber base zoomed by 66 percent year-on-year (YoY) in the fiscal under review over the previous year.

"A booming economy, easing of entry barriers and lowering of tariffs fuelled the growth in FY 2008, with 104 million new subscribers getting connected and making India the second fastest growing telecom market in the world," CyberMedia publisher Prasanto K. Roy said Tuesday, citing the survey findings. The trigger for rapid telecom service growth was the revolutionary telecom policies of the present United Progressive Alliance (UPA) and the previous National Democratic Alliance (NDA) governments, resulting in affordable connectivity to a common man.

""With India's telecom tariffs still the lowest in the world, there's enormous and sustained growth beyond the metros. So telcos see huge opportunity in the three-fourths of Indians still untouched by the mobile phone revolution," Roy noted. Thriving in the growing market, the Indian telecom services industry generated Rs.1,306 billion ($31 billion) in 2007-08, registering 21.3 percent growth. Mobile, fixed line, national long distance (NLD), ILD, broadband, VSAT (very small aperture terminal) and radio-trunking constitute the telecom services industry. Growing at 36.4 percent YoY, revenue from mobile service increased to Rs. 766 billion from Rs. 562 billion in the previous fiscal (FY 2007).

Majority of new mobile subscribers is from towns and villages with less than 200,000 population. The mobile network covers about 50 percent of the 600,000 towns and villages across the country. The top five service providers vie for a larger share of the growing telecom pie. State-run BSNL (Bharat Sanchar Nigam Ltd) leads the pack with Rs.353 billion despite 12 percent decline from the previous fiscal," Roy pointed out.

BSNL is followed by Bharti Airtel, with Rs.264 billion, Reliance Communications Rs.186 billion and Vodafone Rs.155 billion, respectively. The top five operators based on cellular subscriber base are Bharti (62 million), Reliance (46 million), Vodafone (44 million), BSNL (41 million) and Idea cellular (24 million).

Prospects (Source: Gartner)
Total cellular services revenue in India is projected to grow at a compound annual growth rate (CAGR) of 18 percent from 2008-2012 to exceed US$37 billion, according to Gartner, Inc. The India mobile subscriber base is set to exceed 737 million connections by 2012 growing at a CAGR of 21 percent in the same period. This growth is poised to continue through the forecast period, and India is expected to remain the world’s second largest wireless market after China in terms of mobile connections.

“The growth in the mobile subscriber base is on the back of a rapidly proliferating rural market, lower handset costs, and low tariff rates in the Indian market,” said Madhusudan Gupta, senior research analyst at Gartner. “Rural telephony will continue to trigger growth and is expected to grow fourfold during the forecast period. Call rates have further dropped to about 1.5 cents per minute narrowing the gap with fixed-line rates. These factors along with an increasing competitive landscape will fuel market growth and encourage the adoption of wireless services in the rural and semi urban provinces of India.”

Cellular market penetration is projected to increase from 19.8 percent in 2007 to 60.7 percent in 2012. Gartner analysts said this growth could be primarily attributed to the increasing focus on the rural market, local consumer durable and electronic companies entering the domestic mobile handset segment, and lower handset prices. Vendors will continue to focus on sub-25$ handsets to capture market share.

The Indian mobile connection market continues to be dominated by prepaid subscribers. Prepaid connections accounted for more than 89 percent of all mobile connections in 2007 and are expected to grow to more than 92 percent of the connection base by 2012. The total services revenue for prepaid connections is expected to grow at 18.9 percent CAGR for the period 2008 - 2012 and the total services revenue for postpaid connections is expected to grow at 15 percent CAGR during the same forecast period. By 2012, the prepaid subscriber base will cross 683 million and postpaid subscriber base will exceed 53 million subscribers. The churn rate in India is 41.0 percent (2008), and despite a maturing market the ratio is expected to go up to 49 percent in 2012.

Revenues – Data revenues driving growth
The revenues from data services will significantly contribute to the growth of overall cellular services revenue in India, with a CAGR of 26.3 percent in the forecast period.

Prepaid subscribers are expected to adopt data services faster than the post-paid segment. Data revenues for the prepaid segment are projected to grow at 29 percent CAGR during the forecast period as compared to 22 percent CAGR for the post paid subscribers during the same period.

The bulk of the revenues will continue to come from voice revenues. However, with the increased growth in data services, the percentage of revenues coming from voice will reduce from 89 percent in 2007 to 85 percent in 2012.

Expected changes in the Indian Telecom landscape
According to Gartner, the industry will witness several changes in the coming year that could revolutionize the face of the telecom industry with the introduction of new technologies such as WiMAX, 3G and Mobile Number Portability (MNP). India will move to its next phase of evolution with the commercial launch of WiMAX by 1Q09 and 3G by 2Q09. With the introduction of MNP in 2008, churn rates are not expected to rise significantly, as India continues to be a prepaid dominated market.

“The Indian wireless market is a vibrant, price-sensitive and high-growth market,” Mr. Gupta said. “With 14 telecom service operators already present and another two set to join, the Indian telecom industry is expected to see some level of M&A activity in 2009. Given the high level of competition and anticipated consolidation, different business models will emerge that could push tariffs further down, with Indian mobile service consumers set to emerge as the biggest beneficiaries.”

Rural India will wrest 40 percent of new telecom market
India's rural telecom connectivity is poised for explosive growth in the next five to 10 years, grabbing a 40 percent share of the new market, a study released in July 08 said. "Of the estimated new 250 million Indian wireless users, in next 5-10 years approximately 100 million will be from rural areas," said the study by the Federation of Indian Chambers of Commerce and Industry (Ficci) and Ernst and Young.

The paper said operators have demonstrated they can achieve profitability by reducing fixed costs, controlling variable costs and carefully tailoring services to the requirements of their customers. A similar model with minor customization could be emulated in the rural areas, it said. The government will likely phase out the Access Deficit Charge (ADC) - a levy imposed on private players in rural areas - and roll out new incentives for mobile networks in rural India, the report said. Passive infrastructure sharing and spectrum hoarding cess on defaulter operators who fail to meet their roll-out obligations are illustrations of proactive government initiative, it observed.

"Erecting wireless telecom towers in India's tough rural terrain is still expensive and logistically challenging, reinforcing the desirability of sharing," the paper said. The paper also noted that the ultra-low cost handset of approximately Rs.840 ($20) to the market with built-in subsidies, lifetime validity and minimal maintenance costs have promoted mobile usage in remote areas. Moreover, operators could learn from business models that have been experimented across the developing world for expanding rural connectivity.

Source: Moneycontrol.com, Silicon India and IANS