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Mobile operators set to target vast rural market

The subscriber base continues to grow aggressively after touching 75 m in 2005

THE IMPRESSIVE growth rate notched up by the Indian mobile telephony sector continues unabated with the telecom sector in general and mobile telephony in particular being the clear leader in 2005 in terms of mergers and acquisitions (M&A) and deals in the Indian market.

The year saw large deals like Essar Group's acquisition of BPL Communications, Vodafone's investment in Bharti-TeleVentures and Maxis group's acquisition of Aircel.

Grant Thornton India, a leader in M&A and deal advisory, has pointed out in a study that while the total value of deals in India in 2005 was $18.2 billion the telecom sector accounted for a third of this, the above three large deals in the mobile telephony space accounting for $ 3.7 billion or 20 per cent in value terms of all deals during the year.

Low revenue per user

The subscriber base continues to grow aggressively and in end-2005 touched 75 million (48 million in end-2004), according to the Cellular Operators Association of India (COAI). Kobita Desai, Principal Analyst, Gartner India, said, "The market is likely to remain crowded and will continue to see at least five players competing for market share along with the presence of some regional players. Consolidation will continue to take place."

This year, in line with the prevailing trend, the Average Revenue Per User (ARPU) for operators will continue its downward drift. Indian ARPUs are among the lowest in the world at around $9, the lowest being the Philippines at $7.2. To put things in context, average ARPUs are $40 in Australia, $42 in Korea and $10 in China.

Increased network coverage will result in higher month-on-month additions, scaling up India's mobile connection base. It is expected that revenues will grow but unit contribution will drop and operators will be under pressure to reflect profitability. Telecom operators will struggle to find a balance between yield (income, earnings and margins) and growth to fulfil these expectations.

Value-added services

There is now likely to be a significant thrust by players in offering value-added services as the dominance of voice traffic makes way for growing data traffic. "Voice revenues account for around 85 per cent of traffic while data and value-added services constitute the rest. Henceforth, the proportion will keep increasing in favour of data and value-added services," T. V. Ramachandran, Director General, COAI told The Hindu.

This year will see double digit growth with players expanding networks beyond their `circle of influence' and operators making efforts to expand the market by foraying into provincial towns and rural areas. As a result, one could witness the phenomenon of `micro pre-paids' gaining significance.

Pre-paid dominant

Currently, pre-paid users account for 77-78 per cent of users. "By end-2009, this share is likely to go up to around 88 per cent. What may change during this period is the value of recharge coupons.

"Micro pre-paids will increasingly bring down the entry barriers for customers, especially in the rural areas," said Ms. Desai. "By 2009, there will be some stability in the market and metro customers will increasingly go in for pre-paid vouchers of higher denominations."

With a larger proportion of net new connections coming from mobile networks, and mobile operators offering `one nation, one tariff' kind of long distance services, long distance traffic is likely to start migrating to mobile networks as well. This will undoubtedly put more pressure on fixed line businesses. The new telecom operators that offer both access (mobile and fixed) and long distance (Bharti, Reliance and Tatas) are advantaged since they end up carrying long distance traffic irrespective of whether it originates from their fixed or mobile networks.

"The next quantum jump in the industry will be the conversion of Access Deficit Charge (ADC), which is on a call-by-call basis, to a revenue share model," said Mr. Ramachandran. The continuation of the ADC creates anomalies that can skew the market and disadvantage mobile operators.

The COAI expects the subscriber base to go up to 125 million in 2006 and touch 200 million by December 2007.

"It is not unreasonable to expect net monthly subscriber additions to be around 4 million coming largely on the back of roll-out of services in towns and rural areas," said Mr. Ramachandran.

Ramnath Subbu

in Mumbai

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