The Indian Mobile Phone Industry

There I was standing in line one day to pay my mobile phone bill at India’s largest cell phone service provider and I started to wonder at the great Indian mobile phone industry. I recall the first ever cell phone call I made in 1996 which had cost me Rs. 16 then plus taxes for a minute and it had been a local call then and those were the prices. Today for that much money I could probably speak for 26 minutes at a paisa (less than a cent) per second. Which brings us to the average revenue per user or ARPU in the telecom industry terminology and we at India have the lowest in the world.arpu The graphic below shows the comparative ARPU figures for the world and the only place that is lower is Brazil – which by the way has a population of 191 million only. The country with the highest is Japan where they use their cell phones more like personal computers and where the penetration of computers compared to cell phones is in fact lower. The interesting fact is that entering 2009 there were over 105 million mobile subscribers in Japan. Though the 2G mobile telephone sector in Japan has entered a maturing market phase, the overall Japanese mobile market remains in a dynamic period of activity, especially given the evident popularity of 3G services. By 2011 it is expected that the market to would grow to 120 million connections equivalent to 93% penetration of the population, driven largely by take up from the youth and elderly consumer segments.

To get a comparative idea of where we are – as of third quarter 2009 and as per the latest press release from the TRAI (telecom regulatory authority of India – a little bit like the FCC of the USA) the number of mobile connections in India as of November 2009 is 488.4 million. The size of the market as estimated by Gartner in 2009 is  in India is projected to grow at a compound annual growth rate (CAGR) of 12.5 percent from 2009-2013 to exceed US$30 billion, according to Gartner, Inc. The India mobile subscriber base is set to exceed 771 million connections by 2013, growing at a CAGR of 14.3 percent in the same period from 452 million in 2009. This is off course down from their estimation in 2008 of $37 billion by 2012 but yes estimation is a tricky business as the one paisa per second regime has indeed brought average prices down a fair bit.

The current market has 16 players listed as below running a mix of CDMA and GSM with 3 running CDMA only networks and 12 running GSM only networks and one one player doing both the technologies. All of them do not however operate in al the ‘circles’ and some like HFCL operate only in one circle. The chart’s (from the TRAI performance indicator report) for the ARPU’s for GSM and CDMA shows that GSM is slightly higher at Rs. 205 per month while 95% of the market is in fact pre paid. The ARPU for the post paid users are off course a bit higher at Rs. 539 per user per month and this has shown a lower decline.

image

Operator Network technology
Bharti Airtel GSM
Reliance Communications CDMA & GSM
Vodafone Essar GSM
BSNL GSM
IDEA Cellular GSM
Tata Teleservices CDMA
Aircel GSM
MTNL GSM
Spice Telecom (now part of Idea Cellular) GSM
Loop Telecom (including BPL in Mumbai now rebranded Loop) GSM
HFCL Infotel CDMA
Sistema Shyam MTS CDMA
Datacom Solutions GSM
Unitech now known as Uninor with Telenor of Norway GSM
S Tel GSM
Swan Telecom now known as DB Etisalat GSM

This is indeed a pre paid market and very price sensitive with the share of incoming to outgoing at 51% to 49%. What is interesting however about this very competitive market is that everyone from NTT Docomo of Japan to Etisalat of the UAE and Telenor of Norway want a piece of it. The reasons are not hard to find because even with ARPUs at one of the lowest in the world – the EBITDA of these telecom companies with their services here are comparable to the companies from the developing world. This is due to an unique blend of outsourcing and infrastructure sharing that brings down operator costs and practices that leverage technologies that allow for on the air charging and a bevy of other techniques that can decrease operational losses significantly. To remain successful in the long term, therefore, operators will need to take advantage of economies of scale to increase their profitability. One of the key cost-saving approaches that has been growing in popularity is infrastructure sharing, and several operators are dividing their mobile base station assets into individual business units. Those units will focus on managing tower-sharing agreements with other operators so that they can expand their geographic network coverage without having to deploy more base stations. In several of these initiatives India has led the world. All new operators today have totally outsourced their network IT operations to a number of companies like IBM , Tech Mahindra and Wipro with multi million year on year deals. The prime IT applications involve components in Business Support System (BSS) and Operating Support System (OSS).

Bharti, one of the biggest players in India has invested in real-time charging systems to help reduce operational costs and decrease time to market when launching new, advanced mobile data services. The operator currently relies on a real-time charging and control system called Charge it, which is the flagship product of French-based mobile charging vendor VoluBill, in order to charge for its WAP and SMS services. The Charge It  system has successfully given Bharti more control of its operations – allowing the operator to quickly and efficiently implement sophisticated, value-based charging strategies that help to differentiate between innovative packages, bundles and promotions. Charge it uniquely delivers "on the network" mobile data charging through its ability to access customer information in real-time, and then using this information to perform real-time charging and session control. This approach cuts costs and allows the operator to use its extra time and money to grow the business while offering very competitively priced services to customers.

 

So what dos the future foretell for these innovators who have kept prices down in a very controlled regulatory environment and have yet shown profitability while continually driving prices down for the end user? The direction points to Africa for the next level of expansion and where the ARPUs and usage patterns are as low or similar to India. Bharti once again the trendsetter made an attempt to merge itself with the S. African telecom major MTN for a deal that was expected to be nearly $23 billion in size but failed ultimately.

 

That is not the last one has heard of the African ambition. Indian telecom players are surely and certainly Africa-bound. The telecom arm of Essar group recently expanded its footprint in the continent by picking up a majority stake in Warid Telecom Congo and Warid Telecom Uganda, owned by Dhabi Group of the UAE this month. Though the deal size was not disclosed, the enterprise valuation of the Uganda and Congo operations is collectively pegged at $318 million. Essar already holds a majority stake in Kenya-based Econet Wireless International (EWI). Essar Telecom Kenya, which operates through ‘yu’ brand, has 600,000 subscribers and claims to be one of the fastest growing telcos in that country.

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About Soumya
A technology enthusiast, forever enamored by all that it hath wrought and of course here is an attempt at making sense of it all and perhaps simplifying it!

3 Responses to The Indian Mobile Phone Industry

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