India Telecom

February 18, 2004
Mobile telephony to hit 56 million mark in 2004

Geetanjali Wadhwa & Pradeep Chakraborty

NEW DELHI -- The year 2004 will likely break all growth records in the Indian mobile telephony. According to Gartner's report, provisional forecasts suggest that mobile connections will likely reach 56 million by the end of 2004, representing a 96 percent growth over the current year. The unified licensing regime that legitimised CDMA WLL (M) services and led to an unparalleled growth in the CDMA segment, accelerated this pace of growth.

The availability of a range of attractive new handsets focusing the low-tier market spurred the growth of GSM. The efforts made by some major handset vendors during the past 18 months for regularising the distribution channels and scale down black-market activity attributed to the relatively stable situation in GSM. The volatility in the Indian cellular market will likely continue for next 18 months, as the main players carve future positions and attempt to establish niche positions. Though cellular penetration is low in India at 2.7 percent, it is likely to cross 10 percent by 2008.

The Indian cellular subscriber base stood at 29.77 million at the end of January 2004. As per the latest statistics released by the operators' bodies, the COAI and the ABTO, while the aggregate GSM cellular subscriber base stood at 23.36 million, the CDMA subscriber base (excluding BSNL and MTNL) was 6.41 million.

GSM Subscriber Base (As of Jan. 2004)

(Source: Cellular Operators' Association of India)

Among individual operators, Reliance Infocomm had a subscriber base of 6.453 million (5.749 million in CDMA and 0.704 million in GSM), followed by Bharti with 5.862 million (GSM), BSNL 4.89 million (GSM), Hutch 4.461 million (GSM) and IDEA Cellular 2.444 million (GSM).

However, according to published reports, the ARPU of GSM operators is steadily declining due to a sharp fall in tariffs. As per the financial details of all cellular operators submitted to the TRAI, the ARPU declined by 5.67 percent to Rs. 479.15 as against Rs. 507.97 in the previous quarter. The revenues increased to Rs. 2,219.57 crore from Rs. 1,951.77 crore, a 13.72 percent increase during the third quarter of the current fiscal. The top three GSM players, Bharti, Hutch and IDEA, registered revenues of Rs. 858 crore, Rs. 636.66 crore and Rs 280.66 crore, respectively, compared to Rs. 573.10 crore, Rs. 536.91 crore and Rs. 240.52 crore, respectively. This trend of declining ARPUs and increasing revenues is purely because of the rising subscriber base. With more customers going mobile, they are spending less on talk time. However, the subscriber base expanded, leading to revenue increase for the operators.

Prepaid is order of the day
Commenting on the current rate of growth, Umang Das, president, strategy and industry, Spice Communications Ltd., said: "The current rate of growth throughout India has been 1.5-2 million subscribers per month. With 75-80 percent of new subscribers opting for prepaid services, the trend is heavily in its favor." Prepaid will win out due to payment convenience, marginalising postpaid. In addition, with Reliance Infocomm having joined the prepaid bandwagon on February 9, operators are all set to jump into a price war in the coming months. Tata Indicom, the other private CDMA player, is preparing to launch its prepaid service as well. According to Industry sources, the prepaid-postpaid ratio could well be 90:10 soon, a trend visible in countries such as Italy and Spain.

Prakash Bajpai, president, Reliance Infocomm, and newly elected president of ABTO, henceforth, to be known as the Association of Unified Telecom Service Providers of India, noted: "The unified license has changed the license raj. This regime will act as a stepping stone toward convergence." The government of India recently merged all licensing procedures for basic and cellular services into a unified license for offering these services in the country. The license also legalised the limited mobility CDMA service offered by Reliance, Tata, etc., into a full-blown CDMA service.

Tarun Singhal, managing director, AIRCOM India & SAARC, added: "Most mobile operators are offering variety of value-added services. The young generation has shown great affinity to new ringtones, picture messages, SMS chat, dating, etc."

Spectrum issue needs sorting out
Noting that around 50 percent of Reliance's new subscribers last year were first-time users, Bajpai and Das said that the spectrum issue, particularly, needs sorting out. "We will need more spectrum to service the industry. Earlier, spectrum allocation was tied to the SDCA (short-distance charging area) in case of the CDMA operators. Now, this is no longer applicable."

The COAI pointed out in its study of 114 operators in 31 countries that the average spectrum allocated per operator is around 2x17MHz. As per COAI, spectrum allocation is far below international norms in India -- 6.2MHz vs 17.1MHz. In addition, Indian operators pay between 100-200 times more than their Chinese counterparts for the right to use one-third of the same resource. However, all of that should change as and when the TRAI releases the long awaited consultation paper on spectrum.

Mobile data in nascent stage
Bajpai added: "Going forward, mobile data and multimedia applications will require more spectrum. We already have 3G infrastructure, and it has a set migration path. The size of spectrum required by CDMA operators is identical to what GSM operators require." There are no plans from any operator, as of now, to roll out 3G networks. "If we get the necessary spectrum, we can introduce mobile data services such as mobile payment, mobile ATM, reservation, entertainment, etc."

The Indian mobile data services market is in a nascent stage, and hardly any figures are available on mobile data usage. Nor have subscribers indicated an inclination for such services. However, S. Ramakrishnan, managing director, TTSL, pointed out, "Applications that can be offered include video streaming, e-money, etc." Anil Prakash, industry analyst and secretary general, Telecom Users¹ Group (TUG) of India, noted: "We are not a mature market. Therefore, there aren't many mobile data services. Wireless Internet is in a nascent stage."

Singhal at AIRCOM noted that besides offering new services, it is becoming important for the operators to enhance the quality of basic services, better customer care services, network expansion, network improvement, faster and easier roaming services, and engaging mobile Internet services, increase in dealership, etc. According to him, operators have long focused on marketing their offerings to highly segmented groups, although the success of their campaigns to lure and keep customers is still up for debate. The operators who are more empathetic to the subscribers evolving requirements, and adjust their offerings accordingly, will benefit.

Prakash added that mobile chat is popular, as are SMS-based cricket scores, while gaming is catching on to some extent. Downloading music and ringtones are immensely popular on GSM phones. CDMA operators have started offering such services.

According to Spice Telecom's Das, mobile data services and mobile Internet will likely be the major growth areas. "The entry of CDMA has spurred some growth in mobile data services and wireless Internet access. However, there has been some uptake of GPRS, the usage of mobile data and wireless Internet has been moderate. MMS is in a nascent stage, though nearly all of the leading handset vendors are offering camera phones."

New smartphones and entertainment devices are likely to fuel growth in mobile data services. Applications such as mobile gaming, email, entertainment and MMS will be the likely drivers of this growth in the coming year. Singhal thinks mobile Internet will likely take off in India by 2005, when GPRS is fully deployed and the speed of data transfers will be increased from current technologies like CDMA. However, India might have to wait for a while before witnessing exponential growth in the segment.

Churn remains major issue
Das further added that customer retention is emerging as a major issue and there will be lot of pressure on the operators. The industry is already witnessing a 2-3 percent churn per month. Quality of service, coverage and affordability of service will help the operators retain customers. With nearly 80 percent of current GSM subscribers on prepaid, the entry of Reliance will add to the churn with several users already having shown signs of migrating to CDMA. The reason: slightly lower tariffs and, of course, cheaper handsets. However, Bharti is confident of moving up to 12 million subscribers this year, from 6.5 million.

According to TUG's Prakash, the churn is taking place more within the prepaid segment, as it is easy for subscribers to migrate to another network that offers lower voice tariffs. The introduction of LNP (local number portability) will see a further rise in such movements. As of date, there is no proven tactic to hold back churn. However, most operators have loyalty schemes in postpaid.