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Carrier Services
Margins get thinner, but still room to grow for India’s telecom
Future hinges on market developments and government leadership
by Ek Heng, Asia-Pacific Correspondent
Living up to its status as one of the fastest growing markets globally, India’s telecom equipment industry has powered ahead, growing 20 percent to cross the US $24 billion mark for 2008. According to an annual survey by Voice&Data, a telecom industry journal in India, the country saw subscribers growing by 10 million each month last year to reach a total of 384.7 million by December 2008.
By July 2009, the country achieved a teledensity of 41 percent with a total subscriber base exceeding 479 million and a record monthly high of 15.87 million new customers registered in March. Gartner, a global research firm, projects that the number of subscribers will surge to 770 million with revenue at US$30 billion by 2013.
One of the world’s lowest tariffs
Impressive though these figures are, the combined operational data of Indian telcos show the intense competition between established players even as they contend with new players which are bent on building their customer base.
In its financial results at end March 2009, the country’s largest integrated telco with more than 100 million subscribers, Bharti Airtel disclosed that India has one of the world’s lowest mobile tariff of US 1.2 cents a minute. Yet for 2008-2009, it reported a full year revenue of INR 374.5 billion (US $7.6 billion) and net profit of INR 79 billion (US $1.6 billion) representing an increase from the previous year of 38 percent and 22 percent, respectively. The telco’s average revenue per user (ARPU) declined from INR 305 (US $6.40) at end March 2009 to INR 278 (US $5.80) by end June 2009.
Shedding further light on the situation are the blended national ARPU industry statistics for telcos on GSM and CDMA platforms. At end December 2008, the ARPU for GSM segment was INR 220 (US $4.62) and that for CDMA was INR111 (US $2.33) which by end March 2009 were reduced to INR 205 (US $4.30) and INR 99 (US $2.07), respectively. It is not unexpected, therefore, that existing telcos like Reliance Communications and Tata Televeservices have added GSM services on top of their existing CDMA operations.
Cutting costs but not corners
Pitted against the incumbents are new players, some having recently initiated services while others are due to begin services by year end. One of the recent start-ups, Sistema Shyam Teleservices, operating under the MTS brand, launched what it called its most competitive pricing with special tariff voucher for calls within India at a uniform price of 35 paise (US 0.007 cent) a minute. The telco is a joint venture between Indian’s Shyam Group and Russian’s Sistema.
Digging deep into their creative resources, telcos like Vodafone Essar have responded to launch a range of lifelong prepaid plans that include tariffs of INR 48 (US $1) to INR 149 (US $3). Available to new and existing customers, the prepaid plan allows calls on all local mobile phone for as low as 50 paise (US 0.01 cent) a minute.
Taking the route to provide value-added services is more likely to be the strategic direction of established telcos. A case in point is Reliance Communications which is reportedly going beyond ringtone or music to offer its customers a service to read a novel on their mobile phones through a series of SMS for INR 30 (US 0.06 cents).
To keep a lid on start-up costs, new players have struck infrastructure sharing deals with established telcos. Apart from Idea Cellular, Bharti Airtel and Vodafone Essar signing an infrastructure sharing deal, other similar transactions have been forged between upcoming Etisalat DB Telecom and Reliance Communications, and between new player Unitech Wireless and Tata Teleservices and Quippo Telecom Infrastructure.
Future hinges on market and government leadership
Along with market developments, the industry is looking ahead to government leadership which will have a bearing on the next phase of the telecom sector’s growth. While there have been reports that 2G spectrums are approaching full capacity in some circles and the government is still in the process of determining its 3G auction policies, U.S.-based Motorola is reportedly interested to secure spectrum in India for 4G trials for long-term evolution (LTE) which can offer up to 70 Mbps wireless download speeds for cellular phones.
Motorola’s interest is believed to stem from earlier media reports that India’s Deport of Telecommunications (DoT) was looking at the prospect of 4G technology in the country. Among other matters, the DoT is mindful of the need to allocate radio spectrum of 10 Mhz as a minimum channel size for this technology. It is understood that the 4G issue have been communicated to the empowered group of ministers making a decision on the future of telecommunications in India.
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