Objective
The motive is to understand the Indian telecom market requirements in terms of infrastructure and services. This report will investigate what challenges it faces, what kind of solutions is viable for it and some future trends.
Trends
The trend in telecom growth market of India is exponential and it is increasing by leaps and bounds. There are about 184 million mobile GSM users in India [1]. There are about other 60 million CDMA phone users [2] and nearly 39.18 million fixed telephone users[4] adding the number making a total of 290 million users[3].
Source: COAI
Within a week, India will replace US, the second largest wireless network market after China. We have also noticed a decline in fixed telephone subscribers from 49 million [5] to 39 million from Jan 2006 to Feb 2008.
The total number of telephone connections hit 290.11 million at the end of February 2008 as compared to 281.62 million in January 2008, taking the overall teledensity to 25.31% at the end of February 2008 as against 24.63% in January 2008[4].
We’ve also noticed a decline in SMS revenues by 10% which is a good signature of ARPU. An interesting trend which can’t be ignored in monthly increase in number of GSM subscribers witnesses a drop in March every year. The only possible reason I can think is Fiscal Budget which forces customers to switch plans and spend frugally.
When major players of Indian telecom market are compared, Bharti Telecom clearly comes out as clear leader followed by Reliance leading Vodafone Essar marginally.
Source: TRAI Press Release Feb 2008
Low ARPU, Low Quality, Increasing user base, High AMPU
Retaining the customer satisfaction would be a difficult task. A recent survey shows only three players show the positive trend in customer satisfaction and are able to satisfy TRAI norms [6]. BPL, MTNL and Aircel out of which, Aircel is the only major player with 10 million users.
However, in metros, where the ARPU is generally more, Bharti Airtel performs better, satisfying nearly 91.5% of its customers [6]. MTNL, which is a one of the major player in Metros, has witnessed a higher ARPU, though their customer base has been hit badly in Delhi [8]. Retaining customer with higher ARPU is the key to high-ARPU story of MTNL. It must be noted that MTNL was the first telecom player to start IPTV service.
ARPU of major telecom players are less than 10$ and has declined in recent past. Sometimes, ARPU can be misleading in deciding the profits made. It has been found that telcos are increasing margins despite low ARPU by expending less on every user. Average Margin per user or AMPU can be either negative or positive and, therefore, low-ARPU need not preclude a positive AMPU. Greater the AMPU, the greater the profit and the enhancement of shareholder value. [7]
But when the market saturates, ARPU will again re-appear in statistics. The customer will demand better quality in service and overall satisfaction. With increasing GDP and expenditure power, the customer will move to the service provider who provides the best ‘quality of service’. Marginalizing the quality to generate more AMPU will be unconstructive and will have a negative impact in overall revenue.
International players
With the entry of International players, it is expected that quality and user satisfaction will go up. Major global players like Vodafone and Virgin has already made foray in Indian telecom market by either purchasing stake in existing telecom players or by clubbing with them.
When AT & T sold 1/3rd stake of Idea Mobile in 2005, India was a small market but now it is clearly evident it was a bad decision. Today, Indian telecom market has an increasing user base and with it, there is a chance of making a big fortune.
Predictions
If the growth momentum is expected to continue, there will be four players to cross 50 million by the end of 2008. The annual growth of these companies would be around 20-30%. Bharti Airtel shall rule the roost with 86 million subscribers by the end of Nov, 2008.
Since all major players are now engaged in increasing customer base and providing new value-added service to their customers; sooner or later, the market will stagnate. As per calculations, the market will start stagnating by the end of 2010. In 2009, 190 million new subscribers will be added in 2010; 230 million subscribers will be added. At the end of 2010, India shall have a customer base of 730 million for wireless phone. After that, the momentum of growth will fall rapidly as mobile customers will reach nearly to 80% of subscribers who are above poverty line. Then, subscriber growth rate will be 4% or 5% above the population growth rate of India, i.e. 6% to 7% annually.
From beginning of 2010, telecom companies would be providing 3G services in Tier-II and Tier-III cities. By the end of 2010, 4G shall be available in Tier-I or metro cities.With the increase in various kind of services, a myriad combinations of various services packaged into various offers will be provided to customers.
Indian telecom companies would require new wireless technologies like WiMAX and MIMO to serve their urban tech-savvy customers. EDGE and 3G might not satisfy them. Companies like DoCoMo, Sprint and AT&T might enter into Indian telecom market.
Advance billing applications which can cater to demands and requirements of various customers would be required.
After mid-2010s, we shall witness consolidation in Telecom industries to increase subscriber base. Various content-based services will become popular which will eventually lead to increase in ARPU as well.
Demographics
Population of India by 2010: 1.2 billion
People in Metros: 100 million
Will access 4G services with various content services. ARPU will rise substantially. Triple-play will be in vogue.
People in Tier-II or Tier-III cities: 400 million
Will access 3G services with various content services. ARPU is likely to rise substantially. Triple play will appear.
Any company who is in telecom domain and provides infrastructure and services to Telcos should chalk out their strategies by the end of mid-2008. All major Telcos are spending huge chunks of money in building undersea cables, expanding their network coverage to distant and remote areas where fixed –line will never reach , and announcing their intentions of triple-play or quadruple-play, which is currently being hampered by sluggish regulatory proceedings.
Where Major Telco stand in Indian Telecom Market
Bharti Airtel
Bharti Airtel is clearly a customer which will have a huge appetite. Bharti Airtel has already clubbed with BlackBerry to provide their urban customers, a plethora of data services. It has also planned to invest in 3.5billion $ in network expansion. However, ARPU was as low as 406 Rs at Mar 2007. Nearly, 80% of customers or more uses Airtel’s prepaid services. So, ARPU is going to be low for quite a sometime. With the revenue of 4.47 Billion$[13] and highest wireless subscriber base, Airtel is destined to be the leader in wireless segment.
Reliance Telecom
Reliance Telecom is a part of Reliance-ADAG group, which is one of the largest companies in India. It also ventures into other sectors like Energy, Capital and Insurance. Reliance Infocomm have fiber-optic backbone of 60,000 km [11]. Further, it is the largest CDMA player and much better positioned than Airtel to provide 3G and 4G services. Recently, Reliance announced its intention to launch IPTV by this year[12]. With the revenue of 4 billion US $ and above-average ARPU, Reliance Telecom in the long run will have higher revenue than Bharti Airtel.
Vodafone Essar
Vodafone, a telco giant of Europe purchased Hutchisson Whampoa shares in Hutch Essar. Hutch was an established brand name with “catchy” emotional advertisements and served urban customers. However, Vodafone has decided to expand it everywhere. Vodafone, Airtel and idea joined hands to share towers. Essar, also a shipping and petroleum company has a major role in developing the idea of “tower sharing”. [10]
Idea Cellular
Idea is majorly targeting post-paid connections. Idea Cellular is set to extend its network to cover 3,000 towns and 30,000 villages in the country by the end of the year. It will be investing 2 billion $ in infrastructure alone by the end of this year. Idea cellular is a part of Indian giant, Aditya Birla Group. This group is one of the oldest business houses in India and deals in almost everything u can imagine from cement, textile, metals to insurance, finance with overall revenue more than 24 billion $. Surely, it has a huge backing and cannot be ruled out as a major player.
Tata Indicom
Though Tata is now known worldwide for innovative 1 Rs. Lakh car, but Tata also deals in telecom. Again, Tata is one of the big business houses in India. Tata is seriously trying to push its ARPU. Recently, it rolled out plans to pay customers if they are not satisfied with quality of service. It joined hands with Virgin Mobile which will completely change the dynamics of the market. It is already far-ahead than the rest of the companies for triple-play with Tata Sky, the biggest DTH service provider. Tata has everything to build a biggest telecom network from Steel for towers to billing software from TCS, India’s largest software company. VSNL, a subsidiary purchased from the government saw an increase in revenue by staggering 84% to nearly 2.2 Billion US $[13].
BSNL, MTNL, a.k.a Indian Government
Yes, Indian government with its public sector enterprise is the backbone of Indian telecom industry. BSNL subscriber’s figure when added with fixed landline figures add up to whopping 64.8 million customers back in March 2007. However, BSNL is losing the lead in urban areas. MTNL revenues declined by 11.5%[13]. BSNL’s current strategy is to increase its broadband customers by leaps and bounds. 2 MB/s broadband service is being provided by BSNL at a cost of just US$ 5.5 per month. The revenue of BSNL is about 9.7 Billion US $[13]. It also launched an online gaming service to cash on the rising craze of online gaming. BSNL is the chief telecom provider in rural areas. BSNL actions, though appears to be philanthropic rather than profit making, BSNL is clearly set to be the biggest telecom player and will make mad cash with its broadband service. It will have a monopoly in data services almost impossible to break by any telecom giant.
References
- www.coai.org
- http://www.reuters.com/article/rbssTechMediaTelecomNews/idUSBOM11286720080317
- http://www.domain-b.com/industry/telecom/20080325_biggest_telecom.html&cid=0&usg=AFrqEzdGTA07DOakXqCQGU3vExFycDsvVA
- http://timesofindia.indiatimes.com/India_to_be_2nd_largest_in_mobile_subscribers/articleshow/2896445.cms
- http://www.neoncarrot.co.uk/h_aboutindia/india_telecom_stats.html#fixed_line
- http://voicendata.ciol.com/content/top_stories/108040201.asp
- http://www.idrc.ca/en/ev-118647-201-1-DO_TOPIC.html
- http://www.cellular-news.com/story/25297.php
- www.trai.gov.in
- http://economictimes.indiatimes.com/News/News_By_Industry/GTL_Essar_set_to_merge_tower_business/articleshow/2936383.cms
- http://en.wikipedia.org/wiki/Reliance_Communications
- http://www.cxotoday.com/India/Tech_Insight/The_Future_of_Television/551-87871-1008.html
- http://www.cybermedia.co.in/press/pressrelease48.html