Updated – Jul, 2014
India is the second largest market in the world by subscription after China. Indian telecom players saw hyper growth in the 10 years preceding 2011 but now the industry is at the cross-roads now. After growing at a fast pace in the last couple of years, the subscriber addition has declined significantly and the operator revenues are not growing. The interest of foreign players is waning and some of the operators are now in the process of shutting down their operations. The article would not only give an overview of the industry but would also delve into the reasons for the decline in the fortunes of this industry. Indian telecom industry has been hailed as the proof of India’s progress post liberalization. The country actually leapfrogged to the mobile platform bypassing the fixed line. Since in India, the fixed line subscribers are not even 5% of the mobile subscriber base, in this article, I am going to talk about mobile subscribers and its market only. The country was divided into 23 circles when the mobile phones were introduced in the country. Separate licenses were given out for each of the circles in 1994. The circles were classified as Metros, A, B or C depending upon the revenue potential for the circle with Metros & A circles expected to have the highest potential. The mobile operators brought in a lot of innovations like outsourcing of networks, focus on prepaid, etc. to make the mobile services affordable to the masses. As a result, the prices declined significantly over the years and the base continued to increase. The chart below gives a good overview of the various events in the industry over the years and the impact of the events on the adoption of the services.
Till 2009, the number of operators was around 5-6 per circle which meant that there was enough competition to keep the prices down but there still some sanity in terms of profitable growth. The EBITDA levels till 2009 were almost 40%. However, in 2008, the Government issued licenses to 8 new operators taking the number of operators to 14. The only way the new operators could have got subscribers was by indulging in tariff wars and hence the tariff wars lead to sharp decline in rate per minute. The minutes of usage per customer did not increase with the falling rates so the overall revenues stagnated despite significant increase in subscriber additions. The new subscribers were from lower income groups who used the phone more as an incoming device bringing down the ARPU levels. The following table lists the current telecom circles and the mobile subscriber base in each of them:
The above subscriber numbers are highly inflated by the operators as they vie for market share and spectrum. The real or active subscription levels are just 87% of the above reported numbers (as per May‘14). Interesting analysis on the real subscriber base in India can be read at Ghost Mobile Subscribers in India.
There are wide variations in the ratio of active subscribers to the reported subscribers. The old GSM players like Airtel, Idea and Vodafone have relatively clean operations while the new operators and the CDMA players are struggling to keep their subscribers active. The best of the lot is Idea with over 98% active base while the worst are Loop and MTNL. Please note that the active subscribers have been calculated using VLR (Visitor Location Registry) as a proxy. Visitor Location Register (VLR) is a database – part of the GSM mobile phone system – which stores information about all the mobiles that are currently under the jurisdiction of the MSC (Mobile Switching Center) which it serves. This means that a subscriber cannot be present in more than one VLR at a time and hence can be used as a proxy for active subscriber base. The table below shows the wide variations across operators in terms of active subscriber proportion.
The high inactive base of the operators got reflected in the ARPU and the MoU/sub and now that the high inactive base is becoming unsustainable due to cost of the SIMs, the operators have started to control the gross additions. They have started to focus on quality subscribers and this has resulted in some operators purging the inactive base partially (e.g. Tata in Dec’11) and now all the operators are reporting lower net additions so that the subscriber acquisition cost can be controlled. By industry estimates, the monthly gross additions were roughly about 50 million to give net additions of 15 million (net of churn). Even at $2 subscriber acquisition cost (including SIM cost), the monthly expenditure for the operators is around $100 million. This high cost of acquisition was unsustainable and hence the operators are thankfully now doing fewer subscriber additions. The monthly subscriber additions have come down from 18-20 million per month in 2011 beginning to 5-6 million now. As the operators focus on revenue earning subscribers, they are removing the inactive subscribers leading to slow down in subscriber additions and higher ARPU. The tables below give a snapshot of the key indicators for GSM and CDMA:
Table 4: Key indicators – GSM
Table 5: Key operator indicators – CDMA
There are many innovations that have helped reduced the cost of ownership of mobile phones. The figure alongside (click to see the bigger picture) is a snapshot of how the subscriber base increased as the tariffs reduced due to innovations and government interventions. India is the now the second largest market in terms of mobile subscriber base after China but still it is at real teledensity of less than 50% and adding 8-10 million new subscribers every month.The Indian Telecom market is the most competitive with over 11 operators in each circle. Nowhere in the world does any country have so many carriers. The dominant players are Airtel, Reliance, Vodafone, BSNL (state owned), Idea and Tata. Reliance and Tata offer both GSM & CDMA technology while all the other players are in the GSM space. GSM has a 91% share of subscribers. Shyam-Siestema is the only player in pure CDMA services while all the new operators are in the lucrative GSM space. The adjoining figure gives the market shares of the operators in India. It is a fragmented market with the biggest operator (Airtel) garnering only 20% share.
ARPU (Average Revenue per User)
India is a predominantly prepaid market (96% of all subscribers are on prepaid) with low ARPU and high minutes of usage(MoU).The GSM ARPU is Rs 112 (~ USD 1.9) per month with a usage of 379 minutes per month in the quarter ending Dec, 2013. Similarly, CDMA ARPU stood at Rs 104 (~USD 1.7) with a usage of 271 minutes per month. There is a wide disparity in the rural and urban teledensity with rural teledensity at 42% vs. urban teledensity of around 139%. The chart below gives the progressive tele-density (Wireless) in rural and urban areas.
As of Dec-13, the rural tele density is 41.95% with a subscriber of 360 million compared to 139% tele density in Urban with 527 million subscriber base.
Salient Features of the New Telecom Policy:
Last year, after the court cases on the former telecom minister (A. Raja), the new minister announced intention to announce new telecom policy to bring transparency and policy clarity in the industry. Currently, the new telecom policy is under discussion and is expected to come into force by the end of the year. The key features of the new telecom policy are as follows:
1. Uniform license fee at 8% vs. currently 8-12% depending on the category of circle
2. M&A rules diluted with cap on mkt share (AGR/Sub) set at 35% (awaiting TRAI’s recommendations when merged entity has between 35-60% shr) and total spectrum which can be held has been capped at 25% of the overall assigned
3. Cutting down on the Myriad of Licenses and moving towards a single national license and tariff : One Nation-One License, One Nation-Free Roaming
4. Big focus on Broadband – Broadband on Demand by 2015 with targets set at 175 million broadband connections by 2017 and 600 million by 2020 at a minimum speed of 2 Mbps and on demand upto 100 Mbps The policy is still silent on key issues like spectrum refarming, excess spectrum charges and bringing the tower companies under licensing. However, the industry would be happy with the clarity it is likely to bring.
(All the data is sourced from COAI, AUSPI and TRAI which are the leading industry associations and regulatory bodies)
Resources on India Telecom Industry
1. India Subscriber Database – Circle-wise, operator-wise from year 2000 onwards (updated till May’14)
2. Presentation on India Telecom Market
3. Download the latest TRAI Performance Indicator Report – Dec-13 to access key telecom indicators (Released in Ap’14)
4. Case study on How Indian Carriers make 40% EBIDTA margins at 2 cents a minute
5. Report (based on actual numbers) on Internet Usage in India – Comviva India Mobile Internet Study
6. PwC Report on Indian Telecom Market Slowdown The Indian Mobile Services Sector-Struggling to Maintain Sustainable Growth (Released in Aug’11)
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