Mobile industry has been the showcase of Indian growth story in the post liberalization era. In 2010, it added close to 20 million subscribers per month which is more than population of over 150 countries. There are claims that this hyper growth is due to the intense competition among operators. However, it is now clear that the mobile growth story is not as rosy as what it has been made out to be. Hyper competition has lead to over-reporting of subscriber base by not declaring the subscriber churn. On top of this, the tariff war has lead to significant multi-SIM ownership. This means that the real subscriber base is much lower than the reported subscription base. In my estimates, the real subscriber base is just a little over 500 mn (vs. 858 million reported base as on 31st July, 2011).
TRAI (Telecom Regulatory Authority of India) started to report the active subscriber base based on VLR (Visitor Location Registry) since September last year. This move was necessitated due to the existence of ghost subscribers and TRAI wants to allocate spectrum based on the actual subscribers. VLR is a temporary database of subscribers who are connected to the network at any given point of time. Since each base station in the network is served by one VLR, a subscriber cannot be present in more than one VLR at a time unless he is using multiple handsets or dual SIM handsets. If we assume that number of in-roamers are equal to out-roamers, then it is same to assume that VLR should be an accurate measure of active base in a service network. TRAI reported 602 million subscribers as per VLR in July, 2011 which is only 70% of the reported base. The movement of reported base and the VLR base is in the chart below:
The 602 million VLR base reported by TRAI is an over projection as instead of taking the VLR data at a given point of time, they have given the liberty to the operators to report the highest VLR base in the month. This leads to two types of issues
The churn is not taken into account accurately. If I am customer on Airtel network for 10 days in a month and then shifted to Tata for the rest of the month, there is a possibility of double counting
Mulitple SIM owners are counted twice as they are likely to use all their SIMs at least one a month
As per Juxtconsult survey, the total number of unique subscribers in India are 407 million (Click here to download Snapshot-Juxt-India-Mobile-2011 report). This number looks low to me given the inherent issues with consumer surveys of this size. I would recon that the real unique subscriber base is somewhere in between 407 and 602 million or in other words it is a little over 500 million. I tried to triangulate the 500 million subscriber base with other available data points like handset market size, ARPU, etc. and this number looks like close to the reality.
However, I am optimistic that the some sanity would soon prevail in the Indian market. One of the executives, who refused to be named, from the operator mentioned that the monthly churn rates have shot-up to 5-8% and for some operators, it is well into double digits. At 6% monthly churn on reported base, the absolute monthly churn comes to 50-55 million. This means that to do 10 million of net additions, the operators are doing 60-65 million gross additions. This level of gross addition is unsustainable as @ $3 customer acquisition cost per customer, the industry spends over $200 million every month in customer acquisition alone plus the cost of the SIMs. Normalcy seems to be returning to the market as we have seen the reported subscriber additions declining to 7 million in July from a peak of 20 million in December last year. I have been told by operator sources that the real subscriber additions have not declined and are stable at 5-6 million per month between December and July. It is just that the operators have reduced their gross additions to control costs and have started to report numbers closer to reality.
The real subscriber base is ~500 million and rest all are ghost subscribers. This means that the real mobile penetration is still below 50% and not 72% as reported by telecom operators and the real ARPU is closer to Rs 150 (~$3) than the reported ARPU of Rs 100 (~$2).
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Mohit is a telecom professional with rich experience over 15 years. His expertise is in the area of strategy and planning and his work experience includes stints with two of Big 5 consulting organizations, a telecom operator and a handset vendor. Mohit can be reached at email@example.com