Exhibit 2
The Indian Telcos kept adding 20 million subscribers every quarter of 2008. However, more and more "bottom of the pyramid" numbers have taken a toll on the ARPU. COAI figures on ARPU show that for the Q3, 2008, the ARPU stood at $5.5 per user (GSM). The ARPU for CDMA users was less than $5. The ARPU has been sinking at 10% every year (2005 - 2008 base - Refer to Exhibit 2). Given that the growth rate of mobility has been over 50% per year, the shrinkage has not hurt the Telcos as much. (Not Yet!). Add to that, policy decisions, which have made it possible for Telcos to share infrastructure which hence reduces Capex incurred by the Telcos.
However, growth over 2008 - 2013 is expected to slow down to about 25% CAGR. If ARPUs keep dropping at this levels, TELCO margins could come under a lot of pressure.
Mobile number portability is certain to see the light of the day in mid 2009. Markets where MNP has been implemented had initially seen huge churn in their customer bases. It is expected that the rates would be between 25 - 50% for the Telcos. Most of the consumers who would churn out would be the High and Mid ARPU consumers looking for better service. These consumers are critical to profitability figures. 9% of consumers bring in 29% of revenues and 45% of the margins. (Exhibit 1) That would be a very big chunk to loose with deep impact on the profitabilities.
Finally, there are lot of other players who would enter into the market. Reliance is already aggressive in its GSM roll outs. Then there are international players such as Etisalat and Telenor who are putting things in place for their Indian foray. This combined with MNP would directly impact in terrms of erosion of market shares held by the incumbents.
So far, not much has been seen interms of Telco activity to stand upto this challenge. It will be a hard fought battle as it begins sometime this year.
