Indian Telecom Story (Part XVII): Inching to 500 million subscribers by September 2009

Indian mobile operators added 15.1 million users in August 2009, their second-highest monthly performance ever after 15.6 million that was recorded in March 2009. India had 456.7 million mobile subscribers at the end of August, data released by the Telecom Regulatory Authority of India (TRAI) showed, meaning about 40 percent of India's billion-plus population now has a phone. Total telecom subscriber base increased to 494.17 million at the end of July from 479.07 million a month before.

Tata Teleservices with its Tata CDMA and TATA DoCoMo GSM services recorded the largest number of net subscriber additions. New tariff plans such as per-second billing introduced for GSM customers helped it add a highest-ever 3.4 million subscribers in August.

Bharti Airtel, India's top mobile operator, added 2.8 million users in August to take its base to 108 million. Second-ranked Reliance Communications added 2.1 million to increase its base to 84.1 million.

No. 3 Vodafone Essar, controlled by Vodafone Plc, signed up 2.2 million customers to have 80.9 million.State-run Bharat Sanchar Nigam Ltd, the fourth-largest mobile firm, signed up 1.3 million to reach 57.3 million, while fifth-ranked Idea Cellular gained 1.5 million to cross 50 million.

Ref: http://in.reuters.com/article/businessNews/idINIndia-42657320090923?feedType=RSS&feedName=businessNews

http://www.siliconindia.com/shownews/Indias_telecom_subscriber_base_crosses_479_Million-nid-60534.html

Indian Telecom Story (Part XVI): Net GSM Subscriber addition (July 2009) is 14.39 mln.

The pace of growth of Indian Telecom Industry is any where fom abetting. Its infact kicking up pace as evident from the July 2009 figures of subscriber additions.

Indian mobile telephone operators added 14.38 million users in July, the fastest pace in four months in the world’s quickest-growing wireless market, data showed on Thursday.

India had 441.7 million cell phone users at the end of July, the Telecom Regulatory Authority of India said in a statement. It is the second-largest mobile market in the world after China.
July’s subscriber additions by Indian firms were the biggest since March, when they had signed a record 15.64 million users. They added 12.03 million users in June.

Sector leader Bharti Airtel added 2.8 million users in July to take its base to 105.2 million. Second-ranked Reliance Communications added 2.4 million customers to increase its base to 82 million.

Vodafone Essar, controlled by Vodafone Plc, signed up 2.2 million customers and had 78.7 million users at end-July.

Indian Telecom Story (Part XV): Net operating margins at Risk

An extension of an earlier post, which has discussed the problem of reducing operating margins for Telecom Operators in India in the of falling ARPUs and high operating expenditures; this post profiles the predicament for Airtel. If Airtel being such an established player in the market is facing a crunch in its operating margins, the performances of other marginal players and new comers could be under serious doubt!

Airtel registered a 17% YOY revenue increase. However, its quarterly sequential revenue growth seems to be tapping out at 1.19%. Thus the revenue growth is slowing down. Net profit is up 26% but that is mainly because of lower financial costs and spends. Operating profit margins are reduced from 30% in last year to 27% this year.

The concern for Airtel is that the growth in number of subscribers is hitting a plateau. With more competitors, the subscriber figures growth may actually dip. The ARPU has decreased 20.6% YOY. With both these numbers going south, it would be difficult for Airtel to keep up its performance in the next few quarters.
Applying the same analogy to other operators and the new comers, one would expect some congruence in the statuses. The overall market situation is same in all cases and thus the performances would not be very different for other operators. It is in this context one needs to evaluate the price discounting options that the new operators are resorting to. It may be a short cut to establishing a quick base but sustainability and profitability are very big questions. Couple that with the high initial spends of getting a toe hold in the market, the break even seems to be distant. Ask Virgin Mobile for validation.

Indian Telecom Story (Part XIV): Can pricing differentiate new Telco services?

Of late, the number of foreign operators who have entered the Indian shores is impressive. Global Operators like MTS, Etisalat, Sistema, Do Co Mo have started offering their services to consumers.

However, what is disappointing is that all of these operators have yet again taken the price route to establish themselves in the market. Sample Tata Do Co Mo in Karnataka/Bangalore for instance. They have innovated on the talk times, charging consumers for seconds of usage instead of minutes of usage. This squarely means that if I make a call for 3 minutes and 20 seconds through the network, Tata Do Co Mo charges me for 200 seconds of usage instead of 4 minutes. That is very good news to the consumer. A rough calculation and analysis of my call minutes showed me that over the last 24 hours or so, I had actually used 2381 call seconds, while my operator would be charging me for 59 minutes/ 2940 seconds of usage. Going by the Minutes of usage concept, I was paying for 10 minutes that I did not use. These were the residual seconds that I was charged for! That is a 19% waste of my money! The seconds of use is thus a terrific value to the consumer. No wonder than that Tata Do Co Mo had signed on 400,000 users in the first week of launch.

Now let’s flip it over from the business perspective. Many of the new entrants have deep pockets and hence are keeping the advertising and media happy with marketing spends. However, a deeper analysis leads me to think that the approach is likely to be very short term. Here are the reasons that I put forth for the same:

1. Without Pan India presence it is very unlikely that these new entrants will find a lot of business segment consumers (who are typically high value)
2. Thus these price based promotions will land them with a base of medium of low and medium value consumers.
3. Even if we assume that this may attract new subscribers to the services, but the ARPUs will not be sustainable and profitable.
4. Such promotions do not act as differentiators or entry barriers in the long term. It wont be long before Airtel, Vodafone, Reliance and older players follow suit leveling the ground.
5. If anything, this tactic only serves to lower/break the floor prices of the services.

Lowering the cost of ownership has been extremely successful ploy in terms of expansion of the Indian Telecom markets. The ARPU today is around the theoretical $5 break point. In mature markets an ARPU under $5, does serious harm to the bottom-line. In a growing market like India, the strain of a decreasing ARPU may not be significantly visible presently. However, with markets maturing, the focus will shift from growth to sustainability. The new classes of consumers are mostly rural and their ARPU would be well below $5 (probably $3-3.5). Managing bottom-lines at such low levels of Revenue per user and increasing costs of acquisition will prove to be a challenge.

I had expected a higher degree of service innovation by the new players. I had expected that they we would see some exciting innovations around value delivery. It could have been Internet, VAS or the MVNO based delivery. By playing the price route, the new players seem to be playing it right to the incumbent’s advantage. I have always thought that in absence of compelling value propositions that the consumer is willing to pay a premium for, it is always cost that the consumers fall back upon. It seems that branded value services are one of the most obvious businesses that the current Telcos are missing to capitalize. Lets then wait for the discontinuity from the current price based business model to value based ones!

Indian Telecom Story (Part XIII):Telco's signal delay in MNP

The implementation of mobile number portability (MNP) is slated to be delayed further, with the telecom service providers informing the Department of Telecommunications (DoT) that the phased roll out is not possible.
Further, pan-India readiness is required for the proper implementation of call routing, according to the service providers who had met DoT officials recently. The operators also mentioned that due to delay in completion of various activities, it would be difficult to meet the timelines for MNP implementation. The DoT had earlier set a September-end deadline for the first phase rollout of MNP in the country.
The service providers are seeking an extension of the date and as delays would be considered as violation of DoT’s direction. This means that MNP would be delayed by another couple of months, sources close to the development said.
Earlier in March, DoT had selected two US companies — Syniverse and Telcordia — as technology providers for MNP in the country. Telcordia will implement the technology in south and east, while east and west would be taken care of Syniverse.
India with over 400 million mobile connections, and an addition of around 10 million per month, is second largest telecom market in the world.
For earlier updates on Indian Telecom refer http://ronnie05.wordpress.com/tag/indian-telecom/

Indian Telecom Story (Part XII): Projection of Indian Telecom growth

India could have 500 million internet users, 100 million broadband connections and 100 million connected devices by 2012, provided infrastructural bottlenecks are removed and 3G and Wi Max networks are rolled out early according to Indian industry body representing the IT hardware MAIT.
MAIT has set for itself an ambitious target–Goal 511– for achieving 500 million internet user, 100 million broadband connection and 100 million connected devices by 2012.This calls for strengthening of the national IT infrastructure along with the physical infrastructure on a priority basis
At present, there are 60 million internet users, three million broadband subscribers and about 1-2 million connected devices in the country.
The numbers indicate a 9X increase in internet connections, 33% increase in broadband access and 50% increase in internet connection devices (including smartphones and other connectivity based devices).This would also require early roll-out of 3G and Wi-Max networks.
The Indian political scene and economic deficits would impact the spread and reach of internet across the country

Indian Telecom Story (Part XI): Return to Grey?

Maharashtra state government has upped the Value Added Tax on mobile phones from 4% to 12.5%. This translates to an increase in tax revenues for the government from Rs.12 crore per month to Rs.36 per month. Notably, the Indian Cellular Association (ICA) is displeased and so are the mobile vendors.

This move would open up the grey markets while hitting business and employment in the organized sector. It is noteworthy that the boom in the organized device sector was a result of a reduction of high tax regime in 2002. This move is also being cited as a classic case of not understanding that this is a global market and it takes less than a dollar to transport mobiles across continents. This is a very short sighted move, which would be self defeating in the long run and will reverse the growth in the industry. Since, the organized telecom as an industry has been a cash cow for the government, hurting the revenues and businesses of the organized players would hurt the long term socio economic development of the state as well.

Such counter-productive policy making will negatively impact private enterprise and open markets’ and the very essence of economic growth in the long term in favour of short term subsidy for electoral and populist measures. Our state and our cities are ranked low by international businesses in terms of ease of doing business. Our growth planners, still need to learn from the Chinese model of state sponsored private industry.

Indian Telecom Story (Part X): Gartner's predictions about the Indian Telecom Industry

Gartner has made public, its future growth prediction for the Indian Telecoms market. Here's presenting a few highlights of the same:

1.The Telecom sector revenues would touch $30 billion by 2013 registering a compound annual growth rate (CAGR) of 12.5 percent between 2009-2013. In other words the Indian Telecom industry with its low double digit growth numbers is now maturing as any other industry would.

2.The Telecom subscriber base is also expected to grow at a CAGR of 12.5 percent and would cross 770 million by 2013. This is somewhat in disagreement with DoT's figures of 900 million by 2013/ and 1.1 billion by 2015. http://technologyandtelecom.blogspot.com/2009/05/dot-in-first-ever-forecast-of-mobile.html

3.Mobile market penetration is projected to increase to 63.5 percent in 2013 from 38.7 percent in 2009. The main resons for this would be increased focus on the rural market, entry of consumer durable and electronic companies into the mobile handset segment, and cheaper handsets.

4.The churn rate - the rate at which a subscriber switches their operator - would cross 59 percent in 2013 from 53 percent currently. The churn rate is also not expected to shoot to a high level despite introduction of Number portability.

5.The number of people with prepaid connections,accounting for 93 percent of the subscriber base in 2008, will continue to swell to exceed 96 percent by 2013, surpassing 740 million. The postpaid to prepaid ratio will not see major up move as it is forecasted to exceed 29 million by 2013 just a small CAGR growth of 2.5 percent from 23 million in 2008.This could be a big dampener as it reflect the inability of Telco’s to garner post-paid users.

6.The revenues from data services will significantly contribute to mobile services in India, with a CAGR of 16.8% from 2009 to 2013. Growth will be triggered by increased adoption of value-added services, which are relevant to both rural and urban markets.The introduction of 3G in future could well land a helping hand in increasing Telecom sector’s revenues.

The great Indian 3G auction

Government of India has settled for a reserve price of Rs.4040 crore for the long-overdue auction of third-generation (3G) spectrum. The minimum bid amount for pan-India spectrum is double of that recommended by the telecom department and aligns with the finance ministry's proposal, as the government tries to maximise the revenue it can earn from the auction. It has been decided that up to seven operators (with one slot being reserved for state-owned telcos BSNL & MTNL) will be allowed to offer 3G services across the country. The department of telecom (DoT) wanted a total of five operators. Executives with major telecom operators said the Cellular Operators Association of India (COAI) - the industry body representing companies that provide mobile services based on the GSM standard - would protest against the decision on the reserve price. Telcos are readying to lobby hard with the government to reduce the base price to at least Rs 3,540 crore per player, as most of them had factored this number in their calculations as both DoT and the finance ministry were close to reaching an agreement on this price. The government would get Rs 24,240 crore from auctioning 3G spectrum to six licencees. While the money would help the government lower the fiscal deficit, he added that the base price of Rs 4,040 crore would be on the higher side.

Is the Government killing the proverbial golden goose out here just to shore in money to lower fiscal deficits (Increased by the magnamity of populist policies)?

Telcos may restrict their 3G offerings to metros and category A circles which has a faster time to break even on investments
It will increase the entry barrier for operators
It will also increase the service costs for customers
It could restrict bidding to the six big Indian telecom operators
It will be quite difficult for new operators to participate in the auction, as they would need to invest an additional $1 billion for the 3G licences, over and above the investments they are making in rolling out their new 2G networks
The higher base price could lead to a scenario similar to Europe where telcos could not recover the costs they paid for 3G spectrum.
The higher the base price, the higher the tariffs, as telcos will have to make a business case of it

The government gains on two fronts: Increasing the Base reserve price by 500 crores per player (Rs.4040 crores against Rs.3540 crores) and increasing the number of operators from five to seven.

In a related development, GSM operators said the government must resolve all issues with allotting 2G spectrum before deciding on the 3G auction.The telecom ministry has decided that it will take a call on all issues related to second-generation spectrum - the airwaves on which all mobile services are offered at present, including the methodology for future allocations, the pricing for this scarce resource and the usage charges for utilising these airwaves only after the upcoming auction of 3G spectrum. Any ambiguity on issues related to 2G, especially in the current business and economic environment, could seriously dampen investor interest and adversely affect revenues that would be raised by the government through the auction process

Indian Telecom Story (Part IX): 400 not out

In the newest release of subscriber figures by TRAI, 11.90 Million users were added in April 2009 as against 15.64 million in March 2009.The number of mobile subscribers in India crossed the 400 million mark in April, putting the country on track to reach its goal of 500 million customers by next year. The rise took India’s total wireless subscriber base to 403.66 million, TRAI said. The slowdown in subscriber growth came after cellular operators withdrew special deals on offer during the final months of the fiscal year to March when the firms sought to boost revenues to help their annual accounts.
But India remains the world’s fastest-growing mobile market and analysts say the government’s target of 500 million mobile phone users could be reached ahead of schedule.The total telecom subscriber base made up of wireless and landline customers stood at 441.47 million at the end of April compared with 429.72 million in March, TRAI added.Total penetration stands at close to 38 telephones for every 100 people, TRAI said.

3G Deployments
India has said it will stage its much delayed auction of third-generation (3G) wireless spectrum by year end.Third-generation wireless service allows voice, data and video to be sent at high speeds to mobile devices and is viewed as the next major booster driving growth in India’s telecoms market.The Congress-led government had forecast the auction could raise Rs400 billion rupees ($8.5 billion).
But since its re-election last month, it has backed off that forecast, saying the global financial crisis could reduce the windfall.India’s newly reappointed telecoms minister A. Raja has also said he will seek to push cheap local mobile call rates even lower to spur cellular growth.
Local mobile calls now cost as little as one cent a minute while long-distance rates vary from two cents to four cents a minute.Raja says he wants to cut the local rate to less than half a cent a minute

Indian Telecom Story (Part VIII): A Billion Users

DoT, in a first ever forecast of mobile penetration across India for the next 6 years, has projected a billion mobile phones for the Indian markets. It is well established that India has one of the most remarkable growths in mobile phones since the sector was first opened to private investment in 1994. From two operators in 1995, the country now has 12 to 13 operators of which 6 to 7 are fully functional, offering the Indian consumer unprecedented choice and low tariffs.

India edged USA as the second largest Telecom market in Q1, 2008 and even in the recessionary times, has been building up subscriber base by 8 - 10 million phones a month. The latest DoT report shows that India will reach the half a billion landmark by 2010 and will add the next half a billion in 5 years after that. This reflects the greatest growth opportunity in the next 5 years surpassing China. 600 million subscriber adds would feature as the biggest subscriber adds for any country in the world.

While there is a buzz in the industry and the segments, with 600 million sub adds in waiting, the party is still young. The challenge however is not the subscriber growth but educating the consumer to use the medium for more than just voice and SMS related communications. The advent of 3G would probably fast track the industry on those points. This is also essential in terms of building long term profitability of the Telecom operators.

Indian Telecom story (part VIII): Telco's Mobile Number portability woes

Mobile number portability is one of the most debated topics in the perspective of the Indian Telecom Industry. It was first announced in 2007 and TRAI submitted its first recommendations on the MNP in April 2008. Given the intense lobbying that one has seen form the industry at large, the introduction date has been shifted from June 2009 to August 2009 and now September 20th, 2009. The first regions to be able to test this service by September will be Karnataka, Andhra Pradesh, Tamil Nadu and Kolkata. MNP will cover the other places in these regions by March next year. The other sginificant part of the story is that Consumers may not have to pay more than Rs 300 to change from one mobile service provider to another while keeping the phone number intact. Other unofficial reports put the MNP charges to be Rs.200, which would be peanuts to consuners who want to change their service provider. It is suspected (not confirmed), that lot of the MNP churn would be the top 9% consumers who contribute 29% of the revenues and 45% of the Telco Margins!

Mobile Number Portability along with other factors such as Infrastructure Overcapacity (and sharing of Infrastructure), entry of new players into the Sector, Reduction in Call termination charges, is expected to reduce the call tarriffs in the country.The fall in tariff may add boost to the fastest growing Telcom Market in the world and may also help in reaching new records in subscriber additions. However, it is the Telco margins which are under pressure and there is not much that the Telcos are doing about it except probably for vehement lobbying.

Is India ready for MVNOs?

This is the second post on the series: The advent of MVNOs and discusses the MVNO environs in India!

A few months back, Sunil Bharti Mittal (CMD, Bharti - Airtel) went on record saying that the MVNO model will not find many takers in India (read report). The idea was that with the kinds of tarriffs prevalent in India, MVNOs will not be able to sustain business and be profitable. The fact that Virgin Mobile's foray into MVNO platform has not been as hugely successful bears this statement for the timebeing. But in a long term basis, can MVNOs be ruled out of the country?

A study of 16 countries where MVNOs have been operating for a few years now, conducted by Diamond, a global management consulting firm has some interesting pointers in terms of emergence of the MVNO business models in India.
1. The threshold mobile penetration levels (for the emergence of MVNOs) in these markets are around 40%! --> Markets typically disply a level of mobile penetration above 40% at the time of launh of the first MVNO.
2. Higher levels of industry wide consolidations favour the launch of MVNOs.
3. Less competitive markets (high levels of dissatisfaction amongst consumers) favour MVNOs (because they cater to new customers and innovative solutions).

India with its fastest growing telecom subsribers status is typically a mash of various degrees of penetration. On one end, the A category circles have 70 - 80% penetration ratios and on the other end, C category circles are at 15 - 20% penetration status. Thus India is to be seen a collection of 23 separate markets instead of a single homogenous market when assessing the opportunity for MVNOs. The Cat A and B circles are over ripe for MVNOs and there are states, where the MVNO business would not be as effective given low penetration levels. Also the tarriffs are getting rapidly commoditized and if its were not for the consolidation, these tarriff would be close to unprofitable! Number portability could rapidly increase churn in the eco-system, unsettling the top rug high ARPU consumer bases with the existing operators.

Within these set of circumstances, there may exist an opportunity to serve users better or serve a high profit niche segment. With the penetration levels at 32% nationally and tarriffs touching lows, the MVNO route may be a key differentiator and an access to higher premiums. One needs to be define MVNO at this time. A re-selling, re-branded plain vanilla will not be attractive to users. In the case of Virgin, it has done some excellent work in associating itself with a category of customers. However, its proposition is based on cost which by itself is not the best way to differentiate especially if you are re-selling airtime.

Thus it is important, that the MVNA and MVNE route is taken to differentiate oneself in this market! Healthcare sector is one lucrative idea for MVNA/E, so is department of posts and telegraph, railways, banking etc. There is a need and necessity for including this diversity into the existing eco system. This would constitute differentiated service to consumers for which they would be ready to pay premiums. A focussed attempt centred around the metros and high penetration areas can also keep costs under control and if the collaboration within the players in the eco system is good, can lead to high profit businesses.

Should we reconsider the model once more, Mr Mittal?

The third part of The advent of MVNOs will deal with the legal challenges of establishing this business in India.

Indian Telecom Story (Part VII):Reduction in Mobile termination charges

I had discussed the Mobile Termination charges in an earlier blog http://technologyandtelecom.blogspot.com/2009/02/indian-telecom-story-part-iii-entry.html and this was a month back (9th February 2009). TRAI has finally taken the mid road to the question of Mobile termination charges. Mobile termination charges are basically the per minute charge paid by an operator to another, if a call of the first operator is terminated on the second's network. To that effect, any operator with a national coverage has lesser probability of paying this termination charge because chances are that the call will be terminated on its network owing to its ubiquitous presence. Thus the incumbents could use this as a pricing barrier against newer entrants. The chief beneficiaries of the MTC regime are the 100% footprint operator such as Airtel, Reliance, Vodafone etc. Lobbying for the case of MTC as a means to generate returns to serve their rural expansion, it can be debated that the Lobby had tried to impress TRAi and DoT hard on this subject. On the other hand the new players to the party have clamored that a MTC regime would make it difficult for them to establish a reasonable presence because of the price disparities.

As of today TRAI has slashed the MTC charges from 30 paise per minute to 20 paise per minute there by taking the mid road between these two views. The effects of this:
1. Likely reduction in Revenues for the incumbents
2. A more uniform battle ground for new entrants
3. Lowering of the telephone tarriffs for consumers on roaming
4. ARPUs further reducing on account of roaming charges.

Thus to an open market, reduced prices, commoditized products and more competition, here it is: Jaye Ho!

Indian Telecom Story (Part VI): What downturn? The party continues...

TRAI's report  dated 20th February 2009 has the following updates on the Indian Telecom market.

• Subscribers base crosses 400 million
  
• 15.41 million wireless subscribers added in January 2009
  
• 5.65 million subscribers in Broadband segment
  
• Teledensity reaches 34.50% mark!
  

Interestingly, 15.41 million new mobile subscribers takes the mobile connectivity number to 362.30 million. Comin on the back of a downturn and economic meltdown, the subscriber additions dont show any slow down as they beat the sub-adds in December 2008 (10.81 Million) by almost 50%. While the stock indices ove

r the world are flatering, here is one index that is still going and growing strong. Broadband penetration statistics pale in comparison as it registered an increase of .2 million over a December base of 5.45 million in January (3.6% growth).

The other significant bit in here is the launch of Reliance GSM services.  http://technologyandtelecom.blogspot.com/2009/02/ada-reliance-telecom-exercising-muscle.html. 

The link in here is an earlier post on how the competitive scene was heating up between Reliance and Bharti with the launch of Reliance GSM services in the country. Reliance muscled its way in January 2009 adding 4.95 million subscribers compared to Bharti Airtel's 2.73 million subscriber additions and Vodafone's 2.4 million subscriber additions. Certainly Reliance got a super start and has got it 4.95 million subscribers into its network in the first month of operation. At this rate, Reliance will beat Vodafone's no 2 market share position by March 2009. There is no surprise that Airtel feels threatened!

Already there is a renewed push to register more and more users into the Post paid services. (By Vodafone). The idea here is by reducing call, SMS, data browsing, VAS and STD charges on Post Paid, customers are lured to Post paid connections which is supposed more sticky and loyal than the Pre Paid option.

It is going to be an interesting battle for the top honours in Indian Telecom market. Watch this space.

Indian Telecom Story (Part V): Collaboration as a tool to profitability

The recession has not been able to put the spanner through the growth engine of Indian telecom Subscribers. It is adding the 10 million month after month and the engine seems good to keep chugging on at a fair and brisk pace. The ARPU are south bound, which has a direct relation to profitability. However, competitors collaborating with one and the other have been able to keep the costs light. Wonderfully well, collaboration has reduced the CAPEX and OPEX of the operators giving them the healthy booster shots in their profits!

I had reported sharing of the infrastructure / towers/ sites in some of my earlier posts as well. This has the single biggest tool in terms of reduction of the Capital expenditures! It was under the government intiation that infrastructure sharing started off. The win win logic, was higher reach (which the government was persuing) and lower CAPEX which the Telcos were persuing while adding the numbers. Both these objectives were thus fulfilled by Project MOST! Operators today have set annual targets of 50 - 60% incremental sharing!

The traffic varies from being heavy in the day times to being sparse in the night times. An analysis of the traffic for geographies also enbales switching off the sites, without impacting service quality and on the other hand, making savings on the OPEX!

While project MOST is based on existing infrastructure sharing, roll out of infrastructure in weak coverage areas and sensitive areas is also happening through collaboration. So instead of 2 or 3 different towers in a newly opened geography, operators are agreeing on one site shared by the others.

Three simple steps and yet, when CAPEX accounts for 31% of your Revenue and your OPEX is $ 6 (per consumer), with ARPU of $6 per month (implying no margins), changes in these figures can significantly alter your bottomline.

Indian Telecom Story (Part IV): An year end Analysis of Revenue and Subscriber market share trends in Indian Telecom Bazaar

The top 6 operators in the Indian Telecom space are thus stacked up in terms of Revenue market shares and subscriber market shares! It is not surprising to find Airtel at the tip of the heap both in subscriber and revenues. However, It is Vodafone that is almost par with Reliance in Subscribers and trounces it in the revenue market share by a whooping mile! In fact Reliance is so low in terms of revenue shares that the no 4 (BSNL/MTNL) and no 5 (Idea) are biting at its end! Tata Teleservices comes up last in the list!

1. Airtel seems to consolidate its national footprint quite handsomely with a 14% increase in revenue shares. It has the highest ratio of revenue to subscribers! Again indicating that Airtel seems to have built some stickiness with the high ARPU consumers. One would imagine so beacuse high ARPU consumers do a lot of travelling and Airtel gives them the seamless connectivity!

2. Idea has seen a 22% increase in its revenue share, with an increase in its circles coverage from 12 in 2007 to 15 in 2008. Drop in ARPU has not been compensated as much by subscriber addition, which is why the index stands low amongst all the GSM private entities!

3. Vodafone traditionally is one of the higher ARPU players! However, its launch in C Circles seems to have taken some of the sheen away from its revenue/ subscriber index i.e most of the acquisition that has happened in thesecircles has been low ARPU consumers.

4. BSNL + MTNL have seen erosions both in revenue share as well as in ARPU! Also it has lagged the growth rate of the telecom market in 2008! No wonder then that, they are rushing into 3G to boost their ARPUs/Revenues!

5. Reliance and Idea, the CDMA operators have had a bad year! more people are choosing GSM services over CDMA. There appears to be a churn from CDMA to GSM as well. There is a erosion in higher end consumers who probably are flocking to GSM players as more and more are opening up to all circles! Indian CDMA operators have consistently seen a decline in Revenue Market share from 21.6% in Q3 FY08 to 17.9% in Q3 FY09. While GSM operators managed to gain the loss of CDMA operators and now control a whopping 82.1% of the Indian wireless space. Will the trend change with Sistema’s entry into the space ? Or something needs to be changed in the CDMA ecosystem to make it fit in the context of the second largest wireless market in the world ?

Indian Telecom Story (Part III): The entry barriers and Incumbents wrath!

Incumbents wrath: I had defined this term for players in the market who are well settled and entrenched in the market with an established network all over. These are the incumbents who grow because of an established network presence, a brand that consumers are aware of and sheer economies of scale. By leveraging these points of strenght. these players are able to fight late entrants and challengers more effectively. The analogy is to some one who is firmly based on a hill and can roll off rocks down the hill to ward the challenger who intends to take over the control of the hill!

That is certainly what is happening between the incumbents (Airtel, Vodafone, Idea, Aircell) and the challengers (Datacom, Unitech, Swan Telecom, Shyam, Loop and Reliance Communications). The piece under contention is the mobile termination charge which one operator pays to the other when the customer of the further uses the roaming charges of the later. This is 30 paise a minute charge as of today. This is charged to the consumer as the cost of roaming.

With an all India footprint (or 80% coverage), the incumbents effectively donot have to pay termination charges. The full coverage ensures that calls are terminated within their network. So for instance a Airtel call from J&K will not have to pay the Airtel network at Kerala the termination charges! However, a Swann call from Delhi, will have to pay a Vodafone network in Pune, since Swan is not present in Maharashtra. It will take Swan at least an year to get into Maharashtra! The incumbents have either been pocketing the termination charges or passing them to consumers "no roaming charge" kind of schemes.

This puts the pressure on the challengers who would from day 1 not have the comfort of their network everywhere! Thus they will mandatorily have to pay the 30 paise charge! Thats a point of disadvantage!

TRAI is trying to mediate a free termination or a 10 paise termination charge! Only thatthe Lobby of incumbets is trying to put a spanner in the wheel by claiming that such a waiver will affect their rural roll outs as this would reduce revenue!

TRAI has to take a stance and i would vote it does so for the consumer's good.

Indian Telecom Story (Part II addendum): Whither Customer Loyalty

As discussed earlier in the same blog, Indians have the lowest per minute tariff compared to many other developing countries @ $.02 per minute! Tradionally Telcos have rushed to get the connectivity figures up and the best way to do it was enticing the consumer to pay less and lesser per minute! Today all carriers have plans which are less than 25 paise per minute. Infact apart from, massification as a startegy which has led to erosion of ARPUs, these discounted rates have also been responsible for reducing the ARPU in the industry. In effect, when every player in the market has been playing on low call rates, the product gets severly commoditized. There is nearly nothingt that differentiates any carrier from the other except for the national footprint (which Airtel/Reliance/TATA held so long). With roll outs of other Telcos such as Vodafone, Aircel, even that differentiation is lost. Add to that the meagre 6MHZ spectrum of usage which translates into call breaks and dissatisfied consumers. There is nothing really that separates the horses and the donkeys and the mules (because none of the Telcos are different anyways.)
This translates into churn rates which depend upon which operator gives the least cost plan. Matter of factly, Virgin Mobile took it to the other extreme, when they started paying consumers 10 paise for every incoming call minute.

A few pointers to get consumer loyalty in place:
1. Experience in international markets prove that bundling a handset (with some subsidies for the handset) increases stickiness.
2. The stickiness increases even more if all the members of a family are given a uniform plan and connection. The handset can be included into the plan.
3. Call drops are a reality of life with consumers in India. Can Telcos for instance provide uninterrupted call service to the top x% of the consumers? The ones who get the top 50% or so of the revenue. If such a service can be branded, and consumers see the benefit, there will be less churn and more stickiness.
4. For the branded uninterrupted call service, the Telco must provide a compensation for every broken call. That way the consumer is assured that the Telco will try and keep the call uninterrupted!
5. High ARPU consumers can be given special services. So far as of now, a high ARPU consumer who probably drives a Honda City would still have to stand in a queue behind 6 people in a Telco Counter to pay his monthly bill. Hardly differentiated!
6. High ARPU consumers can be given loyalty points for usage. Something on the lines of Credit card loyalty points which can be redeemed against purchases. I am privy to corporate spends done by officials on credit cards with highest loyalty bonus pay outs.
7. High ARPU consumers, can be for instance given a new handset every year depending upon their usage. Using the handset as a medium to build loyalty is predatory on the handset but as long as it can build loyalty and stickiness, why not?
8. Get your systems in place. I got an SMS from Airtel some days back. It said that if i SMS Sub 46 to a 5 digit number, i could get a bulk SMS package of 200+ SMSs at Rs.46. It was a win for me. I did SMS sub 46 to the required number and all i got was information about I Phone and its where abouts in the Airtel channel. The computer was not programmed for the bulk SMS thing and it was responding on a 7 month old I Phone availability status. Tch! Tch!

It is said that consumers know what they want and take it! I vary on the point. If consumers were to be let free, the world would have been commoditized. Consumers have to be shown the higher value behing least costs. Not many Telco have tread this path. Its Time they did it or they could end up defending their profitabilities.

Indian Telecom Story (Part II): ARPU and Profitability

Exhibit 1
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.