Sweeping regulatory and policy reforms over the past decade have dramatically changed the nature of the telecom industry in India. Surpassing government projections, teledensity reached 66% last year and the market continues to be one of the fastest growing markets in the world.
The country's wireless subscription reached 752.2 million after adding 22.6 million new connections in December. While broadband subscription increased to 10.9 million in December from 10.71 million the previous month, total wireline subscribers dropped to 35.1 million from 35.19 million the previous month.
There is no doubt that most of the steps taken by country's telecom regulator have created an impressive momentum for the industry. But issues such as the recent 2G scam have tainted its image. The latest revelations suggest that 85 of the 122 licenses, which were given out by the Telecom Ministry in 2008, headed by then minister A Raja, were issued to companies that suppressed facts, disclosed incomplete information and submitted fictitious documents to the ministry.
A host of recent pro-competition policies, such as the changes to the 2G spectrum allocation criteria and reduction in interconnect user charges, has facilitated the entry of many new networks, both from green-field operators as well as from regional incumbents entering into new service areas. Moreover, the government's decision to allow MVNOs to offer mobile services is expected to increase competition and lower prices even further.
The country now has 15 operators, with some 9-10 competing for the same revenue pie in each telecom circle. Revenue growth in 2009 was just 12% compared to 22% during 2008.
Despite the pricing pressure, Frost & Sullivan expects revenue to grow at a CAGR of 11.3% from 2010 to 2015 and reach 42.77 billion by 2015. Revenues are expected to remain buoyant largely due to strong monthly additions and, to some extent, increasing revenues from value-added services.
In addition, operators are finding new ways to reduce the cost of operating mobile networks and serving customers. Outsourcing of construction as well as operation of networks, a model which has been pioneered by Bharti, has brought down operating costs significantly. Another key contributor to cost reduction has been infrastructure sharing. India's Department of Telecommunications now permits operators to share the active component of their tower networks.
The players
Bharti Airtel has a 20.3% share of subscribers and also leads the market with almost a 30% share of revenues. Reliance is No. 2 with a 16.7% market share followed closely by Vodafone with a 16.5% share. BSNL, Tata and Idea took the fourth, fifth and sixth positions with respective market shares of 11.5%, 11.2% and 10.9%.
The top six controlled 87.1% of the country's total subscriber base despite the plethora of new entrants. The established participants are likely to retain their market dominance as, not only will the new entrants find it difficult to penetrate the urban market as mobile adoption is already widespread in India's cities and towns, they will also find it difficult to survive on such low margins if they are to compete head-on with established players in the rural market. Moreover, the recently launched MNP is likely to spur further competition and drag prices even lower.
According to the telecom regulator, as of early February about 1.7 million mobile users had already opted to change their service provider through the new mobile number portability service. With several telcos offering tariffs lower than cost, the eventual consolidation of the operators is inevitable and expected soon.
The Indian government officially allocated 3G and BWA spectrum to service providers last year, which is expected to provide another huge boost for the telecom industry.
Leading operators such as Bharti Airtel, Reliance Communication and Tata Docomo have already officially launched their 3G networks, while Vodafone plans to launch services by Ql. These operators are aiming to cover the country with 3G by the first half of this year. While the 3G technology is expected to play an integral role in bridging the digital divide by taking wireless broadband to the remotest corners of the country, it is also expected to further intensify the focus on VAS and data in the saturated urban markets.
However, 3G will see slow adoption in the early stages as in most new markets and also due to the fact that most of the early adopters are likely going to be working professionals and internet savvy users mostly from urban areas. In addition, a price war is likely to follow, just like with 2G, thus making it challenging for the operators to off-set the hefty investment they've made acquiring 3G licenses.
With teledensity at just 66%, the Indian telecom sector is far from nearing saturation, and there is still much room for growth. However, the growth in rural markets (with 28.4% teledensity) is going to take center stage while the urban markets will almost stagnate.
The wireless subscriber base is expected to continue strong growth while the fixed-line base is to increase only on account of broadband growth. Mobile is also going to emerge as the principal means for internet access. Mergers and acquisitions are expected and, by the next few years, it is likely that only a handful of major players will prevail.
Shaker Ibne Amin is an industry analyst at Frost & Sullivan, Asia Pacific
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