Cellular: The road ahead - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Cellular: The road ahead

Jul 14, 2003

Telecommunications is now universally recognised as one of the prime movers of the modern economy. International studies have established that for every 1% increase in tele-density, there is a 3% increase in the growth of GDP. In the Indian context, the cellular segment has outpaced basic telephony in the recent past due to liberalisation and the potential continues to remain promising. But whether the growth is sustainable is a matter of debate. Cellular telephony in India largely operates on the Global System for Mobile communications (GSM). GSM today is, the world's leading digital standard, accounting for 68.5% of the global digital wireless market. In the Indian context, the cellular telephony has witnessed tremendous success. The domestic cellular industry has been growing at an average rate of 85% per annum. The subscriber base in the last five years has scaled tremendously as can be seen in the graph above. At the end of June’03, the subscriber base had risen further by 2.5 m to 15.2 m since March 03.

(Source: COAI)

Inspite of witnessing massive growth, the cellular market of India is still quite fragmented with 13 players concentrated in 18 circles. The major operators include Bharti Cellular, Hutchison, BPL Cellular and Idea Cellular among others. In comparison there are only a few major WLL players like Reliance Infocom, Tata Indicom, MTNL and BSNL. The penetration level of cellular services in India is a meagre 1.4% (excluding WLL services). In contrast, a country like Korea where there are totally three market players, has a penetration level as high as 69.4% (CDMA based services) as of FY03. Hence, in the future, the fragmented Indian cellular market should see some consolidation where only few major players will survive.

(Source: COAI)

In our view, the few players who will survive this consolidation will be primarily those who are cash rich. Telecom is a long-gestation sector with an elongated pay-back period. It takes time for a telecom player to start realising value out of investment in infrastructure and systems and this is one of the key reasons why capital determines long-term sustainability of the business. If one were to look at the current scenario, only a few have a strong balance sheet to continue to invest in backbone and infrastructure and thereby grow subscriber base.

So what is in store for cellular services sector going forward? The Working Group on the Telecom Sector set up by the Government of India has estimated that by FY06, around 45 m cellular subscribers would be added all over India. However, to achieve this growth, the Working Group has also estimated that resources to the tune of about Rs 252 bn will be required. As the penetration levels increase the capital requirements of this sector would gradually rise and this would require investment inflows from various sources (the hike in FDI limit in the sector in the Budget 2003-04 has to be viewed in this context).

So, what is it in for a retail investor? The trend shown by the cellular segment in terms of volumes is healthy but it has immense competition from the WLL segment, which is gaining a strong footing in the Indian telecom market. Compared to GSM, the CDMA technology is advantageous to operators in terms of lower capital outlay and higher capacity offering. Therefore, for the GSM operators to survive in this era of intense competition not only from its peers but also from CDMA technology, it will constantly have to be on the move and provide better service and offer competitive tariffs to induce the customer to choose GSM over CDMA.

While we expect subscriber base to grow at a faster clip, ARPUs (average revenue per user) will remain under pressure. Bharti’s FY03 results (read more) clearly highlight the impact the tariff reduction has had on both pre-paid and post-paid ARPUs.


Equitymaster requests your view! Post a comment on "Cellular: The road ahead". Click here!

  

More Views on News

BHARTI INFRATEL Plunges by 5%; BSE 500 Index Down 1.1% (Market Updates)

Feb 18, 2020 | Updated on Feb 18, 2020

BHARTI INFRATEL share price has plunged by 5% and its current market price is Rs 236. The BSE 500 is down by 1.1%. The top gainers in the BSE 500 Index are TV18 BROADCAST (up 12.9%) and J&K BANK (up 5.4%). The top losers are BHARTI INFRATEL (down 5.2%) and GALAXY SURFACTANTS LTD (down 5.7%).

VODAFONE IDEA Plunges by 10%; BSE 500 Index Down 0.6% (Market Updates)

Feb 18, 2020 | Updated on Feb 18, 2020

VODAFONE IDEA share price has plunged by 10% and its current market price is Rs 3. The BSE 500 is down by 0.6%. The top gainers in the BSE 500 Index are TV18 BROADCAST (up 18.9%) and SUVEN LIFESCIENCES (up 5.0%). The top losers are VODAFONE IDEA (down 9.9%) and ISGEC HEAVY ENG. (down 5.2%).

VODAFONE IDEA Plunges by 11%; BSE 500 Index Down 0.4% (Market Updates)

Feb 18, 2020 | Updated on Feb 18, 2020

VODAFONE IDEA share price has plunged by 11% and its current market price is Rs 3. The BSE 500 is down by 0.4%. The top gainers in the BSE 500 Index are TV18 BROADCAST (up 11.7%) and INDIAN OVERSEAS BANK (up 9.2%). The top losers is VODAFONE IDEA (down 11.1%)..

More Views on News

Most Popular

Buy this 'Crorepati Stock' and You Could End Up Stinking Rich (Profit Hunter)

Feb 5, 2020

I'm talking about an individual small cap stock that could go up so many times that they make their investors stinking rich in the process. You definitely want to know more...

This Smallcap Stock Could be the Next Titan (Up 1,400% in 10 Years) (Profit Hunter)

Feb 11, 2020

A blueprint to latch on to the next 'Crorepati' stock - and an event I hope you won't miss on any account.

Will Your Trade Go Up or Down Today? (Fast Profits Daily)

Feb 5, 2020

How you can find out which way your trade is likely to move on any given trading day.

Will Algo Traders Take Away All Your Profits? (Fast Profits Daily)

Feb 11, 2020

How to fight back against algo trading systems.

No Change in My Long-Term View on the Rebirth of India Stocks (The 5 Minute Wrapup)

Feb 6, 2020

Why the recent post budget volatility has not affected my bullish view on the Rebirth of India stocks.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get our special report, Secret to Increasing Your Trading Profits Today Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE TECK


Feb 18, 2020 01:09 PM

S&P BSE TECK 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS