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Cellular: Where do we stand? - Views on News from Equitymaster
 
 
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  • Aug 17, 2001

    Cellular: Where do we stand?

    The merits of liberalisation and opening up of a sector for free competition is apparent from the recent trends emerging in the Indian telecom sector. The cellular segment is a clear example as to what free competition could do for the country as well for the consumers. However, we have a long way to go.

    First let’s look at where we stand when we compare with other major economies. The estimated number of cellular subscribers all over the world is around 600 m, out of which Asian countries account for 42% of the subscriber base, i.e. approximately 250 m. Even amongst Asian economies, the clear leaders are China and South Korea with a combined subscriber base of around 130 m (China has 100 m subscribers). And the Chinese base is growing at more than 20% per annum.

    Agreed that we have grown at a faster pace. But our base is a paltry 4 m or 1.6% of Asian base and 0.1% of the world base (per capita penetration of just 0.4%). Another interesting trend is that a key portion of the cellular subscribers abroad also use wireless Internet i.e. Internet trading (55% of cellular subscribers in South Korea, for instance, use mobile phones for internet trading) and other services. Japan’s NTT Docomo currently adds a million subscribers a month through its I-Mode technology. We on the other hand, have managed to add 1 m in a year’s time.

    Where do we stand?

    The cellular subscriber base in India had almost doubled in FY01, 91% growth to be precise, from 1.8 m to 3.6 m by March 31, 2001 and is still growing at a faster clip. The recent statistics from the Cellular Operators Association of India (COAI) indicate that in the first quarter of the current financial year (April-June 2001), cellular service providers (CSPs) have cumulatively added 500,867 subscribers, a growth of 14%.

    The cellular subscriber base in India had almost doubled in FY01, 91% growth to be precise, from 1.8 m to 3.6 m by March 31, 2001 and is still growing at a faster clip. The recent statistics from the Cellular Operators Association of India (COAI) indicate that in the first quarter of the current financial year (April-June 2001), cellular service providers (CSPs) have cumulatively added 500,867 subscribers, a growth of 14%.

    Ringing cellular base…
    (% growth) Feb'2001 Mar'2001 Apr'2001 May'2001 Jun'2001
    Delhi 6.7% 7.2% 3.6% 3.8% 4.4%
    Mumbai 3.3% 1.1% 4.6% 3.9% 7.3%
    Chennai 6.8% 13.5% 4.6% 6.0% 10.2%
    Calcutta 2.0% 0.2% 1.0% 5.4% 7.5%
    Total (metros) 4.7% 4.5% 3.7% 4.2% 6.4%
    All India 3,417,540 3,577,095 3,702,834 3,871,514 4,077,962
    % growth 4.4% 4.7% 3.5% 4.6% 5.3%

    The growth in subscriber base in the metros is higher than other circles. This is not surprising thanks to the continuous fall in airtime rates. Even amongst metros, Chennai’s subscriber base has almost doubled in the last six months (but Chennai has the lowest subscriber base compared to other metros).

    The ‘A’ circle, which constitutes comparatively developed states like Andhra Pradesh, Tamil Nadu, Gujarat, Maharashtra and Karnataka, has grown at a faster rate than the other two circles. The growth in subscriber base on a month-on-month basis is 1.5% for ‘A’ circle in June 2001 as compared to –3.4% and 0.4% for ‘B’ circle and ‘C’ respectively.

    Skewed performance…
    (% growth) Feb'2001 Mar'2001 Apr'2001 May'2001 Jun'2001
    A' circle 0.4% 1.2% 0.5% 1.0% 1.5%
    B' circle -1.4% -1.3% -0.9% -1.0% -3.4%
    C' circle 3.8% 1.4% -0.3% 1.3% 0.4%

    And if you think, Mahanagar Telephone Nigam Limited, the state owned CSP, is giving the private CSPs a run for their money, you may be way off the mark. Infact, MTNL’s cellular base has come down from 10,211 in March 2001 to 9,593 in June 2001 in Delhi, a fall of 6%. On the other hand, the number of subscribers has gone up by 10% in Mumbai to 8,867 m for MTNL. In effect, costs are only one aspect for the success of the cellular operators. The level of services plays a vital role in retaining customers, which MTNL seemingly is struggling to provide.

    Private CSPs have clearly differentiated by offering other value-added services like SMS, news over mobile and stock quotes. SMS, for instance, is a US$ 19 bn segment worldwide and CSPs have clearly understood the potential and are tapping it aggressively.

    The estimates of a five-fold increase in cellular base to 25 m by FY05 seem achievable if the current trend continues. All the existing cellular majors have applied for the fourth cellular license in an effort to provide pan-Indian service. If the TRAI and the government approve the CPP and WiLL, growth may even accelerate further.

    The Indian cellular segment, as we have said earlier also, is a clear-cut example of what competition could do for the country. If the government takes serious steps to replicate it in other segments within the telecom industry viz. basic, ILD and DLD, the Indian telecom industry can outpace other economies in the next ten years. The tele-density, as envisaged in the National Telecom Policy-1999, will also materialize for the first time. What we do not need is rules and regulations that prevent the scope of competition. But this worrisome trend has raised its ugly head in recent times.

     

     

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