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Telecom: Momentum intact - Views on News from Equitymaster
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  • Oct 8, 2004

    Telecom: Momentum intact

    The telecom sector is one of the sunshine sectors in the Indian currently and looking at the growth numbers (in subscribers) it is rightly so. The growth in subscriber additions continues at a fast pace and there have been certain signs of improvement in the monthly additions in the month of September. For the month of September the total additions in telecom subscriber base stood at nearly 2 m. Of these additions nearly 1.8 m belonged to the mobile services category, while the rest belonged to the basic services category. The overall teledensity has risen to over 8 currently.

    The graph above indicates the trend in subscriber additions in the last six months. The graph indicates that there has been no consistent rise in the monthly subscriber additions in 2004. This to an extent is a worrying trend as in a fast growing market like India, one would expect a consistent rise in subscriber growth. The volatile behaviour of subscriber additions can to an extent be attributed to the fact that the penetration of services in B and C class circles is still very low and telecom companies have not been able to spend on expanding their services in these circles.

    The biggest impediment for telecom companies currently is the high level of taxes and tariffs charged by the government. This has left most telecom companies with limited resources to grow in under penetrated circles. We are likely to see an improvement in monthly subscriber additions as and when telecom companies are in a position to expand operations further in the B and C circles. What this means is that the growth story in the telecom sector could get retarded. This means that the country would take more time to achieve telecom penetration standards seen in developed countries.

    Subscriber base (m) FY00 FY01 FY02 FY03 FY04
    Fixed 26.7 32.7 38.3 41.5 42.8
    YoY growth - 22.7% 17.2% 8.2% 3.3%
    Mobile 1.9 3.6 6.5 13.0 33.7
    YoY growth - 88.4% 82.7% 98.8% 159.2%

    If one were to look at the overall numbers for the telecom sector, the table above indicates the over subscriber base of both the mobile and fixed line segment over the years. The table indicates that while the mobile segment has been the growth driver for the whole sector, growth in fixed lines has slowed down considerably, indicating customer preference for mobile services. However in the last year or so the fixed line segment is witnessing renewed vigour, largely due to the introduction of fixed wireless services or WLL (F). Fixed wireless services are based on the CDMA technology and are gathering preference over traditional fixed line phones due to their independence from copper wires, which leads to some degree of convenience for the user.

    Overall the telecom sector growth story continues to be intact, however it remains to be seen how policy intervention can further facilitate in boosting the growth prospects of this sector going forward.



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