Apr 25 2012

Indian Telecom Sector – An Analyst View

The Indian Telecom Sector has grown by leaps and bounds over the last decade. The growth has been explosive in the wireless segment with teledensity levels reaching 75.42% overall and the subscriber base reaching 911.17 million at the end of Feb 2012 from 893.84 million at the end of Dec 2011. Even more impressive is the teledensity figures for the urban areas, which has crossed 162.61%. To the contrary, the teledensity figures for rural areas remain at around 37.62%. However, the fact that the rural segment is the fastest growing in terms of subscriber base is encouraging. With 68.84% of India’s population living in rural areas, this presents a huge opportunity for the telecom sector.

The wireless segment can be broadly classified into GSM and CDMA segments based on the underlying technology. The GSM segment holds the majority of subscribers with 785.97 million at the end of Dec 2011. The remaining 107.88 million subscribers use CDMA based services.

While the GSM segment is seeing a consistent increase in the number of subscribers, the CDMA segment is seeing a reduction. The CDMA wireless segment saw a decrease from 112.42 million at end of Sept 2011 to 107.88 million at the end of Dec 2011. In contrast the figures for GSM are 761.20 million and 785.97 million for Sept and Dec 2011 respectively.

The overall wireless market and consequently the GSM market is led by Bharti Airtel which held 19.62% at the end of Feb 2012. It is followed by Reliance Communications, which holds 16.68% of the market and is also the leader in the CDMA segment. In the GSM segment, Bharti Airtel is closely followed by Vodafone and Idea while Tata and Sistema follow Reliance Communications in the CDMA segment.

Looking at the subscriber additions in the past few months, Idea and Uninor were seeing the maximum additions while those of established players like Airtel and Vodafone had somewhat flattened. However, with the cancellation of 2G licenses by the Supreme Court, Bharti Airtel once again came to the forefront with an impressive 2.50 million subscribers added in March 2012, compared to 1.82 million in Feb 2012. Idea and Uninor, which had led the subscriber additions with 2.58 and 2.34 million additions in Feb 2012 alone, saw the impact of 2G license cancellations with reduced additions of 2.01 and 1.29 million respectively in March 2012.

With many subscribers opting for multiple SIM’s, it would be prudent to consider the VLR data of active subscribers released by TRAI to understand customer preference to operators. The data shows an active subscriber base of 670.65 million for Feb 2012, which is 73.6% of the subscriber base reported by the telecom companies. Further analysis of the data reveals that the proportion of VLR base to the reported subscriber base is maximum (around 90%) for established players like Airtel, Idea and Vodafone whereas it is close to 60% and less for new entrants like Uninor. It can be inferred that despite having the maximum subscriber additions over the past few months, the actual proportion of active users is quite less when compared to the incumbents.

While the overall industry outlook has been positive in terms of the subscriber additions and penetration levels, the same cannot be said for the revenue front. Heavy competition has led to a massive reduction in tariff levels, which has put a dent in the revenues of operators. The ARPU data has shown a downward trend over the years. This has been seen for both GSM and CDMA segments. While a slight increase has been seen over the Sept-Dec 2011 quarter, this is attributed to the tariff rise that was implemented by the operators.

The telecom sector is now looking at increasing their revenues by offering advanced services such as 3G, Mobile Value Added Services and 4G. This shift in focus from the core voice based service is seen in view of the commoditization of the voice services. Operators are introducing data-based services through which they can command a premium and bolster their revenues. While the offering of 3G based services in India has seen some hiccups, it is expected that growth in the near future will be high, facilitated by better quality of service from operators as well as through the availability of cheaper 3G enabled handsets.

Telecom Companies in India have also faced regulatory hurdles pertaining to the spectrum auction. With the Supreme Court cancelling all of the 122 2G licenses under question in the scam, many new entrants are now left with no option but to withdraw, or to participate in the fresh auctions and incur additional cost. All this is expected to burden the consumer in the form of tariff increase.

In order to gain deeper insights into the Indian Telecom Sector, Aaum is undertaking a three phased research

The first phase would involve gathering the Indian customer’s preferences. This data will tell us about unfulfilled gaps between customer requirements and services offered by telecom operators. At the same time, it will also provide us with an insight about the acceptance levels of new initiatives like 3G, Mobile VAS and 4G

The second phase would involve interactions with telecom operators. These interactions will help us gain a holistic understanding of their strategy, focus markets and future plans.

In the third phase we would interact with the regulator(TRAI) in order to get an insight into the regulatory scenario and future changes/initiatives by the Government of India.

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