Indian subscriber boom spawns new players

10 Mar 2008

Expanding by eight million subscribers a month, the Indian market is poised to overtake the US as the second-largest mobile market by May this year. However, not all is well as operators scramble to boost ARPU and profitability to survive.

While industry pundits are talking about a wave of consolidation and operators are searching for ways to differentiate, there is no stopping new operators from entering this space. That is because, even as ARPU is low, EBITDA margins are high. Thanks to the high valuations of Bharti Airtel and Reliance Communications, investors that are flush with cash and in completely unrelated businesses are flocking to the sector.

'The pressure is getting very high, and India will see a lot of spending in this sector, ' says Bruce Richardson, chief research officer at AMR Research. 'This could lead to a price war.'
True enough, India's leading mobile operator Bharti Airtel last January shifted all prepaid users to a 2.5-cents-a-minute scheme from the earlier 5-cents-a-minute plan. A month later, Reliance, the second largest operator, came up with a lifetime mobile scheme that offered connectivity at $5 with calls priced at 2.5 cents a minute.

Bharti and Reliance together represent 95 million or 40% of India's 237 million mobile subscribers, out of which 90% are prepaid subscribers.

Competition is driving India's biggest operators to cut prices to please consumers, who have ARPU of just $7.90 per month. Over the next few months, competition will tighten even more in the world's fastest-growing mobile market, which in the past 12 months has added 83 million new subscribers.

The Department of Telecommunications recently allocated 4.4-MHz of GSM spectrum to Reliance, Idea Cellular, Vodafone Essar and Maxis Aircel. Once these operators start services by the third quarter, there will be eight operators across India (six GSM and two CDMA) or double the number of current leading operators.

Further, the DoT has issued 121 letters of intent that will allow another five new national players to provide services across India. These include a venture of Shyam Telelink with Russia's Sistema, BPL Mobile's Loop Telecom and Swan Telecom. Even real estate firm Unitech and electronics major Videocon's subsidiary Datacom have been allotted LoIs.

When these further additions start services, the Indian consumer can choose among 13 service providers. There is no other big market globally that offers such a wide range of choice to subscribers.

'It is at a time like this that a lot of restructuring happens and innovative offerings as well as stress on quality takes place,' Richardson said.

However, the problems for the big Indian operators do not end with new competition. Starting April 1, number portability will be operational initially in the four metropolitan cities of Delhi, Mumbai, Kolkata and Chennai. By the end of 2008, this will be gradually extended to cover the entire country. New players could nip off high-paying subscribers from existing operators' portfolio.

The rules of competition are going to change phenomenally, but well-entrenched players like Bharti are not worried. 'It will not affect our margins,' Bharti Airtel chairman and managing director Sunil Bharti Mittal has said. 'We are hopeful that the margins will increase as Bharti's network would attract high-value customers from CDMA networks.'

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