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The mobile industry (both GSM plus CDMA) had a lot to cheer in FY 2004–05. In February 2004, worldwide mobile sub-scriber base crossed the one billion mark. Exactly, a year later, in February 2005, India crossed the 50 million mark in mobile services. And the next 50 million is not far off. It is expected that India will achieve that in FY 2006-07.

It was also a memorable year for mobile services as the number of mobile subscribers overtook the fixed line subscribers in October 2005.subscribers

The mobile industry has been growing in leaps and bounds and this year was no different. The industry grew by more than 50 percent in both revenue terms as well as number. In terms of total additions, the country added 17.9 million mobile lines of which GSM contributed around 14.8 million lines whereas CDMA contributed around 3.1 million lines. In terms of monthly addition, the industry added around 1.5 million lines on an average.

FY 2004–05 was mainly an expansion year for mobile operators in the country. Tata Teleservices, Bharti Tele-Ventures, and Hutch all expanded their services in a big way in the B and C category circles. BSNL and Reliance Infocomm expanded their services in terms of newer towns and cities in the existing circles. Operators not only increased their coverage area but also expanded their services in terms of new geographies, i.e., new towns and cities. As of March 2005, the country had around 118 mobile networks (inclusive of GSM plus CDMA) with presence in around 3,000 towns.

Indian mobile industry is estimated to be around Rs 23,284 crore ($5.2 billion) in FY 2004–05, an increase of 63 percent. Last year the Indian mobile industry, as per V&D estimates, was around Rs 14,267 crore ($3.2 billion). With numbers increasing, all major operators grew between 45 percent and 86 percent. It was also a remarkable year for a majority of the operators as they consolidated their acquisitions from the last year and also expanded to new geographies in the existing circles.

In terms of numbers, the industry moved from 34.42 million lines to 52.35 million lines. In terms of growth, mobile industry witnessed a net growth of around 52 percent. GSM grew by around 57 percent whereas CDMA grew by around 38 percent.

Operators having all-India footprint did pretty well, with Bharti, Reliance, and BSNL crossing the 10 million mark. In subscriber terms, all the national operators were very close to each other. Bharti led the race with 10.98 million, followed by Reliance with 10.45 million, and BSNL had around 10.16 million. In revenue terms, Bharti led the race and was followed by Hutch, Reliance, and BSNL.

The top five operators, both in subscriber terms as well as revenue terms, contribute around 85 percent of the revenue. This proves the point that small and niche operators have to align with large operators or face the risk of being bought over sooner or later. It is expected that in FY 2005–06, the industry will witness another round of acquisitions leading to further consolidation. This will also result in increase of contribution, to the total revenue, from the top five operators to the 85 to 90 percent band.

Top Mobile Operators (Based on Revenue) Rank Company/Group Revenues (in Rs crore) Growth FY 2004-05 FY 2003-04 (in %age) 1 Bharti Tele-Ventures 5,436 4-Dec 67 2 Hutch 4,365 24-May 62 3 Reliance Group 4,089 2,571 59 4 BSNL 3,700 6-Jun 86 5 Idea Cellular 2,409 1,663* 45 6 BPL Group 1,012 29-Dec 39 7 Aircel 741 9-Jan 98 8 Spice 706 3-Jun 36 9 Tata Teleservices Group 523 9-Sep 107 10 MTNL 287 5-Jul 53 11 HFCL Infotel 10 12-Jan -17 12 Shyam Telelink 6 11-Jan -45 Total 23,284 22-Jan 63 *includes Escotel revenue V&D estimates CyberMedia Research

In India, prepaid dominates the market with around 75–70 percent of the total base whereas post paid contributes around 25–30 percent. In terms of churn, the number is at around 8–10 percent of the total base.

Players
In the mobile services space, Bharti is numero uno with market share of 21 percent in subscriber terms and 23 percent in revenue terms. In FY 2004–05, Bharti netted a revenue of Rs 5,436 crore. Bharti's achievement can be attributed to excellent marketing coupled with continuous innovation and an aggressive approach. Presently, majority of Bharti's revenue comes from old circles, which contribute around 98 percent to it. The company also launched services in new circles like Uttar Pradesh (east), West Bengal, Jammu & Kashmir, Bihar, Orissa, Assam, and the Northeast. All these circles are new in terms of operations and contribute around two percent. In FY 2005–06, there would be increased contributions by new circles.

V&D estimates CyberMedia Research

Hutch is at number two position with revenues of Rs 4,365 crore, though in subscriber terms, the company is at fourth position. Hutch has around 18.7 percent market share in revenue terms and 14.9 percent in subscriber term. Hutch's achievement can be attributed to its selective approach of going only to the metros and A and B category circles. The company is hardly present in C category circles and this gives a distinct advantage to the company in terms of ARPU. It has the highest ARPU among all Indian operators, thanks also due to its strong focus on value-added services.

Hutch India is part of Hutchison Telecommunications International, a leading global provider of telecommunication services, which currently serves around nine markets globally of which India is one. In FY 2004–05, the company expanded its operations in three more circles taking the overall tally to 14 circles. However, Hutch is still not present in lucrative circles like Maharashtra and Kerala, and C category circles like Assam, Northeast, MP, Bihar, Orissa, HP, and J&K. In order to have pan-India operations, the company is on the look out for circles through the acquisition route. Though things were moving in the right direction with the Aircel acquisition, it was mutually terminated in FY 2004–05.

Reliance has done pretty well both on the revenue as well as number fronts. Within two years, the company is in the 10 million club. In terms of revenue, the company has done good with Rs 4,089 crore. The company expanded its operations in around 1,400 cities and plans are to afoot reach 5,700 by March 2006.

It is among few companies in the world to report net profit within two years of starting telecom operations, majority of which is in mobile services. In order to rectify mistakes of the past, the company conducted a major exercise and initiated a large churn of around one million subscribers as there were issues of credit worthiness and errors in subscriber data. Now, with the cleaned up operations and clouds of family feud no longer hanging over it, one will see a lot of movement in Reliance.

With the telecom operations of Reliance coming under Anil Ambani, the company has decided to set up a holding company called Anil Dhirubhai Ambani Enterprises, which will have ownership of Reliance Infocomm, Reliance Energy, and Reliance Capital.

BSNL comes fourth with revenues of Rs 3,700 crore and commands around 15.9 percent market share. In subscriber terms, the company has done exceptionally well and is ranked third with market share of around 19.4 percent. The company has done pretty well in the northern and southern regions. The break up of its 10 million is: 1.6 million from eastern zone, 2.1 million from western zone, 2.6 million from northern zone, and 3.7 million from southern zone. In terms of coverage, BSNL has an excellent coverage as far as of district headquarters, national highways, and state highways. The company also has a well spread-out network.

BSNL believes in plain vanilla voice service but this is not what the industry believes. Non-voice services contribute an increasingly significant portion at around 6 percent for the industry as a whole. And that's the reason it has very low ARPUs in comparison to its counterparts. The company has to move at a fast pace and tie up with content providers for non-voice based services. BSNL also has to improve on the marketing front if it plans to generate significant revenues from mobile operations. Presently, mobile revenues of BSNL are not commensurate with its investment plans.

BSNL is also introducing new technologies on the wireless front, to enable broadband services through the wireless media. To a limited extent, data services on mobiles are available on GPRS, which will get augmented further by EDGE deployment, which is part of the 15 million cellular rollout plan.

V&D estimates CyberMedia Research

Idea Cellular is on the fifth spot with revenues of Rs 2,409 crore and has a market share of around 10 percent. In subscriber terms, the company has crossed the five million mark. FY 2004–05 was a turnaround year for the company as it successfully managed the Escotel acquisition and moved into a bigger league with operations in around eight circles. The company is also planning to launch services in circles of Rajasthan, Himachal Pradesh, and UP (E). Idea's success can be attributed to its excellent quality of service, wider distribution reach, and innovative tariff. Having done pretty well in the existing circles, the company is actively focusing on new circles and planning to double VAS revenues.

Tata Teleservices, the unified service operator, has grown by around 73 percent (in number terms) but the company has to do a lot to secure its place in the Top 5 Club. Last year, the company was in expansion mode and launched services in many circles. Now, with infrastructure in place, the company can ramp up its base quickly if it shows more aggression in marketing.

V&D estimates CyberMedia Research

MTNL, with its lucrative circles of Delhi and Mumbai, is unable to do any wonders and still suffers from the public sector syndrome. The company is yet to achieve the million mark and still relies completely on voice and low ARPU customers. The company needs a complete makeover, an apparently impossible task for MTNL.

Next in the list are companies that contribute around 14–15 percent, both in numbers as well as revenue terms. These are small operators working in two or more circles. For example, BPL is focused more on the west and south India, Aircel has its presence in Tamil Nadu, and Spice is operational in the lucrative circles of Punjab and Karnataka. All these companies are vulnerable to acquisition as they do not have enough financial power to compete with the top players. The industry will see another round of acquisition of these players so that top operators can consolidate their positions in the Indian market.

Small-time operators cannot compete with large operators on the pricing front so they have to look for niches in which they can operate comfortably and provide value for their customers.

Investment
Indian mobile operators have already invested a lot, and plan to invest more once 3G deployments happen in FY 2006–07. An increased coverage in semi-urban and rural areas will lead to significant rise in capex.

In terms of investment, Indian service providers can raise money from foreign service providers or strategic investors as government has given a go ahead to the much-awaited increase in FDI cap in telecom from 49 percent to 74 percent. An official notification in this regard is expected any time soon.

Bharti has invested around Rs 12,479 crore as on March 2005 for creating its mobile infrastructure in all the 23 telecom circles. Last year, the company invested around Rs 2,983 crore in the mobile sector. This year, for expansion in newer towns plus increased capacity, the company is planning to invest Rs 2,673 crore.

Last year, Hutch invested around Rs 1,400 crore and in FY 2005–06, the investment will be in the range of Rs 2,000 crore for building new areas and increasing capacity in new circles.

Reliance Infocomm had invested more than Rs 14,000 crore as of March 2005, of which majority was for mobile infrastructure.

BSNL is investing a lot. The company is adding 15 million lines and plans are afoot for expanding another 40 million lines.

Idea invested close to Rs 650 crore in FY 2004–05 and plans to invest around Rs 1,300 crore for new circles plus new towns and cities in the existing circles.

Raising money for running operations is not a problem. Having expanded, companies are now looking at the IPO route to raise money from the market. As per plan, Hutch had postponed its IPO for the second half of 2005. Even Idea and Reliance Infocomm are planning an IPO in FY 2005–06 but nothing concrete has been worked out yet.

Non-voice Revenue
Presently, a major chunk of the revenue comes from voice telephony and only around six percent comes from non-voice. Non-voice revenue sources include: SMS, caller tunes, wallpaper and video clip downloads, ring tones, live TV, MMS, games, and directory services. According to VOICE&DATA, the non-voice revenue is estimated at around Rs 1,397 crore. In FY 2005–06, non-voice revenues would be to the tune of around 8–9 percent of the total revenue, as most operators have aggressive plans for increasing non-voice revenues.

In FY 2004–05, many operators launched GPRS and EDGE services in select cities but the response was lukewarm. EDGE failed due to low speed, lack of applications, and unavailability of handsets. With the launch of 3G, one can expect a better speed for Internet access, multiplayer gaming, and live TV. But service providers will have to figure out how to lower the cost of 3G handsets, which are presently at $400–500 in the global market.

In order to increase non-voice revenues, service providers are focusing more on: SMS-based applications, EDGE PC cards for Internet access, entertainment-based content, sports-based content, and directory services. Operators are also working on creating service delivery platforms (SDP) for content as it will help in increasing non-voice revenue. SDPs will have modules for: device configuration, differentiated billing platforms, authentication, and digital rights management. The platform would be useful for all-service providers, content developers, and users.

Service providers are also focusing on enterprise applications based on mobile platform and this trend is catching up. Internet access using data cards through mobile phones (both CDMA and GSM) has increased. With its pan-India network, Reliance Infocomm is the leading operator for providing Internet access through mobile phones. Bharti launched Blackberry service for e-mail messaging and the device is slowly gaining acceptability in the corporate world.

On the voice front, Push to Talk was launched by Tata Teleservices and Hutch. But its deployment is very limited.

Hutch has the highest ARPU among all operators thanks to its strong focus on new technologies and non-voice applications. The company claims its ARPU has remain stable despite intense competition in the Indian market.

New Entrants
Presently, India has around a dozen operators but we are seeing lot of new operators and strategic investors eagerly waiting to take a plunge in the Indian market. The time is not far off when many more large mobile operators from all over the world will make their presence felt in India.

In cellular services, companies are opting for new licenses in B and C category circles where mobile penetration is low and the number of operators is also quiet less. Essar Spacetel has applied for seven cellular licenses in the circles of Madhya Pradesh, Himachal Pradesh, Orissa, Bihar, Assam, North East, and Jammu & Kashmir. The company is owned 100 percent by the Ruias of Essar.

On the other hand, Dishnet, owned by Shivashankaran, is also planning to increase its number of circles. The company is a step ahead in comparison to Essar and has procured licenses in north and east. The circles that Dishnet has opted for are: Madhya Pradesh, West Bengal, Uttar Pradesh (East), Uttar Pradesh (West), Bihar, Orissa, Jammu & Kashmir, Himachal Pradesh, Assam, and Northeast. The company is still awaiting license for Madhya Pradesh, Uttar Pradesh (East) and Uttar Pradesh (West). While Essar Spacetel is planning to start its operation by Diwali, Dishnet is planning to launch services in a few circles in couple of months. Idea Cellular is also planning to launch services in Rajasthan, UP (E), and HP in couple of months.

Conclusion
India has set a target of 250 million subscribers, which is to be achieved by 2007. Mobiles will contribute the most to this growth. It is also true that majority of the new subscriber addition will come from semi-urban and rural areas, as presently the rural areas have a tele-density of around two. In order to achieve the above numbers, the industry has to expand services in smaller towns and cities, drop handset prices, and create an effective distribution channel.

All service providers are gearing for achieving this mammoth target laid out by the ministry of communications. Presently, service providers are sharing around 25–30 percent of new infrastructure which they plan to increase in future. Till date, only private operators have been sharing infrastructure but even government operators should start sharing infrastructure so that rural areas can benefit in terms of cellular coverage.

On the handset front, Motorola has recently launched handsets at Rs 1,700 but if we are planning to achieve 250 million, we have to bring down the prices further and see if handsets can be made available at sub Rs 1,000. Focus should be also on multilingual handsets supporting Indian languages. With local manufacturing, India will see a lot many models supporting local languages. Service providers also have to work on lower denomination recharge coupons so that the services are affordable in rural areas. Focus should be also on creating an effective rural distribution channel.

Indian service providers strongly believe in the number game but now they should start focusing more on quality of service parameters too, as it will help in giving them more ARPU with increased focus on data services.

The 3G services are not far off and it is expected that India will see some 3G deployment in 2006. But the big question is: will 3G help in achieving voice efficiencies and also provide cost efficiencies that GPRS and EDGE have failed to deliver?

Pravin Prashant