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India's first drop in mobile subscriber base just a blip

Despite India suffering its first ever drop in mobile subscriber numbers in July, analysts believe market is far from saturation and telcos are on track to tap new growth opportunities.
Written by Liau Yun Qing, Contributor

India sees its first ever decline in mobile subscriber number in July but analysts note that it is not a cause for worry for telcos and the market has not reached saturation.

Last week, the Telecom Regulatory Authority of India (TRAI) reported that the total number of mobile subscribers in India decreased from 934.09 million in June to 913.49 million in July. The number of fixed line subscribers stayed fairly flat at 31 million.

The agency said the drop was "large scale disconnections by some of the service providers" while a TRAI official told Times of India: "This is the first time we have seen decline in overall subscriber base."

Despite the decrease, analysts noted that it is not a cause for worry for Indian telcos. Serene Chan, industry analyst for ICT at Frost & Sullivan in Asia Pacific, said the decline does not mean market saturation as there is still plenty of room to grow for Indian operators.

"We have earlier projected a user penetration rate of 47.8 percent in India by the end of this year, meaning that there are still 650 million people without any mobile service," Chan said.

Shiv Putcha, principal analyst for emerging markets at Ovum, added that the Indian telecom sector is undergoing a transition after several years of high growth. "Some players have exited the market and we expect further consolidation among those remaining after the upcoming auctions and new telecom policy becoming final," Putcha said.

Why a drop in subscriber number?
Chan explained that the decrease in mobile subscriber number was due to two reasons. Reliance Communications had removed 20.5 million inactive mobile users from its subscriber base to release blocked resources of number series.

Since inactive subscribers do not contribute to any revenue growth beyond boosting subscriber numbers for an operator, she said the drop in number count is not worrying.

Another possible reason for the decline was also due to the departure of some smaller operators. "For instance, Etisalat, Swan Telecom have left the industry while joint ventures such as Telenor and Sistema are looking into selling their stakes to make a complete exit in India," she said.

However, this may ultimately have had a insignificant impact as those subscribers of smaller operators may have moved on to bigger operators that offered greater assurance on their services which brought a boom to other operators, she added. "Mobile operators such as Bharti Airtel and Vodafone reported 1.5 million and 1.2 million additional subscribers respectively," said Chan.

Ovum's Putcha added that mobile number portability has an increasing impact as users switch to different telcos, which would have meant consumers had less reason to hold on to multiple SIM cards.

Regulator needs to better support telecom industry
Chan noted that the decrease in subscriber numbers was also partly due to the lack of support from regulator TRAI which damped the confidence of telco players in the country.

"For instance, the regulator is pricing the current 2G auction at an overwhelmingly high starting price of US$2.5 billion. The regulator has to decide whether they want to generate a windfall from the telco sector or to use it an enabler for growth for the economy," she said, adding that reactions of the operators seem to suggest the first.

"Since the large number of players in India would be bidding aggressively for the same block of 2G spectrum, it would be increasingly challenging for operators especially the smaller ones outside of the top four to support additional subscribers without compromising on their quality of service," she said.

How telcos can boost revenue
Putcha noted that operators in India are now far less tolerant of low average revenue per user (ARPU) subscribers and are looking for ways to increase their tariffs.

"Indian telcos are switching focus, to some degree, away from new subscribers towards a higher quality of subscriber. Tariffs have increased in some segments, acquisition costs are being managed better and dealer commissions getting cut and so on," he said.

The Ovum analyst shared in an earlier report in July that the ARPU for India in 2012 was US$1.6, compared with an ARPU of US$48.5 for the United States. A telco in China such as China Unicom's mobile had an ARPU of 2011 was 47 yuan (US$7.4), noted a separate report by Ovum.

Frost & Sullivan's Chan added that the top players such as Bharti, Vodafone, Idea Cellular and Reliance have been adopting right measures to attract new subscribers. These operators are leveraging the popularity of affordable Google Android-based smartphones to drive the take up of mobile broadband which will bring higher returns for them.

Price should not be the only competitive differentiator for operators, said Chan. "Operators need to create awareness and educate their subscribers on the value of mobile broadband in simple non-technical language, which includes informing subscribers on the types of content such as popular songs, movies, local news or mobile games that are assessable only via mobile broadband services.

"The relationship cultivated in creating awareness would put operators in a better position to drive industry convergence in offering differentiated services such as mobile payment and mobile banking successfully," she added

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