Fastest growing industry, maximum no of players, cheapest rates, lowest revenue per minute and frequent reforms – I am talking about Indian Telecom Industry. Just less than a decade and half in India, mobile industry has won accolades of being the most promising and aggressive initiator of new technologies and reforms. Everybody in the world wants to have a pie of Indian telecom market, reason being with a tele density hovering around 20% there are tons to explore. Not even half the potential market is captured by the existing players and this makes them crazy to make path breaking offers like low cost handset to lowest ever tariffs so as to acquire untapped market before it is too late. The ultimate result is unprecedented growth for the industry and a win- win situation for the consumer. Let’s look into some of the unique features of the Indian telecom world which sends shivers down the spine of domestic as well as international telecom arena to grab more and more potential market and which makes Indian Telecom Industry different from the rest of the world.

Fastest growing telecom market in the world

In consonance with our economic growth, Indian Telecom Industry is one of the fastest growing telecom markets in the world. Currently India is the fourth largest market in the world after US, China and Russia adding close to 6 millions subscribers every month over the period of last six months. If we continue to grow at this pace we are poised to rise to second position by the end of this year. Our tele density is as low as 20% compared to that of US and a few European countries which have already surpassed the magical 100%. There is a cut throat competition in countries having higher density with regard to service and network. In case of high density countries, a subscriber will churn from the network, primarily if there is congestion in network and secondary due to low tariffs. As the market is already saturated in such high density countries there is little scope for business. To acquire every new customer, there need to be a churn in someone else’ network and the new operator has to break its bone by providing world class network. This makes the countries with high density a less wanted destination for the telecom operators compared to India. On the contrary, 80% of the mass in India is unaddressed which is driving all the attention to India. The primary issue for the operators in India is to capture the untapped market by offering the services at throw away prices. Once the market gets saturated, the role of network and after sales service which is now secondary unlike in high density countries will automatically become primary and a slight congestion or deficiency in network and after sales service will lead to churn. But the real challenge for Indian operators lies in rolling out in rural areas with the dual achievement of business viability as well as offering the quality service at affordable prices where we can see more of action in days to come.

Lowest tariff rates and high usage leading to low ARPU

• India is the highest user of Cell phones in the Asia Pacific region.
• Every minute India uses on phone comes cheapest in the world.
• Average Revenue per User (ARPU) is constantly falling and Revenue per minute is lowest in India.
To be very precise we stand at second position with 461 minutes when chatting on phone is concerned and only United States is ahead of us with a usage of 838 minutes. Sounds a bit odd – irrespective of the fact that we are the second most frequent user of tele network in the world, the ARPU is constantly falling. In lines with a perfect business model, the only reason for this is our tariffs which are lowest in the world. The nerve wrecking competition to grab more and more numbers is driving the tariffs to rock bottom. After the entry of Vodafone by acquiring Hutch, the competition has further revved up. I have never witnessed such a price war where the charges are just halved by one operator and the competition retaliates by further cutting the price to another half and thus bringing it down to one – fourth of original price. We may doubt of operators offering low tariffs and next day the tariffs which are beyond imagination are floated in the air. You never know, Indian operators may pay back money to subscriber for using their network in spite of charging them for usage.

Maximum taxing on revenue but lowest tariff

India telecom companies are taxed most compared to rest of the globe. There is a link between high usage and low ARPU which is lowest tariffs. But we don’t have anything to explain the same for maximum taxes on revenue but still lowest tariffs in the world. This reveals the craziness of the telecom players in the Indian market. This is just a tribute to the operators that tariffs are lowest even after being taxed maximum by the regulatory bodies basically DoT and Government of India.

A major chunk of their revenue goes into the coffer of government in the form multiple levies namely license fee, spectrum charges, access deficit charges, sales tax, custom duty, stamp duty, Octroi, Service Tax, VAT. It comprises approximately 30% of the revenue where as other Asian Countries are paying just 5-7 % of their revenue to the government.

Maximum number of operators

We have maximum number of operators compared to the rest of the world. This brings with itself ‘good news’ for the consumer and simultaneously ‘bad news’ for the industry. It is good news for consumer as it keeps the companies on their toes and competition at its height. The presence of more operators leaves no room for forming cartel and exploiting consumer. This can be further substantiated by the fact that average EBITDA margin for a Chinese Telecom Company is around 50% while we are hovering around 30%.

There is a great need for consolidation in telecom sector in India as in some of the circles we have as many as eight operators. As a result, the synergy effect can not be taken care of due to lack of consolidation. Rumors are rife regarding possible merger of IDEA, SPICE and AIRCEL. Consolidation will also give some relief to the companies and bring price stability in Indian Telecom World.

Co – existence of CDMA and GSM technology

In Cellular space there are two main technologies, namely Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). CDMA which is the original and oldest technology in telecom world is adopted very widely and plays a dominant role in Asian countries and parts of North America .CDMA consistently provides better capacity for voice and data communications than other commercial mobile technologies, allowing more subscribers to connect at any given time, and it is the common platform on which 3G technologies are built. In case of huge data transmission CDMA is always preferred over the new GSM technology. However, GSM networks continue to make inroads in the United States, as CDMA networks make progress in other parts of the world. There are camps on both sides that firmly believe either GSM or CDMA architecture is superior to the other. India is the only country where both GSM & CDMA coexist in the proportion of 70:30.

All said and done, we are growing at a great pace but there are some hurdles which are hindering the success story. Amidst this good news, the industry continues to struggle through uncertainties of spectrum and an onerous tax regime, which affects future planning, costs and consumer access. But TRAI and DOT is continuously monitoring things and liberalization is on its way as new telecom minister, Mr. Raja rightly pointed out in his opening speech on being appointed as the new telecom minister.

(The author is a Chartered Accountant working with TATA Teleservices Limited)

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