CELLULAR SERVICE: High Growth, Low Margins

The
year was truly eventful for the Indian cellular industry. While the industry, in
terms of regulatory issues, had to be content with a hide-and-seek of hope and
despair, the subscribers had a field day, with tariffs dropping by about 30
percent or so, and more importantly the mobile-to-mobile STD rates getting
really affordable. To sum up, it was a year of higher subscriber numbers, higher
revenues, almost static billed ARPU, much lower net ARPU, and continued pressure
on margins.

Subscriber Base

The total subscriber base as on 31 March 2003 stood at 12.69 million, almost
doubling (97.3 percent growth) from a figure of 6.43 million on 31 March 2002.
Significantly, the growth rate exceeded the previous year’s growth rate of
79.8 percent by almost 10 percentage points, though part of it could be
attributed to the entry of BSNL and new operators.

With the entry of BSNL and other new players, circles grew by a whopping
113.5 percent while metros grew by an impressive 72.8 percent. Expectedly, the
share of subscriber base in metros dropped from 40 percent in the previous year
to about 34.9 percent as on 31 March 2003. Delhi continues to lead the cellular
table with about 1.8 million subscribers, while Mumbai has 1.68 million
subscribers. Together, these two metros accounted for almost one-fifth (19.5
percent to be precise) of the total mobile market. Among the states, Gujarat was
the only state to breach the 1 million mark, with about 1.04 million subscribers
as on 31 March 2003.

Bharti continued to be Operator No. 1, with 3.07 million subscribers, or
about 24.2 percent of total subscribers. Its base grew about 127 percent,
significantly higher than the industry average. However, BSNL, with 2.25 million
additions, accounted for the lion’s share of the net additions–about 36
percent. The behemoth grew by 15,000 percent in terms of subscribers.

Top Companies - Revenue
Rank	Company	Revenue (Rs crore)	Market Share
1	Bharti Cellular Ltd	2,084.36
2	Hutchison Group	1,735.00
3	Idea Cellular	1,080.00
4	BPL Group	963
5	Spice Communications	550
6	BSNL	430
7	Reliance	367
8	Escotel	322
9	Aircel	230
10	RPG Cellular	166
	Others	376
V&D estimates CyberMedia Research

Revenues

The mobile services market in India was Rs 8,303 crore in FY 2002—03. That
was 50.5 percent up over last year’s figure of Rs 5,515.9 crore. Though the
growth rate seems more impressive than that of the last year despite falling
prices, this has come largely because of new operators in general and BSNL in
particular.

Bharti Cellular, with a sales turnover of Rs 2,084.36 crore, was the No. 1
mobile company in India, followed by Hutchison Group with revenues of Rs 1,735
crore. Idea was at the third place with revenues of Rs 1,080 crore. These three
account for a staggering 59 percent of the industry’s total revenue.

The average revenue per user (ARPU) continued to fall with more subscribers
being added at the low end. The ARPU for India was about Rs 597 per month, down
from Rs 780 per month in 2001—02. This figure indicates the net ARPU. The
billed ARPU was about Rs 764 per month, which is due to the comparatively higher
usage of STD from mobile.

For the first year, SMS accounted for a significant percentage of mobile
operators revenue at around 3.7 percent. This, incidentally, was higher in some
of the class-B circles. The percentage contribution of SMS is both due to the
growth in usage as well as due to the fact that SMS prices did not drop, whereas
voice tariffs saw a major decline. Also, ringtone downloads and other
content-based services contributed to higher per SMS revenues.

Interestingly, the falling ARPU does not tell the story of growth in usage.
The usage grew considerably to reach on an average 290 minutes per month,
compared to about 200 minutes per month last year.

Industry

The regulatory changes kept the industry busy. The fear of CDMA and Reliance
brought the industry together to challenge the fixed service operators. However,
the fear, as it turned out to be, was short lived, as Reliance failed to make a
major dent in the cellcos’ subscriber base due to a faulty start. Starting
with a different way, it could provide a major competition this year.

The industry also saw incoming calls becoming free. However, with
calling-party-pays regime and higher IUC charges, the industry did find some
solace.

The losses, however, are mounting and if data services and other value-added
services do not take off, the industry may well head for more difficult times.

Shyamanuja Das