Cellular: The Showstopper

The Indian mobile services industry is moving in full swing, be it
investment, subscriber number, technology, or VAS. Also, the industry is coming
up with innovative ways to lower their cost of operations, as it helps in
maintaining their bottom line. Apart from this, cut-throat competition in terms
of technology (CDMA v/s GSM) as well as among the service providers has pushed
the industry to innovate. This has benefited the consumer.

Not only services providers, even the handset vendors are facing tough
competition, as all the major handset manufacturers are present in the country.
The vendors have launched products at attractive prices and are also trying to
get an increased share of the pie by packaging it along with services, making it
more affordable. All this has helped the industry make quantum growth.        

India has been performing better than China in terms of subscriber additions
from last few months. China launched its mobile services in 1988 whereas India
started it in 1995. In terms of additions, China has been adding around 4-5 mn
subscribers every month, after 13 years of its service. But India has been able
to do in the 11th year of its service. All this speaks about the high demand
from December 2005 onwards and it is still continuing. 

If one looks at statistics, it is also heartwarming. Metros like Delhi,
Mumbai and states such as Gujarat have crossed the 5 mn mark and it seems
majority of A circles have already achieved this mark. Some of the A circles
like Andhra Pradesh and Tamil Nadu will achieve this mark in another couple of
months. On the operator side, Hutch Gujarat leads the pack with 2.26 mn
subscribers followed by Bharti Airtel in Karnataka  (2.13 mn), Bharti Airtel in Delhi (2.07 mn), and Hutch Essar
in Mumbai (2 mn).

Numbers Speak

In terms of subscriber number, the cellular services industry has improved
from last year. In FY 2004-05, the net additions were around 18 mn whereas in FY
2005-06, the net additions were around 38.5 mn, an increase of 114%. On
cumulative basis, India has grown by 73.5% taking the overall tally to 90.8 mn.
Of this, GSM contributes 76% whereas CDMA contributes 24%. The industry has
added 38.5 mn mobile lines ie around 3.2 mn lines every month and around 90,000
connections every month. As every month, 4-5 mn lines are being added, growth
continues even in the year 2006.

Becasue of this, lot of requests came from operators to start services in new
circles. The large-scale expansion taken up by all the operators in smaller
cities and towns is the main reason for this outstanding growth. The launch in
new circles by Tata Teleservices and Aircel have also given a thrust to this
boom. As of March 2006, the country had around 127 mobile networks (inclusive of
GSM and CDMA) circles, which is an increase of around 8%.

In terms of subscriber growth, Tata Teleservices Group led with 345% followed
by MTNL with 105%. All the top five players grew more than 45%. Bharti Airtel
led the group with 19.5 mn subscribers followed by BSNL with 18.4 mn and
Reliance Communications with 17.3 mn subscribers.

According to VOICE&DATA, the cellular services industry for FY 2005-06 is
estimated to be around Rs 35,879 crore ($8 bn), an increase of 57.5%. In FY
2004-05, the mobile services revenue was Rs 22,787 crore. All the top five
players grew by more than 31% whereas Tata Teleservices Group outpaced everybody
and grew by 259%.

In terms of revenue, Bharti Airtel leads the group, whereas Hutch, Reliance
Group and BSNL are neck and neck with revenues of more than Rs 6,500 crore. Tata
Teleservices Group has done pretty well and has moved up considerably, thanks to
their aggressive strategy.            

The top five operators, both in subscriber as well as revenue terms
contribute around 86%, an increase of one unit point from FY 2004-05 figures. It
seems Indian operations are mainly for pan India operator. And, all the regional
operators have pan-India ambitions, be it Idea, Aircel, or Spice.

Investment friendly policy

Several announcements were made relating to policy change. Some of the
prominent ones were increase of FDI ceiling from 49% to 74%, change of ADC from
per minute charges to revenue share, and mobile number portability. FDI ceiling
increment has led to an increase in FDI in mobile services whereas ADC has
resulted in reduction of mobile tariffs in the country.

V&D Estimates               CyberMedia Research

On the policy front, per minute ADC on domestic calls was changed to revenue
share regime. And the percentage charged is 1.5% of AGR (adjusted gross
revenue). With 74% FDI, India has seen huge investments from players like
Vodafone in Bharti Airtel, Temasek Holdings in Tata Teleservices, Orascom in
HTIL, Maxis in Aircel, and Telekom Malyasia Berhad in Spice.

Vodafone Group secured around 10% interest in Bharti Tele-Ventures for an
investment of approximately Rs 6,700 crore. Temasek Holdings (Temasek), through
its wholly owned subsidiary, Aranda Investments (Mauritius) has taken a 9.9%
stake in Tata Teleservices for an undisclosed amount. Maxis has invested 26% in
the enlarged share capital of the Aircel Group for $280 mn. And later, Maxis
along with an Indian partner is planning to acquire the remaining 74% for Aircel
for $800 mn. Maxis acquired additional 34% for $422 mn and rest 35% through SPV
for $378 mn. Telekom Malaysia Berhad has acquired 49% stake in Spice
Communications for $178.8 mn.

The Players

Bharti leads the table both in terms of subscribers as well as revenue. In
terms of subscribers, it has a market share of 21.5% whereas on revenue front it
is 22.1%. With 19.5 mn subscribers, the company has netted Rs 7,928 crore from
mobile services. All this has been possible because of its large network spread
in all telecom circles of the country.  

The company is planning to take lead in non-voice revenue, which is around
10%. To tap the potential of this area, the company introduced 'Hello Tunes'
by bringing over 18,000 songs in 20 different languages to its customers. And
all this is paying off.

On capex part, the company has spent around Rs 4,159 crore in mobile services
for FY 2005-06. Till date, the cumulative investment in mobile services comes to
around Rs 15,923 crore. 

It was an excellent year for Hutchison Essar as the company grew organically
as well as through acquisitions. In September 2005, it acquired BPL Mumbai and
three circles of BPL Cellular ie circles of Maharashtra, Tamil Nadu, and Kerala
for $1,154 mn. With this, the company is operational in approximately 72% of
India's population. The company also acquired Essar Spacetel, which has
license to operate in seven circles-Madhya Pradesh, North East, Himachal
Pradesh, Bihar, Orissa, Assam, and Jammu & Kashmir for $6 mn. So, with these
two acquisitions, the company will have a presence in all 23 circles. The
company has completed acquisition of BPL Cellular whereas BPL Mumbai is still
subject to regulatory approval. All this has resulted in good jump on
subscription numbers from 6.2 mn to 15.3 mn in 16 circles. 

In terms of revenue, Hutch stands at number two with revenue of around Rs
6,837 crore. But in terms of subscribers, it stands at number four with
subscriber base of 15.36 mn. Being the only pure play operator among the top
four mobile payers in the country, it has positioned itself as a premium brand
and therefore has the highest ARPU among all the operators. The increase in ARPU
is also due to complete suite of VAS.  Services
launched in 2005 as part of VAS are, multiplayer gaming, SMS tones, Hutch
alerts, video tones, corporate Hutchmail and mobile karaoke.

Recently, the company has changed its logo and is a combination of bright
pink and petrol blue. The new logo is the natural evolution of the Hutch brand
in India.

On the capex part, the company plans to double its network in 2006. It plans
to spend around Rs 6,000 crore. The investment will be in existing circles, BPL
circles and new circles, where services are not operational.

Reliance Communications ranks third in subscriber and fourth in revenue. The
company has a total mobile base of around 17.3 mn of which around 79.3% belongs
to the pre-paid category. Mojority of its customers come from CDMA whereas GSM
contributes around 1.9 mn lines.

V&D Estimates                       CyberMedia Research

On revenue part, the company has grown by around 63% to net revenues of Rs
6,673 crore. In terms of coverage, the company provides services in 3,824
(4,500) towns and around 242,814 non-census towns and villages. Till FY 2005-06,
the company has invested around Rs 14,799 crore in wireless and presently has
built a network of 30 mn. It also has a wide distribution network over 1,500
owned and operated Reliance WebWorld, in and around 700 towns.

In terms of subscriber addition, the company has done well. It has been
adding around one million subscribers each month from December 2005 to March
2006, thanks to lifetime free incoming scheme. In January, 2006, the company
broke the circle barrier and launched India's flat rate plan for national long
distance.

In terms of data subscribers, Reliance Communications has the largest base at
around 6.4 mn customers whereas the strength of wireless Internet users is at
around 320,440. And in future, one can expect an increase in data subscribers.
Presently, the ARPU for Reliance customers is in the range of around Rs 379. And
this is comparatively low with respect to GSM operators as non-voice revenue
contributes around 6.1% only. On the other hand, minutes of usage come around Rs
532 per subscriber every month.

Recently, the company has also changed its logo and it is now Reliance Apex,
depicted in blue and red. The logo conveys, the spirit of excellence, the urge
for progress, the human desire to reach higher, and the resolve to shape a
better future.

Thanks to subscribers' additions, BSNL has improved its position and is
ranked number two with a base of 18.45 mn. The company has grown by 82% in terms
of subscriber addition. BSNL has also done equally well on revenue and has
netted Rs 6,574 crore. It is sitting comfortable at number four. Quite strong in
B and C category circles, the company has done well, thanks to its wide reach.
Its reach is incomparable to that of any other private operator in the country.

V&D Estimates CyberMedia Research

Idea is placed at number five both in terms of subscriber and revenue. It has
a cumulative base of 7.37 mn and has added 2.3 mn mobile subscribers in FY
2005-06. On revenue front, the company has grown by 31% to net revenues of Rs
2,966 crore.  

Being a mid size player, the company has provided a commendable service,
thanks to its expansion and infrastructure sharing strategy. Idea is present in
1,944 towns and plans are afoot to rollout services in three new circles. Last
year, the company invested around Rs 1,200 crore in capex whereas plans are to
invest around Rs 2,800 crore in FY 2006-07. Plans are to launch services in UP
(East), Rajasthan and Himachal Pradesh by September 2006.      

Recently, Idea's equity structure has been reconstituted. Presently Birla
Group has a combined holding of around 98.3%.

Tata Teleservices made some aggressive moves that paid off well

It was an outstanding year for Tata Teleservices as the company made its
presence in 20 circles by launching its services in 12 circles, and added 3.76
mn subscribers. The company has a presence in 2,500 towns and it plans to
increase it to 4,000 by FY 2006-07. 

This year Tata Teleservices made some aggressive moves and those moves paid
off well. In terms of revenue, Tata Teleservices Group netted Rs 1,878 crore, an
increase of 259%.

Tata Indicom was the first operator in the country, which redefined the
prepaid market by launching non-stop mobile whereby incoming calls are free for
two years. And this scheme generated good returns, as the company added around
one million subscribers in 45 days.

Till date, the company has invested around Rs 15,000 crore. It further plans
to invest round Rs 4,000-5,000 crore in FY 2006-07. While other operators are
still planning their rural strategy, Tata Teleservices has started implementing
it. The company plans to invest around Rs 1,000 crore to boost its rural reach
by setting up 3,000 base stations in the country.   

In addition to existing circles of Chennai and Tamil Nadu, Aircel launched
its services in five new circles-Jammu & Kashmir (August 2005), Assam and
North East (November 2005), and West Bengal and Orissa (March 2006). The company
expects to roll out services in five new circles of Bihar, Himachal Pradesh,
Madhya Pradesh, UP (East), and UP (West) by the year end.

The company performed well and netted revenue of Rs 880 crore in FY 2005-06.
In terms of coverage, Aircel is present in 858 towns. The company plans to
invest around Rs 2,140 crore for supporting its existing and additional circles.     

Operational in two circles, the company has grown by 21% to net revenue of Rs
855 crore. In terms of coverage, Spice Telecom provides service in around 205
towns and cities in Punjab, covering 95% of the state's area. In addition it
also covers more than 3,250 km of roads and highways. Operational in Punjab and
Karnataka, Spice Telecom has applied for licences in six circles-Jammu and
Kashmir, Haryana, Rajasthan, Himachal Pradesh, UP (East), and UP (West). 

HFCL Infotel and Shyam Telelink have focused their attention more on fixed
service and left mobile space for integrated and mobile players.

In terms of the number of mobile user, India has joined the 100 mn Mobile
Club. India ranks fifth and is placed after China, the US, Japan and Russia.
India's achievement in the mobile space can be attributed to its low tariff
and low handset cost. The lowering of costs has made total cost of ownership
more affordable for the masses. This is evident from the fact that India has
been adding around 4-5 mn mobile connections every month. And it seems, India
will move close to the magical figure of 250 mn mobile users by 2007 and around
500 mn by 2010, as targeted by the DoT.

On the technological side, things are moving as per the plan. It is expected
that defense will vacate the spectrum by the year-end. So one can expect 3G
services to be available in 2007. Service providers have already started the
background work for 3G. But for some it is wait and watch approach, as the cost
of handset as well as services is still not affordable to a large chunk of
premium subscribers. Focus on content development should be the priority for
making 3G a success in India.

Pravin Prashant


pravinp@cybermedia.co.in