MOBILE SERVICE: High on Numbers, Low on Revenues

As of September 18, 2005, almost one third of the global population was
subscribing to mobile phone connections. According to the Wireless Intelligence
setup by GSM Association and consulting firm Ovum, now there are over two
billion mobile subscribers globally.

The success of wireless mobile technologies can be gauged from the fact that
while it took almost 20 years to cross the one billion mark-this happened in
2002-the next one billion were added in just three years. And, surprisingly,
estimates indicate that the next billion would take another five years and the
'three billion mobile subscribers' milestone would come only in 2010.

It is estimated that by 2010 there would be 3 billion mobile subscribers

The reason for the rapid growth in the mobile subscriber base has been
largely attributed to the spurt of mobile connections in the China and India
market. Though these two are the fastest growing markets, they are well
supported by the large untapped markets in Eastern Europe, Latin America and
Africa. While many West European and Scandinavian countries have almost 100
percent mobile penetration, it is the lesser-developed Asian, African, Latin
American and East European markets where the growth actually lies.

While there are several countries like Sweden, Italy, Austria and UK, where
the market penetration is over 100 percent of the population, the bulk of new
growth is coming from large, less developed, markets such as China, India,
Eastern Europe, Latin America and Africa.

All these numbers are good news for the equipment manufacturers, especially
in India where the tele-density has just crossed 10 and a huge chunk of
population, especially in the rural areas, remain untapped. Till August 2005,
India had almost 62 million mobile and 47 million fixed line phones. With
analysts predicting a compound annual growth rate of over 31 percent and targets
of 150 million mobile subscriber base by 2007, India would no doubt have its own
share in the 3 billion pie.

However, between all this number crunching two things have come to the
forefront. One that GSM, as a wireless technology, still has over 75 percent of
the global market and CDMA, though gaining subscribers as a fast pace, is seen
more as an efficient 3G technology suitable for wireless data. On the other
hand, analysts agree that the 'two-billion' figure might be deceptive, as
the number may not fully translate into user base. Especially in price sensitive
markets like India, where multiple and non used connections would also form
large chunk of the subscriber base.

Already mobile operators in India are struggling to keep up the ever-sliding
average revenue per users. Operators are still not very keen in investing and
spreading their networks to the low return but huge rural markets. Unlike many
European, US, Japan, Korea and few South East Asian market, the ARPU in many
developing markets is less than $10. The Monsoon Hungama plan from Reliance has
proved that low cost can drive numbers but not necessarily drive revenue
returns.

Today, getting the subscriber numbers might not be difficult in any of the
growing markets irrespective of the network technology. Converting this 'two-billion'
into users who pay and can help maintain bottomlines of the operators, is an
uphill task. Though there are talks of 3G being round the corner, the fact
remains that in many markets, including India, 2G is still struggling to sustain
itself. The outsourcing moves by Bharti Tele-Ventures are indicators of the kind
of planning done in board rooms, to cut down on capex and opex with increasing
subscriber base.

Perhaps the mobile phone industry is a classic example of volumes not able to
give good RoI to operators. Today, mobile phones have proved that they are more
than just status symbols; they are increasingly becoming an integral part of the
common man's life. However, the operators have to make him use his mobile
handset as more than just a pager. He has to be shown the data applications
beyond SMS and ring tones. In countries where this realization has come,
operators are happy in serving high ARPU, small subscriber base, when compared
to China or India. This is where we have to think of reversing the 80:20 rule,
which currently means 20 percent of the subscribers sustaining the remaining 80
percent. Unless this happens, the 'two-billion' or 'three-billion' would
remain inks on the study reports with little to cheer on the revenue side.

Anurag Prasad