Explosive Growth Continues for India's Mobile-Phone Market

How fast is India's mobile-phone market growing? So fast that Indian wireless carriers added approximately 4.7 million new subscribers in January alone, a new high mark for mobile-phone service growth in the nation, according to iSuppli Corp. So fast that the nation's mobile-phone subscriber base in 2005 grew at an astounding rate of 47 percent to reach approximately 75.3 million at the end of 2005, up from 48 million at the end of 2004.

So fast that the mobile-phone subscriber base in India will rise to 278 million in 2010, resulting in a cellular penetration rate of 23.9 percent of the nation's population.

So fast that India in 2005 emerged as the world's sixth-largest market in terms of mobile-phone subscribers, and will become the second largest in 2010, second only to China.

"The drivers of this remarkable growth include India's favorable regulatory climate, falling tariffs, slow growth in the deployment of wired telecommunications infrastructure and the wireless carriers' aggressive strategies to reach new areas of the country," said Dr. Jagdish Rebello, principal analyst, communications/optical components/India research with iSuppli Corp.

"Perhaps most importantly, India's mobile-phone adoption is being boosting by the rising financial fortunes of a large portion of the population. The nation's Gross Domestic Product (GDP) is expanding at an 8 percent annual rate, improving the economic situation for millions of Indian consumers," Rebello said.

India's wireless service rates are now among the lowest in the world. From their peak rate of around 50 cents per minute in 2003, mobile tariffs have decreased significantly and now are in the range of about 2 cents per minute. This decline in rates is expected to continue in the future.

Meanwhile, wireless carriers over the last two years have spread their networks in India's rural and semi-urban areas to tap the next wave of growth.

With about 70 percent of India's population living in small towns and villages, carriers now are planning to deploy cellular networks that will cover all 5,200 towns and half of the 600,000 villages by the end of 2006, thereby providing coverage to 75 percent of the Indian population.

Mobile-phone challenges

However, this expansion of mobile-phone coverage will provide economic, logistic and strategic challenges to cellular carriers that have until now targeted the affluent population and commercial segments of the urban areas-the proverbial low-hanging fruit.

As carriers expand coverage into rural India, they will be confronted with the daunting tasks of developing a countrywide infrastructure and improving and maintaining Quality of Service (QoS) while simultaneously dealing with the potential of dramatic decreases in Average Revenue Per User (ARPU), especially for new subscribers.

iSuppli believes that the keys to success will be adding new subscribers at a rapid pace and at a low acquisition cost, while simultaneously expanding sales of data services to existing customers.

The case for low-cost phones

The Indian mobile-phone market now is almost exclusively dependent upon imports. However, domestic manufacturing is picking up, with global handset makers announcing plans to establish local manufacturing units. A majority of mobile phones sold in the Indian market fall into the low-cost category and offer only basic features that primarily support voice services.

To cater to the unique demands of the Indian market, manufacturers have been developing phones with distinctive features, such as integrated flashlights and software that works in multiple local languages.

According to the Indian telecommunications minister, Dayanidhi Maran, mobile-phone companies now should consider launching a sub-$22 phone in India to make wireless communications more affordable for the masses.

Average mobile-phone prices already dropped by more than 70 percent from 1999 to 2004, making them more affordable.

iSuppli believes that the subscriber growth and phone demand in India will continue to be extremely price elastic and as handset prices in India continue to fall, the number of handset unit shipments will increase.

As this happens, the Indian market for mobile handsets will more than double between 2005 and 2010, making India a difficult market to ignore for global phone makers."

Posted to the site on 7th March 2006