Gartner says that it estimates that the Indian cellular services revenues were US$8.95 billion in 2006 and are projected to grow at a compound annual growth rate (CAGR) of 18.4 percent from 2007 to 2011 to reach US$25.617 billion. Data revenues will outpace growth of voice revenues and contribute 22 percent of revenue in 2011 from 9.6 percent in 2006.
India will continue to be the fastest growing country in APAC in terms of mobile telephony after China and promises to become more dynamic with the entry of Vodafone.
Madhusudan Gupta, senior research analyst, Gartner elaborated, "With more marginal users forming the bulk of the addressable market, low service costs and inexpensive handsets will help to unlock the inertia and facilitate adoption of mobile services. Call rates have reduced significantly to about 2.6 cents per minute. However, this remains high compared with fixed-line rates at 0.9 cents per minute. Gartner expects prices to drop in order to become more competitive with fixed-line rates, further lowering the barrier to entry. This trend, coupled with the emerging-market handset initiative by vendors and operators, will boost adoption of mobile services in India's semi urban and rural provinces."
Mobile Penetration in India
Mobile penetration in the rural market is low at 2 percent, but this represents an immense opportunity for the cellular service providers. Handset manufacturers are therefore concentrating on launching sub US$25 mobile handsets.
Businesses are expanding into India's smaller towns and cities where fixed-line connectivity is limited and often nonexistent. Enterprises will use mobile services for intra-company, as well as inter-company, communications. Gartner expects enterprise service plans offered by mobile services players to become distance independent. This will be a big incentive for companies to use mobile phones, not only because call rates are comparable to fixed-line rates, but also because of the benefit that mobility gives their employees, especially while travelling or in remote locations.
With these factors, cellular market penetration is projected to increase from 12.7 percent in 2006 to 38.6 percent in 2011. This overall penetration will primarily be driven by an increased focus on the rural market, aggressive promotions by the players and handset bundle offers. By 2011, Gartner expects 58 percent of the rural population and 95 percent of the urban population to be covered with mobile connections.
Connections - prepaid driving growth
Mobile connection growth in the Indian market is on an upward trajectory, and robust growth will continue until 2011. The market is forecast to grow 23 percent CAGR during the five-year forecast period, growing to more than 462 million connections.
The Indian market is driven by prepaid connections, which accounted for more than 84 percent in 2006 and expected to grow to more than 93 percent of the connection base by 2011. Therefore the voluntary churn rate in India is 30.6 percent (2006), and despite a maturing market the ratio is expected to go up to 41 percent in 2011.
Voice revenues versus data revenues
The revenues from data services will significantly contribute to the growth of overall cellular services revenues in India, with a CAGR of 36.8 percent in the forecast period.
Prepaid subscribers are expected to adopt data services faster than the post-paid segment. Data revenues for the prepaid segment are projected to grow at 46 percent CAGR during the forecast period as compared to 22 percent for the post-paid subscribers during the same period.
The bulk of the revenues will continue to come from voice services. However, with the increased growth in data services, the percentage of revenues coming from voice will reduce from 90 percent in 2006 to almost 78 percent in 2011.
Market and operator strategies
Large players will have an advantage as they expand their presence and take advantage of economies of scale. But they will face tremendous challenges in finding the right balance between yield and market share. Customers with low disposable incomes will form a significant proportion of the base. As a result, ARPUs (Average Revenue Per User)/Year will continue to decline through the forecast period. In 2006 the average ARPUs/Year of players was US$82.1, which will further reduce to US$59.5 by 2011.
"Operators will have to look beyond revenue growth to stem erosion of their bottom lines. They will need to adopt measures to optimize cost associated with business operations and network management. More operators are likely to collaborate in terms of infrastructure sharing and outsourcing their network management to equipment vendors and, possibly, system integrators," said Mr. Gupta.
In India spectrum remains a scarce resource and is tightly controlled. This could have an impact on expansion plans and the quality of service because of inadequate investment in or upgrading of the networks. Existing license conditions, such as a high revenue share, take away significant resources that could be used for investing in networks and market development activities.
Concluded Mr. Gupta, "With the intensifying competition, the release of 3G spectrum will help in bridging the gap generated because of lower voice tariffs and handset subsidies. The release of 3G will be essential to sustain the growth in the cellular services market."
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