Mobile penetration far from peaking, has miles to go

At the outset, the telecom sector has several ills gnawing away at its vitals — constantly fluctuating average revenue per user (Arpu), cut-throat tariffs, intense competition, falling profits, innumerable scams and faulty regulatory policies, to name some.

But it is nowhere near saturation point yet, experts would have us believe.

If anything, it is the urban pockets where subscriber additions have started peaking. But the rural markets are still wide open and inviting.

According to a Zee Research Group analysis, India struggled to keep pace with the earlier momentum last fiscal, suggesting saturation had set in.

In the 11 months intervening April 2011 and February 2012, India added 99.59 million wireless subscribers compared with 227.27 million additions logged in the corresponding year-ago period.

The net mobile subscriber addition in 2009-10, too, was higher at about 192.56 million.

The country, which had witnessed a high of about 23 million net wireless subscriber additions in November 2010, in fact, hit a low of about 7.5 million subscribers addition in February this year.
At the end of February, the wireless subscriber base stood at 911 million, whereas China is said to have crossed the one-billion subscribers mark as of end-March.

Subscriber additions have definitely slowed down, the numbers show.

It took 10 months to grow from the 800 million mark, reached in March 2011, to the 900 million mark, reached in January this year.
Growing from 700 million (October 2010) to 800 million had taken half that time — five months.

In fact, India has taken 10 months or more to add 100 million subscribers twice earlier — 14 months to reach 200 million (June 2006) from 100 million and 12 months to reach 300 million (August 2008).
“This should not surprise at all. Penetration of mobile connections in India has indeed reached the saturation point,” said Romal Shetty, telecom practice head at KPMG India.
For the record, the first million-subscriber mark was reached in 1998.

Shobhit Agarwal, managing director at Protiviti Consulting, a global consulting firm, too, said the decline in number of mobile subscriber additions was “on expected lines and points to the saturation in the market.”

Others, however, suggest the slowdown is mainly because of the operators’ urban focus.

“Most of the newer operators have built towers in urban areas, while in rural areas, there has been a slowdown (in erecting towers) for a year due to greater concentration on 3G. Even larger operators, who had a big play in rural areas, have now turned their focus to 3G, resulting in a slower network rollout in rural areas. Plus, it is more difficult to track rural subscriber additions.”

“However, rural areas present a yet untapped, virgin market share, where voice will continue to be the primary driver.”  
Some say operators are chasing revenues more than subscribers.

“While India added 10 million wireless subscribers last year, this year, subscriber additions were just six million. This points to the fact that new customer addition is no more a focus point; rather, it is retaining existing customers through better experience and larger variety of value-added services (VAS) that operators are now focusing on. There may well be just 2-3 years of growth left in terms of subscriber numbers,” said Mohammad Chowdhury, executive director, telecom
industry leader, PwC.    
 
As such, most incumbent operators are focusing on data rather than voice.

Another reason net additions have fallen is that there are fewer promotional schemes from operators, said KPMG’s Shetty.

According to him, earlier, with so many operators and intense competition in terms of attractive price points, subscribers used to take multiple SIM cards. By that logic, “the actual number of unique subscribers is just around 650 million, and not really 916 million.”
Yet another reason is the slower build-up of networks in certain areas, pointing to a growth curve of 100% penetration in Circle A, and 90% in Circles B and C —- the gap pointing to lack of network penetration in those areas.

Willy-nilly, therefore, the focus devolves upon the relatively uncharted rural areas.

“There has been a drop of 9-10 million subscriber additions per month, pointing to a 1% drop in net additions in the last 5-6 months. However, there are still vast opportunities to be tapped in the rural segment —- which till date has only around 35% penetration,” said Amitabh Singhal, director, Telxess Consulting, a telecom consultancy firm.

The operators can tap the rural potential through public-private partnerships, the Universal Service Obligation Fund and other incentives from the government, suggest experts.
Only, just as in 3G or 4G, content and differentiated service will be key, even in the rural areas.

“Bangladesh has been fairly successful in tapping rural markets with micro-financing, and this could boost rural mobile uptake as well. Services like mobile banking, mobile wallet, localised content for agriculture, farming, fishing, etc and offering content in regional languages will also go a long way in increasing market share from this segment. Besides, since most users in rural areas are pre-paid, less infrastructure at lower price points are needed to tap into this market. Thus, operators need only worry about variable costs in this market, as fixed costs are already taken care of,” said Shetty.

TRAI’s decision to make per-second billing mandatory for all operators could help here, too, he said. “It is a step in the right direction… the customer tends to pay lesser even if usage increases, as he only pays for what he consumes.”
Tak is with Zee Research Group