Telecom companies dial country numbers as urban growth slows

The famous Indian telecom juggernaut is slowing down. With the urban pockets getting saturated and competition intense, subscriber addition has lost a fair bit of pace, forcing mobile telephony firms to drive deeper into the cost-conscious countryside to keep the numbers growing.

Going by latest data from the Telecom Regulatory Authority of India (Trai), from about 23 million new subscribers in November 2010, the rate of addition came down to 13 million in May.

“Industry subscriber net adds have declined meaningfully... likely driven by market saturation, especially in urban markets and lower aggression and high churn rate for challengers,” noted Shobit Khare and Nirav Podar, telecom analysts at Mumbai-based brokerage Motilal Oswal Securities Ltd.

As of May, urban India had a teledensity of 154%, meaning every city resident had more than one mobile telephone connection.
In comparison, teledensity in rural India is still at 34%, implying a lot of headroom for telecom companies to grow.

The hinterland has so far got lesser priority as expanding coverage there requires higher investment and the rural subscribers do not spend as much time on their phones as their urban brethren, implying less revenue for the telcos. However, that’s changing now.

In May, for instance, the rural subscriber base grew at a faster pace of 2.2% compared with 1.3% for urban subscribers. Rural subscribers have grown from being just about 27% of country’s total wireless subscribers two years ago to about 33%.

Slowing urban subscriber growth also means that Indian telcos will now have to aggressively drive specific revenue channels rather than just driving subscriber growth and expecting a direct translation to revenue growth.

“We believe traffic growth and data revenue contribution would be key revenue drivers rather than subscriber net adds, going forward,” Khare and Podar of Motilal Oswal said in the report.
Larger operators such as Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications are all betting on the recently launched third generation or 3G services for high-speed data connectivity to generate new streams of revenues.

In fact, in the first few months of launch, operators have been able to get over 6 million subscribers — almost all in urban areas — to subscribe to 3G services. To be sure, some of the initial users have been attracted to the data services as operators
are offering promotional schemes at highly discounted tariffs or even free for limited periods of time.