2012 India - Telecoms, Mobile, Broadband and Forecasts

India’s mobile sector finds itself in period of major uncertainty as 2G re-auction approaches

Whilst maintaining its ranking as one of the two largest telecom markets in the world –not surprisingly the other being China - India’s massive mobile market entered a period of uncertainty in 2012. A number of factors have contributed to this uncertainty which in turn was set to see some changes in the marketplace.The Supreme Court decision in February 2012 that resulted in the large scale cancellation of operator licences and the subsequent responses of the regulators to the court orders saw an increasingly nervous market.Indeed, the unfolding impact of the 2G scandal was looking grim for the mobile industry, with some operators either exiting or considering exiting the market.After a number of delays, the all-important re-auctioning of the cancelled 2G mobile licences had been set for late in 2012.

By mid-2012, there had also been another form of ‘shake out’ in the mobile subscriber market as operators culled inactive prepaid subscribers from their customer bases; this process had caused a dislocation in the subscriber statistics and it was evident that the market would need time to settle. Despite the difficulties, overall growth in the national subscriber base was expected to continue at a still strong rate. The mobile sector had passed the 900 million subscriber mark by early 2012; the number was just 10 million subscribers in 2002!

While the mobile subscriber base witnessed growth of around 20% annually coming into 2012, Average Revenue Per User (ARPU) had been steadily declining as competing operators offered cheaper tariffs; at the same time usage levels have remained reasonably high thus slowing the decline in revenues. There has been a major push in recent years to take mobile services into the poorer and rural areas of the country; this has also weighed heavily on ARPUs. But countering this trend, the long-awaited 3G licensing has seen networks across the country delivering mobile data services to customers. Although still struggling with coverage issues, 3G was finally starting to help operators boost revenue. In 2012 there were signs that the decline in ARPU was ‘bottoming out’ and some operators were reporting increased ARPUs.

In the meantime, the fixed-line market, which had grown strongly for a while, began experiencing zero and then negative growth. Fixed-line subscriber numbers stood at just over 30 million by early 2012. With less than 3% fixed-line penetration, India has nevertheless achieved a remarkable national coverage, with 98% of the population having some form of access to a telephone. It has been the heavy investment in telecoms infrastructure over the last decade,plus a number of key regulatory initiatives that havecombined to see India’s huge population delivered at least some level of telephone service.

In terms of online access, there has been a fresh effort by the government to promote broadband internet throughout the country; after a period in which broadband development languished, there was new hope for a serious expansion phase in this segment of the market. By mid-2012 there were around14 million fixed broadband subscribers – a lowly penetration (by population) of slightly more than1%. Meanwhile, the impact of mobile broadband was finally starting to filter through the market and in the medium term this was expected to lift broadband penetration significantly.

Although facing serious functional challenges, there is much that is positive to be found in India’s telecom industry. Sweeping reforms introduced by successive governments over the last decade or so have dramatically changed the nature of telecommunications in the country. A number of factors have been responsible for the amazing growth in India’s telecom sector; apart from the obvious booming economy and the rapid expansion in the country’s middle class, the growth drivers include low tariffs, low handset prices and most notably a highly competitive market created by the government and the regulator. The government continued to open the market up to more and more competition. The market in turn became home to a clutch of global operators working with local companies. The launch of Mobile Number Portability (MNP) in 2011 added yet another dimension to the intensely competitive market. The government has been continuing to push to complete the restructuring of the telecommunications regulatory regime.

The Telecom Regulatory Authority of India (TRAI) remains especially committed to further structural reforms. The adoption of Unified Licensing, a change in the Access Deficit Charge regime, and the encouragement of increased infrastructure sharing, especially towers for mobile networks, were all contributing to ongoing growth. Another important initiative has been the Indian government’s revised Foreign Direct Investment (FDI) policy which increased the foreign ownership cap from 49% to 74%. If anything it could be said that the regulation of the market has been overly enthusiastic; there being some signs that the market was starting to suffer from the complexity of the regulatory regime. In parallel with the regulatory change process, there has been a continuing evolution of the market through a series of mergers and takeovers among the mobile operators that has initially resulted in a welcome and productive consolidation. The opening up of the market to full scale competition has been both dramatic and effective; however, as already noted, major challenges remain.

Key highlights

• In 2012, growth in India’s mobile market was continuing, but more modestly than in previous years;
• By June 2012 the country 934 million mobile subscribers, for a penetration of 77% (Note: a statistical adjustment to mobile subscribers figures was imminent);
• The mobile market was likely to expand at an annual rate of between10% and 15% over2012/2013;
• GSM was strengthening its position as the dominant mobile technology over CDMA with 85% of the mobile subscriber market in 2012;
• The number of fixed broadband internet subscribers was steadily increasing, reaching 14 million for a penetration of just over 1% by population by mid-2012;
• DSL, whilst holding the major portion of the local fixed broadband market, was steadily losing market share to other non-DSL broadband platforms, especially to wireless broadband platforms;
• The markethad witnesseda large scale roll-out of 3G networks by operators across the country following the long-delayed licensing;
• However, 3G had not immediately delivered the expected boost to the market in terms of large scale adoption of mobile data services;
• Following the Supreme Court decision cancelling operator licences in February 2012, the re-auction of the relevant 2G licences was expected in late 2012;
• Batelco became the first foreign operator to exit the Indian market in the wake of the 2G scandal; a number of other operators are considering whether to rebid in the re-auction of 2G licences

India: - Key telecom subscribers – 2011 - 2012

(Source: BuddeComm)