Hypercompetition to ruin Indian mobile market
India, the second largest wireless market after China, in terms of customer
base, is today going through possibly its most challenging time amidst
an uncertain regulatory environment, persistently high inflation, forex
fluctuations and sustained hypercompetitive activity.
Is the dream run over for mobile operators in India? This is the question posed by many, with the Indian telecom market being described as one of the toughest in the world. The second largest wireless market after China, in terms of customer base, is today going through possibly its most challenging time amidst an uncertain regulatory environment, persistently high inflation, forex fluctuations and sustained hypercompetitive activity.
Healthy competition is a win-win situation for all stakeholders; on the other hand hypercompetition only leads to ill health. And this is what the Indian telecom industry, with 12 to 13 players, has been staring at for the past few years. This has led to structural defects in the industry with abnormally high rotational churn. Resources are being pumped in for customer acquisition and they are being serviced at unsustainable price points.
In the recent past, we have seen mobile operators adding about 80 million new customers for eight million net additions. The situation is getting more precarious - in August 2012, we saw a dip in the gross additions itself. This indicates the 'use and throw' phenomenon prevailing in the market, that leads to excessive payouts by the telecom firms for SIMs and rotational churn. The monthly churn over a three-year period has nearly doubled to 12 to 13 per cent levels.
The other natural fallout of the hypercompetitive market has been the free fall in tariffs over the last three years, dropping by over 40 per cent. Tariffs in India are now among the lowest in the world. In fact, such a market has created unsustainable models where some telecom players are offering services at prices that do not even justify their marginal costs.
And, of course, the regulatory environment is certainly not helping. The proposed high price of spectrum, lack of transparent policies and absence of a long-term road map will be detrimental to the growth of the industry. In this gloom-doom scenario, is there the proverbial light at the end of the tunnel? I think it is impossible to ignore the numbers. Though the subscriber numbers for July 31 were pegged at 913.49 million, given the phenomenon of multi SIMs in the country, the number of active subscribers is pegged at 698.06 million based on the Visitor Location Register (VLR). We still have a large opportunity of over 500 million customers, especially in the rural market.
However, I think that for the telecom industry data will be the growth driver due to three key factors: Young India: India has one of the youngest populations in the world with more than 50 per cent below the age of 26 years. They are the early adopters of technology with a huge appetite for data consumption.
Under-penetration of data enabled devices: Smartphone penetration is on the rise and will lead to growth in data usage. Globally, while smartphones represent only 13 per cent of the total handsets in use, they account for over 78 per cent of the total handset data traffic. The figures in India are abysmally low (less than four per cent) and we are confident that with higher penetration, thanks to the right price points, data usage will get a big boost.
Underserved segment: Let us contrast the reach of mobile phones with other popular mass platforms - television (600 million), banks (500 million) and newspapers (180 million). Today 59 per cent of the Indian population is unbanked, with limited access to credit. In health, the situation is no better as India's number of physicians at 0.6 per 1,000 patients is way below the world average of 1.5. I see tremendous work happening in banking, health, gaming, education, etc, as applications and content are now becoming available on the ubiquitous mobile phone.
For data to become a reality, a significant amount of investment, capability building and a lot more spectrum is required. Investment in high-speed data networks, inherently different from 'voice', and backhaul capacity is critical for making India's virtual infrastructure compare with the best in the world. Moreover, it is unfair to expect a great data experience on the five megahertz (MHz) spectrum. In developing countries the play happens in the 80 to 100 Mhz range.
It is important that the industry gets clarity, and predictable, transparent policies along with a conducive regulatory framework are put in place to take the telecom industry to the next stage. It is equally important that we have healthy competition between four and five players - this is the reality the world over, unlike the hypercompetition prevailing in our market. Finally, pricing in the market needs to be in sync with the cost incurred - for the sustainability of the industry.
With all this, the India telecom industry can still live up to its potential.
The author is the CEO(India and South Asia), Bharti Airtel
Healthy competition is a win-win situation for all stakeholders; on the other hand hypercompetition only leads to ill health. And this is what the Indian telecom industry, with 12 to 13 players, has been staring at for the past few years. This has led to structural defects in the industry with abnormally high rotational churn. Resources are being pumped in for customer acquisition and they are being serviced at unsustainable price points.
Sanjay Kapoor
The other natural fallout of the hypercompetitive market has been the free fall in tariffs over the last three years, dropping by over 40 per cent. Tariffs in India are now among the lowest in the world. In fact, such a market has created unsustainable models where some telecom players are offering services at prices that do not even justify their marginal costs.
And, of course, the regulatory environment is certainly not helping. The proposed high price of spectrum, lack of transparent policies and absence of a long-term road map will be detrimental to the growth of the industry. In this gloom-doom scenario, is there the proverbial light at the end of the tunnel? I think it is impossible to ignore the numbers. Though the subscriber numbers for July 31 were pegged at 913.49 million, given the phenomenon of multi SIMs in the country, the number of active subscribers is pegged at 698.06 million based on the Visitor Location Register (VLR). We still have a large opportunity of over 500 million customers, especially in the rural market.
However, I think that for the telecom industry data will be the growth driver due to three key factors: Young India: India has one of the youngest populations in the world with more than 50 per cent below the age of 26 years. They are the early adopters of technology with a huge appetite for data consumption.
Under-penetration of data enabled devices: Smartphone penetration is on the rise and will lead to growth in data usage. Globally, while smartphones represent only 13 per cent of the total handsets in use, they account for over 78 per cent of the total handset data traffic. The figures in India are abysmally low (less than four per cent) and we are confident that with higher penetration, thanks to the right price points, data usage will get a big boost.
Underserved segment: Let us contrast the reach of mobile phones with other popular mass platforms - television (600 million), banks (500 million) and newspapers (180 million). Today 59 per cent of the Indian population is unbanked, with limited access to credit. In health, the situation is no better as India's number of physicians at 0.6 per 1,000 patients is way below the world average of 1.5. I see tremendous work happening in banking, health, gaming, education, etc, as applications and content are now becoming available on the ubiquitous mobile phone.
For data to become a reality, a significant amount of investment, capability building and a lot more spectrum is required. Investment in high-speed data networks, inherently different from 'voice', and backhaul capacity is critical for making India's virtual infrastructure compare with the best in the world. Moreover, it is unfair to expect a great data experience on the five megahertz (MHz) spectrum. In developing countries the play happens in the 80 to 100 Mhz range.
It is important that the industry gets clarity, and predictable, transparent policies along with a conducive regulatory framework are put in place to take the telecom industry to the next stage. It is equally important that we have healthy competition between four and five players - this is the reality the world over, unlike the hypercompetition prevailing in our market. Finally, pricing in the market needs to be in sync with the cost incurred - for the sustainability of the industry.
With all this, the India telecom industry can still live up to its potential.
The author is the CEO(India and South Asia), Bharti Airtel
