techforce

Niira Radia's arrest and the phone tapping incident opened a murky tale of lobbying and corruption in the Indian Telephone industry. The 2G and 3G licenses were      auctioned and the investigation succeeding the arrests have put the loss to the exchequer at around Rs. 1,700,000,000!

This isn’t a political post so I am not going to bore you all with the murky details of the political/business nexus and its ramifications on the Indian politics in general and Government in particular. So let's leave that part as it is.

So what is the good news and the bad news purely business wise?

The good news is - The Subscriber base is increasing

The bad news is -  ARPUs are decreasing.

In detail...

ARPUs are basically Average Revenue per User/month. As of Q4 2010, the Average Revenue Per User/month has dipped to a meagre Rs. 126.52. Compare this to the Rs. 315.97 of Q4 2007. The revenues have dipped 300% in 3 years. So what is the purpose? Why would you be in a business which brings down your revenues by 300% in 3 years? Why would 13 new companies scamper and lobby and use what not, tricks to get into telecom sector in India?

Let's keep the answer on hold for the time being.

The Indian cellular subscribers for the Q4 2010, stood at 543 million. In the same era, when the ARPU was 126, the subscriber base was 288 million. (source: http://articles.economictimes.indiatimes.com/2009-04-13/news/27663782_1_mtnl-s-gsm-lakh-subscribers-subscriber-base) That's almost 100% increase in the subscriber base and mind you, we are talking about not one, not two, but in hundreds of millions!

Peter Drucker says “The purpose of a business is to create customers. Of customers are there, your product is viable and if your product is viable, the sustainability is there.”

So, the Indian Mobile penetration as of date stands at, 70% right now and is expected to reach 97% in 3 years time. We are talking about roughly 300 million more users to be added in 3 years.

I have taken 3 years as a benchmark to move from one era to the another because that's exactly the age, the cellular business is taking for reaching the NEXT level.

What are we looking at? We are looking at two business models emerging now. First for the urban consumers and the second for the rural consumers.

Urban consumers, who have matured in telecom language, are looking for more out of their phones. They are looking at phones as solutions and not just a voice communication tool. Smartphone sales are galloping in the urban localities. They are generating the need for mobile web, office solutions, applications, social media. A combination of many factors. The monthly bills are soaring up. ARPUs from the urban cities are again clawing their way up. It's touching 300 right now and with 3G coming, it's bound to go up.

Rural markets are getting used to the text based services. Mobile Agri and Mobile Money. Text based services are trying to push the revenues up from the rural penetration which is having an ARPU of Rs. 98 barely.

You will also see lot of consolidation. Many of the recent 2G entrants entered just to en-cash on their investments with no intentions whatsoever of pursuing this business. Take a look at some.

1. Unitech is a Real Estate major. (Company : Uninor).
2. DB Realty is a Real Estate Major. ( Company : Etisalat DB).
3. Videocon is a Consumer Durables major. ( Company : Datacom).

Telecom in no way will become their core business. These are just investments to be sold to foreign JV partners at a higher valuation. Much much higher valuation. Then in 3 years time, you will majorly see, 5-6 active players playing the game.

And THAT’S the time, the ARPUs will go up! I expect the APRUs to settle between 350-450 nationally in about 5-7 years time. Pushed by increased call rates, data, value added services and most importantly texts! ( Tomi Ahonen will do his SMS dance but yes, the Indian Market is moving that way :) )

That means, revenues of close to Rs. 400 billion. Probably this coupled with the lucrative exits for the recent entrants make this a lucrative market overall.

That answers the question asked before!

Thanks for dropping by! :)

------- Ashutosh Tiwary

Ashutosh sometimes writes for http://ashutoshtiwary.com  He lives in Pune, India and is very interested in gadgets, social media, driving, and listening to old classic rock songs. Europe being his favorite. Find his great chats on Twitter @aktiwary