From Ovum, Melbourne, Australia and Wireless Intelligence, London, UK: two takes on India’s burgeoning mobile scene
Analysts size up the challenge and opportunity in the world’s fastest growing mobile market:
Ovum analyst Amit Gupta says: “Despite a huge rural population and low teledensity, the addressable market in the short to medium term is less than 200 million unique subscribers out of a total population of more than 800 million.” The reasons: low average returns per user and high costing of connecting the Indian hinterland. Needed: new, creative approaches -- like getting government and non telecom companies to foot part of the bill.
The Wireless Intelligence study says the total 3G market in India will reach 60 million by 2013 – but the benefits may not reach the cash –challenged rural customer because government has hiked the licensing levels for entry and made it too high. "Market conditions are difficult and telecom players will have to overcome the challenges presented by a dominant and price-sensitive prepaid market in which growth is driven by demand in unconnected rural areas," comments Joss Gillet
We bring you the full text of the releases from both agencies – and links to their sites.
OVUM: Rural challenge
According to a new report from Ovum, the global analyst and consulting company, rural India presents significant growth opportunities for the mobile industry. However, due to low ARPU and the higher cost of providing services in rural India, operators face the challenging task of serving these areas profitably.
”Due to huge population base, low teledensity and strong socio-economic developments, rural India is becoming an important growth frontier for the mobile industry”, said Amit Gupta, Principal Analyst, based in India. However, half of the rural population is too poor to afford even the cheapest handset, and among those who can afford one, a mobile phone is likely to be a family device as opposed to an individual one. “Despite a huge rural population and low teledensity, the addressable market in the short to medium term is less than 200 million unique subscribers out of a total population of more than 800 million.” explains Mr. Gupta, author of this research.
While low spending power of end customers has adverse impact on adoption and ARPU, limited electrification, a lack of backhaul and the poor state of road connectivity make deploying and operating a wireless network in rural areas expensive. Therefore, mobile business case in much of rural India is very challenging.
To overcome these challenges, operators need to shift their primary focus from increasing ARPU and penetration to maximising total revenue and profit from the servable rural subscribers. It can be achieved by adopting a comprehensive rural strategy comprising service & product innovation and operational excellence; partnering with the government, non-government organisations and non-telecoms players; and employing local entrepreneurs. “These levers are mutually reinforcing and can help industry players to meet the dual objectives of increasing revenues and reducing costs”, adds Amit Gupta.
The industry’s success in rural India so far can be attributed to efforts in the areas of service and product innovation, operational excellence, partnering with non-government organizations, and employing local entrepreneurs. “However, we believe that the industry needs to further explore partnership opportunities with the government and non-telecoms companies”, said Mr. Gupta.
Amit Gupta says, “Operators can circumvent the poverty constraints of rural India to a certain extent by forming partnerships with the government and non-telecoms companies to charge them, rather than the poor end customers, for providing mobile services”. “The government and non-telecoms companies get a reliable medium to connect with rural India, and operators get new revenue streams. It’s a win-win solution.” http://www.ovumkc.com/
Wireless Intelligence: 3G priced too high?
The high cost of acquiring Indian 3G spectrum in the country's forthcoming auctions will mean that many mobile operators will not see a return on their investment for at least three years, according to a new Wireless Intelligence study. It also found that 3G data services are likely to remain a niche offering in the short term targeting mainly affluent consumers and business users in the large cities of Chennai, Delhi, Kolkata and Mumbai (the so-called 'Metros').
The new Wireless Intelligence study - "Indian 3G Market Assessment" - forecasts that the total 3G market in India will reach 60 million connections by 2013. It predicts that leading GSM operators such as Bharti Airtel, Vodafone Essar, Idea Cellular and Reliance Group will acquire 2.1GHz 3G spectrum in the January 2010 auction and roll-out their first 3G services in fourth-quarter 2010. The two state-owned operators BSNL and MTNL have already received spectrum ahead of the private auction and are currently rolling-out 3G services.
However, the recent decision by the Indian government to almost double the reserve price for 2.1GHz licenses to INR35 billion (approx US$750 million) could affect operators' ability to extend their 3G networks to poorer rural areas. "3G operators will be expected to bridge the digital divide and contribute to India's economic and social growth, but market conditions are difficult and telecom players will have to overcome the challenges presented by a dominant and price-sensitive prepaid market in which growth is driven by demand in unconnected rural areas," commented Joss Gillet, Senior Analyst, Wireless Intelligence. "To trigger the fast adoption of high-speed network services, operators will have to focus on two key factors: affordability and availability. However, high license fees and the high cost of deploying 3G networks across the country means that return-on-investment is not likely to happen until operators have tapped the mid-term market potential, which we estimate will take at least three years."
One of the most important success factors for 3G in India will be network sharing between operators, the study says. Many current Indian GSM networks already deploy network sharing as a key strategy, especially to overcome long-term cost management issues, one of the best examples being the Indus Tower initiative between Bharti Airtel, Vodafone Essar and Idea Cellular. "We expect such initiatives to fuel the speed of adoption of 3G networks in rural areas and help operators to manage capital and operating expenditure," said Gillet.
The study also points to the slow adoption of BSNL and MTNL's 3G offerings to date as evidence that operators could struggle to market 3G services and devices at affordable price points. The two operators are forecast to reach a combined 3G connections base of just 280,000 by the end of 2009. "Even though mobile operators will focus on entry-level WCDMA devices below US$150, notably via partnerships with Original Design Manufacturers (ODMs), we expect them to target the high-end consumer segments at launch to counter inevitable collapsing margins," added Gillet. This early focus on affluent urban customers will mean the Metros will initially drive 3G growth but will be outpaced by demand in the A and B Circles towards the end of next year (see graph).
Wireless Intelligence predicts that during the initial phase of development, 2.1GHz networks will mainly be used to improve voice quality and reduce the existing congestion in the country's 2G networks. 3G data services are expected to remain a niche service in the short term, targeting specific market segments such as business users.
Oct 30 2009