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Bells finally ring louder for Indian telecom in 2007

Date: 12/26/2007 3:01:54 PM

By Arvind Padmanabhan, New Delhi, Dec 25: With seveneight million new subscribers joining the network each month, 2007 saw India emerge as one of the fastest growing telecom markets in the world, attracting not just global service providers like Britainbased Vodafone but also forcing handset makers like Nokia to hike production capacities within 18 months of setting up their operations in the country.

And the statistics speak for themselves. Driven mainly by the mobile telephone operators since the volume of fixedline users dropped by over one million in 2007 subscribers not only benefited from across the board cuts in tariffs but also saw handset costs drop sharply.

A mobile phone handset is available for as low as $25 in the country today, with manufacturers even talking about base phones for less than $18. Similarly, from a basic tariff of Rs.16.80 (42 cents) per local call 15 years ago, the average cost is now as low as Rs.1 (less than 2 cents).

As a result, the total subscriber base of phone users jumped to 264.77 million towards the end of November, with indications that the year will end with total phone connections of nearly 275 million from under 190 million in 2006.

The telephone density too more than doubled from 11.43 percent in December 2006 to 23.21 percent as at endNovember, exceeding the target of 21 percent much ahead of schedule. As a result, accounting and consultancy major PriceWaterhouseCoopers said India emerged as the third largest telecom market in the world in 2007.

"With about 215 million mobile subscribers today, India is the fastestgrowing market in the world," said the consultancy firm Boston Consulting Group in a report released this month titled "Ringing in the Next Billion Mobile Consumers: A Roadmap for Accelerating Telecom Growth in India".

"Indian mobile operators are already blazing a trail and have among the leanest operating models. As they get ready to embrace the next billion, they will need to innovate further," the consultancys director Arvind Subramanian added.

In this, the allocation of radio spectrum, which has divided the industry like never before, is an issue that needs to be addressed amicably and fast, experts maintain.

Giving a global picture, Boston Consulting Group said even though only about 1 in 20 of the first 2 billion mobile subscribers in the world live in India, as many as 1 in 4 of the next billion subscribers will be Indian.

The year also saw the telecom boom story throwing up its own set of surprises. Going by recent data compiled by industry watchdog Telecom Regulatory Authority of India (TRAI), the growth this time was powered with an equal fervour by rural areas, once regarded as a lowend, lowvolume market with modest purchasing power.

"Of the next 250 million users who will go mobile, as many as 100 million will be in rural India," said watchdog chairman Nripendra Misra. "The next big growth opportunity will be in the hinterland," Misra told IANS. Twothirds of Indias 1.17 billion population lives in rural areas or in its 600,000 villages.

In fact, rural mobile subscribers now account for close to 25 percent, or around onefourth, of the total mobile user base in India.

Little wonder then global consultancies, like Gartner, have made fairytalelike projections for the Indian telecom market. The USheadquartered tech research firm says revenues of the Indian mobile phone segment will exceed $25 billion in four years, growing at 22 percent annually.

"With more marginal users forming the bulk of addressable market, low service costs and inexpensive handsets will help to unlock the inertia and facilitate adoption of mobile services," said the firms senior analyst Madhusudan Gupta.

"This trend, coupled with the emergingmarket handset initiative by vendors and operators, will boost adoption of mobile services in Indias semiurban and rural provinces."

The year also saw a major consolidation in the business, led by Vodafone, which created a major global buzz when it acquired a controlling stake in Indias 3rd largest private phone company HutchEssar for $10.9 billion, sending valuations soaring for rivals like Bharti Airtel and Reliance Communications.

Another global consultancy, Grant Thornton, said the Indian telecom sector, along with the steel industry, accounted for over 50 percent of the total mergers and acquisition deals in the country in 2007. And Ernst and Young predicts $25 billion in investments for the sector over the next five years.

"India is a tremendously exciting and fast moving market and I am confident that the HutchEssar business would make a major contribution to the Vodafone group over the coming years," the groups Indiaborn chief Arun Sarin said.

He also announced that Vodafone would invest $2 billion within two years in the HutchEssar telecom venture to particularly tap the rural market, multiply the infrastructure and improve the teledensity in the country.

According to T.V. Ramachandran, secretary general of the Cellular Operators Association of India (COAI), telecom companies propose to invest $14.75 billion this fiscal (AprilMarch) for expansion, rural penetration and infrastructure.

"What operators did in the last 16 years in terms of investment and expansion, they are now squeezing that in just one year," he says, adding monthly additions were expected to cross 10 million phones over the next few months.

India is an exciting story for another global players as well, notably Nokia. The companys chief executive OlliPekka Kallasvuo who visited Chennai and New Delhi earlier this year said India had overtaken the US as the groups 2nd largest market for handsets after China. For global manufacturers as a whole, India emerged as the largest market for these phones.

Kallasvuo said that 60 million handsets were shipped from the factory near the Tamil Nadu capital Chennai since it started production 18 months ago and that he expected to maintain its growth in the country and expand its headcount.

"India is playing an increasingly important role in the global economy buoyed by impressive growth, skilled manpower and tremendous business opportunity," said Kallasvuo, whose group has invested $500 million in the factory near Chennai, which alone employs around 4,700 people.

In fact, the fast growth and the future potential forced all the five top global mobile handset manufacturers Nokia, Motorola, Samsung, Sony Ericsson and LG Electronics to set up manufacturing bases in India.

Gartner says even though domestic mobile phone production currently caters to mainly to local demand, over the next new years, as much as 30 percent of the production may be exported to Africa, the Middle East and other parts of South Asia, which have significant demand for lowcost handsets.

A recent report by financial consultancy and merchant banking firm Merrill Lynch even placed the Indian telecom industrys profitability ahead of the US, Britain, Japan, France, Australia, Switzerland, Germany, the Netherlands and Finland.

All these factors suggest that Indias telecom subscriber base and the revenues will surpass projections. TRAI chief Mishra hazards a guess. "I think the target of 500 million by 2010 is feasible as we are growing by seveneight million phones a month."

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