Indias mobile telecom will grow to 600 m users in five years

Updated: Sep 11 2008, 04:45am hrs
Manoj Menon, partner & managing director, Asia-Pacific, Frost & Sullivan, talks about the impending consolidation in the Indian telecom industry, the renewed interest among foreign telecom players in the Indian market and the future of telecom, including mobile entertainment and commerce, in an exclusive interview with Fes MG Arun. Excerpts:

Much has changed in the Indian telecom industry in the last several years. What is the next level of growth here

The Indian telecom market took off after Reliance and Bharti went into an all-out war to gain subscribers. The level of innovation has been tremendouslike what Bharti did in its outsourcing deal with Ericsson. This ramped up the market and set the tone and context for how the telecom industry will grow in India. Bharti is among the top players in the world today, with a significant number of best practices.

The ability to raise capital and convince investors is also essential for growth. Consolidation has to happen in the industry, but that will happen gradually, though. There is still good growth left in the market. Across the Asia Pacific, there will be a billion wireless customers added in the next few years. You can be among the worlds largest players if you participate in this market. Thats why we are seeing renewed interest from foreign players in the Indian telecommunications industry.

But the quality of service is dipping. Also, companies are seeing a fall in average revenue per user (ARPU). Isnt this an ominous sign

We cannot measure the growth of the sector looking at the decreasing ARPU. Indian companies enjoy some of the highest Ebidta margins globally. So, despite lower ARPUs, they have innovated, kept costs low, and put pressure on equipment vendors in terms of contracts. We will see the growth doubling to 600 million over the next five years. The low ARPU has helped to create a huge market for telecom in India. However, the price war is beginning to have an impact on Ebidta margins. We can have ARPUs only till a level, beyond which it will eat into the margins and will accelerate the level of consolidation in the industry.

People are also beginning to get significant successes out of non-voice services, particular the content-related applications and services. The next major engine of growth would be the wireless data markets, providing Internet access using mobile phones. The first form of Internet access will be through the use of wireless devices and connecting them to the PCs, or using the device itself to access Internet.

Isnt the focus on customer satisfaction, an indicator of the maturity in the industry

Of course. We are being too harsh and critical with ourselves. The fact the telecommunication is within the reach of the common man itself is heartening. Today, the race has been for customer acquisition. Customer satisfaction ranks lower in priority. Now, that will change. Its very expensive for telecom companies to provide great services to their customers. Its done when the market matures and you want to focus on ARPUs. There is a pressure on the Ebidta margins of telecom companies now, but unless they build on customers and have a nationwide presence and scale, they will suffer more. If you have 20-25% of the mobile customer base, you will benefit since the majority of the calls are within your network and you will get a good chunk of the profits too.

How can the government help in improving the policy framework

The lesser involvement of the government in telecom, the better. In most countries globally, there are only 3-4 players. So, the spectrum is nicely distributed, competition is not as intense and they can make sure that coverage levels are good. However, intense competition has resulted in quick coverage and connectivity for 300 million customers. The next priority would be increasing ARPUs. The quality of service will improve as markets mature.

Companies globally are extending what they provide to customers. They participate in new markets, and are entering entertainment, as in mobile TV or gaming. The mobile phone is also developing as a means of conducting commerce, as a substitute for credit card or other transactions, replacing the fixed phone in the office, which is another big opportunity. Credit card companies and others have leveraged their database. Likewise, telecom companies have an opportunity to be a lifestyle player, be it in providing insurance facilities to their customers, or in building loyalty programmes.