Indian cellular services market to exceed $25b by 2011: Gartner

Mumbai



July 19th, 2007

Gartner has announced that Indian cellular services revenues were $8.95

billion in 2006 and are projected to grow at a compound annual growth rate (CAGR)

of 18.4 percent from 2007 to 2011 to reach $25.617 billion. Data revenues will

outpace growth of voice revenues and contribute 22 percent of revenue in 2011

from 9.6 percent in 2006. India will continue to be the fastest growing country

in APAC in terms of mobile telephony after China and promises to become more

dynamic with the entry of Vodafone.

Madhusudan Gupta, Senior Research Analyst, Gartner elaborates, "With

more marginal users forming the bulk of the addressable market, low service

costs and inexpensive handsets will help to unlock the inertia and facilitate

adoption of mobile services. Call rates have reduced significantly to about 2.6

cents per minute. However, this remains high compared with fixed-line rates at

0.9 cents per minute. Gartner expects prices to drop in order to become more

competitive with fixed-line rates, further lowering the barrier to entry. This

trend, coupled with the emerging-market handset initiative by vendors and

operators, will boost adoption of mobile services in India's semi urban and

rural provinces."

Mobile penetration in India





Mobile penetration in the rural market is low at two percent, but this

represents an immense opportunity for the cellular service providers. Handset

manufacturers are therefore concentrating on launching sub $25 mobile handsets.

Businesses are expanding into India's smaller towns and cities where

fixed-line connectivity is limited and often non-existent. Enterprises will use

mobile services for intra-company, as well as inter-company, communications.

Gartner expects enterprise service plans offered by mobile services players

to become distance independent. This will be a big incentive for companies to

use mobile phones, not only because call rates are comparable to fixed-line

rates, but also because of the benefit that mobility gives their employees,

especially while traveling or in remote locations.

With these factors, cellular market penetration is projected to increase from

12.7 percent in 2006 to 38.6 percent in 2011. This overall penetration will

primarily be driven by an increased focus on the rural market, aggressive

promotions by the players and handset bundle offers. By 2011, Gartner expects 58

percent of the rural population and 95 percent of the urban population to be

covered with mobile connections.

Connections - prepaid driving growth





Mobile connection growth in the Indian market is on an upward trajectory, and

robust growth will continue until 2011. The market is forecast to grow 23

percent CAGR during the five-year forecast period, growing to more than 462

million connections.

The Indian market is driven by prepaid connections, which accounted for more

than 84 percent in 2006 and expected to grow to more than 93 percent of the

connection base by 2011. The revenues from data services will significantly

contribute to the growth of overall cellular services revenues in India, with a

CAGR of 36.8 percent in the forecast period.

Prepaid subscribers are expected to adopt data services faster than the

post-paid segment. Data revenues for the prepaid segment are projected to grow

at 46 percent CAGR during the forecast period as compared to 22 percent for the

post-paid subscribers during the same period.

The bulk of the revenues will continue to come from voice services. However,

with the increased growth in data services, the percentage of revenues coming

from voice will reduce from 90 percent in 2006 to almost 78 percent in 2011.

Market and operator strategies





Large players will have an advantage as they expand their presence and take

advantage of economies of scale. But they will face tremendous challenges in

finding the right balance between yield and market share. Customers with low

disposable incomes will form a significant proportion of the base.

As a result, ARPUs (Average Revenue Per User)/Year will continue to decline

through the forecast period. In 2006 the average ARPUs/Year of players was

US$82.1, which will further reduce to US$59.5 by 2011. "Operators will have

to look beyond revenue growth to stem erosion of their bottom lines. They will

need to adopt measures to optimize cost associated with business operations and

network management. More operators are likely to collaborate in terms of

infrastructure sharing and outsourcing their network management to equipment

vendors and, possibly, system integrators," said Gupta.

In India spectrum remains a scarce resource and is tightly controlled. This

could have an impact on expansion plans and the quality of service because of

inadequate investment in or upgrading of the networks. Existing license

conditions, such as a high revenue share, take away significant resources that

could be used for investing in networks and market development activities.

"With the intensifying competition, the release of 3G spectrum will help in

bridging the gap generated because of lower voice tariffs and handset subsidies.

The release of 3G will be essential to sustain the growth in the cellular

services market," Gupta added.