Revenues from the Indian cellular services market will reach $24 billion by the end of 2009, at a compound annual growth rate (CAGR) of 35.6 percent, according to a study released Wednesday by the research firm Gartner.
Gartner also stated that the Indian cellular services market had recorded the highest growth across the Asia Pacific and Japan region in 2004 with a CAGR of 67 percent.
Gartner predicted that the Asia Pacific and Japanese cellular services market will reach $225 billion in 2009, representing a CAGR of 6.2 percent from 2004. The Indian cellular market will account for 11 percent of the overall Asia Pacific and Japanese market by 2009.
“The cellular industry is a mass market phenomenon that relies on economies of scale,” said Kobita Desai, principal analyst, Asia Pacific, for telecom at Gartner. “Time-to-market advantage is critical and favors those whofollow aggressive network expansion.
“In coming years, the capability and capacity to invest in penetrating semi-urban and rural markets will be important determinants for increasing market share and creating sustainable businesses in the Indian cellular marketplace,” she added.
Local cellular operators and even the government have been responsive to the needs of the market. About a decade ago, mobile phones in India cost an average of 20,000 rupees ($465) and each minute of talk time cost 16 rupees ($0.36).
Today, users can get a cell phone for as little as 2,500 rupees ($58), while talk time costs have shrunk to approximately 3 rupees per minute.
Rival cell phone operators Tata Indicom and Airtel fight it out in television ads, driving home the message that cell phones cost very little these days, everyone can be connected, and even a tea-delivery boy who barely has clothes to wear can now own a mobile phone.
Pay-Later Effect
The cell phone revolution in India was triggered by Reliance Infocomm, a subsidiary of Reliance Industries. In 2002 the company offered phones that were practically free through a buy-today-pay-later scheme that dropped talk-time prices to record lows.
While Reliance Infocomm was a late entrant in the overall cell market, the company pioneered services such as Internet connectivity, rich-media applications, and text messaging in Indian languages.
There has been no looking back ever since, especially after the Indian government relaxed its rules.
“Regulatory constraints have been eased in response to unrelenting market pressures, and this has created ideal conditions for growth opportunity, investment, and consolidation in the telecom sector,” said Ms. Desai.
With declining service costs and the introduction of low-cost phones, the barriers to entry for cellular services will come down substantially, creating a significant market opportunity. Gartner estimates that by 2009, the Indian market has the potential to increase cellular penetration levels to 30 percent, netting more than 300 million connections.
In the year 2009, worldwide mobile phone sales will exceed one billion, according to Gartner. The mobile connection base in Asia Pacific and Japan, for the same period, is estimated to reach 1.4 billion, representing a CAGR of 15 percent from 2004.
Thinner Margins
A large proportion of the market opportunity in India will comprise low-income users, resulting in low average revenue per unit (ARPU). Overall penetration and market opportunity will increase, but with thinner margins.
Gartner advises operators to prepare themselves to work in business environments where ARPU levels are expected to be as low as $5 per month in the next 18 to 24 months. Operators will struggle to find a balance between yield (income/earnings/margin) and growth to fulfill growth expectations.
Non-voice value-added services such as ring tones, call-back tones, games, and music downloads will play a significant role as service differentiators and as an important revenue stream that will help to cushion the pressure on overall service revenues.