Giving those numbers a break!
Amidst sluggish indicators of revenue, margins & subscriber additions, 3G and the promised data play were supposed to be major game changers. But evidently, it won’t be a moment too soon
If economist Adam Smith were alive today, he would have been overjoyed to see how competition shaped and nurtured the Indian telecom industry and took the mobile phone to the masses. From just over one million in 1998, Indian mobile subscribers numbered 851.7 million as of June 30, 2011 (TRAI), which means we have just crossed the 70% mark in terms of penetration.
Competition, the Adam Smith way, has a lot to do with this growth that has most of the world in awe and is to MNCs a telling promise of what is possible with the Indian market. Smith said that in a perfectly competitive market, there is a strong incentive for a consistently efficient track record that benefits customers greatly. The fact that high competition in India (as many as 6-8 players per circle) has led to much lower call rates and correspondingly higher penetration levels for telecom is well known, and so is the fact that declining ARPUs have been a lingering pain for players, particularly the early ones used to the good ol’ days.
It’s no surprise that they have been looking at ways to ensure that competition comes to relatively lower levels and come to what historian Alfred Chandler referred to as ‘managed capitalism’; where the market is not governed by perfect competition, but by the managers of a few of the large firms. The advent of 3G was expected to be a huge game changer to achieve this invaluable end. Even though, at a hugely expensive cost cumulatively (the all India license ended up making the government richer by Rs.677.19 billion), 3G does draw an important dividing line between the haves and the have nots. Additionally, it was a cue for players to build a powerful arsenal in the data services market and nudge those ARPU numbers higher. Well into 2011, B&E analyses how they are headed.
Bharti Chairman Sunil Mittal has expressed confidence that competition in the sector has abated. The operator earned revenues of Rs.126.31 billion in the India & South Asia region for the quarter ending June, a growth of 11.9% yoy, but PBT for the region was Rs.20.9 billion, a drop of 9.15% yoy. Alarmingly, ARPUs have continued to fall by 12% yoy to Rs.190, despite non-voice revenue growing to 14.6% in the quarter compared to 11.6% in the same quarter last year. Reliance Communications has seen a fall in consolidated net income by 6.04% yoy to Rs.47.12 billion for the quarter. Net profit stood at Rs.1.57 billion, a drastic drop of 37.2% yoy. Idea Cellular, on the other hand, delivered a robust revenue increase by 23.54% to Rs.44.84 billion, but net profit declined by 25.74% to Rs.1.49 billion (a great contribution to which came from the interest cost of Rs.2.06 billion compared to a much lower Rs.764.7 million for quarter ending June 2010). For Idea, ARPU was down by 0.6% qoq to reach Rs.160 per month. VAS share of revenue increased marginally to 12.1% from 12.6% in the same quarter last year. On a general basis, there is a clear and evident increase in data-related revenues. A. K. Bhargava, Executive Director – Wireless, MTNL, commented to B&E, “In the last one year, revenue form data services has gone up by 9 times. However, video calls, which was supposed to be a game changer for data services, are not doing as it was assumed before launch of 3G services.” From a performance-wise comparison, increase in ARPU has also not kicked in as it should have, and even contribution of VAS to revenue has improved marginally or not improved at all as compared to the previous year. One aspect that comes out more clearly is that the higher value customers with Bharti and Idea are helping them in a big way.
However, it has to reflect in the numbers, and fast! According to a COAI-PwC report, ARPU for the industry had fallen to Rs.100 for GSM and Rs.66 for CDMA by March 2011 compared to Rs.362 and Rs.256 respectively in December 2005. While Bharti has been relatively less affected in terms of PAT margins for FY 2011 at 20% (23% in FY 2007), RCOM has fallen drastically at -6% (21% in FY 2007) and so have Idea with 5% (11% in FY 2007) and Vodafone with 0.01% (17% in FY 2007). Net subscriber additions have also declined from 19 million in January 2011 to 11.4 million in June.
Competition, the Adam Smith way, has a lot to do with this growth that has most of the world in awe and is to MNCs a telling promise of what is possible with the Indian market. Smith said that in a perfectly competitive market, there is a strong incentive for a consistently efficient track record that benefits customers greatly. The fact that high competition in India (as many as 6-8 players per circle) has led to much lower call rates and correspondingly higher penetration levels for telecom is well known, and so is the fact that declining ARPUs have been a lingering pain for players, particularly the early ones used to the good ol’ days.
It’s no surprise that they have been looking at ways to ensure that competition comes to relatively lower levels and come to what historian Alfred Chandler referred to as ‘managed capitalism’; where the market is not governed by perfect competition, but by the managers of a few of the large firms. The advent of 3G was expected to be a huge game changer to achieve this invaluable end. Even though, at a hugely expensive cost cumulatively (the all India license ended up making the government richer by Rs.677.19 billion), 3G does draw an important dividing line between the haves and the have nots. Additionally, it was a cue for players to build a powerful arsenal in the data services market and nudge those ARPU numbers higher. Well into 2011, B&E analyses how they are headed.
Bharti Chairman Sunil Mittal has expressed confidence that competition in the sector has abated. The operator earned revenues of Rs.126.31 billion in the India & South Asia region for the quarter ending June, a growth of 11.9% yoy, but PBT for the region was Rs.20.9 billion, a drop of 9.15% yoy. Alarmingly, ARPUs have continued to fall by 12% yoy to Rs.190, despite non-voice revenue growing to 14.6% in the quarter compared to 11.6% in the same quarter last year. Reliance Communications has seen a fall in consolidated net income by 6.04% yoy to Rs.47.12 billion for the quarter. Net profit stood at Rs.1.57 billion, a drastic drop of 37.2% yoy. Idea Cellular, on the other hand, delivered a robust revenue increase by 23.54% to Rs.44.84 billion, but net profit declined by 25.74% to Rs.1.49 billion (a great contribution to which came from the interest cost of Rs.2.06 billion compared to a much lower Rs.764.7 million for quarter ending June 2010). For Idea, ARPU was down by 0.6% qoq to reach Rs.160 per month. VAS share of revenue increased marginally to 12.1% from 12.6% in the same quarter last year. On a general basis, there is a clear and evident increase in data-related revenues. A. K. Bhargava, Executive Director – Wireless, MTNL, commented to B&E, “In the last one year, revenue form data services has gone up by 9 times. However, video calls, which was supposed to be a game changer for data services, are not doing as it was assumed before launch of 3G services.” From a performance-wise comparison, increase in ARPU has also not kicked in as it should have, and even contribution of VAS to revenue has improved marginally or not improved at all as compared to the previous year. One aspect that comes out more clearly is that the higher value customers with Bharti and Idea are helping them in a big way.
However, it has to reflect in the numbers, and fast! According to a COAI-PwC report, ARPU for the industry had fallen to Rs.100 for GSM and Rs.66 for CDMA by March 2011 compared to Rs.362 and Rs.256 respectively in December 2005. While Bharti has been relatively less affected in terms of PAT margins for FY 2011 at 20% (23% in FY 2007), RCOM has fallen drastically at -6% (21% in FY 2007) and so have Idea with 5% (11% in FY 2007) and Vodafone with 0.01% (17% in FY 2007). Net subscriber additions have also declined from 19 million in January 2011 to 11.4 million in June.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
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