Indian mobile market reduced by 30% to remove “redundant” subscribers

The size of the Indian mobile market is revealed to be much smaller than previously thought, according to new Wireless Intelligence analysis, with almost a third of Indian subscribers classified as inactive.

Based on recent figures by the Telecoms Regulatory Authority of India (TRAI), Wireless Intelligence estimates that almost 250 million Indian connections were inactive in Q2 2011. This means that as much as 30 percent of the country’s 850 million connections base is redundant, leading to a revised market size of around 600 million active connections. The inactive subs base in India is equivalent to the total market size of major mobile markets such as Brazil or Russia.

The revaluation of the market comes at a time when local operators are preparing for slowing growth and a renewed focus on customer retention and value-added services, signalling an end to India’s fierce pricing war, which has fuelled subscriber growth in recent years. India’s mobile penetration rate can also be recalculated in light of the inactive subs, coming down from around 68 percent to 48 percent.

The market revaluation has been triggered by rule changes in the activity period allowed for prepaid users and the effect of mandatory SIM registration. Previously, users would see their services terminated if they had not recharged their prepaid cards or placed/received a call within a period of 180 days. In 2010, that period was reduced to 90 days and, recently, the TRAI has reportedly reduced the period to just 20 days. The regulator is measuring the number of active subscribers via its visitor location register (VLR), a temporary database of subscribers who have roamed into a particular area. Each base station in the network is served by exactly one VLR; hence a subscriber cannot be present in more than one VLR at a time. VLR data is calculated based on the date of Peak VLR of the particular month and gauged from the switches having a purge time of not more than 72 hours.

Etisalat DB’s Cheers Mobile and state-owned MTNL were the two operators found to have the highest proportion of inactive subscribers at 65 percent of their respective total connections (see table). They are closely followed by Videocon Mobile (64 percent), Ping Mobile and S Tel (both 61 percent). India’s largest mobile operators, by contrast, have proportionately fewer inactive subscribers. Only 11 percent of market-leader Bharti Airtel’s 169.2 million connections are classified as inactive. Fourth-placed Idea Cellular had the lowest inactive base of all 15 Indian operators at 8 percent.

In terms of India’s individual telecoms circles, Mumbai has the highest share of inactive subscribers (43 percent of total), while Jammu & Kashmir has the highest share of active VLR subscribers (80 percent), closely followed by Assam (76 percent) and Maharashtra (74 percent). These regional trends reflect the high level of saturation in Indian urban areas, which represent two thirds of the country’s connections base, yet only a third of the country’s total population. Mobile penetration in urban areas – as reported by operators – reached 156 percent in Q2 2011, however, using the active connections definition, we estimate that it is more realistically closer to 110 percent.

Between Q1 and Q2 2011, the TRAI reported that rural penetration increased by a mere 2 percentage points to 35 percent, adding 16 million connections, while urban penetration has increased by 6 percentage points to 156 percent, adding 24 million connections. At this rate, we estimate that rural India will cross 100 percent mobile penetration in 2020, taking almost ten years to connect around 600 million rural consumers.

However, mobile market growth – and network expansion – is dependent on the sector returning to profitability following the recent price war, which caused a ‘revenue gap’ as income growth failed to match high subscriber growth. According to the TRAI’s figures, total revenue from India’s telecom sector grew by less than 4 percent year-on-year in 2009 after years of double-digit growth. There was a regain last year, as revenues grew 8 percent to US$38.2 billion, but non-voice services currently contribute only 11 percent of revenues and the market’s ultra-low prices are limiting ROIs. ARPU has fallen to US$3 this year from US$8 five years ago, and the effective-price-per-minute (EPPM) has sunk to a world record low of US$0.01.

Following the urgent need to meet profitability targets in order to generate ROIs and finance network expansion and improvements, operators have recently decided to cease the price war activities in a bid to ease margin pressure. In June, Tata Docomo increased its tariffs in Tamil Nadu, followed by Bharti Airtel, which increased its ‘Advantage’ tariffs by INR0.10 per minute (to INR0.60) and its ‘Freedom’ tariffs by INR0.002 per second (to INR0.012) across several circles. Such price rises reflect the fact that the rock-bottom low pricing levels in the country were unsustainable and that for operators to make the required investments to finance daily activities and meet coverage targets for both rural demand and 3G services necessitated a (controversial) strategic change. We expect most other operators in the market to follow the lead of Tata Docomo and Bharti Airtel and increase prices.

Joss Gillet, Senior Analyst, Wireless Intelligence:

India’s mobile market has undergone a profound shift during 2011, leaving behind the era of initial fast growth, lifetime SIM cards and multi-SIM phones to enter a more mature phase of development which should soften growth expectations. Yet India is still a largely overvalued market and mobile revenues are flattening. The fact that the country’s connection base is inflated by some 250 million inactive connections has dampened the growth achievements of many Indian operators, and clearly shows that further investments are still required to expand and improve network coverage. It took more than a decade to connect 50 percent of the country’s population to a mobile network (active users), yet the next half will be even more costly considering that India’s rural subscriber growth is not yet offsetting the effects of saturation in urban areas. Around 600 million rural consumers are waiting to be connected to a mobile network over the next decade and potentially 400 million subscribers are expected to migrate to 3G services over the next five years. In order to meet such targets, mobile operators have actively sought to implement network-sharing and roaming agreements as well as overhauling their tariffs and pricing strategies. In addition, the regulator’s new initiatives are encouraging, yet more affordable spectrum will be required in the near term to support the next phase of growth.

India inactive/registered mobile connections by operator, Q2 2011
Source: Wireless Intelligence, Telecoms Regulatory Authority of India (TRAI)

¹ Based on TRAI’s VLR data for June 2011
² Based on active connections as reported by Telenor Group