Telenor used its annual capital markets day on 21 September 2010 to re-affirm the company’s commitment to the Indian telecoms market, following speculation that it may leave the country.
Analysys Mason believes that India offers tremendous opportunities for telecoms operators, but that conditions will remain challenging in the near term. Telenor launched operations there (under the Uninor name) in December 2009.
It has seen healthy subscriber growth, but continues to post losses. Still, its guidance remains unchanged; projecting EBITDA breakeven three years after launch, and OCF breakeven five years after launch.
With a population of 1.2 billion, wireless penetration of approximately 57% and monthly additions of around 18 million net new subscribers, India is one of the most attractive regions in terms of potential telecoms revenue growth.
Analysys Mason believes the future growth in the number of mobile subscribers in India is likely to come from the medium- and low-income segments of the population. Teledensity in the high-income segment of the population was almost 100% at the end of 2009, while for medium- and low- income segments, teledensity was approximately 65% and 25%, respectively.
Furthermore, decreasing voice tariffs and declining handset prices have reduced the total cost of owning a mobile phone, thus removing the affordability barrier. Our research shows that while low-end subscribers make up the majority of subscribers (79%) - and will continue to drive growth in subscriber numbers - this segment contributes only 30% of revenue and one tenth of EBITDA margin.
With 14 mobile operators in the country, and most mobile zones (or circles) having 10 to 12 operators, the mobile telecoms market is hyper-competitive. India now has the lowest pricing in the world. This is certainly welcomed by end users, but for operators, this is clearly not sustainable. A high-level analysis of a per-second billing plan for an incremental subscriber suggests that the EBITDA margin for such subscribers is negative (approximately 45%).
Analysys Mason expects that in the next one to two years, the Indian mobile industry will enter into a consolidation phase, facilitated by positive government M&A policies.
Today, there are limits on the amount of share an operator can have in a given market, as well as limits on the amount of spectrum an operator can control These factors must be addressed in order for consolidation to occur. We expect only six or seven operators will remain in the market in three years’ time.
Now that they have received 3G licenses, operators will be under tremendous pressure to retain their high-end subscribers (who form 9% of the subscriber base, but contribute 40% of revenue) especially with the imminent introduction of MNP.
Apart from state-owned operators BSNL and MTNL, three private operators have received 3G licenses in each circle, making it highly likely that high-end subscribers of non-3G operators will switch to a 3G operator.
Roz Roseboro is principal analyst and Sourabh Kaushal is principal consultant at Analysys Mason
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