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India to be world’s No.3 in mobile phone users

Reuters

Posted: Jan 21, 2006 at 1233 hrs IST

Mobile phone companies are taking cheap handsets and life-time prepaid services to India's hundreds of millions of low-income earners in a bid to expand market share and maintain their break-neck rates of growth.

Mobile ownership surged in December -- with a record 4.5 million new users -- after carriers targeted India's poorer citizens with the launch of services that guarantee a number for life for just over $20.

In the past, a prepaid number would cease to exist if it was not topped up after a certain period of time.

Better-off Indian mobile users are already enjoying the benefits of a no-holds-barred war in the industry that is driving user growth and keeping call prices down.

And analysts say the party will only get bigger, with carriers aiming at the two-thirds of India's billion-plus people living in villages and small towns.

Already home to the world's lowest local call rates -- under 2 US cents a minute -- the sector should see more mergers, a further fall in call rates, better content and cheaper handsets.

Overseas carriers building assets in the world's fastest-growing major cellphone market are bringing a greater emphasis on customer care.

"Marketing campaigns are getting more aggressive," said Prashant Singhal, head of telecoms practice at Ernst & Young in Bangalore, India's technology hub.

"We'll see about 6 million new additions a month in 2006. The mobile base should double in 2006 to 130 to 140 million."

India is widely seen as the last big market for mobile phone growth. Less than 40 per cent of the country's total area is covered by mobile networks, and fewer than eight in every 100 Indians use mobiles, compared with China's 30 per cent.

A lack of investment in the infrastructure needed to support landline services means there are only 50 million fixed-line users in the country, leaving the stage set for mobile operators.

Aggressive rollouts

Carriers like Bharti Tele-Ventures Ltd. -- India's No. 1 carrier in which Vodafone Group Plc recently spent $1.5 billion on a near-10-percent stake -- and Tata Teleservices Ltd. are both aggressively pursuing rural India.

"By end-2006, all the 5,200 towns and 300,000 villages will be covered," said T.V. Ramachandran, director general at the Cellular Operators' Association of India.

At the moment, 4,000 towns and up to a third of India's more than 600,000 villages are connected by wireless services.

India's love affair with cellphones started in the mid-1990s, as the mobile revolution took hold and India had just 10 million mobile and landline connections. Growth then soared in the last four years due to regulatory change and falling costs of calls and handsets.

But the break-neck pace has also led to jammed airways and a drop in service quality, so the government is working on releasing scarce spectrum to ease congestion.

While cheaper pre-paid phones are cutting churn, as users stick with one carrier, they bring in lower revenues per user in an industry where profit margins are already razor thin.

Analysts estimate average revenue per user will fall sharply from the current $8 per month and players like Reliance Infocomm Ltd. will increasingly depend on services such as ringtones, gaming, and mobile commerce to maintain or raise margins.

Revenue from such value-added services (VAS) in India stands at around 15 per cent of the $6.5 billion generated from mobile services. With text, picture and video messaging taking off, VAS revenue could grow 30 to 40 per cent this year, Ramachandran said.

World No.3

Cities such as Delhi and Mumbai boast phone penetration rates of about 40 per cent, similar to East Asian levels, and by the end of 2006, India is expected to be the world's third-largest mobile market by number of users, behind China and the United States.

"There will be an influx of funds as global investment communities and carriers look towards increasing their shareholder value by investing in India's growth," said Kobita Desai, principal analyst at research firm Gartner.

To fuel growth, the government raised foreign ownership limits in telecoms service providers to 74 per cent from 49 per cent, sparking global interest in the fragmented market.

"Cash-rich European carriers are likely to make their presence felt in India. We see more foreign investment in this space, and are seeing a lot of interest from the Asia-Pacific region," Ernst & Young's Singhal said.

Last month, Maxis Communications Bhd., Malaysia's biggest cellular firm, and an Indian partner bought mid-size operator Aircel Ltd. for $1.08 billion. Other suitors included Hutchison Telecommunications International Ltd., which already has a flourishing Indian unit, and Russia's AFK Sistema.

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