Tuesday, March 28, 2006

Paran Balakrishnan: India gets mobile in numbers game

In early February, India's Telecom Regulatory Authority did a small victory jig and announced that India had pulled slightly ahead of China to become the world's fastest-growing telecoms market. "India seems to have really caught up with China in mobile growth," said an exultant statement.
The triumph was short-lived. The riposte, when it came a few weeks later, put India firmly back where it belonged, in second place. The Ministry for Information Industry said the Chinese had added 5.37 million new subscribers in January. The implied message: "We're still the Numero Uno and yah, boo, sucks to you."

Still, India is now turning out figures that should set corporate barons and investment gurus thinking. Since December, 13 million new subscribers have signed up for mobile phones - what one ad calls 'anywhere talk'. That's over 4 million new subscribers each month. OK, the Chinese are still ahead but it's not a figure to be scoffed at.

If that isn't convincing enough, here's another figure that shows how India is speeding into the telephony fast track. In 2009, Indians are expected to buy 139 million mobile handsets, says consultancy company Gartner. That will be ahead of mobile-crazy China, it says.

Hop into a time machine for a short ride back to 1990. If you've made it to an Indian city like Mumbai or Delhi, look around for the nearest phone and get ready for a harrowing experience. Offices don't have enough lines so their switchboards are engaged for hours on end. Even worse, calls never make it past overloaded exchanges.

Now step back to 2006. Hang about a crowded street for a few minutes and you are bound to spot people walking along with that familiar pose of a hand clasped to an ear. Even, perhaps, a man on a bicycle who has stopped by the kerb for a quick chat.

The man on the bike gives the game away. About six or seven years ago, mobile telephony was strictly for the urban rich. Calls cost about 50c a minute and monthly bills, by Indian standards, were wallet-gouging affairs. The early users would keep their mobiles on show. The drill was to step inside a smart restaurant and place your mobile on the table where everyone could see it.

But mobile telephony is an irresistible force and India isn't different from anywhere else in the world. What is different about India is its sheer size and a thirst for telephony that can only be matched in sheer numbers by China. So, in India there were 27 million new mobile subscribers in 2005 and the numbers climbed steeply each month. December's 4.46 million was up from November's 3.5 million mainly because of special offers by the phone companies. The mobile market grew 58 per cent in 2005.

The result of all this explosive growth is that after about 11 years of mobile services there are about 84 million mobile subscribers in India.

That's compared with about 49 million fixed line users even though the fixed line phones were introduced around a century ago. And telecom ministry officials are now targeting 250 million telephone users by 2007 - that includes fixed line and mobile users.

That's not really the little league, but it's still a few laps behind China. OK, India's adding lots of mobile phone connections, but China has got a bad case of telephonitis with about 325 million fixed lines and 398 million mobiles. That's a total of 723 million phones.

Nevertheless, while India may be a long way behind in raw numbers, it's still the second largest market in the world. And nobody's laughing at the Indian figures any longer. About three years ago, some of India's top manufacturers went on a trip to China and proudly boasted that they sold about 800,000 connections a month. They were scornfully brushed off by the Chinese who made it clear that they only counted in millions.

The telecom companies are looking long and hard at India for another reason too. Teledensity - the number of phones per 100 people - has already soared to about 29 per 100 in China. About 10 years ago, teledensity in India was an almost non-existent three per 100. Even now it has only risen to about 12 per 100. Those are the kind of figures that make telecom companies drool into their handsets.

So, it wasn't a surprise that in October Europe's giant phone company, Vodafone, paid US$1.5 billion ($2.5 billion) to buy a 10 per cent stake in Bharti Tele-Ventures, the largest Indian mobile phone company. Two weeks ago, it was Nokia's turn. The Finnish cellphone company is by far the market leader in India and it will spend US$150 million on a factory in Chennai that was opened this month by the Finnish prime minister. Three months earlier, Samsung said it would be starting mobile phone manufacture in the near future. Another Korean giant, LG, started production earlier this year.

If this sounds like a rosy success story, don't think it was scripted overnight. The Indian economy has always been likened to a lumbering elephant rather than a swift-moving tiger. In telecommunications, while the world was racing ahead in the 90s, India was getting it spectacularly wrong.

As a result a host of foreign telecom giants like Vodafone, which had set up shop here, gave up in despair because the government was all talk and no action and the state-owned service providers wanted to block all competition. One by one, the foreign companies turned off their phones and headed off to other smaller markets.

Big mistake. They should have stuck around or, like some foreign venture capitalists, plunged back into India quickly when the telecom market started showing signs of life. Take a look at Singapore's Telecom (SingTel) which took a bite-sized stake in Bharti Tele-Ventures. Another Singapore Telecom company, STT, put its bets on another Indian company Idea Cellular.

Singapore's powerful venture cap company Temasek has a controlling stake in Singtel and STT. Now they are both faring well.

The telecommunications industry began to find its way out of the bureaucratic maze in 1999 when the government framed its New Telecom Policy. With the fresh rules, suddenly the action began. The numbers began to leap a few years later when an additional two new service providers were given licences and they slashed rates dramatically, winning customers in the process. Today, Indian calling rates have dropped from being among the highest in the world to nearly the lowest.

The state-owned players are still big forces, especially in the fixed-line business and that may explain why that sector is barely growing. But the state sector companies and the private players are pushing into the smaller towns and semi-rural areas where phone services are still decades behind other parts of the country. And there are plenty of people out in the boondocks, where 60 per cent of India's one billion population lives, waiting to dial up the world.

* Each week the Business Herald's columnists track the latest developments in the world's two emerging economic superpowers. Paran Balakrishnan is the associate editor of the Telegraph, Kolkata.

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