Competition, Tariff Cuts Eat Into Telecom Revenues

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Competition, tariff cuts eat into telecom revenues

REENA CHOUDHARY / ETIG | Economic Times

TIMES NEWS NETWORK [THURSDAY, AUGUST 05, 2004 04:57:32 AM]

The entire telecom market revenues in 1999-’04 have grown at a CAGR of just 15%, which is not scorching by any standards.

One reason for this is the fixed line component in total revenues, but that does not tell the entire story. While mobile subscriber growth has been healthy, revenue growth has not matched up.

Telecom industry sales, comprising fixed and wireless segments, have doubled from Rs 24,194 crore in FY99, to Rs 47,896 crore in FY04, at a CAGR of 15%. The subscriber base, in contrast, has grown by a healthier CAGR of 27% in the same period to 76m.

One reason for the low overall growth in revenues is the fixed line business. Due to tariff reductions and slow growth in subscriber base, revenues in this segment have only increased 9%.

Wireless revenues, however, have increased 55% in the same period. But this still does not explain the wide variance in the subscriber base and revenue growth.

The answer to this part of the puzzle can be found in the fact that wireless subscribers have grown at a CAGR of 94% to 33.3m in the past five years.

At one end, fixed line revenues and subscribers are growing at much lower rates, while wireless revenues are also growing at lower rates compared to subscriber additions.

So what causes this discrepancy? The cut throat competition between the various telecom players and the Telecom Regulatory Authority of India’s tariff related interventions have lowered rates.

The average ARPU (average revenues per user) for the cellular market has dropped from a high of Rs 1,319 per month in ’00, to Rs 469 per month in ’04, or a compounded annual decrease of 16%. In 1999, the ARPUs were about Rs 1,100, Rs 800, and Rs 600 per month for A, B and C category circles, respectively, while the metro ARPUs were much higher.

In the fixed segment, too, the STD tariff rates have come down, and hence the 9% CAGR of revenues from this segment is lower than the 15% CAGR of fixed line subscribers during the period from FY99 to FY04.

Further, the preference for mobile telephony has caused the growth in fixed line subscribers to plateau.

From an annual growth of 21% in FY99, the growth in the fixed line subscriber base has come down to 3% in FY04, adding just 1.4m subscribers in FY04.

On the other hand, the wireless subscriber base is growing at an accelerating rate. In FY04, these subscribers grew by 156% from 13m to 33m.

The wide variation between the growth in the subscriber base and revenues in wireless will continue for some time. The main growth engine of the telecom market is the wireless segment, which is being driven by attempts by players to increase penetration.

Going forward, once the players reach saturation point in terms of penetration, the growth in revenues will mainly come from increase in usage and population growth.

Edited August 5, 2004 by Chirag