The Hindu Business Line : Telecom cos’ revenue growth lags subscriber growth

Indian telecom companies have managed scorching growth in subscriber numbers and have become a role model for almost every new sunrise sector. But did you know that the subscriber growth has not translated into matching revenue growth for the telecom majors?

While the subscriber base for the top four telecom companies has grown from 4.9 crore to 24.2 crore since 2005-end, revenues have expanded at a slower clip — from Rs 21,209.6 crore to Rs 59,206.4 crore.

Wooing customers

India is now among the fastest growing mobile markets in the world, what with eight-nine million mobile subscribers being added every month. But this is no guarantee that the players will report a record increase in revenues as well. Consider this. Bharti Airtel saw its subscriber base, at 85 million, expand five-fold (425.2 per cent) over the last three years, while its revenue base is three times its December 2005 levels.

Not surprisingly, its revenue per user fell 37.3 per cent from its December 2005 levels. Vodafone Essar (Hutchinson Essar earlier), the second largest GSM player had the fastest subscriber growth and the steepest revenue per user fall. Idea Cellular and Reliance Communications also reflect this trend.

Why have revenues failed to keep pace with subscriber growth? Ninety per cent of India’s cellphone subscribers are under “prepaid” plans, where growth is driven mainly by promos and offers. Since 2003, telecom companies have added subscribers mainly through tariff cuts. From a ‘calling party pays’ regime in 2003, to innovative recharge schemes in 2005, to multi-year free incoming calls, every promotional offer has revolved around lower call charges. These moves later morphed into the popular ‘lifetime recharge’, which set the ball rolling for an accelerated pace of subscriber adds. Falling tariffs and recharges for lower and lower denominations and for longer periods, meant lower revenues per user for operators.

Too hot to handle

Interestingly, the falling tariffs have also meant that talk-time has gone up for all these operators. Operators now face falling realisations per minute on the one hand, and would also need to invest in enhancing their network to provide for more talk-time. Given the strict subscriber-linked spectrum allocation regime, falling realisations and constant capex upgradation that is required, only players who have achieved substantial scale by being regional or national heavyweights have managed to remain profitable. That’s why the Indian telecom scene may just be too hot for new entrants to handle!

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Telecom cos’ revenue growth lags subscriber growth

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