Two of the fastest growing telecom markets of the world, India and China have both seen a steep rise in subscriber numbers in the past few years.However, a look at the financials of Indian and Chinese telecom companies suggests that India has a lot of catching up to do.

The total telecom revenue of Chinese telecom companies stood at about $65.3 billion for the year ended December 2004.In comparison, the estimated total telecom revenue of Indian companies was onefourth this amount at $17.78 billion for the year ending March 2005. While in China, mobile services contribute the maximum to industry revenues, about 43 per cent, in India, basic services comprise 70 per cent of industry revenues. In China, basic services contribute 32 per cent, long distance 20 per cent, data internet 6.2 per cent and paging and satellite services make up the balance. In India, mobile services contribute 23 per cent, long distance 6 per cent, data internet 2 per cent and satellite and other services account for the balance.

Besides a huge population, the high teledensity in China supports its impressive revenue numbers. Mobile and fixed line subscribers account for a teledensity of 25.9 per cent and 24.9 per cent respectively in China compared to an overall teledensity of 9.4 per cent in India. China's subscriber base as in March 2005 was 674.5 million; 51.7 per cent comprising mobile users and the balance, fixed line users.

During the same period, India registered only 98.12 million telecom subscribers, 46 per cent using fixed line services and the balance using cellular services. In the eight-year period from 1997 to 2005, the fixed line subscriber base in China grew at a compounded annual growth rate (CAGR) of 21 per cent to 325.4 million while India saw a CAGR of 15.4 per cent to reach only 45.9 million. One of the reasons for the slow growth in fixed line services in India could be the late introduction of broadband services over DSL.

Meanwhile, the mobile user base in China grew at an even faster rate of 48 per cent to reach 350 million users. In India the growth was 87 per cent to reach 52 million.

The structure of the Chinese telecom industry and the regulatory framework have, to a large extent, been responsible for its higher revenue base. There is some competition in its mobile segment but the fixed line market is still uncompetitive.This is because the Chinese industry has no private competition and is dictated by four government-owned companies –­ China Mobile, China Unicom, China Telecom and China Netcom.

China Mobile, the largest telecom operator in China and a spin-off of China Telecom, competes with China Unicom in mobile services and, to a lesser degree, with China Telecom and China Netcom, which provide limited mobility services.China Mobile provides GSM services in 31 provinces with roaming facility in 240 cities, data services, VoIP calling cards and internet access services. China Unicom, the only operator with a licence to provide a full range of services, offers GSM, CDMA and data services.

China Telecom, the first operator to provide fixed line services, operates in 21 provinces in southern China. It operates 26 international undersea cables connecting Southeast Asia, the Middle East, Europe, Russia and North America. It also provides limited fixed line services in northern China.

China Netcom was formed to break the monopoly of China Telecom in the fixed line market. The company is composed of three entities: China Telecom's operations in North China, Jitong Communications, a former data service operator, and the original Netcom, a broadband developer and wholesaler. Most of China Netcom's operations are in 10 provinces in northern China. It also provides services in southern China and for international customers. China Netcom is the third largest operator in the country and competes with China Telecom in fixed and broadband services and, to a lesser degree, with mobile operators through limited mobility services.

Overall, in the mobile segment, China Mobile is the incumbent operator with 55 per cent market share. In the basic services segment, China Telecom is the incumbent operator, holding about 69 per cent share of the market.

In terms of revenues, the two major players (China Mobile and China Telecom) earn around 35.6 per cent and 31.6 per cent respectively of the total telecom revenues in the country. The EBItDA margins for these companies are as high as 52 per cent. This is also due to the higher ARPUs in China compared to India. While the ARPU for GSM services in China is $9.62, for Indian companies, it is $8.89. Similarly, for CDMA players, the ARPU for the former is $10.31 compared to almost half in India at $5.74. This is in spite of the fact that, on an average, Indians use their cellphones more than the Chinese. The minutes of usage (MoU) for GSM services in China was 297 in December 2004 compared to 330 for India in March 2005. This suggests there is stiff competition in India and tariffs are much lower than in China.

On the expenditure side, the operating expenditures for both the basic and mobile segments are higher for Indian companies than for Chinese. While in China the operating expenditure per subscriber per month for basic service providers is $4.3, in India it is as high as $5.92. Similarly, for mobile service providers, the operating expenditure per subscriber per month is $2.41, almost half the figure for India at $4.18. High salaries and expenses on advertisements, etc. are some of the reasons for the higher operating expenditures. Plus, there is almost no licence fee or spectrum fee in China while India has a licence fee of up to 15 per cent and spectrum charges of 2-6 per cent.

Also, the capital employed in China for the basic service segment is almost half of what has been employed in the Indian market, though for the mobile segment it is almost similar. Higher capacity utilisation in China is one of the reasons for this.

Lower operating expenditure and higher ARPUs have enabled the Chinese companies to see much higher returns on their capital employed than Indian companies. While in India, the return on capital employed for basic and mobile services was 10.9 per cent and 7.8 per cent respectively in March 2004, it was 14.7 per cent and 22.8 per cent respectively for Chinese operators in December 2004.
Deepika Mangla (Based on a recent TRAI paper on `Financial Analysis of the telecom industry of China and India')