India is one of the fastest growing telecom markets in the world and Metro and Category A circles have been at the centre of this growth. However, as these circles reached saturation around 2007-08, operators increased their focus on Category B and C markets, which offered significant potential in terms of subscriber additions as well as revenue.

Category B and C circles are characterised by a huge population base and have witnessed significant structural shifts in telecom technology usage over the years. Per capita income growth and improvements in infrastructural facilities as well as higher literacy levels have been driving the uptake of new telecom technologies in these circles.

tele.net takes a look at the key telecom trends, growth drivers and operator strategies in Category B and C circles…

Composition

Category B comprises eight telecom circles – Haryana, Kerala, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh (East), Uttar Pradesh (West) and West Bengal; while Category C consists of Himachal Pradesh, Bihar, Odisha, Assam, the Northeast and Jammu & Kashmir. These circles not only differ from one another in terms of the demographic, geographic, economic and socio-political profile but also with regard to telecom performance. For instance, Punjab and Kerala have higher teledensity than other circles in this category. In terms of teledensity, Punjab (103.8 per cent) and Kerala (97.12 per cent) ranked fourth and fifth respectively amongst all telecom circles in the country in June 2013. Bihar recorded the lowest teledensity at 45.36 per cent.

Similarly, non-uniformity has been witnessed in these circles with regard to visitor location register (VLR) subscribers. While active subscribers in the Madhya Pradesh, West Bengal and Bihar circles accounted for about 87 per cent of their total user base in June 2013, Punjab registered the lowest VLR proportion in the country at 82.07 per cent. Although Bihar, Madhya Pradesh and Haryana registered substantial net subscriber additions, the Uttar Pradesh (East and West) and West Bengal circles witnessed a reduction in subscriber numbers.

 Key growth drivers

All Category B and C circles offer opportunities for operators. The teledensity in the majority of these circles is lower than the national average of 73.5 per cent, which indicates significant untapped potential for providing telecom services in these areas. In particular, Bihar and Uttar Pradesh are amongst the most populous states with a huge rural subscriber base. While the total population of these states is over 300 million (as per Census 2011), the combined telecom subscriber base stood at 183.38 million as of June 2013.

These markets offer major opportunities for data uptake as well. They have shown appetite for 2G/3G data services in the past two years. Although the uptake of 3G services in these service areas has been slower than that in Metro and Category A circles, it is expected to pick up in the next three years. As per Nokia Solutions and Networks, Category B circles will report the highest data growth, followed by Category C circles.

Therefore, these telecom markets have become a key focus area for operators’ 3G roll-out strategies. For instance, Idea Cellular acquired 3G licences for nine circles in 2010, of which six circles are in this category. Players such as Vodafone India, Bharti Airtel, Reliance Communications (RCOM) and Bharat Sanchar Nigam Limited are also extending their 3G reach in  Category B circles. Most of these operators have revised their tariffs downwards to encourage service adoption. For instance, RCOM has reduced 3G tariffs to the levels of 2G data tariffs. However, the low penetration of smartphones is a key area of concern. Operators are adopting data and handset bundling strategies to address this issue.

Further, in terms of revenue growth, providing services in Category B circles is proving to be more remunerative for operators. So far, Metro and Category A circles have made a higher revenue contribution for operators as these service areas comprise high-ARPU users. In contrast, Category B and C circles have a large user base, which mainly comprises plain voice users who have recently shifted to data services. As per industry estimates, of the total data user base in Category B circles, 75 per cent accessed data services through 2G and the remaining through 3G and other high speed technologies in 2012. However, with improvements in the affordability and availability of 3G services, the revenue contribution of these markets has been increasing. In fact, during the April-June 2013 quarter, Category B and C circles outpaced Metro circles in terms of revenue growth. Category B and C circles recorded 6.7 per cent and 5.8 per cent growth in revenues respectively over the January-March quarter 2013, while the Metro circles registered 2.8 per cent growth. The Metro circles have already witnessed high levels of service uptake and the mobile data usage in these markets is stabilising, with only a few pockets of high usage.

Further, operators’ growing preference to serve Category B circles was also reflected in their bidding pattern during the 2G spectrum auctions in November 2012 and in March 2013. In fact, the Bihar circle turned out to be the saving grace for spectrum auctions conducted in November 2012. All the eight blocks of spectrum in the circle were bid out on the first day of auction. Also, it was the only circle where the provisional winning price increased by Rs 17 million over the reserve price. In contrast, there were no bidders for Metro circles on account of high reserve prices, while the response towards Category C circles was subdued due to limited near-term growth opportunities.

Also, new players in the industry, whose licences were cancelled in February 2012 and who were given the opportunity to regain the same in select circles through auctions largely opted for circles in Category B to re-enter the Indian telecom space. For instance, of the six winning bids by Videocon Telecommunications in November 2012, five were for the circles of Bihar, Haryana, Madhya Pradesh, Uttar Pradesh (East) and Uttar Pradesh (West). Similarly, Telenor’s Indian venture, Telewings Communications Services chose to operate in three circles each in Category A and B. In the March 2013 auctions, Sistema Shyam TeleServices Limited bid for eight circles which included Kerala, West Bengal and Uttar Pradesh (West).

Further, the economic profiles of most Category B and C circles have undergone a major change in the past few years. As per the Economic Survey 2013, the best performing states in terms of growth (measured as gross state domestic product at constant prices) during 2011-12 were Bihar (16.71 per cent), Madhya Pradesh (11.98) and Maharashtra (8.54). Bihar’s per capita income nearly doubled from Rs 7,914 in 2004-05 to Rs 15,268 in 2011-12. Further, the state registered the highest per capita growth rate (in terms of per capita income) at 15.44 per cent. This highlights the increasing purchasing power and disposable income in Category B and C circles, which is driving the sale of smartphones and other high speed communication devices.

Operators and service providers are also venturing into these circles to explore opportunities in the enterprise segment. States such as Punjab, Bihar and Haryana are now emerging as major industrial hubs as they offer superior infrastructure at low cost as well as a large workforce. These industrial corridors consist of several small and medium enterprises, which create significant demand for communication networks and services.

 Conclusion

Till recently, Metro and Category A circles were viewed as the growth engines of India’s telecom space. However, as these markets mature and the business case for providing services in the Category B and C circles improves, a shift towards the latter will be a logical and necessary step for operators to ensure long-term business growth and profitability.