For several years, metro circles including Delhi, Mumbai and Kolkata have been the key growth drivers for the Indian telecom market. With high levels of economic and social growth, urbanisation, per capita income, literacy, etc., consumers in these circles have been more open to embracing telecom services than in other parts of the country.

This growth, however, was primarily voice driven and has stagnated of late. For instance, the teledensity in the Delhi circle stood at 227.2 per cent in January 2014. Subscriber additions have become modest – while Delhi recorded a growth of 2.2 per cent during July-September 2013, the subscriber base in Mumbai and Kolkata circles declined by 0.04 per cent and 0.26 per cent respectively during this period. As compared to this, in 2009, the Delhi, Mumbai and Kolkata circles registered a subscriber addition growth rate of 5.6 per cent, 8.7 per cent and 6.3 per cent respectively between July and September. Further, other circles, particularly B and C, have also witnessed significant demand for telecom services in recent years. Driven by an improvement in infrastructural facilities, increasing literacy rates and growing disposable incomes, these circles offer major opportunities for operators facing declining ARPUs.

Limited growth potential in the voice segment and growing opportunities in Category B and C circles have impacted the attractiveness of metro circles to some extent. However, operators have high hopes from these circles, which account for a major part of their revenues. These markets comprise the largest proportion of post-paid subscribers in the country and thus are very important from the profitability perspective. Further, given the level of technology advancements, strong telecom infrastructure and consumers’ willingness to adopt new technologies, these markets offer significant potential for operators’ data services. Delhi, Mumbai and Kolkata are also key hubs for enterprise activity and are witnessing growing adoption of advanced ICT solutions such as cloud computing and big data, which are being tapped as new revenue streams by operators.

High growth potential

The metro circles represent a very important market segment for operators. Although these service areas account for just 4 per cent of the country’s total population (as per the 2011 Census), they account for over one-tenth of the telecom user base (10.92 per cent, as of January 2014).

Even in terms of ARPU, the metro circles have fared better than other service areas. During the quarter ended September 2013, the blended monthly GSM ARPU for metros stood at Rs 145, the highest amongst all categories. This can be primarily attributed to a large post-paid customer base in these circles. During the quarter under consideration, the share of post-paid subscribers in metro circles stood at 12.01 per cent, as compared to 4.58 per cent, 2.14 per cent and 1.83 per cent respectively in Category A, B and C circles.

A large post-paid subscriber base translates into higher ARPU for operators. As per the Telecom Regulatory Authority of India (TRAI), metro circles together accounted for 23.63 per cent of Vodafone India’s gross revenue for the September-December 2013 quarter. Similarly, Bharti Airtel and Reliance Communications (RCOM) earned 16.85 per cent and about 20 per cent of their total gross revenues respectively from metro circles.

The importance of these circles in operators’ customer base was also highlighted during the recently concluded spectrum auctions in the 900 MHz band. The government received aggressive bids for all the blocks on offer in this band and earned Rs 235.89 billion from spectrum sale. The winning bids for the Delhi, Mumbai and Kolkata circles stood at Rs 7.41 billion, Rs 5.63 billion and Rs 1.95 billion, about 105.8 per cent, 71.64 per cent and 56 per cent higher than the reserve price of Rs 3.6 billion, Rs 3.28 billion and Rs 1.25 billion respectively. While Vodafone India and Bharti Airtel picked up spectrum in all three circles, Idea Cellular won spectrum in the Delhi circle. Further, spectrum in metro circles was also in demand in the 1800 MHz band, in which Vodafone India and Bharti Airtel acquired airwaves for Delhi, Mumbai and Kolkata; Idea Cellular for Delhi and Mumbai; and RCOM for Mumbai. A new entrant, Reliance Jio Infocomm Limited (RJIL) also acquired spectrum in all the three metro circles in the 1800 MHz band.

Meanwhile, Bharti Airtel’s acquisition of Loop Telecom for Rs 7 billion reflects the strategic value offered by the metro circles. As part of the deal, Loop’s 3 million customers have been shifted to Airtel. This will result in Airtel accounting for a huge market share both in terms of subscribers and revenues as the majority of Loop customers belong to the post-paid segment. According to industry estimates, Loop’s blended ARPU is Rs 200-Rs 225, as against Bharti Airtel’s Rs 170-Rs 195.

Data as the next growth frontier

Operators are now looking to replicate the success of the voice service segment in metro circles in the data space. They are banking on customers from these circles to drive the first wave of 3G/4G adoption in the country. As per the recently released Nokia Solutions and Networks’ MBit Index report, 3G data payload doubled year on year in metros during 2013. As per the report, the average data consumption for certain metros and Category A circles is as high as 1 GB per month, indicating a huge demand and sustained interest in 3G services.

3G now accounts for about half of mobile data in metros, which is a result of higher smartphone penetration, smaller 2G-3G price differential and wide network coverage. All operators with 3G spectrum in these circles have already rolled out services. Companies which did not win 3G spectrum in metro circles have entered into intra-circle roaming (ICR) agreements with peers, which has led to legal issues. Consequently, they have made aggressive bids for spectrum in the 900 MHz band to offer 3G services as well as strengthen their data infrastructure. For instance, Idea Cellular acquired spectrum in the Delhi circle in the 900 MHz band primarily to gain a share in the growing 3G market. The operator does not hold 3G licences in Delhi and was barred from adding subscribers under ICRs following a government mandate.

The picture is no different in the 4G segment. Bharti Airtel launched its 4G services starting from the Kolkata circle. Further, the company has acquired Qualcomm’s BWA spectrum in the Delhi and Mumbai circles as it failed to pick up spectrum in these circles in the 2010 auction. RJIL, which holds pan-Indian BWA spectrum, also chose the metro circles of Delhi and Mumbai for the first phase of trials, besides Jamnagar. The company is aiming to launch services in these cities by September 2014.

Conclusion