TATA DOCOMO’s per second billing plan triggered a tariff war in the Indian telecom sector in 2009. Bharti airtel was the first operator to respond to this and others soon followed suit, but the step affected their voice revenues, which started dropping sharply even as monthly subscriber additions touched new highs.

The timing could not have been worse. With 3G auctions concluding in the first quarter of 2010-11, operators shelled out nearly nine times the base price in circles like Mumbai and Delhi and 5.7 times in circles like Bihar. The cost per minute for operators rose rapidly in a short time, thereby stressing their balance sheets.

Realising this impact on their balance sheets, operators have not introduced any tariff cuts since mid-2010. Even in the case of recently launched 3G services, most operators have steered clear of any tariff war.

Overall, despite a poor financial performance for the year ended March 2011, the telecom sector recorded a 12 per cent increase in sales to Rs 1.2 trillion, as compared to a 7 per cent increase in revenues in the previous year. With price stability setting in, analysts believe that revenue growth will increase further as 3G services are offered in more towns and cities in the 2011-12 fiscal.

tele.net takes a look at the key revenue trends and related parameters over the past one year…

Sales order 

The pecking order in terms of subscriber base is established in the Indian mobile market with Bharti airtel leading the pack and followed by Reliance Communications (RCOM), Vodafone Essar, Bharat Sanchar Nigam Limited (BSNL), Tata Teleservices Limited (TTSL) and Idea Cellular.

The dynamics, however, change when seen in terms of revenue market share. While Bharti airtel is the leader with a revenue market share of about 31.3 per cent as of March 2011, RCOM is behind Vodafone Essar as well as Idea Cellular. In fact, as per the Telecom Regulatory Authority of India (TRAI), Vodafone Essar’s revenues from mobile services in 2010-11 were nearly double those of RCOM.

Given that Bharti airtel and Vodafone Essar have the highest-ARPU customers in the country, the two operators alone account for close to 53 per cent of mobile revenues in the 14-player market.

In terms of revenue growth in 2010-11, the three leading incumbent operators, Bharti airtel, RCOM and BSNL, lost revenue market share. Their revenue market share fell by over 1 per cent during the year, with the highest drop being that of the state-owned operator.

However, Idea Cellular, Aircel, TTSL and Vodafone Essar took major strides in 2010-11 as compared to the previous year. Aircel’s revenues from mobile services increased by 36 per cent to Rs 56.2 billion, while the same for TTSL recorded a 22.2 per cent increase to Rs 100.06 billion. Idea Cellular’s and Vodafone Essar’s sales were up by 19.4 per cent and 15 per cent respectively.

In 2010-11, Vodafone Essar, the Indian arm of Vodafone Group Plc, recorded profits for the first time. The operator witnessed a 134 per cent increase in its operating profit to £15 million for the year ended March 2011, as compared to a loss of £37 million in 2009-10. In another first, Vodafone Essar posted an operating-free cash flow of £433 million for the year ended March 2011.

Among the new entrants, only Uninor, which is majorly owned by Norway’s Telenor, has been able to make an impact so far. Placed ninth in terms of revenue market share, Uninor reported revenues of Rs 4.03 billion in the quarter ended March 2011. The company had a revenue market share of 0.7 per cent for the year ended March 2011 and overtook other small operators such as Sistema Shyam TeleServices Limited, Loop Telecom, Videocon, S Tel and Etisalat DB. While Uninor operates in 13 circles, S Tel has operations in five, Etisalat DB in 15 and Videocon in 13 circles.

Usage chart 

A major change witnessed by the industry is the fact that higher net subscriber additions no longer reflect dominance. This explains why RCOM, despite being the country’s second largest telecom operator in terms of subscriber base, ranks below Vodafone Essar and Idea cellular in terms of both ARPU and minutes of usage (MoU), making them look more profitable.

In terms of ARPUs, Bharti airtel was the leader with an ARPU of Rs 202 in the year ended March 2011, followed by Vodafone Essar at Rs 180, Idea Cellular at Rs 169 and RCOM at Rs 117.50. On the basis of MoU and the realisation per minute data for operators, there is another change in the pecking order. Bharti airtel had the highest quarterly MoU per subscriber at 458 minutes, followed by Idea Cellular at 401 minutes, Vodafone Essar at 386 minutes and RCOM at 93.75 minutes.

ARPUs of four GSM operators (Uninor, S Tel, Videocon and Etisalat DB), which received licences in 2008, was between Rs 8.50 and Rs 39 in the quarter ended March 2011.

The ARPU of all GSM operators combined was Rs 118. This implies that the ARPU of Uninor (Rs 39), the best performer among the four new operators, was one-third the industry average. Videocon’s ARPU of Rs 8.50 was one-thirteenth the industry average. Etisalat DB’s ARPU was Rs 26.75 while the same for S Tel was Rs 25.99.

As per industry experts, such low ARPUs do not even cover the cost of acquiring a customer, which is Rs 300-Rs 400. “The new players are offering low tariffs to attract subscribers, which is why they are operating at such low average revenue per minute. They also do not have a pan-Indian presence. Their operations are unviable and it will be difficult for them to recover costs,” says a telecom analyst.

Future strategy 

Clearly, the telecom industry is at a very critical juncture. While operators keep on adding large numbers of subscribers, they are struggling to increase their revenue market share since competition has increased and inflation inhibits any further tariff cuts. Data released by telecom operators shows that the industry is currently EBITDA negative, excluding the leading operators, which are marginally EBITDA positive. However, the industry’s total profit after tax is negative. This situation cannot be sustained for long and experts suggest that the only way forward is a 5-10 per cent tariff hike.

However, Himanshu Kapania, managing director, Idea Cellular, has a different view. “The overcapacity phase in the telecom sector is still continuing. There are over 12 operators in the marketplace and there are a number of operators who have underutilised assets. Therefore, it is very premature to be able to believe that the pricing power will come back to the operators,” he says. 

In all, with the addition of 3G services to operators’ portfolios, their revenue numbers are clearly headed north. How the dynamics change in terms of revenue market share is something the industry will have to wait and watch out for.