Rural markets hold the key for India's mobile growth

The country's urban markets have saturated, according to analysts

India's mobile market continues to boom but there are signs of saturation, particularly in urban markets, according to analysts.

The country's urban market, which accounts for only 30 per cent of the country's population but 70 per cent of telecommunications subscribers, is close to saturation, research firm iSuppli said Wednesday.

However, iSuppli expects the rural market to pick up the slack in urban markets. India will have more than 1.2 billion mobile subscribers by 2014, the research firm forecast.

India added about 17 million subscribers in July, taking the total number of subscribers to 652 million, according to data from the Telecom Regulatory Authority of India (TRAI).

By the end of this year, total wireless subscriptions are projected by iSuppli to reach 766 million, which is about 46 per cent higher than the 525 million subscribers counted at the end of 2009.

Gartner also expects the next wave of growth to be in rural markets, and forecasts the total number of mobile connections by 2014 to be about 993 million.

The current boom in mobile subscribers has been driven in part by competition among operators which has pushed down tariffs, said Kamlesh Bhatia, a principal research analyst at Gartner.

A significant proportion of the current addition in subscribers is also coming not from new users of mobile phones, but from current mobile phones users who use more than one SIM (subscriber identity module) to take advantage of the various pricing schemes offered by operators, Bhatia said.

A number of vendors including Nokia have introduced dual-SIM phones to cater to this market.

Some subscribers, particularly pre-paid subscribers, are also dormant, although they get counted in the numbers that operators report to TRAI, Bhatia added.

A key trend in 2009 was the shift in the focus of service providers and handset manufacturers toward the countryside, which continues to offer significant and untapped market opportunity, according to iSuppli.

India's rural areas accounted for 191 million mobile subscribers at the end of March in comparison to 393 million subscribers in urban areas, according to TRAI. There were 112 mobile connections for every 100 people in urban areas in contrast to 23 connections per 100 people in rural areas.

Rural markets however present large challenges for mobile operators, because the average revenue per user (ARPU) is likely to be lower in these markets, as the ability to spend in rural markets is lower than in urban markets, Bhatia said.

To cut down capital costs, operators are already starting to share passive infrastructure like mobile towers, rather than set it all up themselves, Bhatia said.

Another opportunity identified by Indian mobile operators is the rollout of 3G services. Top Indian operators like Bharti Airtel and Tata Teleservices have already awarded equipment and services contracts for their rollout of 3G services.

Spending on wireless infrastructure equipment in 2010 will reach $US10.8 billion, up 29.7 per cent from $8.3 billion last year, according to iSuppli. By 2011, network infrastructure spend will rise to more than $11 billion on account of the rollout of WiMax and 3G services, it added.

The large investments by operators on costly 3G license fees and infrastructure may not however provide returns on investments to operators in the short term, according to Bhatia. The 3G services are likely to be premium priced, and will address only the high-end segment of the market, he said. Indians are also not geared to use 3G services in large numbers, because the number of smart phones in the country account for less than 10 percent of all mobile phones used, Bhatia said.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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