Major Causes of Falling Arpu of Telcos in India

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Telecom
Telecommunication is one of the prime-support services needed for rapid growth and modernisation of various sectors of the economy. Telecom services have been recognised as an important tool for socio-economic development of a nation. In recent years, it has become more important because of the enormous growth of information technology and its significant potential for impact on the rest of the economy. The sector is experiencing rapid development due to FDI inflows in the form of international players entering the market. Today, telecom is the fifth-largest sector attracting FDI inflows after the chemicals, services sector, drugs & pharmaceuticals, and construction activities. In FY12, the Indian telecom sector received FDI equity inflows of Rs 90.12 bn amounting to around 5.2% of the total FDI equity inflows into the country. The sector saw cumulative FDI equity inflow of Rs 457.2 bn over FY08-FY12 registering a five-year CAGR of around 15.3%. The industry has seen consistent growth during the last year on the back of rollout of newer circles by operators, successful auction of third-generation (3G) and broadband wireless access (BWA) spectrum, network rollout in semi-rural areas, launch of mobile number portability, and increased focus on value added services (VAS). The future progress of the telecom industry in our country is also very encouraging, as rolling out the wireless broadband networks in the country has been started.

India is the second-largest wireless network in the world after China with 952.91 mn strong telephone network (including 921.02 mn wireless telephony network) as on Apr 30, 2012. This rapid growth in telecom network resulted in overall tele-density of 78.71% as at Apr 30, 2012. The target of 600 million connections by end of the Eleventh Five Year Plan has already been achieved by Feb 2010. This growth in the telecom sector is attributable to proactive and positive policy initiatives of the government and to the entrepreneurial spirit of various telecom service providers in public and private sectors. Some policy initiatives taken by the department of telecom (DoT) in FY12 that will help growth of telecom sector include: Government policy initiatives

In Nov 2011, approval of a project for National Optical Fiber Network for providing broadband connectivity to all 250,000 Gram Panchayats at a cost of Rs 200 bn.
Release of Draft National Telecom Policy in Oct 2011 with have an objective to provide secure, reliable, affordable, and high quality converged telecommunication services anytime, anywhere to every citizen in India.

Gross revenue and adjusted gross revenue of the telecom sector for FY12 was Rs 1,954.4 bn and 1,345.9 bn. Gross revenue increased 13.8% and adjusted gross revenue increased 10.7% compared with FY11. Of the gross revenue of Rs 1,954.4 bn in FY12, around 87.27% was contributed by private sector companies and the balance 12.73% by public sector companies.

Compared with subscriber base, which increased at a five-year CAGR of 33.4%, revenue increased only at 11% CAGR during FY08-FY12. Even if the subscriber base grows, revenue output is less because of cheaper call rates and intense competition in the market. In FY12, subscriber base grew 12.4% y-o-y whereas gross revenue grew 13.8% y-o-y.

XLVIII

Gross Revenue of telecom sector from fy08 to fy12

Source: TRAI

Trend in Telephone subscribers and tele-density in India
The number of telephone subscribers in India increased from 300.49 mn as at end-March 2008 to 951.34 mn as at end-Mar 2012 registering a five-year CAGR of 33.4%. In the past four years, subscriber base grew robustly at more than 35% each year. However, in FY12, the growth in telephone subscribers slowed down to 12.4% y-o-y. As on Mar 31, 2012, overall tele-density in India reached 78.66 as against 26.22 in Mar 2008, registering five year CAGR of 31.6% during FY07-FY12.

Subscription in urban areas grew from 564.08 mn as at end-Mar 2011 to...
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