Growth dries up for Indian cellcos

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Growth dries up for Indian cellcos

Revenue growth to halve in 2012 as operators find it hard to raise financing, and suffer from import restrictions

By CAROLINE GABRIEL

Published: 3 January, 2012

READ MORE: Financial | India | Infrastructure | Regulator

As feared, Indian government restrictions on importing telecoms equipment are adding to the woes of the country's carriers, as they grapple with fraud probes, rockbottom ARPUs and lack of spectrum capacity. Now, they are also finding it hard to raise financing to enhance their networks in order to improve often lamentable quality of service, or to upgrade to 3G (where they have the licences).

Rajan Mathews, director general of the cellcos' trade body COAI (Cellular Operators Association of India), said the situation was worsened because members were not free to shop around freely for foreign equipment. He told local reporters that orders for telecoms equipment have "come to a screeching halt" after the government made it mandatory for operators to go through a complex pre-approval process to buy any imported kit. The Indian government wants to make the country more self-sufficient in key infrastructure by restricting imports, and also cites security concerns, but the homegrown industry is inadequate to meet operators' needs.

All these factors are limiting cellcos' ability to support new users and squeezing revenue growth. Mathews complained that foreign direct investment as well as local bank lending have almost dried up, making liquidity "a big issue" for operators.

Although India has over 881m mobile users, and was adding 15m new subscribers a month in early 2011, this pace of growth has slowed because the networks are overloaded and the carriers lack the resources to keep pace with rising demand. Net user adds have dropped to around 7m a month over the past few months, and Mathews expects the level to remain between 7m and 9m during the whole of 2012 if cellcos' issues are not addressed.

That means revenue growth will remain slow considering the potential of this market - he expects mobile service revenues to rise by 15% to about $23bn in the financial year to the end of March 2012 (up from 13% in the previous period), but growth will then slump to just 7% in the year to March 2013.

The main positives for operators, especially those with 3G services, are that churn is reducing, and data offerings are halting the ARPU freefall of recent years - overall ARPU is now stabilizing around INR135 to INR160 per month.