24 September 2007

WSJ on mobile in India

This article in the Wall Street Journal is interesting (subscription required). What I find particularly interesting and useful are the cost and operational data. Quoting the article:
Cellular providers initially tapped developed markets, and when those were saturated, big cities and suburbs in the developing world provided easy growth. But to expand further, cellular companies want to reach hundreds of millions more potential customers who live outside the main population centers.

Almost two billion new subscribers are projected to start using mobile phones in the next five years, and 80% of them live in developing-world markets, according to estimates by Sweden's Telefon AB L.M. Ericsson. In India alone, more than seven million new cellphone subscribers recently have been signing up each month, bringing the total close to 200 million subscribers in a country of 1.1 billion.

The economics of that growth get dicey. Indian cellular companies charge less than two cents a minute, among the lowest rates in the world, and the average bill is under $10 a month compared with about $50 in the U.S. The more that cellular companies penetrate India's rural areas, the higher the costs to set up and maintain networks. Yet rural customers, living on an average of less than $2 a day, tend to spend even less on phone service than their wealthier urban counterparts. Only companies that can cut costs while expanding their networks can profitably pursue the untapped market.


Already, Bharti is reaching customers whom it didn't consider worth pursuing not long ago. In July, Bharti commissioned one of its newest towers in the sleepy village of Madilage, about 300 miles south of Mumbai. To let the villagers know cellular service had arrived, Bharti staged a traditional dance performance on the back of a truck parked under the new tower. About 500 villagers -- a fifth of the local population -- gathered to watch the show and learn how cellphones work. "Incoming calls are totally free!" announced the Bharti emcee.

Peanut farmer Sandeep Pati, 23 years old, is one of the first subscribers in Madilage, but his investment -- he says he spends less than $20 a month on calls -- is already paying off. He rents out his tractors to other farmers and his cellphone means he can arrange more rentals quickly with less downtime. "I can run my business even from the field," says Mr. Pati outside his simple home, where his water buffaloes sleep on the ground floor below his bedroom. "When I had problems with the tractors before, we would just have to leave it where it was for a day, now I can call and get it fixed right away."


The cost of building and equipping a Bharti tower has dropped around 40% to $75,000, while the time the average rural site runs on diesel generators has been slashed to four hours a day from eight, Mr. Price says.

Bharti has survived the competition and emerged as India's largest cellular operator by number of subscribers, now 47 million, and a 28% share of the market. In the year ended March 31, earnings jumped 89% to $1.06 billion, as its net profit margin rose to 23.0% from 19.4% a year earlier.

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