Why telcos are facing lower revenue despite a surge in user base

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Currently, India is the second largest telecommunications market in the world with a 1.2 billion users as of January 2019. And, this number is witnessing a strong growth since the past few years. It is estimated that the increase in mobile phone usage and drop in data costs will increase the internet user base by 500 million in the next five years.

Why telcos are facing lower revenue despite a surge in user base

 

With the increase in the use of data and mobile phones, there are many other changes that are happening. To mention a few, the number of app downloads increased drastically and India surpassed USA in 2017 in the overall app downloads. Also, the landline phones that were once found in every household become very rare. And, the PCOs are hardly seen these days and the number has taken a massive plunge.

Based on the reports by TRAI and DoT, number of changes in the industry took place from 2001 to 2019.

Why telcos are facing lower revenue despite a surge in user base

Mobiles, landlines, PCOs trend

When it comes to the total number of telephones, it was 36.28 million in 2001 and gradually increased to 1.2 billion in January 2019. The number of mobile subscribers increased from 3.58 million in 2001 to a whopping 1.2 billion in January 2019. On the other hand, the landline subscriber base has dropped from 32.7 million to 22.8 million from 2001 to 2018.

PCOs (Public Call Offices) were popular and it was a common sight on the road even a few years back. Back in 2000, it was estimated that there were 8.6 lakh PCOs in the country. As of now 2018, this figure has reduced to 3.6 lakh. On the contrary, the Village Public Telephone (VPTs) has witnessed an increase from 3.7 lakh in 2001 to 5.87 lakh in 2016 before it dropped to 1.99 lakh in 2018.

 

Use of internet

When the smartphone usage was limited, the usage of the internet was also limited. It is said that in March 2007, there were 2.34 million broadband users, 9.27 million wired users and 31.3 million wireless users. Now, with the increase in smartphone usage and cheap data plans, the internet users in India have increased. As of March 2018, there were 412.6 million broadband users, 21.24 million wired users and 472.72 million wireless users.

As per TRAI, there were 13.45 internet subscribers among 100 inhabitants in India in 2013. And, this number increased to 38.02 per 100 inhabitants in 2018. There has been a double-fold growth in the urban regions over these five years thanks to the popularity of 4G while the rural regions witnessed just 4% increase.

Why telcos are facing lower revenue despite a surge in user base

Region-wise growth

During the month of January 2019, all circles except U.P. (West) and Tamil Nadu showed positive monthly growth in their wireless subscribers. North East showed a maximum growth of 2.74% in its wireless subscriber base. In the same month, a total of 5.84 million requests were received for MNP (Mobile Number Portability) with the maximum ones coming from Delhi in Zone 1 (Northern and Western India) and Andhra Pradesh in Zone 2 (Southern and Eastern India).

Why telcos are facing lower revenue despite a surge in user base

Market share of telcos

As of January, 2019, the private access service providers held 89.95% market share of the wireless subscribers. And, BSNL and MTNL that are state-run service providers had a market share of 10.05%. Among the private service providers, Reliance Jio had 24.49% of the market, Vodafone Idea had 35.12% and Airtel had 28.80%.

Telecom operators are at loss

Well, there is no denying that the number of internet and mobile phone users have increased over the past two decades. Even the mobile data consumption has increased significantly in the recent times. But this growth appears to be unfavorable for the telecom operators. Previously, the ARPU (Average Revenue Per User) per month generated by the telcos was quite high and now it has reached an all-time low.

Notably, as per TRAI, the ARPU generated per GSM subscriber per month in 2007 was Rs. 298. This has gradually witnessed a drop and has reached Rs. 76.04 in 2018. On the contrary, it has happened while an increase in traffic (minutes of use) has been recorded. The traffic has increased from 471 minutes in 2007 to 584 minutes in 2018 on GSM.

Verdict

Given that the telecom operators are generating much-lower ARPU in the recent years while the number of smartphone users and total data consumption has increased, it is clear that they are witnessing a loss. With the entry of Reliance Jio in 2016, the telecom market was disrupted with affordable plans and bundled freebies. This has left a huge dent on the revenue channels of other telcos in the country. Already, Aircel filed for bankruptcy a couple of years back. And, the others that exist in the market are also facing a tough time.

They are forced to offer affordable plans and benefits to retain users despite the reduced profits to stay ahead in the competition. It was in an attempt to increase the ARPU that telcos such as Airtel and Vodafone came up with minimum recharge plans that users have to recharge once a month to continue using the services.

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