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Thursday, April 5, 2007
Riding high on the telecom growth and with focus to cater to customers of every category, mobile handset manufacturers have left no stone unturned to reach them. While service providers come up with innovative ideas and various tariff plans that would suit everyone's pockets, handset vendors pick up new ways to ensure that customers get a handset at their doorstep. And now, as the focus has shifted to 'B' and 'C' category circles as well as rural India, handset-manufacturing companies have redesigned their distribution strategy. The companies are getting a boost with the fact that the mobile users are expected to cross 220 mn by the year-end and 500 mn by 2010 with an addition of about 6-7 mn subscribers every month. On top of that, almost 50 per cent of India's population is still untapped by this industry. And this figure refers to rural India, as 65 per cent of the Indian population lives in villages. So the real growth is expected from this geography.
Market Opportunity
The set target of reaching around half a billion customers by 2010 and the teledensity of 45 per cent seems achievable. What gives the industry confidence of achieving these numbers is the friendly government policies, a consistently strong GDP growth, the exploding young population, and the Indian business model of being profitable despite having the lowest tariff in the world.
Analyzing the NCAER IMDR 2002 data, and in the current scenario, it can be said that roughly 60 per cent of rural households may be too poor to afford telecom access but the remaining 40 per cent are in a position to afford, provided the handsets are low in cost. According to World Bank "Wherever they are given a choice, poor communities often spend on communications as much as urban communities, in terms of percentage of available income." Moreover, the bank also emphasizes "There is evidence to suggest that people will spend up to 2 per cent of their income on phone calls if a phone is available to them, even in rural communities."
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Urban/Rural Income-wise Distribution of Households
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Income Group
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Rural Households
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Urban Households
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Lower
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58.87 (47.94%)
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9.31 (18.98%)
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Lower Middle
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42.77 (34.83%)
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16.58 (33.76%)
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Middle to High
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21.16 (17.23%)
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23.22 (47.28%)
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Total
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122.81 (100%)
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49.11 (100%)
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Source-NCAER IMDR 2002
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In reality the demand of mobile phones is increasing very fast today, even in small towns. Category C circles have, on average, 85 per cent rural population, while category 'A' and 'B' comprise of 67 per cent and 75 per cent of the rural population respectively. Further, category 'C' circles, which includes Himachal Pradesh, Bihar and Jharkhand, Orissa, North East and Jammu and Kashmir, have on an average lower per-capita incomes than states in other categories-approximately Rs 8,000 as compared to Rs 10,000 and Rs 13,000 for 'B' and 'A' category states, respectively. Yet, category 'C' circles have outperformed the national and other category averages for percentage growth over multiple quarters, in terms of both GSM and CDMA subscribers. And it indicates great potential in these areas.
Lower income rural households may perceive mobile handsets or access devices as expensive. The cost of handset constitutes an entry cost and is therefore an important barrier for growth of mobile services. Recently, single chip cell phone solution was launched in India this will bring down the cost of handsets, making the Rs 1,000 mobile a reality. Such single chip solutions are expected to reduce power consumption by 50 per cent.
Hence, the above statistics suggests that the target of 500 mn mark and a rural teledensity of 17 per cent is not far away. According to D Shivakumar, VP and managing director, Nokia India, "In 2011, the Indian mobile market will overtake the bicycle population as it presently covers 45 per cent of all households. It has never happened anywhere else but we are sure it will happen in India."
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