Indian Paging Services Market

The Current Scenario





Technically, the paging subscriber base in India is estimated to have crossed the

one million mark in the fiscal year 1998-99. However, it is estimated that there are only

about 800,000 active paging subscribers in India today. This is because a large number of

paging subscribers have moved on to using cellular phones, while an equal number have

stopped using the paging service. However, on a comparative basis the state of affairs in

paging market is much better than basic and cellular markets because of the lower license

fee. From the investors point of view, India is the second market after China, which

continues to hold tremendous potential for growth in paging services.

Evolution

of Paging Market

1994: Licenses issued

to paging companies

1995: Paging

companies commence operations in cities

1996:Licenses issued to service providers

to commence operations in circle

1997: Circle operators commence operations

Paging services were first introduced in

India in late 1995. On an average about three companies were issued licenses to provide

paging services in each city. The market witnessed considerable growth in the first two

years. The introduction of cellular services in 1996 saw intense competition between

cellular and paging companies to attract subscribers to their networks. The paging

operators offered attractive discounts in an attempt to rapidly increase the subscriber

base. Pagers were even offered free with other consumer durable and as a result there was

a very high cost of acquisition of subscriber. The cost of acquisition of subscriber was

estimated to be $ 120 in the year 1996-97. This combined with the low average revenue per

subscriber and lower than expected growth in the subscriber base has resulted in

significant losses for the service providers. The industry is estimated to have made

losses to the tune of $ 90 million in the first three years of operation.

Market Estimates



The paging services were introduced in 1996. The subscriber base then was about 185,000.
Frost & Sullivan estimated the revenues for 1996 at $ 3.2 million. The next year

witnessed the maximum growth in subscriber base. The figures reached 535,000 with the

revenues totaling $29.1 million. In the financial year 1997-1998, Frost & Sullivan

estimated the market to be valued at $50.2 million with the cumulative subscriber base

estimated of 785,000, which means a growth of 72.7 percent above the previous year. With

most of the state wide paging operators expected to commence full operations in 1999, the

market is expected to grow mainly in circles in the current fiscal. The market is expected

to register a compound annual growth rate of 28.1 per cent in the period 1999-2005. The

market forecast projects the subscriber base around 4 million by the year 2005. The

revenue forecasts are estimated to grow to $284 million in the year 2005.

Market Trends

Average Revenue per subscriber



In 1995, when paging services were just introduced, the average annual price for
subscribing to a paging service was estimated at $2.6. The Department of Telecommunication

subsequently allowed the operators to increase the tariffs for paging service from $2.5 to

$3.75 for a numeric paging service and $6.25 for an alphanumeric paging service. Besides

these, the paging service providers also get additional revenues from providing value

added services to their subscribers. The average revenue per subscriber was estimated at

$2.6 per month in 1996. The average revenues have increased significantly 1996-97. In 1998

the average revenues was estimated to be $6.26 per month. The increase in tariffs for

basic paging services and the introduction of value added services would create an

increase in the average revenue per subscriber in the forecast period.

Alphanumeric paging dominant in the

Indian market



In most markets numeric paging accounts for a very significant share of the total paging
subscriber base. However in India, most of the subscribers have opted for alphanumeric

paging. In the first year of operation close to 95 per cent of all subscribers opted for

the alphanumeric service. This trend is gradually changing as the service providers are

now placing greater emphasis on numeric paging. Numeric paging works to the advantage of

the service provider as they need not have an operator assisted paging facility. Moreover

the spectrum utilisation is also much lower as compared to an alphanumeric message. In

1997-98 , revenue from numeric paging increased and reached 6.6 percent.

Numeric paging is expected to pick up in

markets like Mumbai, Delhi, Calcutta and the larger metros where the telecom

infrastructure is better developed. As the market broadens, the revenues from numeric

paging services are likely to increase its percentage contribution. This is because the

initial consumers who have adopted for paging are less sensitive to higher service

revenues as compared to consumers who will adopt paging at a later stage of development of

the market. It is estimated that by the year 2005, numeric paging will account for 18.9

percent of the total revenues in the market. The two way paging is likely to be introduced

in the market in the financial year 2001-02.

The 9 cities in the western region accounts for about 40

per cent of the total subscriber base in the country. The southern region of the country

accounts for another 30 per cent of the subscriber base in the country. The eastern region

of the country has the poorest average of subscribers per city. Four of the top cities in

the country, Delhi, Bombay, Madras and Bangalore, account for nearly 60 percent of the

total pagers in the country. This percentage share of the top 4 cities is expected to

reduce gradually over the years significantly to total revenues. Paging services have

commenced in the state circles much later than in the 27 cities. In 1998, they accounted

for just 4 percent of the total subscribers in the country. It is estimated that by the

year 2005, the circles will account for close to 20 percent of the total subscriber base

in the country.

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Industry Issues



- Financing problem


- License Fees yet to be finalized


- Revenue sharing with DoT/MTNL yet to be finalized


- Not allowed to link-up various cities using VSAT network.

Most of the operators have entered the

fourth year of operations but the annual DoT (Department of Telecommunications) license

levy has not yet fixed. In effect operators find it difficult to project business

financials and funding are difficult to come. With this the operators are managing the

show through internal accruals. The southeast Asian currency crisis also added to the

problems. For most of the operators, the foreign joint venture partners are from southeast

Asia.

To add to the worries was the competition

from cellular services. Unlike most other markets, cellular and paging were introduced

almost simultaneously in the Indian market. Due to the lack of a customer education of the

benefits of each of these competing technologies, paging and cellular were companies

targeting the same subscriber. But the paging companies were unable to compete against the

astronomically high marketing budgets of the cellular companies.

The paging service providers have not been

able to invest considerably into market development and educate the consumer the

advantages of paging services and the benefits for the same vis-à-vis other mobile

communication tools. The higher customs and excise duties make the economics of putting up

the radio paging network unbalanced. The monthly rental for both numeric and alpha numeric

paging in India is comparatively one among the lowest in the world. Meanwhile the customs

duties and excise duties together account for about 35 percent of the total cost of pager

to the customer.

The ratio of numeric to alpha numeric

pagers is 25:75 against the south-east Asian figures of 80:20. Alpha numeric message

utilizes much more bandwidth than numeric messages. This reduces the capacity of the

network. While an operator can handle up to 150 numeric messages per hour, the

productivity reduces to 30-40 messages in the case of alpha numeric messages. The high

ratio of alpha numeric pagers is attributed to the poor existing basic telephony

infrastructure. The success of paging services also depend upon the number of basic

telephone lines in the country. To add to the worries of the paging service providers is

the comparatively high churn out rate. Frost & Sullivan estimates the churn out rate

as high as 20 percent in some cases. The bad debt rate is also playing the spoilsport. The

bad debt rate is estimated at 10 percent.

The India Rupee has depreciated

considerably in past few years. Since 1991, the Rupee has been depreciating on an average

of 4 percent an year. The Rupee is further expected to depreciate at the rate of 4 percent

per annum in the next four years. All these developments put the foreign investments at

the receiving end. The import of infrastructure equipment and purchases are dollar linked

whereas the earnings are in Indian currency.

The companies had initially made

projections for project cost on an estimated number of subscribers. But the project costs

went beyond initial projections , thanks to high subscriber projections and high cost of

subscriber acquisition . With these, the banks and financial institutions have not been

very keen on financing radio paging companies. The factors like high license fee paid to

DoT, the lack of a revenue sharing with DoT for calls originated from pager messages and

the inability to offer collateral security also come in the way of debt financing.

Following the increase in subscriber base , the leading operators were looking forward to

additional equity participation by the foreign joint venture partners. However the moves

met with a failure, thanks to the south-east Asian currency crisis and the overall

depreciation in the capital market. Frost & Sullivan rates the unreasonable demand by

the Indian companies as one of the key reasons for the failure in getting investments. The

Indian promoters have been demanding huge premiums from the investors . The problems of

funding resulted in suppliers credit emerging as alternative and the deferment of

expansion plans by some operators. But the bad market performance has even changed the

terms for vendor credit. The attempts by some operators to raise money from overseas

sources with the help of vendors had also come cropper.

With the hike in monthly rentals , one of

the long-time demands of the industry has been met. The rental for alpha-numeric paging

has been increased to $7 from $ 5.8 and numeric paging to $ 4.1 from $3.5. Given the

estimated subscriber base of 0.8 million, the hike in monthly rentals will fetch in

additional revenues close to $10 million to the industry. To the much relief of the

industry , the Telecom Regulatory Authority of India (TRAI) has accepted in principle the

revenue sharing with DoT and MTNL for all the incoming calls to the paging service

providers. The regulatory authority has proposed revenue sharing of 0.004 cents per call.

This will bring in additional revenues of $ 2.5 million to the radio paging service

providers. Frost & Sullivan estimates the average number of messages received per

subscriber per day is 1.8. This translates into 1.45 million phone calls that are made

everyday to the paging service providers ..

The total picture will be clear only after

the fixation of the license levy from fourth year onwards. However there are no signs of

another demand by the operators finding a solution in the near future. The regulations do

not allow the service providers to use VSATs to link up their various cities and circles

of operation . Because of this the service providers depend on expensive means like leased

lines , fax and phone to meet with the roaming requirements of subscribers. This has

resulted in lack of profitability for the paging service providers.

The service providers have also started

improving the quality of service by capital updations like high speed "Flex"

protocol. By introducing value added services, some operators are trying to garner more

revenues. But at the need of hour , the cash starving paging service providers are

struggling to invest in market development. Targeted at the low end of the market , paging

operators have started vernacular paging. The efforts have started delivering goods in

some places. The state wide paging has been showing signs of momentum in southern states,

but in other parts of the country, it’s yet to pick up. Some of the paging operators

in the cities also have licenses to operate paging services in the state circles. These

service providers are finding it difficult to sustain losses in the city circles. This has

prompted many companies to forgo their license to operate paging services in the state

circles. Another reason is the high license fee in circles.

Conclusion



In the current fiscal, the paging market is likely to witness break even in the major
cities.

But, this may not suffice for the leading

operators to break even on the national level. On the other side , weak operators have

started showing signs of giving up by opting out of some cities. More important, the

latest developments are sending signals of the consolidation phase in the offing. Then it

will be a game of few national players with considerable market share in metros and having

an array of value added services.

The article is based on Frost & Sullivan’s latest

offering on the Indian telecom industry titled Strategic Review of Indian Paging Services

Market (1998-99)