New telecom operators to pull down user revenue

The new telecom licensees, which are planning to start operations in rural and semi-urban sectors, are likely to end up earning from only entry-level customers. This, experts say, will bring down the industry’s average revenue per user (ARPU), which is used to measure a telecom company’s financial strength.

This is alarming for the industry, which is already grappling with the ever-sliding ARPU and is looking at measures to arrest this decline.

Most new players are expected to start operations with an ARPU of as low as Rs 100 per month. This is almost one-third the existing ARPU (for both pre- and post-paid customers) of around Rs 280 per month.

The new players, including Videocon-controlled Datacom Solutions, Unitech, Shyam Sistema, Swam Telecom, STel and Essar Group firm Loop Telecom, are expected to start operations by the end of this year. Also, existing GSM operators like Idea Cellular, Tata Teleservices Ltd and Reliance Communications are looking at expanding into new circles.

A Department of Telecommunications (DoT) official said: “To get a headstart, the new entrants will be looking at starting operations in ‘B’ and ‘C’ circles where there is not much competition. This means they will acquire entry-level subscribers, resulting in a low ARPU.” The ARPU from rural and remote circles will be less than even this. “For the entry-level players, this means initial losses,” he adds.

According to Frost & Sullivan’s Principal Consultant (ICT Practice, South Asia and West Asia) Sourabh Kaushal, the companies’ ARPU will depend on the strategy they adopt to increase their subscriber base. If the companies are to start operations with urban and rural circles, chances are that the ARPU will be much lower than the industry average, he says.

The companies would also be looking at a huge churn (users moving from one service provider to another). However, Datacom Solutions (a subsidiary of Videocon Industries) CEO Ravi Sharma has a different view.

“Most new entrants will be looking at increasing their subscriber base and according to a recent study, the churn in the industry stands at around 3.5 per cent per month. This, on an annual basis, will be around 42 per cent of the 287 million subscribers in the country,” Sharma said.

This provides the new players an opportunity, he says.