Tele tale

SMARTSHARE

Growth in telecom climbed past another barrier in the first quarter of 2005-06. Mobile subscriber additions through the last two years have run at 10-15 lakh per month (1-1.5 million).

It jumped past the 20 lakh per month level in the first quarter of 2005-06 with more than 25 lakh additions in June. The mobile user-base (currently around 60 million) should edge past 100 million in 2006.

The Indian telecom market has been touted as "the fastest-growing" for some time. China has a much larger base of 350 million but growth has slowed there. Anybody who can afford services and has access is already a subscriber in China.

Given per-capita, India will hit the affordability barrier earlier "" around the 150-200 million mark if one goes by the rule of thumb of TV-ownership. This is based on the logic that TV-owners can afford telephony services and the two user-bases overlap.

India has (pure terrestial plus cable) about 200 million TV sets. If somebody can afford Rs 10,000 for a TV-set, he can afford the Rs 150/ month for a phone connection.

In terms of service access, India is scrappily connected. There is adequate access in cities. But the countryside is much less well-connected. Tele-density reflects this. In major metros like Delhi and Mumbai, density is in the 25-28 per cent range.

In rural areas, it's more like 2-3 per cent. There are big differentials in rural and metro income; it's not as stark as 10:1. Ergo, many rural people who can afford telephones don't have access.

The official stats don't reflect this disconnection. Out of 6 lakh villages, 5.4 lakh are already connected and the remaining 60,000 will be, by end-2006, according to a recent statement by the Telecom minister of state, Shakeel Ahmad.

Perhaps the official statistic is based on the availability of a landline running through the village. Teledensity improves only where there is easy access to mobile services.

Anyhow, telecom service providers (TSPs) are aware that further growth is likely to be fuelled only by rural markets. BSNL's mobile drive reflects this. In its first mobile rollout, the PSU created massive semi-urban and rural capacities, which were immediately mopped up by long-suppressed demand. BSNL's ongoing second rollout will improve geographical coverage.

Other TSPs are also initiating rural rollouts. Reliance and Bharti are the biggest; both have national footprints. Both may benefit from tapping into the Access Deficit Charge pool. But regardless of ADC, they will go rural. It's the logical route to volume. For example, Bharti has a $1 billion capex plan for this year. It will have 5,000 town and 2 lakh village coverage by the end of calendar 2005.

It is the only listed player among the biggies. BSNL may never be listed, given the weird mechanics of coalition. Reliance has the group demerger to complete before an Infocomm IPO is possible. Hutch is emmeshed in complex buy-outs. Tata has a consolidation to complete "" only Tata Teleservice Maharashtra ( the erstwhile Hughes Telecom) operations are listed.

This means the investor has very little room for exposure in TSPs. Bharti Tele Ventures went net positive in the second half of 2004-05. At 40-odd PE, BTV is expensive. But revenues grew nearly 50 per cent and profits should spurt through the next three quarters. If you want exposure to subscriber growth, you'll have to invest here.