India's mobile phone firms may not see huge investments

Friday, 16 July 2004, 19:30 IST
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NEW DELHI: Tepid revenue and profitability growth may inhibit large-scale investment inflows into India's booming cellular telephone industry in spite of continued robust subscriber growth, says a study. Low average revenue generated per user and increased network investments will add to the accumulated losses of companies, said the study conducted by the independent credit rating firm ICRA India Ltd. "The cellular services sector in India has achieved tremendous growth during the last three years," said the study. "In spite of continued high subscriber growth, the possibility of low revenue growth, low profitability and continuing accumulated losses could inhibit the flow of large long-term investments," said the report made available to IANS. "A slower growth in revenues and increased network investments to meet the growing demand would imply that most operators would not be able to wipe out their accumulated losses soon." India's mobile phone market has grown rapidly in the last couple of years on the back of spiralling income levels and falling phone tariffs and handset prices, making it one of the fastest growing markets globally. The country of over one billion people has over 38 million mobile phone users, up from just 10 million a couple of years ago. India, Asia's third largest economy, is adding at least one million new mobile phone users every month. But despite the rapid expansion in the users' base, most cellular phone operators are struggling to come out of the red after investing $10 billion over the past several years in creating nationwide networks. A relentless price war as firms cut tariffs to woo customers away from rivals and, as a result, the declining average revenue per user has added to losses of mobile phone firms. Mobile call rates in India are among the cheapest globally. The government last week raised the foreign direct investment limit in the telecom sector from 49 percent to 74 percent with a view to spurring investment in this capital-intensive industry. Cellular telephone service providers like Bharti Tele-Ventures and Hutchison are expected to be the main beneficiaries of the sharp hike in foreign direct investment limits. The ICRA study report said the falling tariffs and average revenue per user would also endanger the survival of some of the weaker players. "The weaker operators would then be forced to enter into strategic alliances or divest equity in favour of stronger players," it said, adding consolidation will result in a broad geographic reach and enhancement of product offerings. "Given the large benefits that users are deriving from mobile telecom services, there may be a public good in sustaining the growth of this industry."
Source: IANS