Hutch and Indian Telecom

The business news in India has been flooded with possible acquisition of Hutch telecom by telecom majors, including giant like Vodafone to the India's very own Reliance Communication. Telecom has been one of the booming sector in this unstoppable Indian economy. This new war between the telecom majors to get a share of profit comes as no surprise.

Following graph compiled with help of COAI (Cellular Operators Association of India) data shows the growing number of subscribers in the Indian celullar industry.

Based on COAI data

Even though the cellular companies have been adding subscribers at a sector wide CAGR (only Cellphone companies taken into account) of nearly 70% for the past four years, the overall ARPU for the subscriber has been slowing as shown in the graph below. The decrease in ARPU is attributed towards the decreasing voice prices due to the increasing competition. A carrier competition which has made comunication affordable for the Indian consumers.

Based on TRAI data

Why Vodafone wants to buy Hutch ?

Vodafone seem to be concentrating on the emerging markets to rake in profits which is supplemented by its recent exit from the Proximus, Belgium. Profit margins for European and US telecoms have been under pressure due to the increasing VOIP services which has reduced the cost of voice. Voice services in these developed markets is slowly transitioning from subscription to free service, which has forced telecoms to look out for other services to retain their customers. As an alternative source of revenue, emerging markets seems to be an attractive destination for these telecoms to sustain their margin, since the usage of VOIP in the emerging markets are limited due to the lack of infrastructure, technology and also the restricting government regulations to protect the economy.

Can the decreasing ARPU, still prove profitable for buyers?
India's growing economy increasingly needs better communication at an affordable price. With more than a billion population, the number of cellular subscribers have just reached 100 million in November 2006. Cellular companies have the infrastructure and its now matter of adding more consumers, atleast at the same growth rate, to increase their profit margins.