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Positive ring to it

india Updated: Jul 30, 2007 23:22 IST

At the end of June, India, with 185 million mobile connections, came within sight of the US, which has 250 million. The gap is narrowing as we add 7 million new subscribers every month. Add to this the fact that one in five Indians has a phone now, and the picture gets rosier. The immense, and accelerating, appetite for telecommunications in India is borne out by an International Finance Corporation finding that says as base-of-the-pyramid families generate more income, spending on information, communications and technology increases eight-fold. Not surprising that mobile telephony operators are lining up humungous investments in their frenzy to add new subscribers. The top six mobile operators plan to invest Rs 60,000 crore in 2007-08 to set up infrastructure to cover greater landmass. This is 60 per cent of all the investment made by telecom companies in India since the sector was opened up to private players in 1995. In some measure, the race for newer customers will have to be run uphill: the densely populated — and cheaper to service — urban markets are plateauing and geography raises the cost of reaching the villager. Undaunted, mobile telephony companies plan to beam their signals to 80 per cent of the population by March 2008, a steep jump from just over half today.

Investments of such heroic proportions have to be justified by equally spectacular profits. And they are. Bharti Airtel, the market leader, posted double the profit in the quarter ending June 2007 from the same period an year ago. The profits are being fed by the new additions to its subscriber base.

Although the average revenue per customer is declining as mobile networks spread into the countryside, the business logic remains irrefutable: every new subscriber makes these companies money from the moment he switches on. Even at calling rates that rank among the cheapest the world over, and falling fast. In telecommunications, it appears, there is easy money to be made for some time to come. The fabulous valuations of mobile companies on the stock exchanges are fed by this truism.