Part of the explanation for this global interest lies in the macroeconomic situations of the rest of the world. Westerners are fully aware of the anemic or contracting macroeconomic growth expectations for North American and Western European nations. Telecommunications revenue growth expectations roughly align with these GDP forecasts, according to our sister research firm Pyramid. China, by contrast, remains a macroeconomic growth story, but here, the telecommunications revenue expectations track much lower than GDP. Operator revenue is not growing nearly as quickly as the overall economy. In addition, China is coming off several years of an equipment spending boom that has started to dry up. As a result, the leading Chinese suppliers, Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), are both aggressively looking beyond Chinese borders to fuel their future growth.
So, what does India have to offer that is so promising? Looking at five-year growth trends for mobile subscribers and mobile revenue, India growth rates are forecast to exceed even those of rapidly expanding China, based on Pyramid forecast data. More significantly, it is not just the growth rates that are expected to surpass China and the industrialized West over the next five years but the total subscriber numbers, as well. By 2016, Pyramid forecasts that India will have reached 1.4 billion mobile subscriptions and 600 million 3G/4G mobile data subscriptions. This slightly surpasses the 1.3 million mobile subscriptions forecast for China and is three times the total forecast for the U.S. The 3G/4G total is about 70 percent higher than the forecast totals for both China and the U.S. In short, India promises a powerful combination of both growth and size.
Yet amidst all the promise within India, we note two cautions:
- First, we are comparing mobility metrics here, and we note that India's growth is primarily driven by mobility. Of course, mobility is a big part of the growth story for nearly every country, but in India it is much more skewed to mobility versus fixed than the norm. Even as mobility figures track upwards the fixed line access markets will continue to track woefully behind Western and advanced Asian nations.
- Second, bringing mobile revenue into the discussion – not just the subscriber figures – creates a very different picture for India. The poverty in India is inescapable and like no country I've visited (including China). An Oxford University study in 2010 concluded that one third of the world's poor live in India. As recently as 2009, the United Nations Development Programme stated that 75 percent of Indian households live on less than $2 per day. As a result, we see phenomenally low average revenue per subscriptions in India – at just $3/month, and declining.
The limited amount of money available to be spent on telecom services presents challenges all around. The interesting point here is that the networks in India – existing and forthcoming – look very similar to those of the West. Indian operators are talking about the same technology and trends and buying from the same suppliers as their Western counterparts. There is no silver bullet of network cost reduction for India.
As a result, the drive to lower cost per bit, a common cause among operators globally, takes on a special meaning when applied to India. For the global equipment suppliers clamoring to compete for the capital spending dollars of the Indian operators, price hammering is a given. Yes, the Indian operators have leverage because so many companies are competing for their business. Also these cost pressures are an absolute must in a country that is set to experience a massive bandwidth boom but that is still in early stage of its industrial growth.
In Part II of our look at India, we focus specifically on the major packet-optical trends in India – see Assessing the Indian Telecom Equipment Opportunity: Part 2.
— Sterling Perrin, Senior Analyst, Heavy Reading