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date: Mobile Future Forward 2012 - Sept 10, 2012
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A Tale of Two Mobile
Markets - China and India
http://www.chetansharma.com/ATaleofTwoMobileMarketsChinaIndia.htm
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Next weekend, on March 3rd around noon China Standard
Time to be precise, China will sign up its one billionth
mobile subscription. India in the meantime, crossed the 900
million subscription mark in Feb. Roughly an year ago, India was
adding subscribers at historically record pace of approximately
20 million subscriptions per month (that translates into a new
Australian market every month) while China continued at its
steady pace of 8-12 million net-adds per month. In Q1 2011, data
indicated India might actually edge out China to reach the first
billion landmark. Then, the market collapsed due to the intense
competition, the pervasive corruption, and the accounting
gimmicks.
In 2011, the global GDP growth was 2.7% according to the World
Bank. While the OECD countries saw only modest gains (1.7%),
China (9.1%) and India (6.5%) accounted for a good percentage of
the global growth. Buoyed by the rising disposable income, the
middle class in the two biggest countries are spending more than
ever before.
All of the top 6 global operators by subscriptions are from
China and India. Collectively, they account for 27% of the
global mobile subscriptions and 12% of the global service
revenues. In 2011, India added 141 million subscriptions while
China netted 133 million.
Having worked in both of these markets over the last decade, I
have always seen China and India as two of the most dynamic
mobile markets in the world. They might seem similar on surface
but are quite different underneath. Both represent vast human
resources and the biggest middle class with buying power.
However, their competitive landscape is vastly different. On our
Competitive Index (CI) scale of global markets,
they are on the extreme ends of the revenue and subscriber
concentration indices. China is one of the least competitive
mobile markets and India is by far the most competitive mobile
market in the world.
In China, China Mobile monopolizes the market with over 66% of
the market. Regulators are trying to boost the other two
operators China Unicom and China Telecom but have a lot of work
left on their plate. India on the other hand is a hot cauldron
of intense competition, too much competition if you ask the
operators. There are 5 operators with roughly 100 million or
more subscriptions with the Bharti Airtel at number 1 but with
less than 20% market share.
China’s mobile journey began in the early nineties with the
Ministry of Post and Telecommunications providing the telecom
services as China Telecom. In 1994, under pressure, China Unicom
was introduced to the market but was largely a failure. Later in
1999, China Telecom was split into three businesses with China
Mobile becoming the mobile arm. Recently, when the 3G licenses
were granted, market was segmented into its current form with
China Mobile still leading the pack by a good distance.
China’s overall growth for the past decade has been pretty
steady staying between 8-12 million net-adds per month.
Remarkably, the ARPU has stayed fairly consistent at around $10.
Data revenue started growing significantly in the last 3-4
years. China Mobile has been the number one operator by the
number of subscriptions, the total revenue, and the market cap
for many years now (it is more valuable than Google). In data
revenues, China Mobile has consistently ranked in the top 5 for
the last 5 years.
India started its mobile journey late towards the end of the
last decade but after a series of market reforms and
introduction of new players like Reliance in early 2000s, market
caught fire. The lack of landline infrastructure, the declining
$/min costs aided by the burgeoning middle class meant the
market was ripe for explosive expansion. In 2005, India was
roughly 300 million subscriptions behind China but its per month
net-adds has been inching up steadily and by Q2 2007, India
caught up with China in net-adds.
While China’s mobile market growth continued at a steady pace,
the Indian market leaped into high gear, breaking records
month-after-month and came tantalizingly close to China in Q2
2011 with only 55 million separating the two at the time.
However, by then, the market retreat had already started. As we
outlined in our
Competition and Evolution of Mobile Markets research paper
last year, the market composition and the intense competitive
landscape was unsustainable. The cost to acquire a new
subscriber started to become unbearably high. The rapid customer
acquisition at any cost started to have a significant impact on
operator profitability.
Also, the heavy burden of regulatory levies meant that the
regulatory charges are approximately 20-25% in India whereas in
China they are negligible. This meant, virtually all the
operators started veering towards the dangerous negative margin
territory in 2011-12. Additionally, the pervasive corruption
reared its ugly head and a number of key players got caught up
in the spectrum auction scandal. The bottom line is that the
market is going to stay in the state of “mess” for the next few
quarters as it tries to clean things up and plan the next phase
of growth and momentum. It can take solace from the fact that
the open free market and legal framework is still attractive to
the mobile ecosystem. The fact that Vodafone won the $2 billion
tax case should inspire confidence in the market.
Not surprisingly, the intense competition had a significant toll
on the overall ARPU in India. While China’s ARPU stayed constant
at $10 for much of the decade and its data % increased to 27% in
2011, India’s ARPU plummeted from $11 in 2005 to $3 in 2011.
Players like Reliance boast a subscriber base of 150 million but
the ARPU is < $2 leading to a meager 3.7% profit margin.
However, many of the Indian operators are a part of the big
conglomerates so it is easier to absorb and hide the declining
financials. Regulators must realize that the industry can stay
healthy only if its players remain financially viable. One has
to look at mobile growth holistically. They must abolish
outdates policies, rationalize the exorbitant levies, liberalize
the market further and outline long-term spectrum policy without
delay.
It is fairly easy to be fooled and seduced by the large numbers.
However, these markets are not for the faint hearted. After the
pleasantries are over, the unsuspecting and the unprepared will
get chewed and spat out in no time. The feeble IP regimes make
it even more problematic. But, it is 37% of humanity we are
talking about. Markets are still attractive but one needs a
strategic focus, strong local partners, and iron clad teeth to
take a bite of these markets. Even established players can
exhibit extreme naiveté in understanding the rules of the game.
Regulators in both markets face key decisions on a number of
vectors – 4G spectrum, competition, FDI, IP, broadband plan, and
policies on a number of fronts. Both countries have similar
long-term goals but are inefficient in terms of regulations and
capital allocation (they are not unique in this respect, even
more advanced markets like the US have their share of quirks in
the regulatory framework) needed for the next phase of market
and revenue growth.
India is likely to cross its billionth mark by early 2013. The
market will go through significant restructuring and
self-correction over the course of next two years. China will
look to expand its 3G and 4G markets and bring broadband to the
masses. The smartphone and data usage is on the rise laying the
foundation for the future transformation.
China has been the bolder of the two. By deft coordination and
shrewd strategy, the likes of Huawei and ZTE have shaken its
western rivals in their boots while protecting its local turf.
India has been content with the services business though it is
starting to ramp up its manufacturing and R&D capabilities.
Indian operators have had better success at spreading their
wings, investing in foreign markets and collaborating with
foreign operators. China is somewhat closed but disciplined.
India is mostly open but waffling.
In the last ten years, China has become the 2nd
largest economy in the world behind the US while India will edge
past Japan to become #3. Given that mobile will have a central
role in the ICT evolution of global markets particularly in the
developing nations, what happens in the mobile markets of China
and India will influence rest of the world. (I just finished
up a project for UN in this area, more to come).
So, congratulations to China for the significant milestone and
to India for its tremendous growth.
The future of mobile data applications and services in China and
India is extremely bright albeit tortuous.
Tighten your seatbelts and enjoy the journey.
We will be keeping a close eye on the trends in the wireless
data sector in our blog, twitter
feeds, future
research reports,
and articles.
The next US Wireless Data Market update will be released in Feb
2012. The next Global Wireless Data Market update will be issued
in Apr 2012.
Disclaimer: Some of the companies mentioned in this survey are
our clients.
