Total cellular services revenue in India is projected to grow at a compound annual growth rate (CAGR) of 18 percent from 2008-2012 to exceed US$37 billion, according to Gartner, Inc. The India mobile subscriber base is set to exceed 737 million connections by 2012 growing at a CAGR of 21 percent in the same period. This growth is poised to continue through the forecast period, and India is expected to remain the world’s second largest wireless market after China in terms of mobile connections.

"The growth in the mobile subscriber base is on the back of a rapidly proliferating rural market, lower handset costs, and low tariff rates in the Indian market," said Madhusudan Gupta, senior research analyst at Gartner. "Rural telephony will continue to trigger growth and is expected to grow fourfold during the forecast period. Call rates have further dropped to about 1.5 cents per minute narrowing the gap with fixed-line rates. These factors along with an increasing competitive landscape will fuel market growth and encourage the adoption of wireless services in the rural and semi urban provinces of India."

Cellular market penetration is projected to increase from 19.8 percent in 2007 to 60.7 percent in 2012 (see Table 1). Gartner analysts said this growth could be primarily attributed to the increasing focus on the rural market, local consumer durable and electronic companies entering the domestic mobile handset segment, and lower handset prices. Vendors will continue to focus on sub-25$ handsets to capture market share.

The Indian mobile connection market continues to be dominated by prepaid subscribers. Prepaid connections accounted for more than 89 percent of all mobile connections in 2007 and are expected to grow to more than 92 percent of the connection base by 2012. The total services revenue for prepaid connections is expected to grow at 18.9 percent CAGR for the period 2008 - 2012 and the total services revenue for postpaid connections is expected to grow at 15 percent CAGR during the same forecast period. By 2012, the prepaid subscriber base will cross 683 million and postpaid subscriber base will exceed 53 million subscribers.

The churn rate in India is 41.0 percent (2008), and despite a maturing market the ratio is expected to go up to 49 percent in 2012.

Revenues – Data revenues driving growth

• The revenues from data services will significantly contribute to the growth of overall cellular services revenue in India, with a CAGR of 26.3 percent in the forecast period.
• Prepaid subscribers are expected to adopt data services faster than the post-paid segment. Data revenues for the prepaid segment are projected to grow at 29 percent CAGR during the forecast period as compared to 22 percent CAGR for the post paid subscribers during the same period.
• The bulk of the revenues will continue to come from voice revenues. However, with the increased growth in data services, the percentage of revenues coming from voice will reduce from 89 percent in 2007 to 85 percent in 2012.

According to Gartner, the industry will witness several changes in the coming year that could revolutionise the face of the telecom industry with the introduction of new technologies such as WiMAX, 3G and Mobile Number Portability (MNP). India will move to its next phase of evolution with the commercial launch of WiMAX by 1Q09 and 3G by 2Q09. With the introduction of MNP in 2008, churn rates are not expected to rise significantly, as India continues to be a prepaid dominated market.

"The Indian wireless market is a vibrant, price-sensitive and high-growth market," Gupta said. "With 14 telecom service operators already present and another two set to join, the Indian telecom industry is expected to see some level of M&A activity in 2009. Given the high level of competition and anticipated consolidation, different business models will emerge that could push tariffs further down, with Indian mobile service consumers set to emerge as the biggest beneficiaries."