India’s telecom story is increasingly about junk connections

India is famous for its World-beating wireless telecom expansion, but an analysis of the latest data reveals that its mobile subscriber base is increasingly getting filled up by junk, unused connections.

Though showing signs of a slowdown of late, India’s wireless telecom market continues to add around 15 million telecom subscribers every month.

The market is growing at around 30% on a yearly basis, unmatched in any big telecom market in the World. Taken on a month-to-month basis, it grew 1.6% in May, 1.9% in April, 2.6% in both March and February (see chart.)

So far, it has been anybody’s guess as to what these growth numbers are really worth, because, as critics rightly pointed out, a lot, if not most, of the growth is fueled by consumers ‘trying out’ new connections.

Such connections, which are often used only for a few days or which actually replace another connection, can hardly be included in ‘telecom growth’ numbers.

The problem, however, was that it was difficult to tell what was the real growth taking place in the market. In other words, how many of these 15 or 20 million new monthly connections are ‘experimental’ and how many are permanent.

Thankfully, starting this year, the Telecom Regulatory Authority of India (TRAI) has started giving out statistics that can help us approximate the real growth. The new data is simply the number of subscribers who are actually ‘switched on’ during the last working day of the month.

The number, called VLR or Visiting Home Location number, is a far better approximation of the actual number of subscribers and therefore, India’s actual growth in telecom.

The VLR estimation should also borne out by a corresponding decline in the usage per subscriber, due to the proliferation of unused SIM cards (connections).

First, revisiting the same growth numbers using the VLR data tells us the real growth rate of the Indian market. Since the data is available only for this year, the numbers too are only available for this year.

It shows that instead of growing at 1.6% in May this year, India’s subscriber numbers actually grew only 0.8%. Similarly, instead of growing 1.9% in April, it grew only 1.6% and so on (see chart.)

This has two implications, both of which are statistically corroborated.

Because of the addition of more and more ‘junk connections’ to India’s telecom numbers, the ‘switched on’ users as a proportion of the total users should decline.

Similarly, if the total telecom base is getting filled up with junk numbers which are not actually used at all, the number of calls made from each connection must also decline. In other words, because the ‘junk connections’ are not active and are used to make zero calls, they must bring the average down, with every passing month.

Both the assumptions are borne out.

For example, the proportion of ‘switched on’ users was 71.14% in January and February this year, but fell steadily with every passing month. In the latest month for which data is available, May, they fell to 69.99%.

Similarly, the average calls made from a single GSM connection used to rise steadily till around 2007. In 2007 and 2008, the average number of outgoing calls remained steady at around 225-235 minutes per month.

From early 2009, when the first of the new batch operators (Reliance Communications) entered the field, it started declining. As people started taking more and more connections, but refused to use all of them at the same time, the average call made through one connection continuously dropped.

In the June 2009 quarter, it fell from 235 to 223 minutes. In the next one, it fell to 202 minutes and so on (see chart.) In the latest quarter for which data is available (May 2011), it is at 169 minutes, down from 174 minutes in the previous quarter.

Interestingly, the data also indicates no slowdown in the addition of ‘junk connections’ to India’s mobile numbers.

The trend is also visible in CDMA, though it is harder to interpret as CDMA users are less likely to junk their connections since it also means throwing away their handsets. From around 164 minutes per user in March 2009, outgoing calls have fallen to just 132 in May 2011.

The ‘switched on’ data also reveals that it is the traditional GSM triumvirate of Bharti Airtel, Idea Cellular and Vodafone that have the least proportion of ‘junk SIMs’.

For example, Bharti Airtel had 91.8% of its users ‘switched on’ in December last year, the first month on which VLR data was released. By May, it has fallen to 89.1%.

Idea Cellular, on the other hand, has seen it go from 90% in December to 92.33% in May.

Vodafone too saw an improvement, going from 75.9% to 81.2% in the six months.


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