'I sincerely hope we are proven wrong'

IN CONVERSATION

US telecom research giant Yankee Group came under fire with its report that Indian telcos were over-reporting subscriber numbers by 10-20 per cent. Farid Yunus, Kuala Lumpur-based senior analyst wireless/mobile Asia-Pacific Decision Service, spoke to Business Standard, defending its findings which he says are based on sound methodology and empirical evidence.

Your report has been criticised by the Cellular Operators association of India (COAI). What would you say in your defence?

The fact is that since mid-2005, the rate of net new subscriber additions has outpaced total handset sales volumes, which suggests a degree of double-counting. We agree this is largely caused by a number of individuals having more than one mobile line while using a single handset.

But this is precisely the point we are trying to make "� mobile penetration should be a measure of how many people use mobile services and not the number of SIM cards that have been sold.

COAI has stated that handest sales in 2005 (32.5 million) more or less matched total net additions of subscribers. What, then, is this whole debate about?

We agree these figures are correct but the logic would imply that not a single current user in India bought a new replacement phone in 2005 "� i.e. basically all new handsets were purchased by first-time users. The fact is that roughly 20 per cent of subscribers will replace their phones in any given year.

Cellular operators have also questioned your projected figure of 200 million mobile users by 2010 as very conservative.

Forecasting is by definition an inexact science, but our views are built on a robust methodology of new technology diffusion models, historical precedence, planned network coverage and capacity, expected equipment price erosion, and the number of Indian consumers that are statistically able to pay for a handset and mobile service.

There remain many large obstacles to faster mobile adoption in India, particularly the issue of additional spectrum without which operators can no longer expand in highly populated areas. I sincerely hope we are proven wrong.

As spectrum is a key issue and in shortage, how do you see the problem getting resolved?

Those who value spectrum should pay a higher price for it. Of course, if telcos don't use the spectrum within a stipulated time, the government should be able to take it back.

The revenue share paid by telcos today is higher than in most other markets. In India, operators are not subsidising phones as its cost is added in the revenue (on which they pay a revenue share) and they lose money.

However in the UK, the mobile boom took place due to subsidised handsets and with 3G coming telcos in India have to follow the same route too broaden the market.

COAI has suggested that the grey market for handsets also contributes to the difference between net users and the official handset sales figures.

The fact is the gap between new users and official handset sales began to widen dramatically in the second half of 2005. Using COAI's logic would imply that the grey handset market is growing rapidly.

This is highly unlikely given declining official handset prices and the long term trend of a shrinking grey market. So the only rational explanation is a rapidly growing number of SIM-only subscribers with multiple lines "� many of which already have, or eventually will, become dormant.