For the last three years the telecom growth in India broke through the exponential curve measured on subscriber addition parameters. We were adding equivalent populations of small countries to our subscriber figures every month to the extent that last month when we added 15 Million subscribers a friend of mine from Stockholm remarked that it is more than Sweden & Denmark put together!

But still the telecom stocks are stumbling, there is panic in the investor community and everyone is saying that the great Indian Telecom Story is in its final chapter.

In my previous blog I had mentioned the difference that the current surge in subscriber additions has from the ones we witnessed earlier. Let me elaborate here.

For years now we have been measuring the growth of wireless telecom with the subscriber additions per month. All the while we also acknowledged that the ARPU levels were falling. We attributed this to the fact that the next level of subscribers was increasingly coming from lower & lower in the Pyramid and that is why we were seeing a dip in the ARPU. What was never accounted for was the fact that the Total Minutes on the Network (Let’s call it TMN) was growing substantially. Which in turn made the operators revenue grow proportionately. Everyone was happy – Bharti used to report an EBITDA of 40% and investors were queuing up to invest in India.

We can look at Revenue in 2 ways:

1. ARPU X Subscribers
2. TMN X Weighted Average Revenue per Minute (WARM)

The first has several shortcomings – It does not address the lag in clearing the Subscriber database after churn. It does not account for the fact that in Metros we have crossed 100% teledensity and the SIM/Subscriber ratio is more than One. Both these indicate a multiple reporting of subscribers by different operators.

The second has some ambiguity as to understand it better we need to figure out what the WARM is. Which in turn is an extremely complex function of a) The existing price plans & b) the Average Call Duration for each operator. Surely we cannot determine this before hand and is always a post-facto calculation of total Revenue divided by TMN. However I say that from now onwards these ratios will gain more prominence & mention outside the telecom galleries. And also with the per-second billing pattern the Average Call Duration (ACD) will gain in prominence.

To get a perspective how this translates in numbers please download the presentation, “Some Operator Parameter Comparisons” which is available on this site. A small illustration is that while Airtel’s subscribers grew in the last quarter by 8.8% its TMN increased by just 2.1% while the quarter previous to that the subscriber growth was 8.5% and the TMN growth was 7.7%. In Reliance’s case this slide is even more apparent – Q1 saw R-Com subscribers grow at 9.5% and TMN at 11.4% while Q2 (Sept) saw the Subscriber growth at 8.2% and the TMN growth slid to 1.4%! The panic is that while the additional cost of adding a minute to the network is negligible the additional cost of adding a subscriber is substantial. In the scenario where New subscribers and being added and Old ones being lost to churn and the TMN not keeping pace the MoU/ sub/ month is coming down drastically. Hence the ARPU is coming down even more and now we can’t just wave-off the ARPU decline to the new subscribers being from rural areas.

The WARM for Airtel & Idea in Q1 and Q2 was 58paisa & 56paisa respectively. For R-Com it slid even more and Q2 WARM was 47paisa compared to 58 paisa in Q1.

So let us keep an eye on these new performance parameters of TMN, WARM & ACD. You could also read my next blog on the “Emerging OPEX parameters for Operators”.