THE DIFFUSION OF MOBILE PHONES IN INDIA

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THE DIFFUSION OF MOBILE PHONES IN INDIA

• -
• Dr. Sanjay K. Singh
• Department of Humanities and Social Sciences
• Indian Institute of Technology Kanpur
• INDIA

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Growth in telephone subscriber base in India
Mobile is becoming the dominant means for
accessing communications primarily because
deploying mobile network is not only more
cost-efficient but also mobile provides greater
flexibility and convenience to its subscribers
than landline telephone.
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Teledensity in India from 1995-96 to 2005-06
Growth in mobile-density has been phenomenal
during the last 5 years or so. Mobile-density in
the country has increased more than 23-fold from
0.35 in 2000-01 to 8.12 in 2005-06.
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Growth in Mobile Subscriber Base in India
There has been 25-fold increase in mobile
subscriber base in a span of just five years from
2000-01 to 2005-06. During the same period,
mobile-density has increased more than 23-fold
from 0.35 in 2000-01 to 8.12 in 2005-06.
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• An effective management of mobile services
  requires an understanding of the factors that
  underlie the evolution of the market. Factors
  such as market potential and timing and speed of
  adoption are of great importance for telecom
  operators for capacity planning. Understanding
  the evolution of mobile phone market and its
  likely future trend is equally important for
  policy makers.
• The main objective of this study is to analyze
  the diffusion of mobile phones in India to inform
  the larger discussion of managing the
  communication services as well as to assist
  analysts concerned about assessing the impact of
  public policies in the evolution of telecom
  sector.

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Estimation of the future trend and analysis of
the pattern and rate of adoption of mobile phones
in India.
Spread of a successful innovation over time
typically follows a sigmoid or S-shaped curve.
During an early phase of diffusion only a few
members of the social system adopt the innovation
whereas, over time, due to network consumption
externality and dissemination of information,
many people opt for innovation as the diffusion
process unfold. Finally, during the maturing
phase, the rate of diffusion goes down when
diffusion curve approaches a saturation level.
Therefore, it is hypothesized that the growth
in mobile-density over time follows a sigmoid
curve. Among various functional forms that can
describe sigmoid curves (the logistic, Gompertz,
logarithmic logistic, log reciprocal, simple
modified exponential, etc.), the first two are
the most widely used ones. Therefore, it is
decided to use these two functions to model and
forecast the development of mobile-density in
India.
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The logistic model can be written as where
Mdt is mobile-density (no. of mobile phones per
100 inhabitants), (time)t is value assigned to
time at period t, ? is the saturation level and
?t is an error term. All the parameters ?, ?
and ? are positive. Mdt ranges from a lower
asymptote of 0 to the upper bound ? as time
ranges from -? to ?. Maximum growth rate (
??/4) occurs when Mdt ?/2 (i.e., at half of the
saturation level). Thus, the logistic curve is
rotationally symmetric about its inflection point
(the point at which maximum rate of diffusion
takes place).
(1)
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Similarly, the Gompertz model can be written
as where all the variables and parameters have
their previous meaning and ?t is an error term.
Again, all the parameters ?, ? and ? are
positive. In this case, maximum growth rate (
??/e) occurs when Mdt ?/e (i.e., at 37 of the
saturation level). These two models are
estimated using non-linear least square method
once by assuming no restriction on the saturation
level and then by imposing restrictions on the
same. This is because there is no guarantee that
the final estimate of the saturation level, ?,
will be close to the global optimum (Heij C. et
al., 2004).
(2)
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The shape of logistic and Gompertz curves
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The saturation level of mobile-density for a
country is likely to depend on whether it is an
early adopter or a late adopter of telephones.
Early adopters (developed countries) are expected
to have lesser reliance on mobile phones (due to
high switching cost) whereas late adopters
(developing countries) are expected to have
lesser reliance on main line telephones (due to
high infrastructure cost).
Teledensity and Percentage Share of Mobile in
Selected Developed Countries
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Analysis reveals that the saturation level of
mobile share in developed countries could be
anywhere between 50 and 70 whereas the same
would be between 80 and 90 for the developing
countries. Assuming that the saturation level of
teledensity could be anywhere between 120 and 150
telephones per 100 inhabitants, the saturation
level of mobile-density in developing countries
is likely to be between 100 and 120 mobile phones
per 100 inhabitants.
Teledensity and Percentage Share of Mobile in
Selected Developing Countries
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Model estimation Since India is a late adopter
of telephones, its saturation level of
mobile-density is likely to be between 100 and
120 mobile phones per 100 inhabitants. However,
both logistic and Gompertz models are estimated
for six different saturation levels (70, 80, 90,
100, 110 and 120 mobile phones per 100
inhabitants) along with without imposing any
restriction on the same. The mean absolute
percentage error (MAPE) for the last three
observations is used to find out the most
appropriate model and the saturation
level. Annual data of mobile-density from
1995-96 to 2005-06 is used for the estimation of
the models. Data on mobile subscriber base and
mobile-density is taken from Telecom Regulatory
Authority of India (TRAI) publications
(www.trai.gov.in) and telecom sector database
from www.infraline.com.
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Estimation results (with t-statistic in
parentheses ) According to both R2 and MAPE, the
Gompertz models fit the data better than the
logistic ones. As expected, final estimate of the
saturation level in the no restriction model does
not seem to be globally optimal. It seems that
the Gompertz model with the saturation level of
120 mobile phones per 100 inhabitants is the best
model to depict the diffusion of mobile phones in
India.
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Assumptions and Projections of Mobile-density in
India
Further analysis will primarily be based on the
estimated Gompertz model at saturation level of
120 mobile phones per 100 inhabitants
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Rate of growth of mobile-density
The analysis reveals that the inflection point
(the maximum growth rate point) of the curve
will occur between 2011-12 and 2012-13 (when
mobile-density will be around 45). During the
year 2015-16, there will be 71 mobile phones for
100 people in the country. Analysis show that
the no. of mobile phones will exceed the no. of
people in the country by 2022-23.
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Future Mobile Subscriber Base in India
It is projected that almost 350 million new
mobile subscribers will be added between 2005-06
and 2010-11 and more than 450 million will be
added between 2010-11 and 2015-16.
Note Future population of India is taken from
the United Nations Population Division
publication.
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Estimates of revenues collected by mobile
operators and the government

• Mobile operators revenue depends on ARPU and no.
  of subscribers
• Assuming that the ARPU will stabilize at around
  Rs. 300 per month
• by the year 2010-11, mobile operators revenues
  during the year
• 2010-11 and 2015-16 have been estimated

Average Revenue per Mobile User per Month in
India
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Estimates of Mobile Operators Revenue
Rapid increase in mobile subscriber base and
mobile spending will have equally important
implications for the government revenue
particularly in the form of regulatory charges
(license fee including universal service
obligation and spectrum charges) and service tax.
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Estimates of the Governments Revenue
Presently, on an average, annual direct
regulatory charges faced by the operators in
India is around 13 far more than that in
Pakistan (4.5), Sri Lanka (0.3), Malaysia
(6.5), and South Africa (5). If we include the
education cess of 2 (of 12), service tax burden
on the sector would be 12.24 from the financial
year 2006-07 onwards.
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Concluding Remarks
In this study, the growth of the mobile phone and
mobile-density in India has been analyzed using
S-shaped growth curve models. The result shows
that the Gompertz model adequately describes the
path of mobile phone diffusion in India. The
analysis shows that the high growth phase of the
diffusion of mobile phones will continue till
2012-13. It is estimated that there will be 71
mobile phones per 100 inhabitants in India at the
end of year 2015-16. The number of mobile phones
will exceed the number of people in the country
by 2022-23. Total mobile phone demand is
projected to increase from 90 million in 2005-06
to 433 million in 2010-11 and nearly 900 million
in 2015-16.
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Concluding Remarks .
Rapid growth in mobile subscriber base in the
India will have important implications for
revenues collected by the operators and the
government. Revenue collected by the mobile
operators is projected to increase from Rs. 405
billion (1.3 of GDP) in 2005-06 to Rs. 1559
billion (2.7 of GDP) in 2010-11 and Rs. 3236
billion (3.1 of GDP) in 2015-16. The
governments revenue from regulatory charges and
service tax will increase substantially due to
rapid increase in operators revenue. Revenue
from regulatory charges is expected to increase
from Rs. 53 billion in 2005-06 to Rs. 156 billion
in 2010-11 and Rs. 324 billion in 2015-16.
Revenue from service tax is projected to increase
from Rs. 41 billion in 2005-06 to Rs. 187 billion
in 2010-11 and Rs. 388 billion in 2015-16.
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Concluding Remarks .
It is quite likely that the rapid expansion of
mobile services will provide economic, logistic
and strategic challenges to the operators. As
operators expand coverage into urban, semi-urban,
and rural areas, they will be confronted with the
daunting tasks of developing a countrywide
infrastructure and improving and maintaining the
quality of service. Mobile operators should be
ready with contingency plans to deploy and
operate infrastructure including customer care,
billing, applications, etc., faster than that
they might have initially planned.
Infrastructure providers, handset suppliers,
and vendors should also be geared up to respond
to such plans.
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