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Sat 31 Jan 2009 04:00 AM

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Emerging markets enter mainstream

Revenues from the mobile sector in eight key Asian countries will almost double by 2013 from 2007 rates, research indicates.

Revenues from the mobile sector in eight key Asian countries will almost double by 2013 from 2007 rates, research indicates.

The mobile services sector in eight emerging Asia-Pacific countries, including India, Pakistan, Bangladesh, Cambodia, Indonesia, Laos, Sri Lanka and Vietnam - but excluding China - is expected to grow by more than 10% a year until 2013, according to research from Frost & Sullivan.

The group of countries earned revenues of US$33.2 billion in 2007, and this is forecast to reach a market size of $61.3 billion by end-2013, at a CAGR (compound annual growth rate) of 10.7% (2007-2013), according to the analysis in Frost & Sullivan's Asia Pacific's Final Wireless Growth Frontier report.

The Asian emerging markets are expected to see mobile subscriber net gains of 573 million by end-2012, breaching the one billion mark to close the year at an estimated 1.06 billion subscribers.

In 2007, these emerging markets were home to some 487 million mobile users, accounting for 37.1% of Asia-Pacific's total mobile subscriber base.

Growing at a CAGR of 15.1% (2007-2013), the mobile subscriber base is expected to hit 1.13 billion by end-2013 to account for 46% of Asia-Pac's total subscribers.

"Emerging markets including India and China will contribute to nearly half of the global mobile networks," Girish Trivedi, deputy director of Frost & Sullivan's telecom practice, said.

"While the more mature markets have already hit saturation, it's the growth across these emerging markets that is driving the overall mobile story."

He adds that Asia and Africa remain the fastest growing markets as the penetration level across emerging economies remains low, while mobile operators in Asia are already preparing themselves to add nearly one billion subscribers onto their networks.

Some of the key challenges are network expansion across unfriendly and vast geographical areas, regulatory constraints, and the need to offer services to the bottom of the pyramid in the semi urban, rural areas, while maintaining EBITDA margins and profitability, according to Trivedi.

"Mobile is fast becoming the growth enabler and as the connectivity improves providing high speed internet connectivity, it will further reduce digital divide and provide the much needed economic stimuli," he says. "However, more importantly, the mobile medium is meeting one of the basic behavioural needs of the humans: the need to communicate."

Emerging markets are defined as countries with low teledensity and internet penetration, and a sizeable population largely underserved or completely without telecommunication services.

Countries included in this study are Bangladesh, Cambodia, India, Indonesia, Laos, Pakistan, Sri Lanka and Vietnam; all with mobile penetration rates of less than 50%.

According to Frost & Sullivan industry analyst Jeff Teh, more than half of the world's mobile networks are believed to exist in emerging markets. "Most mature markets in Europe, the Americas and even Asia are fast reaching saturation, adding fewer connections and offering fewer growth opportunities.

"As mobile operators in Asia scramble to add another staggering one billion subscribers onto their networks, Asia's emerging nations offer the most palpable growth prospects, particularly in the rural sectors," says Teh.

He adds that such opportunities are however not without a gamble.

"The inherent characteristics across these emerging markets are that they are generally lower-income hence low ARPU segments, with blended ARPU as low as $3.90 per month in some countries, and subscribers are largely inclined towards prepaid services."

"In fact, between 86% and 97% of mobile users in these markets are prepaid subscribers," Teh adds.

The challenge for mobile operators and foreign investors as such is to introduce new business models and flat-rate pricing plans to appeal to these price-sensitive consumers.

"Much of the uptake for mobile services will be limited to basic services such as voice calls and text messaging in the near term," he says.

"Apart from having to manage the typical regulatory issues and service affordability, operators face a further uphill task of extending network connectivity well into the rural districts while managing operational and capital expenditure in a cost-effective way to maintain healthy profit margins," Teh adds.

An upside for mobile operators however is that fixed-mobile substitution is a distinct phenomenon in these countries, given that it is more cost-effective to erect cellular towers than to lay fibre-optic cables to install landlines.

"Competition from fixed-line services therefore is almost non-existent," Teh says, adding that despite this, competition amongst mobile operators is rife.

"In most of the emerging nations, there are more than five active mobile service providers in any given market," observes Teh. "We expect market consolidation as mobile penetration rates increase and sustaining operations proves tricky for smaller operators."

To drive the adoption of mobile services among rural communities, some countries have rolled-out initiatives such as village phones, transmission tower-sharing among operators, as well as linking communities with mobile services to facilitate access and payments.

Teh believes that innovation is necessary to achieve the connectivity vision, as wireless technologies enable internet access.

"One of the most compelling features of wireless networks in emerging markets is the ability to provide a faster and cheaper alternative to desktop computers for accessing the world wide web, especially considering the lack of fixed-line infrastructure and power sources. Some tariff plans, such as getting paid to receive calls are risky, and will only be possible when mobile advertising takes off in a big way," he says.

"But for now it remains a game of managing risks for potential high returns."

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