Mobile Industry Valuations
I think mobile industry valuations in India have seen their peak – about $150 billion or so for the entire industry.
My belief stems from the fact that even though the subscriberbase will double in the next 3 years, a number of factors will reduce the ARPUs (and revenue per minute) and also the multiple that mobile cos. get for their valuation. Voice ARPUs, which comprise about 90% of the revenue (along with rentals) for operators, will drop by half in the next 3 years. I know that for most Indian operators ARPU is less important than the aggregate revenue that they they realise per minute of talk time. Nevertheless, it is an important barometer – and there is an upper limit to how many minutes we will talk on the phone. A number of factors will halve voice ARPU in the years to come:
1. Increasing Competition: For newcomers, voice tariffs will end up bein the primary weapon they will be use to get people to switch.
2. Growth in Rural Customers: Lower income levels result in lesser spend.
3. Flat Consumption: For some time, the outgoing minutes per month has been stuck at about 250 minutes per month.
4. Death of Distance: Sooner or later, we will end up with one flat rate for calling within India, irrespective of where the destination subscriber is.
5. Technology: 3G will drive down voice tariffs, and so will the increased use of VoIP on WiFi-capable phones.
In all this, VAS revenues will not be able to plug the gap. As a percentage they will increase, but only because voice ARPUs will keep falling.
All of this will create a lot of disruption in the mobile space in the coming years.
Little wonder then that even with tremendous subscriber growth within India happening in the coming years, both Airtel and Reliance were keen to leverage their valuations to buy MTN. Aggregate industry valuations for mobile have seen their best days.