(24 December 2007 6:00 pm)

MUMBAI: Although only about 1 in 20 of the first two billion mobile subscribers live in India, as many as one in four of the next billion subscribers will be Indian.

Reaching and serving these subscribers profitably will demand radical changes in products and business models, concludes a report launched by The Boston Consulting Group (BCG) titled Ringing in the Next Billion Mobile Consumers: A Roadmap for Accelerating Telecom Growth in India.

The report focuses on a distinct group of consumers - the next billion - whose potential to become profitable customers has been greatly underestimated. Based on extensive primary research, BCG has estimated that around 91 million households in India belong to this next billion segment.

These households have been identified based on a combination of factors that include household savings, discretionary expenditure, ownership of basic consumer durables and banking relationships. Categorised by income, this segment sits just above the poorest of the poor and just below consumers who are already targeted by most companies.

In India, income of the urban next billion household varies between Rs 60,000 per annum and Rs 180,000 per annum. In rural areas, the floor is lower at Rs 40,000 per annum, reflecting the lower cost of living. There are 18 million households in India that lie above the next billion segment and 95 million households that are below the next billion. BCG has surveyed over 15000 next-billion customers and conducted several focus group discussions and in-depth interviews across India, Brazil and China to understand their aspirations, needs and behaviours.

BCG's New Delhi office partner-director and a co-author of the report, James Abraham said, “The next billion will be different from the first two. For the next billion, the mobile phone can change their lives, improving their economic prospects more significantly than any other tool. Understanding this and incorporating it into the revenue model is a must as ARPUs fall to zero.”

BCG’s Mumbai office partner-director and a co-author of the report Arvind Subramanian says, "When we spoke to these next-billion consumers, however, we were struck by the fact that while an overwhelming majority wanted a mobile phone, very few felt they actually needed one.

“For most of them, the mobile phone still represents a status symbol rather than a productivity tool. In sharp contrast, those who have recently acquired a mobile phone extolled its virtues in helping them enhance their incomes and improve their livelihood. Operators and handset manufacturers will need to educate these consumers about the benefits of the mobile phone more than just the convenience it offers.”

With about 215 million mobile subscribers today, India is the fastest-growing market in the world. This growth, however, masks a growing divide. While urban penetration is as high as 40 per cent, penetration in rural India languishes at less than five per cent.

Not surprisingly, mobile penetration also mirrors income segments. BCG estimates that over 75 per cent of the 18 million households at the top-of-the-pyramid have a mobile phone; in most cases, they have several mobile subscriptions. However, only 54 per cent of the 91 million next-billion households own a mobile phone, and less than 14 per cent of the 95 million households below the next billion own one.

Furthermore, BCG’s analysis reveals that while the subscribers in the segment above the next billion are very profitable, the rest are currently unprofitable to serve.

“Sustained market growth hinges on the ability of operators and handset manufacturers to work together with regulators and create profitable business models. They will need to create new products and services, new modes of distribution and new marketing campaigns,” adds Abraham.

According to BCG, such innovations are necessary to push the number of mobile subscribers in India from about 215 million today to more than 520 million by 2010. The 305 million subscribers that could be added represent a potential revenue pool of over Rs 700 billion for mobile operators alone. Moreover, increasing penetration in this segment will have spillover effects that can promote inclusive economic growth.

Exclusion from basic services plays a significant role in trapping people in poverty. The mobile phone acts as a substitute for poor infrastructure, giving this segment access to markets and information. Several economists have argued that increased teledensity has a direct bearing on accelerating GDP growth. By broadening telecom penetration, therefore, operators will boost not only their bottom lines but also India’s economic and social foundation.

The report stresses that cross-industry collaboration will be critical to success. Operators will need to work with players in other industries, such as financial services and consumer goods, to enhance their offers and extend their reach beyond the outer limits of traditional distribution channels. For example, BCG’s research revealed that among the next billion, mobile phones outnumber bank accounts. Collaboration between mobile operators and banks could have a far-reaching impact in ushering in the next billion.