How operators can sustain margins in a low ARPU market. Issue 24, Telecom & Media Insights.

How to replicate the Indian model to drive profitable growth.

Despite having significantly lower ARPUs than European and US operators, Indian mobile players exhibit similar or higher EBITDA margins compared with their western peers. Indian operators have managed to boost mobile penetration and usage without sacrificing margins by employing a number of cost-optimization levers such as network and IT outsourcing, encouraging customers to use self-service and maintaining low subscriber acquisition and retention costs. Indian operators also offer low-denomination, high-margin recharge vouchers and “lifetime validity” schemes to attract low income pre-paid subscribers and increase overall mobile adoption and usage. Further, large Indian operators have set up national backbones to avoid paying carriage charges for long distance traffic and they also encourage subscribers to make more on-net calls through attractive pricing.

These initiatives have boosted the EBITDA margins of large Indian mobile operators to around 40%, respectable in any geography. Operators in emerging markets can try to replicate the Indian model to drive profitable growth, whereas operators in developed markets can adopt some of the cost-optimization initiatives of Indian mobile operators to reduce CAPEX and OPEX, and enhance margins.