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Yahoo! My Yahoo! Mail More Yahoo! Services Account Options New User? Sign Up Sign In Help Yahoo! Search web search Home Singapore Asia Pacific World Business Entertainment Sports Technology Singapore Asia Pacific World India's fast-growing telecom sector hits trouble AFP - Sunday, November 8 Send IM Story Print India's fast-growing telecom sector hits trouble Slideshow: Full Photo Coverage: Business & Economy NEW DELHI (AFP) - – India is still adding a staggering 15 million new mobile phone connections a month but the world's fastest-growing cellular market has hit rough waters. A cut-throat price war is hammering down call charges, putting pressure on telecom companies' earnings and share prices, and threatening a bruising shakeout in a sector that has become crowded with new players. "The tariff reductions are hitting revenue growth and with new entrants, there's less to go round for everyone," said Religare Securities analyst Himanshu Shah. Top Indian mobile phone firm Bharti this month announced a lower-than-expected 13-percent rise in quarterly net profit from a year earlier while profits halved at number two operator Reliance Communications. Competition was already fierce but has become even more aggressive as new players unleash deeper price cuts with innovative per-second billing plans that have pushed call costs down to less than a cent a minute. Some operators are offering rates as low as 0.01 rupees a second, or a fraction of a US cent. The per-second billing was kicked off in June by the entry of Tata DoCoMo, a joint venture between India's Tata Teleservices and Japan's NTT DoCoMo. "We've seen a wave of price cuts," said Shubham Majumder of Macquarie Research. "Definitely there's downside pressure." Signs of the trend can be seen in the fall in average revenue per usage or ARPU -- an industry profitability measure -- which shows the amount companies make for every minute a client talks. Reliance Communications' ARPU for the second quarter ending September slid 23 percent from the preceding quarter while Bharti's ARPU fell 9.4 percent. Akhil Gupta, deputy chief executive of Bharti Airtel's parent, Bharti Enterprises, said the sector had been afflicted by "irrational pricing". The ARPU drop reflected the rock-bottom tariffs as well as companies' growing reliance on lower-spending rural customers as they push deeper into India's hinterland to grow revenues. Total telephone penetration, including landline and mobile phones, in the country of nearly 1.2 billion stands at 43 percent -- up from 2.8 percent in 2000 and testimony to the telecom sector's blistering growth. India added 14.98 million new phone customers in September, pushing the number of users to over 500 million -- 15 months ahead of a government target for reaching the milestone. The boom in phone connections has been overwhelmingly driven by cellular services, with mobile customers comprising 40.31 percent of the 500 million telephone users. India is the second-biggest cellular market, lagging behind only China, which has over 600 million users. Urban mobile markets are already saturated but there are still hundreds of millions of customers to be signed up in rural areas -- a tantalising prospect for new entrants that see India as one of the few global growth areas. Another four players, including Norway's Telenor and United Arab Emirates' Etisalat, are set to roll out services in the next few months, joining the 11 companies already pitching for customers. As competition has mounted, the companies' share prices have taken a hit, with market leaders Bharti sliding 30 percent in a month and Reliance Communications tumbling 45 percent. Investment house MacQuarie recently downgraded the sector to under-perform. India plans to hold an auction in January for third-generation or 3G spectrum, which will allow high-speed internet and video downloads on mobile phones. But analysts say it will take time for companies to earn back the money spent on the licences and the auction will add to their balance sheet burdens. Experts say the sector can only reasonably support four to five players and that consolidation looms. "These developments will accelerate industry consolidation over the next 18 to 24 months," Satish Seth, group managing director of Reliance Communications, said, adding that Reliance would be a survivor. A shakeout will ultimately be beneficial for the industry as it will allow those who emerge on top to restore pricing, analysts say. 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