1

THE DIFFUSION OF
MOBILE PHONES IN INDIA
-
Dr. Sanjay K. Singh
Department of Humanities and Social Sciences
Indian Institute of Technology Kanpur
INDIA
Mobile is becoming the dominant means Ior accessing
communications primarily because deploying mobile
network is not only more cost-eIIicient but also mobile
provides greater Ilexibility and convenience to its
subscribers than landline telephone.
Growth in telephone subscriber base in India
Growth in mobile-density has been phenomenal during the
last 5 years or so. Mobile-density in the country has
increased more than 23-Iold Irom 0.35 in 2000-01 to 8.12 in
2005-06.
Teledensity in India from 1995-96 to 2005-06
There has been 25-Iold increase in mobile subscriber base in
a span oI just Iive years Irom 2000-01 to 2005-06. During the
same period, mobile-density has increased more than 23-Iold
Irom 0.35 in 2000-01 to 8.12 in 2005-06.
Growth in Mobile Subscriber Base in India
2
An eIIective management oI mobile services requires an
understanding oI the Iactors that underlie the evolution oI
the market. Factors such as market potential and timing
and speed oI adoption are oI great importance Ior telecom
operators Ior capacity planning. Understanding the
evolution oI mobile phone market and its likely Iuture
trend is equally important Ior policy makers.
1he main objective of this study is to analyze the
diffusion of mobile phones in India to inform the larger
discussion of managing the communication services as
well as to assist analysts concerned about assessing the
impact of public policies in the evolution of telecom
sector.
Estimation of the future trend and analysis of the
pattern and rate of adoption of mobile phones in India.
Spread oI a successIul innovation over time typically Iollows a
sigmoid or S-shaped curve. During an early phase oI diIIusion only a
Iew members oI the social system adopt the innovation whereas, over
time, due to network consumption externality and dissemination oI
inIormation, many people opt Ior innovation as the diIIusion process
unIold. Finally, during the maturing phase, the rate oI diIIusion goes
down when diIIusion curve approaches a saturation level.
1herefore, it is hypothesized that the growth in mobile-density
over time follows a sigmoid curve. Among various functional
forms that can describe sigmoid curves (the logistic, Compertz,
logarithmic logistic, log reciprocal, simple modified exponential,
etc.), the first two are the most widely used ones. 1herefore, it
is decided to use these two functions to model and forecast the
development of mobile-density in India.
The logistic model can be written as:
where Md
t
is mobile-density (no. oI mobile phones per 100
inhabitants), (time)
t
is value assigned to time at period t,
is the saturation level and
t
is an error term.
All the parameters: , and are positive.
Md
t
ranges Irom a lower asymptote oI 0 to the upper bound
as time ranges Irom - to . Maximum growth rate (
/4) occurs when Md
t
/2 (i.e., at halI oI the saturation
level). Thus, the logistic curve is rotationally symmetric
about its inIlection point (the point at which maximum rate
oI diIIusion takes place).
t
t
t
time
Md

+
+
=
) ) ( exp( 1
(1)
Similarly, the Gompertz model can be written as:
where all the variables and parameters have their previous
meaning and
t
is an error term.
Again, all the parameters: , and are positive. In this case,
maximum growth rate ( /e) occurs when Md
t
/e (i.e.,
at 37 oI the saturation level).
1hese two models are estimated using non-linear least
square method once by assuming no restriction on the
saturation level and then by imposing restrictions on the
same. 1his is because there is no guarantee that the final
estimate of the saturation level, , will be close to the global
optimum (Heij C. et al., 24).
t t t
time Md + = )) ) ( exp( exp( (2)
3
1he shape of logistic and Compertz curves
0
20
40
60
80
100
120
1 8
1
5
2
2
2
9
3
6
4
3
5
0 Time
M
o
b
i
l
e
-
d
e
n
s
i
t
y
Logistic (a120, b0.6, g8000)
Logistic (a120, b0.6, g5000)
Logistic (a120, b0.5, g8000)
Logistic (a120, b0.5, g5000)
Gompertz (a120, b0.15, g15)
Gompertz (a120, b0.15, g20)
Gompertz (a120, b0.20, g15)
Gompertz (a120, b0.20, g20)
The saturation level oI mobile-density Ior a country is likely to depend
on whether it is an early adopter or a late adopter oI telephones. Early
adopters (developed countries) are expected to have lesser reliance on
mobile phones (due to high switching cost) whereas late adopters
(developing countries) are expected to have lesser reliance on main
line telephones (due to high inIrastructure cost).
Teledensity and Percentage Share oI Mobile in Selected Developed Countries
Analysis reveals that the saturation level oI mobile share in developed
countries could be anywhere between 50 and 70 whereas the same
would be between 80 and 90 Ior the developing countries.
Assuming that the saturation level oI teledensity could be anywhere
between 120 and 150 telephones per 100 inhabitants, the saturation
level oI mobile-density in developing countries is likely to be between
100 and 120 mobile phones per 100 inhabitants.
Teledensity and Percentage Share oI Mobile in Selected Developing Countries
Model estimation
Since India is a late adopter oI telephones, its saturation
level oI mobile-density is likely to be between 100 and 120
mobile phones per 100 inhabitants.
However, both logistic and Gompertz models are estimated
Ior six diIIerent saturation levels (70, 80, 90, 100, 110 and
120 mobile phones per 100 inhabitants) along with without
imposing any restriction on the same. The mean absolute
percentage error (MAPE) Ior the last three observations is
used to Iind out the most appropriate model and the
saturation level.
Annual data oI mobile-density Irom 1995-96 to 2005-06 is
used Ior the estimation oI the models.
Data on mobile subscriber base and mobile-density is taken
Irom Telecom Regulatory Authority oI India (TRAI)
publications (www.trai.gov.in) and telecom sector database
Irom www.inIraline.com.
4
Estimation results (with t-statistic in parentheses ): According to both R
2
and
MAPE, the Gompertz models Iit the data better than the logistic ones. As
expected, Iinal estimate oI the saturation level in the no restriction model does
not seem to be globally optimal. It seems that the Gompertz model with the
saturation level oI 120 mobile phones per 100 inhabitants is the best model to
depict the diIIusion oI mobile phones in India.
Model Estimate
No restriction on the saturation level
Logistic (1) 18.9 (3.8), 0.7347 (11.0), 4331.2 (2.9); R
2
0.997; Adj. R
2
0.997; MAPE 5.43
Gompertz (2) 217.9 (0.7), 0.1392 (3.1), 15.2 (8.7); R
2
0.997; Adj. R
2
0.997; MAPE 4.70
Saturation level, 70
Logistic (1) 0.5970 (26.9), 5361.6 (4.3); R
2
0.995; Adj. R
2
0.996; MAPE 5.12
Gompertz (2) 0.1954 (32.1), 18.6 (16.0); R
2
0.997; Adj. R
2
0.997; MAPE 5.10
Saturation level, 80
Logistic (1) 0.5921 (26.6), 5895.6 (4.3); R
2
0.995; Adj. R
2
0.995; MAPE 5.22
Gompertz (2) 0.1865 (32.6), 17.9 (17.0); R
2
0.997; Adj. R
2
0.997; MAPE 5.04
Saturation level, 90
Logistic (1) 0.5883 (26.3), 6440.0 (4.3); R
2
0.995; Adj. R
2
0.995; MAPE 5.30
Gompertz (2) 0.1793 (33.0), 17.4 (17.9); R
2
0.997; Adj. R
2
0.997; MAPE 4.99
Saturation level, 100
Logistic (1) 0.5853 (26.1), 6991.4 (4.2); R
2
0.995; Adj. R
2
0.995; MAPE 5.37
Gompertz (2) 0.1733 (33.2), 17.0 (18.6); R
2
0.997; Adj. R
2
0.997; MAPE 4.94
Saturation level, 110
Logistic (1) 0.5828 (26.0), 7547.6 (4.2); R
2
0.995; Adj. R
2
0.995; MAPE 5.42
Gompertz (2) 0.1683 (33.4), 16.6 (19.3); R
2
0.997; Adj. R
2
0.997; MAPE 4.91
Saturation level, 120
Logistic (1) 0.5808 (25.8), 8107.2 (4.2); R
2
0.995; Adj. R
2
0.995; MAPE 5.46
Gompertz (2) 0.1639 (33.6), 16.4 (19.9); R
2
0.997; Adj. R
2
0.997; MAPE 4.88

Assumptions and Projections of Mobile-density in India
Further analysis will primarily be based on the estimated Gompertz
model at saturation level oI 120 mobile phones per 100 inhabitants:
) ( 1639 . 0
4 . 16
120
time
e
e Md

=
Rate of growth of mobile-density
The analysis reveals that the inIlection point (the maximum growth
rate point) oI the curve will occur between 2011-12 and 2012-13
(when mobile-density will be around 45). During the year 2015-16,
there will be 71 mobile phones Ior 100 people in the country. Analysis
show that the no. oI mobile phones will exceed the no. oI people in
the country by 2022-23.
0.4 8.1
36.5
43.7
50.9
57.9
64.7
71.0
0
10
20
30
40
50
60
70
80
2000-01 2005-06 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
N
o
. o
I
m
o
b
ile
p
h
o
n
e
s
p
e
r
1
0
0
in
h
a
b
ita
n
ts
Note: Future population oI India is taken Irom the United Nations Population
Division publication.
Future Mobile Subscriber Base in India
4
90
433
526
620
715
808
899
0
100
200
300
400
500
600
700
800
900
1000
2000-01 2005-06 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
N
o
.
o
I
m
o
b
il
e

s
u
b
s
c
r
ib
e
r
s

(
in

m
i
ll
io
n
)
It is projected that almost 350 million new mobile subscribers will
be added between 2005-06 and 2010-11 and more than 450 million
will be added between 2010-11 and 2015-16.
5
Estimates of revenues collected by mobile operators
and the government
Average Revenue per Mobile User per Month in India
Mobile operators` revenue depends on ARPU and no. oI subscribers
Assuming that the ARPU will stabilize at around Rs. 300 per month
by the year 2010-11, mobile operators` revenues during the year
2010-11 and 2015-16 have been estimated
Estimates of Mobile Operators' Revenue
No. oI
mobile
subscribers
(in million)
Mobile
ARPU per
year
(Rs.)
Revenues
Irom
mobile
services
(Rs. in
billion)
GDP
(Rs. in billion at
Iactor cost at
current prices)
Mobile
revenue as a
percentage oI
GDP
2005-06 90 4500 405 32000 1.3
2010-11 433 3600 1559 57600 2.7
2015-16 899 3600 3236 103680 3.1

Rapid increase in mobile subscriber base and mobile spending
will have equally important implications Ior the government revenue
particularly in the Iorm oI regulatorv charges (license Iee including
universal service obligation and spectrum charges) and service tax.
Estimates of the Covernment's Revenue
Presently, on an average, annual direct regulatory charges
Iaced by the operators in India is around 13 |Iar more than
that in Pakistan (4.5), Sri Lanka (0.3), Malaysia (6.5),
and South AIrica (5)|. II we include the education cess oI 2
(oI 12), service tax burden on the sector would be 12.24
Irom the Iinancial year 2006-07 onwards.
Estimates oI the Government`s Revenue
Rate oI
regulatory
charges
()
Revenue Irom
regulatory
charges
(Rs. in billion
at current
prices)
Rate oI
service tax
(excluding
education
cess oI 2)
()
Revenue Irom
service tax
(Rs. in billion at
current prices)
Total revenue
(Rs. in billion
at current
prices)
2005-06 13 53 10 41 94
2010-11 10 156 12 187 343
2015-16 10 324 12 388 712

Concluding Remarks
In this study, the growth oI the mobile phone and mobile-
density in India has been analyzed using S-shaped growth curve
models.
The result shows that the Gompertz model adequately describes
the path oI mobile phone diIIusion in India.
The analysis shows that the high growth phase oI the diIIusion
oI mobile phones will continue till 2012-13.
It is estimated that there will be 71 mobile phones per 100
inhabitants in India at the end oI year 2015-16. The number oI
mobile phones will exceed the number oI people in the country
by 2022-23.
Total mobile phone demand is projected to increase Irom 90
million in 2005-06 to 433 million in 2010-11 and nearly 900
million in 2015-16.
6
Concluding Remarks ..
Rapid growth in mobile subscriber base in the India will have
important implications Ior revenues collected by the operators
and the government.
Revenue collected by the mobile operators is projected to
increase Irom Rs. 405 billion (1.3 oI GDP) in 2005-06 to Rs.
1559 billion (2.7 oI GDP) in 2010-11 and Rs. 3236 billion
(3.1 oI GDP) in 2015-16.
The government`s revenue Irom regulatory charges and service
tax will increase substantially due to rapid increase in
operators` revenue.
Revenue Irom regulatory charges is expected to increase Irom
Rs. 53 billion in 2005-06 to Rs. 156 billion in 2010-11 and Rs.
324 billion in 2015-16. Revenue Irom service tax is projected to
increase Irom Rs. 41 billion in 2005-06 to Rs. 187 billion in
2010-11 and Rs. 388 billion in 2015-16.
Concluding Remarks ..
It is quite likely that the rapid expansion oI mobile services will
provide economic, logistic and strategic challenges to the
operators.
As operators expand coverage into urban, semi-urban, and rural
areas, they will be conIronted with the daunting tasks oI
developing a countrywide inIrastructure and improving and
maintaining the quality oI service.
Mobile operators should be ready with contingency plans to
deploy and operate inIrastructure including customer care,
billing, applications, etc., Iaster than that they might have
initially planned.
InIrastructure providers, handset suppliers, and vendors should
also be geared up to respond to such plans.
THANKS