44. Mobile Market Expanding Rapidly in India Country adding five million new wireless connections per month

In rural India, carrying around a $44 mobile phone can be something of a status symbol. Or at least it has been for Pandurang Narayan Shelke, a 55-year-old farmer in Latur, a village in the west Indian state of Maharashtra. Last January his son, who works as a porter at Bombay's Victoria Terminus railway station, bought him a low-end Nokia 1100 handset. Shelke had coveted one for years. And, now, "my stock has gone up considerably with my poor relatives, as I can talk to my son whenever I want," he says.

Shelke's small step into the world of wireless communications is part of a much larger drama unfolding in the Indian telecom market, once a backwater but now the world's fastest-growing after China. The number of fixed and wireless telephone connections has doubled in the past two years, to about 150 million, and Indians are signing up for mobile-phone service at an extraordinary five million new wireless connections a month. The Ministry of Telecom has set a target for India to have 250 million connections and mobile coverage for 85 percent of the country—from about 30 percent today— some time in 2007.

While India has a very long way to go in establishing a nationwide network of landline telecom networks, let alone high-speed broadband service, paradoxically, the country could overtake China in the next several years in terms of mobile-phone subscription growth. Rolling out towers and base stations to support wireless networks certainly isn't cheap. But it likely will be wireless networks—not copper-wire fixed lines—that do most to pull India out of the telecommunication dark ages.

India's rise as a mobile phone megamarket also comes at a time of market saturation in Europe, Japan, and the U.S. Global handset makers such as Nokia, Motorola and LG Electronics all see emerging markets such as India as key revenue drivers for the industry in the years ahead. The trick in India is positioning stellar brands at the low end of the market. Nokia, for instance, sells about 45 models in India. Yet its biggest seller, accounting for 15 percent of sales in India, is the basic 1100 model for $44 that is turning heads in villages like Latur. Motorola will launch a handset for under $30 in October.

Nokia has established a big, early lead in India with a dominant 63 percent share, followed by LG (13 percent), Motorola (8.5 percent) and Samsung (3.5 percent), which may have made a strategic mistake globally by sticking to high-end, feature-loaded handsets.

There could be rollicking good times ahead for handset makers with the right business model in India. Analysts think there is a replacement market in the 85 million range (mostly better-off urban dwellers) already in place. Moreover, India's relatively young population—it is home to the biggest under-25 age cohort on the planet—suggests a steady stream of first-time subscribers. Early in 2006 Nokia opened a handset factory in Madras that is churning out one million handsets a month, and company executives think they could eventually sell 400 million mobile phones in India.

That said, there are huge challenges that, if unresolved, could disrupt the India growth curve. To really develop India's full potential, local telecom providers will need to spend massive amounts of money to expand coverage to the country's sprawling rural regions. "A lot depends on how fast the players roll out their networks into the rural hinterland," says Kuldeep Goyal, a general manager with the government-owned telecom carrier BSNL.

The good news is that sizable investments are underway. BSNL is spending around $4 billion over the next three years on rural coverage as well as broadband and optical fiber network expansion. In its largest markets, such as the states of Maharashtra and Goa, it will increase its 1,200 base stations to 3,000 by March of 2007. Another major India telecom, Reliance Infocomm, is expected to invest around $550 million through the end of the decade, mainly outside of major urban centers.