The growth potential of any telecom company is a function of tele-density and MOU. Yet, the concept of teledensity and MOU have not been understood well. A few innovations in the past few years have added new life to both these variables in ways analysts have failed to grasp.

1. IdeaPaper Series
New Tele‐density and MOU Paradigms
By ‐ Rahul Deodhar
A lot of telecom analyst base their growth forecast on tele-density figures. Tele-
density refers to ratio of number of connections to population. It is usually
expressed as a percentage. Tele-density determines the upper limit to
subscriber growth.
MOU refers to minutes of usage or talk-time of subscribers. “Minutes of Usage”
multiplied by Average Revenue per Minute (ARPM) to arrive at Average
Revenue per User (ARPU). ARPM has shown a declining trend with respect to
time. MOU, therefore, represents growth potential of current subscribers.
The growth potential of any telecom company is a function these two variables.
Yet, the concept of teledensity and MOU have not been understood well. A few
innovations in the past few years have added new life to both these variables in
ways analysts have failed to grasp.
Era of bandwidth Node
The interpretation of teledensity as a cap is remnant of telephone as a voice
call device era. This old era represented voice-based communication. We also
discovered ways to send data over telephone lines. But this was inefficient. We
were sending data over voice networks.
The era has changed and a new era is here. Today, telecom is essentially a
provider of bandwidth node at a given location. The question of what to do with
this bandwidth is entirely left to market forces. Market forces have deciphered
one use of the node through “smart phone technology. Today our networks are
essentially dual-mode networks. On the smart-phone or any 3G phone, we
have access to a data network AND a voice network. We are no longer sending
data over voice network.
So the correct way to look at MOU is in fact, to look at overall consumption of
bandwidth. There is no doubt this is only going to go up!
Smart phones boosting data usage
The smart in smart phone is actually in usage of bandwidth tap. The smart
phones have, through use of apps, created new uses of data. Further, the
presence of 3G implies we are going to listen to move songs and watch more
videos on the smart phone. Both these applications are bandwidth-hogging
applications.
Overall data requirement of phone user has definitely gone up. And most of the
time, data is served by a telecom company. Sometimes, it is your telephone
cable connected to a wi-fi modem, other times it is your phones 3G network. As
new apps spread, we will have increasing data requirements. So MOU, in
terms of overall usage of telecom service will go up. Also, the more connected
people are more are voice calls likely!
© Rahul Deodhar 2009
www.rahuldeodhar.com

2. IdeaPaper – Growth Phases of Telecom Companies
The upper limit on teledensity
Tele-density has another story. First, there is natural requirement for multiple
phone connections per person. In developed countries the number is 2. So we
can expect a natural phone penetration limit to twice the population.
Further, simply put, there is a potential to connect all the laptops that are in use
in the market currently. So the factor of 2 seems pretty understated.
Thereafter, anything that is mobile and generates data is a target for
embedding a phone connection.
Telecom can definitely cannibalize 50% of the GPS applications. Cars can
share location data, engine performance and others. Trucks and delivery
vehicles are already using telecom based location services.
Further, it does not take much imagination to foresee new applications. A door
viewer that can send photo of visitors is pretty common. Telecom-equipped
nanny cams are definitely well accepted. TV set-top boxes can have
embedded connections transmitting viewing habits. Buses in Switzerland are
already transmitting data about arrival times.
In sum, we can say that older paradigms of Teledensity need to be massively
revamped.
It will happen within 5 years
The classical rebuke to these arguments is visibility. Analysts do not foresee
such changes happening in near term. I think otherwise. All it needs is right
pricing and little bit of imagination. The iPhone, is revolutionary in that sense. It
has socialized the imagination part while retaining the basic bandwidth pipe
control to itself! I am betting, we will see tremendous explosion in bandwidth
consumption in next 5 years and most of this will enrich the telecom
companies. That is why I have invested in Bharti Airtel (Bloomberg: Bharti IN)
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© Rahul Deodhar 2009
www.rahuldeodhar.com

3. IdeaPaper – Growth Phases of Telecom Companies
Notes & Disclaimers
Disclaimer
The ideas expressed in the paper are based on my observation and readings.
They will be revised, improved, and applied in various contexts not limited to
this idea paper. These may be contradicted or proved false by subsequent
observations, research or other findings.
These do not represent suggestions or recommendations to buy, sell or hold
any stock. I do not guarantee that the companies discussed or hinted in this
paper will perform well as part of readerʼs portfolio. The investment decision
also depends on factors not relating to the company itself and must be taken
on careful research.
These do not comprise the complete list and must be used in conjunction with
standard investment and valuation procedures and practices.
Contact
I would love to debate, discuss the ideas. I love to hear contradictory ideas or
those that can extend my understanding. If you are reading this paper I love to
hear from you. Reach me at rahuldeodhar@gmail.com
Rahul Deodhar
http://www.rahuldeodhar.com
http://rahuldeodhar.blogspot.com
License
The work can be shared for non­commercial use through proper attribution as
explained in Creative Commons Attribution­Noncommercial­Share Alike 3.0
Unported License
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© Rahul Deodhar 2009
www.rahuldeodhar.com