ASIA'S emerging mobile markets, excluding China, are expected to see subscriber net gains of 573 million by end-2012, breaching the one billion mark to close the year at an estimated 1.06 billion subscribers.

The finding comes from a report by Frost & Sullivan covering eight nations: Bangladesh, Cambodia, India, Indonesia, Laos, Pakistan, Sri Lanka and Vietnam, all of which have mobile penetration rates of under 50 per cent.

According to Frost & Sullivan's industry analyst Jeff Teh, last year these emerging markets were home to some 487 million mobile users, accounting for 37.1 per cent of Asia-Pacific's total mobile subscriber base.

Mr Teh said Frost's research shows that the mobile services sector in these eight countries earned revenues of US$33.27 billion in 2007.

'This is forecasted to reach a market size of US$61.35 billion by end-2013, at a CAGR (compound annual growth rate) of 10.7 per cent (2007-2013),' he said.

Growing at a CAGR of 15.1 per cent (2007-2013), the mobile subscriber base is expected to hit 1.13 billion by end-2013 to account for 46 per cent of Asia-Pacific's total subscribers.

Mr Teh noted that these eight nations conform to the description of emerging markets. 'Emerging markets are defined as countries with low tele-density and Internet penetration, and a sizable population that are largely under-served or completely without telecommunication services.'

Most mature markets in Europe, the Americas and even Asia are fast reaching saturation, adding fewer connections and offering fewer growth opportunities, he pointed out.

'As mobile operators in Asia scramble to add another staggering one billion subscribers onto their networks, Asia's emerging nations offer the most palpable growth prospects, particularly in the rural sectors,' Mr Teh observes.

He added that such opportunities are, however, not without a gamble.

'The inherent characteristics across these emerging markets are that they are generally lower-income hence low ARPU (average revenue per user) segments, with blended ARPU as low as US$3.90 per month in some countries, and subscribers are largely inclined towards prepaid services.'

He noted that between 86-97 per cent of mobile users in these markets are prepaid subscribers.

'The challenge for mobile operators and foreign investors as such is to introduce new business models and flat-rate pricing plans to appeal to these price-sensitive consumers.'

Mr Teh added that much of the uptake for mobile services will be limited to basic services such as voice calls and text messaging in the near term.

'Apart from having to manage the typical regulatory issues and service affordability, operators face a further uphill task of extending network connectivity well into the rural districts while managing operational and capital expenditure in a cost-effective way to maintain healthy profit margins,' the analyst noted.

An upside for mobile operators, however, is that fixed-mobile substitution is a distinct phenomenon in these countries, given that it is more cost-effective to erect cellular towers than to lay fibre-optic cables to install landlines.

'Competition from fixed-line services therefore is almost non-existent,' Mr Teh observed. He, however, added that despite this, competition amongst mobile operators is rife.

'In most of the emerging nations, there are more than five active mobile service providers in any given market. Over time however, we expect market consolidation as mobile penetration rates increase and sustaining operations prove tricky for the smaller operators.'

To drive the adoption of mobile services among rural communities, some countries have rolled out initiatives such as village phones, transmission tower-sharing among operators, as well as linking communities with mobile services to facilitate access and payments.

Mr Teh believes that such innovation is necessary to achieve the connectivity vision, as wireless technologies will enable Internet access in these areas.

'One of the most compelling features of wireless networks in emerging markets is the ability to provide a faster and cheaper alternative to desktop computers for accessing the World Wide Web, especially considering the lack of fixed-line infrastructure and power sources.'

Mr Teh noted that some tariff plans such as getting paid to receive calls are risky, although revolutionary, and will only be possible when mobile advertising takes off in a big way.

'But for now it remains a game of managing risks for potential high returns.'

This story was first published in The Business Times on 1 September 2008.