Telecom Industry

Introduction to Indian Telecom Industry

• The Indian Telecom sector is third largest network in the world.

• The stated subscriber numbers already crossed 600 million as against the
projected 500 million.
• Average growth rate of over 40% in respect of subscribers.
• Monthly additions of above 20.31 million phones.
• National tele density of 52.7%.
• The present growth rate for the telecom industry is pegged at 14%.
• The subscriber base registered a CAGR of 40.4 percent for 2002–03 to 2007–
08.
• Growth impetus from wireless segment with 84% wireless and 16% wired.
• Further access was provided by 54 lakh PCOs and 5 lakh VPTs in 2007.
• 9 million Internet and 2.5 million broadband subscribers (figures reported in
2007).
• More than a thousand cities have been provided with broadband connectivity
out a total of five thousand cities

A Lucrative Option:

In recent years, the Indian telecom industry has witnessed phenomenal growth. A
conductive business environment, favourable demographic outlook and the political
stability enjoyed by the country have contributed to the growth of the industry. India
achieved the distinction of having the world's lowest call rates (2–3 US cents), the
fastest sale of million mobile phones (1 week), the world's cheapest mobile handset
(USD 19) and the world's most affordable colour phone (USD 31).

Market Structure for Wireless Service (GSM):

• Divided into 23 circles

– 4 metros
– 19 circles

• Further divided into A, B and C category based on economic

parameters and revenue potential.

• Each circle has a licenses

– Four operators per circle are allowed
– Licenses are saleable

GSM and CDMA market share

 CDMA, 27%
GSM, 73%

Mobile telecom services provide an unprecedented growth opportunity for

companies:

Mobile services have led to a spectacular growth in the Indian telecom industry.
Currently, about 12 players are active in this segment. The total number of wireless
subscribers escalated to 261.07 million at the end of March 2008, with a monthly
addition of more than 6 million wireless subscribers. Despite the decreasing ARPU*,
the minutes of usage is on a rise, which provides impetus to the mobile services
growth in India.
USA 838

India 461

China 303

Russia 88

India has the second highest minutes of usage per month. This offers huge
growth opportunity to telecom companies.

ARPU* in India – Mobile Services:

The declining ARPU implies that India Inc. is tapping a large market at the bottom of
the pyramid by reducing tariffs; thereby, enhancing affordability.

Broadband services to drive Internet penetration in India:

The emergence of private players and new technologies has provided a strong impetus
to the growth of Internet and broadband services. The quality and penetration of these
services have undergone changes, with significant improvement in the telecom
infrastructure. The Internet subscriber base registered a CAGR of 60 percent for the
period 1997–98 to 2007–08.

BSNL and MTNL cater to more than two-thirds of Internet subscribers in India.

 The total no. of Broadband Subscribers of these 13 Service Providers have

increased from 3.1 million to 3.82 million by adding 0.72 million (23.35%)
subscribers in the quarter ending March, 2008.

 Private players are catching up fast due to increased penetration of Internet

and broadband services in India.

 The telecom market will experience high penetration of Internet services with
the support from government policies and introduction of novel technologies
in India.

India: An Ideal Destination for Investments in Telecom Sector:

 World’s largest democracy

 Independent judiciary
 Skilled and competitive labour force
 Third largest telecom network in the world; second largest among the
emerging economies after China.
 On an average, about 6–7 million new users added per month in 2007 and
20.31 million currently, making India the world’s fastest growing wireless
services market.
 Liberal Foreign Investment Regime–FDI limit increased from 49 percent to 74
percent; the rural telecom equipment market is also open to large investments.
 The large untapped potential in India’s rural markets–12 percent tele density
in rural markets as compared to the national level of 52.6 percent.
  The government promoting telecom manufacturing by providing tax sops and
establishing telecom specific Special Economic Zones

Important regulations and their impact on the Indian telecom industry:

Unified Access Service License Regime (UASL):

Unified licensing marked the end of the license regime in the Indian telecom industry.
It helped in aligning convergent technologies and services. The establishment of the
Unified Access Licensing Regime (2003) eliminated the need for different licenses
for different services. Players are now allowed to offer both mobile and fixed-line
services under a single license after paying an additional entry fee. This does not take
into account national and international long-distance services and Internet access
services.

Access Deficit Charges (ADC):

ADC makes it mandatory for a service provider at the caller’s end to share a percent
of the revenue earned with the service provider at the receiver’s end in long-distance
telephony. This subsidises the infrastructure costs of the service provider enabling
access at receiver’s end, especially because rental for fixed-line services is low.
Revision in the ADC regime is expected to be followed by further tariff reduction in
telecom services. In a move to bring down telecom tariffs drastically, TRAI has
phased out access deficit charges from this year.

Universal Service Obligation (USO):

The USO policy was laid along with NTP ’99 to widen the reach of telephony
services in rural India. All telecom operators are bound to contribute 5 percent of their
revenues to this fund. This system was put in place to bridge the wide gap between
urban and rural teledensity, bringing it down from the current 31 percent. Initially,
only basic service providers were under the purview of USO. Later, its scope was
expanded to include mobile services also. Although it increases the cost burden for
the telecom companies, USO helps in building the telecommunication infrastructure
in the rural areas.

Emerging Trends in Telecom Market:

 Major trends in the telecom sector is increasing M&A activity, de-regulation

of telecom policies and growing interest of international investors:

• Recent Deals in Telecom Sector:

o Vodafone purchased stake in Hutch from Hong Kong's

Hutchison Telecom International for USD 11.08 billion.

o Reliance Communications Limited has sold a five percent

equity share capital of its subsidiary Reliance Telecom
 Infrastructure Limited to international investors across the US,
Europe and Asia. The deal was worth USD 337.5 million.

o Telekom Malaysia acquired a 49 percent stake in Spice

Communications for USD 179 million.

o Maxis Communications acquired a 74 percent stake in Aircel

for USD 1.08 billion.

o Airtel’s merger with Zain telecom to enter the African market

and capture is 42 million customers for USD 10.7 billion.

 The Indian telecom industry has a 74 percent FDI limit in the telecom services
segment.

• The GoI has permitted 100 percent FDI in manufacturing of

telecom equipment in India.

• The Indian telecom industry has always attracted foreign

investors. In fact, the cumulative FDI inflow, during the August
1991 to March 2007 period, in the telecommunication sector
amounted to USD 3,892 million.

• It is the third largest sector to attract FDI in India in the post-

liberalisation era.

SWOT Analysis:

Strengths
• Huge wireless subscriber potential
• Fastest growing mobile market in the world
• Consumers are ready to pay for cutting edge services
• Government proposes to hike FDI limit in Telecom to 74%
• Unified license regime

Weaknesses
• Lowest call tariffs in the world
• Market strongly regulated by Govrenment body – Governing both ISP and
Telecom sectors
• Too many authorities ruling the sector
• Huge potential for low end and cheap handsets
• Wide scale Consumer churn in Telecom and ISP
• Wide spread VAS deployment is restricted due to language and literacy
problems
• Primarily a voice based market
Opportunities
• To offer value added services on GSM, CDMA and IP
• Language independent services
• Mobile Marketing concepts
• Content influenced by local culture and Global success stories
• M-Commerce
• Unified messaging platforms
• Foreign investment in form of equity or technology

Threats
• Low cost service providers – no possibility of breaking even in short term
• Weak IPR protection
• Software and digital content Piracy
• Political instability
• Regulatory interference

Opportunities of Indian Telecom:

• To reduce their network deployment costs, many service providers are considering
infrastructure sharing offers the following advantages:
 Improved service quality
 Increased affordability for customers
 Faster roll out of services in rural and remote areas
 Significant reduction in initial set up costs
 Increased environmental aesthetics
 Lower operating costs for service providers

• Virtual Private Network is a private data network that provides connectivity within closed
user groups via public telecommunication infrastructure. Competition is likely to heat up in
the VPN segment as DoT has relaxed the norms for private players.

• Managed services is another segment that is attracting telecom companies. On account of the
rapidly growing subscriber base, service providers find it difficult to manage their
infrastructure and network management operations. In such cases, they completely or partially
outsource their infrastructure or network management operations.

• Enterprise Telecom Services includes key services, such as voice over Internet protocol
(VoIP), dedicated telecom communication systems, IT infrastructure enabled unified
communication services, etc. Telecom service providers are increasingly targeting enterprises
by providing dedicated services and is expected to witness major developments in near future.

• WiMAX has been one of the most significant developments in wireless communication in the
recent past. Since this mode of communication provides network access in inaccessible
locations at a speed of more than 4 Mbps, it is expected to be a major factor in driving telecom
services in India, especially wireless services. Thus, it will lead to the increased use of
telecom services, Internet, value-added services and enterprise services. WiMAX is expected
to accelerate economic growth and assist in providing better education, healthcare and
entertainment services.

• The VAS industry is currently focussing on the entertainment sector, such as the Indian film
industry and cricket; however, there is scope for growth in other avenues as utility-based
services, such as location information and mobile transactions.
 • Rural telephony will require major investments. This segment will boost the demand for
telecom services, equipment, Internet services and other value-added services; thereby,
offering great market opportunities for telecom players.

By

Ambika Khanna
Arjun Trehan
Arpita Gupta
Chitra Chakrobarty
Divjot Singh
Mahendra Rathi
Nitesh Saboo
Nilanjan Maitra
Nishant Rana
Ramesh Ramanathan
Rahul Dwivedi
Ravish Tandon
Nishita Saxena
Shikha Gupta
Sumit Chandoke