Snapshot of

Telecom in India
(prepared in Feb ’04)
Reforms (liberalisation) started in telecom
Status in 1994
• 0.8% teledensity – far below world average of 10% and other
neighbouring countries.
• Total phones: 8 mn with a waiting list of 2.5 mn.
• Below 25% villages (1.7 lakhs) covered.
National Telecom Policy 1994 announced.
• Telecom a national priority for increased economic development.
• Plan targets revised to have telephone on demand and all villages
covered.
• All services available internationally to be available in India by 1996.
• Value-added services opened in 1992 (cellular mobile, radio paging,
email, etc.)
• Resource gap of Rs 23,000 cr to meet the revised targets
necessitated private sector participation.
• Tendering process for selection of private players for Basic and
Cellular services.
2
 1991-96 : Pre-privatisation scenario

16
14
12
Million telephones

10
8 Supply
Demand
6
4
2
0
1991 1992 1993 1994 1995 1996

3
 Introduction of Privatisation

• Licenses awarded (in 1995-97) after tendering and bidding process:

– 8 GSM licenses in 4 metros (no bidding – beauty parade).
– 34 GSM licenses in 18 state circles
– 6 Basic Service Licenses in 6 state circles
• Results not satisfactory due to:
– Actual revenue realisations far short of projections leading to
operators being unable to arrange finance for their projects and
complete rollouts.
• Government appreciates the concern of the operators and allows for
mid-course corrections.

4
 NTP ’99 - new telecom policy
Focus on creating an environment which enables continued attraction of
investment in the sector and allows creation of communication
infrastructure by leveraging on technological development.

Targets revised:
• Telephone on demand by 2002 – teledensity of 7% by 2005 and 15% by 2010.
• Encourage development of telecom in rural areas with suitable affordable tariff
structure – to raise rural teledensity from 0.4% to 4% by 2010.
• Internet access in all District Headquarters (DHQs) by 2000.
• High speed data and multi-media capability using technology including ISDN to
all towns with a population greater than 200,000 by 2002.
• Universal Service Obligation defined to provide voice and low speed data
services to all uncovered villages.

5
 Role of private sector in the early years
45

40 40.23
37.29
36.02
35 35.35 34.73

30.19 32.44
30 28.39
Million telephones

25 23.57 26.51
22.79
20.51
20 17.44 18.68 21.59

14.88 17.8
15
14.54

10
5.5
3.58
5 1.88
0.88 1.2
0.34
0
1997 1998 1999 2000 2001 Dec-01

Demand Total GSM Mobile Wireline

6
 2001: the turning point
• Policy announced for additional licenses in Basic and Mobile Services
(Jan 2001).
• Entry fee:
– Basic Services: US$ 0.2mn – US$ 25.5mn (+ Bank Guarantees = 4
times entry fee for rollout obligations)
– GSM Mobile Services (4th Operator bid): US$ 0.2mn – US$ 45mn
• License fee (revenue share) reduced from provisional 15% to 12%, 10%
& 8%.
• Limited Mobility allowed to Basic Services (CDMA spectrum allotted to
BSOs).
• Rollout Obligations to cover Urban / Semi-Urban / Rural areas in equal
proportion.
• New licenses awarded in Jul - Sep 2001 : Basic (25), GSM Mobile (17).

7
 2001: Mobile revolution triggered

12 • CDMA WLL(M) launched in

0.23
limited manner in few
10
0.15 circles.
8 • Tariff for GSM cellular
Millions

0.1
mobiles reduced.
6
0.08 10.53 • Existing Operators expand
0.05
4
8.53
service coverage.
6.43
4.8 • 3rd & 4th GSM Operator
2 3.58
networks rollout - further
0 tariff reductions.
Mar Sep Mar Sep Dec
'01 '01 '02 '02 '02
• Newly licensed BSOs roll
out networks for WLL(M)
GSM Mobile WLL(M)
on CDMA.
8
 Tariff & Interconnection Regulations

• Movement towards cost-based tariffing.

• Tariffs closely regulated by TRAI between 1999-2002.

• Interconnection Usage Charges established on the principles of

“work done” – termination charges introduced.
• Calling Party Pays (CPP) for mobile tariffs – free incoming calls
ushered in.
• Access Deficit Charges (ADC) for cost-minus fixed line services.

• Forbearance allowed recently on all tariffs (except rural fixed line).

9
Increased competition leads to tariff reduction and
affordable services
Long Distance Peak rate tariffs (Rs / min)
90
80
70
60 NLD ILD
50
40
30
20
10
0
Pre 1999 1999-00 Oct-00 Jul-02 Mar-03 Current

Local Call Tariffs (Rs / min)

16
14
12 Fixed Line GSM Mobile
10
8
6
4
2
0 10
Pre 1999 1999-00 Oct-00 May-01 Jul-02 May-03
 Convergence of tariffs
3

2.5
Rs / min for 400 mins of use / month

1.5

0.5

Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Jun-03

Fixed 0.69 0.69 0.69 0.69 0.69 0.78
WLL(M) 1.25 1.37 1.37 0.71 0.71 0.67
GSM Mobile 2.42 2.06 1.89 1.7 1.63 1.12
11
 2003: Mobile boom has begun
Total Additions
2.5
2002: 5.15 mn
2003: 17.49 mn
Net Additions / month (mn)

1.5

0.5

0
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

2002 2003
12
 Growth drivers

• Declining entry costs and falling tariffs have lowered the bar in

terms of affordability coupled with branding and advertising.

• High percentage of population owning two-wheelers are

prospective mobile telephone users.

• Upper middle class that spends 6% of its income on telecom

services.

• India lags behind other Asian economies (approx. 10 years) -

therefore India is poised for growth.

13
 2003 : CDMA gains acceptance

7 25
6 mn CDMA mobile phones
6 22% of total mobile market share
Service coverage in over 1100 towns 20
5

% of mobile market
Millions

15
4

3
10

2
5
1

0 0
Dec-02 Mar-03 Jun-03 Sep-03 Dec-03

CDMA Mobile CDMA %

14
 Unified Licensing introduced

• Unified Access (Basic & Cellular) Service License (UASL) introduced (Nov
2003) as a first step towards Unified Licensing Regime.
• Technology neutral and allows provisioning any kind of service.
• 4th Cellular GSM license used as benchmark.
• BSOs offering WLL(M) allowed migration to UASL - additional entry fee
equivalent to 4th Cellular bid.
• Rollout obligations to cover 50% DHQs in 3 years.
• License fee reduced w.e.f 1.4.2004 by 2% across the board for all access
licensees.
• Rural telephony to be covered under Universal Service Obligation.
• Intra-circle Mergers & Acquisitions recommended by TRAI - competition not
to be compromised, SMP to be checked.
• Spectrum pricing and allocation guidelines to be reviewed, present
allocations to continue. 15
 Future Investments
US$ bn
14

12

10

0
2003 2004 2005 Total

Wireline Mobile Backbone Total

* Market Analysts' Estimates 16

 Revenue Projections

US$ bn
16
14
12
10
8
6
4
2
0
2004 2005 2006 2007
Fixed Mobile NLD ILD Data
* Market Analysts' Estimates 17
 Projections : Fixed & Mobile *

Millions
90
80
70
60
50
40
30
20
10
0
2003 2004 2005 2006 2007
Fixed GSM CDMA

* Market Analysts' Estimates 18

 Teledensity - Urban vs Rural

35

30

25
Teledensity (%)

20

15

10

0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Urban Rural Total

19