Indian

Telecommunication

Sector

August 2007

www.ibef.org

Presentation Plan

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Telecom Industry Overview Telecom – Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues

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www.ibef.org

ibef.org .Presentation Plan 1 2 3 4 5 Telecom Industry Overview Telecom – Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues 6 3 www.

org .34 million (June 2007) ARPU for GSM – USD 6.100 million (2006–07) Handset market – USD 4.35 million in 3 months (April to June 2007) Expected to reach total subscriber base of about 500 million by 2010 (i.ibef. A conducive business environment. more than one phone for every household) Annual growth rate of the telecom subscribers – 47 percent (2006–07) More GSM subscribers than fixed-line subscribers   Total telecom subscribers – 225. the fastest sale of million mobile phones (1 week). Indian Telecom Industry – Facts  One of the fastest growing cellular markets in the world in terms of number of subscriber additions – 19. India achieved the distinction of having the world's lowest call rates (2–3 US cents).86 percent (June 2007)      Number of new mobile subscribers added every month – 7. favourable demographic outlook and the political stability enjoyed by the country have contributed to the growth of the industry.21 million (June 2007) Tele density – 19. the Indian telecom industry has witnessed phenomenal growth. the world's cheapest mobile handset (USD 19) and the world's most affordable colour phone (USD 31).e.Indian Telecom Industry – A Lucrative Option Indian Telecom Industry In recent years.6 per month Telecom equipment market – USD 17.750 million (2006– 07)   4 www..

5 www. The growth witnessed in the mobile services and Internet services segments was higher as compared to other services. Revenues of Indian Telecom Industry: 2002–07 (USD billion) Registered an annual growth of 33 percent in 2006–07 Telecom Services – India The Indian telecom services can be divided predominantly into basic. Apart from mobile telephony services. The CAGR from 2006–07 to 2009–10 is expected to stabilise at 21 percent.Telephony services (mobile and basic) and Internet services dominate the Indian telecom services The Indian telecom market generated revenues of approximately USD 20 billion in 2006–07. It registered a CAGR of approximately 22 percent from 2002–03 to 2006–07. Very Small Aperture Terminals (VSATs).ibef.org . such as basic services and radio paging services. mobile and Internet services. other value-added services are also gaining importance. such as radio paging services. It also comprises smaller segments. Public Mobile Radio Trunked Services (PMRTS) and Global Mobile Personal Communications by Satellite (GMPCS).

Private players account for highest subscriber base growth in the basic telephony services segment Market Share* of Basic Services Segments in India (2006–07) Basic Services  Basic services include fixed wireline and wireless in local loop (WLL-fixed).ibef.    Market Share* of Basic Service Operators in India (2005–06) * In terms of Subscriber Base 6 www. Fixed wireline services hold a major market share of 83 percent in basic services. In 2006– 07. BSNL and MTNL are market leaders in this segment. Although the government-owned BSNL dominates the segment in terms of subscriber base and market share. private players have registered a notable growth. basic services subscribers exceeded 50 million.org .

Currently. Minutes of Usage per Month – Mobile Services Despite a low teledensity of approximately 19 percent. with a monthly addition of more than 6 million wireless subscribers. * Average Revenues per User 7 www. The total number of wireless subscribers escalated to 185. This offers huge growth opportunity to telecom companies. thereby. India has the second highest minutes of usage per month.13 million at the end of June 2007.ibef.org .Mobile telecom services provide an unprecedented growth opportunity for companies Mobile services have led to a spectacular growth in the Indian telecom industry. which provides impetus to the mobile services growth in India. Despite the decreasing ARPU*. is tapping a large market at the bottom of the pyramid by reducing tariffs. enhancing affordability. the minutes of usage is on a rise. ARPU* in India – Mobile Services The declining ARPU implies that India Inc. 12 players are active in this segment.

the additions in the current year registered a growth of approximately 47 percent over the previous year.org .ibef. The subscriber base registered a CAGR of 40.  Market Share* of Wireless** Operators (As of June 2007) The state-owned BSNL was the second largest service provider after Bharti Airtel (23 percent) in the Indian wireless telecom market with a market share of approximately 19 percent for the year ending March 2007.4 percent for 2002–03 to 2006–07.Number of mobile subscriber will propel the total subscriber base to 500 million by 2010 Telecom Subscriber Base and Teledensity in India  The telecom subscriber base has witnessed an explosive growth. * In terms of Subscriber Base ** Includes GSM. CDMA and WLL-F services 8 www.

org . * In terms of Subscriber Base Reliance Communications and TTSL dominates the Indian CDMA mobile services segment.GSM surpasses CDMA in number of additions to subscriber base Market Share* of Wireless Operators (as of quarter ending March 2007) GSM surpasses CDMA segment by a large margin in terms of subscriber numbers. Bharti Airtel dominates the GSM segment with a market share of approximately 31 percent for the year ending March 2007. Market Share GSM* Service Providers (as of quarter ending March 2007) Market Share* CDMA Service Providers (as of quarter ending March 2007) 9 www.ibef. followed by BSNL with a share of approximately 23 percent subscribers.

thereby. Moreover. irrespective of the subscriber‘s location.ibef. this segment could not compete with cellular services in general and SMS technology in particular. These services allow a subscriber to communicate from any point on earth through a handheld terminal. GMPCS* GMPCS services were launched in India in 1999.Various other services emerged by leveraging the telecom services industry Radio Paging In 1995.000 subscribers are currently availing this service in India from 12 different operators.org . However. * Global Mobile Personal Communication by Satellite 10 www. and the segment had a total subscriber base of 55.73 percent during the quarter ending in December 2006. only four radio paging service providers are present in the Indian market. At present.070. HCL Comnet is the largest of the eight players functioning in the market. inhibiting its growth. radio paging services emerged as a promising segment in India. the telephone number remains unchanged. Other Telecom Services Very Small Aperture Terminals (VSAT) The market for VSAT services increased by 5. The high licence fee leaves a very thin margin for services providers. and is currently shrinking. Public Mobile Radio Trunked Services PMRTS have not grown to their expected potential in India. About 31.

The Internet subscriber base registered a CAGR of 60 percent for the period 1997–98 to 2006–07. The quality and penetration of these services have undergone changes.Broadband services to drive Internet penetration in India Internet Subscribers: 1998–2007 The emergence of private players and new technologies have provided a strong impetus to the growth of Internet and broadband services.ibef.org . Private players are catching up fast due to increased penetration of Internet and broadband services in India. India had 2. Market Share of Top Five Internet Service Providers (as of quarter ending March 2007) BSNL and MTNL caters to more than two-thirds of Internet subscribers in India.52 million broadband connections at the end of June 2007. The telecom market will experience high penetration of Internet services with the support from government policies and introduction of novel technologies in India. with significant improvement in the telecom infrastructure. 11 www.

ibef.Presentation Plan 1 Telecom Industry Overview Telecom Handset Market 2 3 4 Telecom – Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues 12 www.org 5 6 .

Nokia has a market share of 53 percent. the share of monochrome handsets has declined to 35 percent. sales of mobile handsets will reach 150 million units. The CDMA category is growing faster than the GSM category.5 percent share in the previous year. whereas. Mobile phones are available at prices as low as USD 28–35. Market Share of GSM and CDMA Handset Manufacturers: 2006–07 Overall. it dominates the GSM mobile handsets with a market share of approximately 73 percent. which accounted for 65 percent of the market in 2006. Competitive pricing has triggered the growth of coloured handsets. It is estimated that by 2011. Camera phones currently occupy 15 percent of the sales Mobile Handsets Market in India: 2004–07    volume.ibef. 13 www.Indian telecom handset market booming along with mobile services industry  The Indian handset market grew at a phenomenal rate in 2006 with the sale of approximately 30–35 million handsets.org . It captured 25 percent of the market volume in 2005–06 as against a 20. LG dominates in the CDMA handsets market with a market share of 60 percent.

ibef.org .Presentation Plan 1 2 3 4 5 Telecom Industry Overview Telecom – Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues 6 14 www.

ibef.9 percent teledensity in rural markets as compared to the national level of 18 percent  Expected to become the second largest telecom market by 2010  The government promoting telecom manufacturing by providing tax sops and establishing telecom specific Special Economic Zones  Fully repatriable dividend income and capital invested in telecom equipment manufacturing 15 www. making India the world’s fastest growing wireless services market      Liberal Foreign Investment Regime–FDI limit increased from 49 percent to 74 percent.India: An Ideal Destination for Investments in Telecom Sector World’s largest democracy Independent judiciary Skilled and competitive labour force Fifth largest telecom network in the world.org . the rural telecom equipment market is also open to large investments  Among the countries offering the highest rates of return on investment  The large untapped potential in India’s rural markets–1. about 6–7 million new users added per month. second largest among the emerging economies after China  On an average.

thereby. 16 www. its teledensity is only 18 percent.ibef. India had a teledensity of 18.Increasing mobile subscriber numbers and low level of teledensity offers large opportunities to Indian companies Large number of additions in telecom subscribers    Low teledensity (depicting large untapped potential) Telecom Advantage The telecom subscriber base has witnessed an explosive growth. offering greater growth opportunities for service providers. The subscriber base witnessed a CAGR of 40.80 percent. as compared to year 2005-06 figure of 12.4 percent during 2002–03 to 2006–07. the Indian market provides telecom service providers with a large untapped potential due to the country‘s increasing population and its low teledensity.org . the additions in year 2006-07 registered a growth of approximately 47 percent over the previous year. The government has plans to raise teledensity to 40–45 percent by 2010. Thus.3 percent. The impressive growth in the subscriber base has resulted in a significant increase in teledensity. In 2006–07. Even though the Indian telecom industry has exceeded a subscriber base of 200 million. signifying a growth of 43 percent.

ibef.org .Presentation Plan 1 2 3 4 5 Telecom Industry Overview Telecom – Investment Attracting Sector Regulatory Framework and its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues 6 17 www.

Telecom Regulatory Authority of India (TRAI) Wireless Planning and Coordination (WPC) Handles spectrum allocation and management DoT – Licensee and frequency management for telecom Exclusive policy making body of DoT Handles ad hoc issues of the telecom industry Independent regulatory body Department of Telecommunications Telecom Disputes Settlement and Appellate Tribunal (TDSAT) Telecom disputes settlement body Telecom Commission Group on Telecom and IT (GoT-IT) 18 www. They also provide various recommendations to improve the status of telecom operations in India.org . Indian Telecom Industry Framework Indian Government Bodies Independent Bodies They formulate various policies and pass laws to regulate the telecom industry in India.ibef. Telephone Regulatory Authority of India (TRAI) assists the Government of India (GoI) to take timely decisions and introduce new technologies in the country. They undertake various research activities and monitor the quality of service provided in the Indian telecom industry.Regulatory Framework provides level playing field for all operators The Department of telecommunications (Government of India) is the main governing body for the industry.

ibef. was established BSNL was established by DoT ILD services was opened to competition Go-ahead to the CDMA technology Calling Party Pays (CPP) was implemented Number portability Intra-circle merger was proposed guidelines were established Attempted to (pending) boost Rural telephony 2005 2006 Broadband policy 2004 was formulated— targeting 20 million subscribers by 2010 2007 1999 1997 2000 INDIA 2002 Internet telephony initiated Reduction of licence fees 2003 2004 1992 National Telecom Policy (NTP) was formulated Unified Access Licensing (UASL) regime was introduced Reference Interconnect order was issued NTP-99 led to migration from highcost fixed license fee to low-cost revenue sharing regime Decision on 3G services (awaited) FDI limit was increased from 49 to 74 percent ILD – International Long Distance 19 www.Various important regulations and laws have been passed in the Indian telecom industry post-liberalisation era Department of Telecommunication (DoT) is the main body formulating laws and various regulations for the Indian telecom industry. TRAI. Private players were allowed in Value Added Services 1994 Independent regulator.org .

Universal Service Obligation (USO) The USO policy was laid along with NTP ‘99 to widen the reach of telephony services in rural India.org . This subsidises the infrastructure costs of the service provider enabling access at receiver‘s end. 20 www. Although it increases the cost burden for the telecom companies. Lowering of ADC Telecom Tariff Order NTP 99 WLL UASL. only basic service providers were under the purview of USO. This does not take into account national and international long-distance services and Internet access services. The establishment of the Unified Access Licensing Regime (2003) eliminated the need for different licenses for different services. bringing it down from the current 31 percent. It helped in aligning convergent technologies and services. especially because rental for fixed-line services is low.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. USO helps in building the telecommunication infrastructure in the rural areas. CPP 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. All telecom operators are bound to contribute 5 percent of their revenues to this fund. its scope was expanded to include mobile services also. This system was put in place to bridge the wide gap between urban and rural teledensity. Revision in the ADC regime is expected to be followed by further tariff reduction in telecom services.ibef. Players are now allowed to offer both mobile and fixed-line services under a single license after paying an additional entry fee. Later. Initially.

ibef.Presentation Plan 1 2 3 4 5 Telecom Industry Overview Telecom – Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues 6 21 www.org .

plan. 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. In fact.08 billion. 22 www. FDI calculation takes into account radio paging. The GoI has permitted 100 percent FDI in manufacturing of telecom equipment in India. de-regulation of telecom policies and growing interest of international investors. The Indian telecom industry has always attracted foreign investors. deploy and manage Bharti Airtel network and facilitate their expansion in the rural areas. during the August 1991 to March 2007 period. in the telecommunication sector amounted to USD 3. Recent Deals in Telecom Sector The Indian telecom industry has a 74 percent FDI limit in the telecom services segment.08 billion. under a USD 2 billion contract. cellular mobile and basic telephone services in the telecommunication sector.892 million. the cumulative FDI inflow.org .FDI and other M&A activities increasing in number Major trends in the telecom sector is increasing M&A activity. FDI in Telecom Sector Telekom Malaysia acquired a 49 percent stake in Spice Communications for USD 179 million. Ericsson to design.5 million. Maxis Communications acquired a 74 percent stake in Aircel for USD 1.ibef. It is the third largest sector to attract FDI in India in the post-liberalisation era. Vodafone purchased stake in Hutch from Hong Kong's Hutchison Telecom International for USD 11.

org .Presentation Plan 1 2 3 4 5 Telecom Industry Overview Telecom – Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues 6 23 www.ibef.

Major Players in different segments of Indian telecom industry Basic Services Operators BSNL Airtel MTNL MOBILE SERVICES GSM Services Operators Reliance Vodafone Idea TTSL Reliance BSNL Internet Services Operators BSNL MTNL Reliance CDMA Services Operators Reliance TTSL TTSL BSNL Airtel MTNL – Mahanagar Telecom Nigam Ltd. TTSL – Tata Teleservices Ltd. 24 www. BSNL – Bharat Sanchar Nigam Ltd.org .ibef.

org .Presentation Plan 1 2 3 4 5 Telecom Industry Overview Telecom – Investment Attracting Sector Regulatory Framework and its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues 6 25 www.ibef.

Managed services is another segment that is attracting telecom companies. In such cases. On account of the rapidly growing subscriber base. 26 www.org . service providers find it difficult to manage their infrastructure and network management operations. IT infrastructure enabled unified communication services. Competition is likely to heat up in the VPN segment as DoT has relaxed the norms for private players.India presents a host of opportunities for telecom companies Infrastructure Sharing Rural Telephony Managed Services Value-Added Services Growth Avenues Virtual Private Network WiMax 3G Enterprise Telecom Services To reduce their network deployment costs. such as voice over Internet protocol (VoIP). dedicated telecom communication systems.ibef. they completely or partially outsource their infrastructure or network management operations. many service providers are considering Virtual Private Network is a private data network that provides connectivity within closed user groups via public telecommunication infrastructure. Telecom service providers are increasingly targeting enterprises by providing dedicated services and is expected to witness major developments in near future. etc. 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 Enterprise Telecom Services includes key services.

000 villages through WiMAX. Bharti. it will lead to the increased use of telecom services.org .3GHz range to utilise the opportunities offered by this domain. aims to connect 74. Therefore.  The immense potential for 3G is reflected by the 30–40 percent annual growth in ValueAdded Services.Emerging technologies – 3G and WiMax to assist in penetration of telecom services in India The Indian government plans to auction the spectrum for 3G services by inviting bids from domestic as well as foreign players. the 3G spectrum is among the major investment opportunities and growth drivers of the telecom industry. healthcare and entertainment services. WiMAX is expected to accelerate economic growth and assist in providing better education. Thus. it is expected to be a major factor in driving telecom services in India. Since this mode of communication provides network access in inaccessible locations at a speed of more than 4 Mbps. WiMAX has been one of the most significant developments in wireless communication in the recent past. The state-owned player.     27 www.ibef. BSNL. Reliance and VSNL have acquired licenses in the 3. and creating a competitive environment that offers better services to consumers.  Cell phone manufacturers are striving to develop USD 100 priced 3G handsets for the Indian market.  India expects to replicate its 2G growth in 3G services. Internet. especially wireless services. It is estimated that India will have 13 million WiMAX subscribers by 2012. Aircel is the pioneer in WiMAX technology in India. value-added services and enterprise services.

equipment.Value-Added Services and Rural Telephony holds large market potential in India Value-Added Services in India (2006–07) The VAS industry was worth USD 632 million in 2006–07. rural telephony will require major investments. offering great market opportunities for telecom players. there is scope for growth in other avenues as utility-based services. Internet services and other value-added services. The VAS industry is currently focussing on the entertainment sector. thereby. such as location information and mobile transactions.011 million opportunity. Rural Telephony As the government targets to increase rural teledensity from the current 2 percent to 25 percent by 2012. such as the Indian film industry and cricket. however.org .ibef. This segment will boost the demand for telecom services. Urban Rural Teledensity in India 28 www. The industry is estimated to grow by 60 percent in 2007–08 and become an USD 1.

Ltd.. 29 www.org . The same may not be reproduced. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the Author‘s and IBEF‘s knowledge and belief. the content is not to be construed in any manner whatsoever as a substitute for professional advice. modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only.com Pvt. wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation). All rights reserved. All copyright in this presentation and related works is owned by IBEF and the Authors.ibef.DISCLAIMER This presentation has been prepared jointly by the India Brand Equity Foundation (―IBEF‖) and Evalueserve. Neither the Author nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation. EVALUESERVE (‗authors‘). The Author and IBEF neither recommend or endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed in this presentation.