The Indian Telecom Sector

India is the fourth largest telecom market in Asia after China, Japan and South Korea. The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. At current levels, telecom intensiveness of Indian economy measured as the ratio of telecom revenues to GDP is 2.1 percent as compared with over 2.8 percent in developed economies (CRISIL,

www.ibef.com).

Indian telecom sector has undergone a major process of transformation through significant policy reforms. The reforms began in 1980s with telecom equipment manufacturing being opened for private sector and were later followed by National Telecom Policy (NTP) in 1994 and NTP'1999.

Historically, the telecom network in India was owned and managed by the Government considering it to be a natural monopoly and strategic service, best under state's control. However, in 1990's, examples of telecom revolution in many other countries, which resulted in better quality of service and lower tariffs, led Indian policy makers to initiate a change process finally resulting in opening up of telecom services sector for the private sector.

Policy reforms can be broadly classified in three distinct phases

‡" The Decade of 1980's saw private sector being allowed in telecommunications equipment manufacturing. Mahanagar Telephone Nigam Limited (MTNL) and Videsh

Issues 1.Interconnection 3. telecommunications sector also benefited from the general opening up of the economy.Basic service 2.Sanchar Nigam Limited (VSNL) were formed and a Telecom Commission was set up to give focus to telecommunications policy formation.Telecommunication Services 1. The Indian Telecom Sector: 1.Telecommunication Equipment 3.Cellular service 3.Spectrum Allocation .Rural Telecommunications 2. Availability of telephones on demand (targeted by 1997) Universal service covering all villages and one PCO per 500 persons in urban areas at the earliest (targeted to be achieved by 1997) Telecom services at affordable and reasonable prices World standard quality of services ‡" NTP 1999 brought in the third generations of reforms in the Indian telecommunications sector. NTP 1994 was the first attempt to give a comprehensive roadmap for the Indian telecommunications sector.Internet Service Provider (ISP) 2. ‡" In 1990s.

Telecom services are growing at an approximate rate of around 5 percent per year in terms of revenue and mere 10 % in terms of subscriber base in last five years. Amongst telecom services. and has already allowed full mobility to wireless in local loop (WLL) operators as a first step.460 million from Rs 50.410 million from Rs 59. Partly the result is due to negative growth in NLD market (-14% Rs 51. Telecommunications Regulatory Authority of India (TRAI) expects that the total number of cellular connections would bypass the total number of fixed line connections by late 2004 and early 2005.880 million) and ILD market (-13% Rs 43. cellular services are the fastest growing. (As on March 2004 subscriber base of cellular operators is 33 million and basic operator is 42.4.84 million) During the past three years. All these services are explained in detail: ‡Basic Services ‡Cellular Services ‡Internet Service Provider . Cellular service.010 million) in 2003-04. with CAGR of 40 percent over the past four years.ICT and Gender Telecommunication Services Telecommunication services include Basic service. in terms of subscriber base telecommunications services have been growing at a CAGR of nearly 22%. owing largely to the rapid increase in cellular service subscribers. Government of India (GoI) plans to introduce a unified license for all telecommunication services in India. Internet Service Provider (ISP) and Very Small Aperture Terminal (VSAT) services.

end services. high. such as leased lines. However. The government has introduced unified license for fixed and mobile service providers. the private companies are setting their networks very selectively and targeting corporate clients with value added services. and has a current market size of Rs 30. The reduction in NLD and ISD tariffs punctured the potential of the key revenue streams. with a base of 43 million lines. The state operators (BSNL and MTNL). ISDN. national or domestic long distance and international long distance services.Fixed Service Provider (FSPs) Fixed line services consist of basic services. The main revenue contributing value added services were NLD and ILD. This allows all phone companies to . average-revenues-per-user (ARPU) of private operators are more than twice those of the state-owned service providers.e. has been growing more than 5 per cent annually during the past three years. and offer reliable. private services focus on the business/corporate sector. excluding international revenues).164 crores. Internet telephony for ISD worsened the potential. As a result. account for almost 90 per cent of revenues from basic services. Growth Drivers The Government has allowed unlimited competition in the basic sector. Added to it was the phenomenal growth rate in cellular services. Private sector services are presently available in 18 circles. The domestic market (i. and collectively account for less than 5 per cent of subscriptions. Considering the inherent advantage of scale that the incumbent state operators have. closed user group and videoconferencing.

trade. likely to be lower in comparison with the pace of increase in the number of fixed lines. there are five private service operators in each area.uktradeinvest. covering 1500 towns across the country. Almost 80% of the cellular subscriber base belongs to the pre-paid segment. India's fixed line telecom network is estimated to expand to about 47 million by March 2005 from 43 million in March 2004 (ICRA report. Several GSM cellular service companies are climbing the EDGE bandwagon. http://www. and an incumbent state operator.gov. Hutch has already started and Bharti has made test calls on the EDGE platform and the company is in talks with Siemens for EDGE-enabling some of its circles. Indian fixed line network is likely to expand as the current low level of telephone penetration is very low coupled with the unmet demand for connections. Articles/Reports ‡Report on Fixed Telephone 2003 Cellular Services Overview There are 25 private companies providing Cellular Services in 19 Telecom Circles and 4 Metro cities. Presently. ending service-specific licensing.uk). The rate of growth in services revenues is however.become mobile operators by offering cellular and landline/WLL-M services under a single authorization. .

This uncertainty has best been typified by the issuance of a fourth license and the controversies with reference to limited mobility players. Regulatory Structure The lack of clarity in the regulatory structure has made it difficult to predict the prospects for this industry. which along with rental was the main source of revenue. and compensate them for reduction in tariffs on airtime.The DoT has allowed cellular companies to buy rivals within the same operating circle provided their combined market share did not exceed 67 per cent. and handset prices has driven demand. international long distance. The reduction in tariffs for airtime. The number of service providers increased to 68 in the year 2002-03 from 42. Articles/Reports Indian Cellular Industry 2003 . The Cellular Services was thrown open for third & fourth Service providers in 2002. national long distance. Cellular operators now get substantial revenue from these services. Growth Drivers Opening up of international and domestic long distance telephony services are growth drivers in the industry. they were only allowed to buy companies outside their circle. Previously.

The growing demand of corporates for applications such as Electronic Commerce. US. not only in the metro towns but also in semi-urban towns. high cost of telephone access etc. to cut down on operations costs. Secondly. imported telecom equipment will account for 75% of the expenditure on telecom equipment in India. It is forecasted that by 2005.Media Reports ‡Hutch announces new services Internet Service Provider Internet has become very easily accessible with cyber cafes /kiosks increasing their density. high bandwidth prices. low PC penetration. Telecommunication Equipment The domestic industry is worth Rs 303. the industry continues to face a number of bottlenecks in terms of regulatory treatment of ISPs. The industry is faced with two major challenges: India is being steadily opened up to the global market.000 million and has made little progress in comparison to the development of Telecom services in the country. Internet telephony has been allowed officially from 1 April 2002. There is no restriction on the number of internet companies and more than 185 companies are operational. However. ISDN. as trade restrictions are done away with. resulting in crashing of import duties across the board and easy movement of goods from overseas. internet leased lines. European and East Asian multinationals are outsourcing manufacturing to cheaper destinations in Taiwan and China. (Refer to Appendix 5 for more details on this segment) . VPN etc is driving the growth of the internet services market.

Reliance. BPL and Hutchison will drive equipment market growth. Also switching systems will remain a big market. with a size of around Rs 50 billion (CERC). Transmission equipment. Bharti. BATATA. Articles/Reports Indian Telecom Equipment 2002 Media Reports ‡Mobile handset market pegged at Rs 12k crore ‡Sub-Rs 2k cells set to flood mkt ‡Nokia launches 3 new sets . cable and terminal equipment are expected to drive the market in the years to come.Growth Drivers " Growth in the telecom equipment market is expected to be driven by an increasing demand for telecom services. " Key players like BSNL.

Services may be provided by the parties involved or other parties who have access to the network. As more areas of telecommunications are being served by multiple providers. etc. It is also important because interconnect has a key impact on competition and after liberalization of the sector it is one of the key mechanisms through which an . long-distance telephone service (including international). including local telephone service. or to access services provided by another undertaking. As per the European Commission Directive ³Interconnection´ means the physical and logical linking of public electronic communications networks used by the same or a different undertaking in order to allow the users of one undertaking to communicate with the users of the same or another undertaking.Interconnection What is Interconnection? Interconnection is the mechanism for the seamless connecting of multiple telecommunications systems. regardless of the provider. cellular. there are more interconnection issues. Why is Interconnection important? Interconnection is important because it allows the customers of a carrier to access customers of other carriers. pay telephone. since it is generally a requirement that any customer should be able to communicate with any other customer.

literacy. women's representation and access here too is very low. Key elements of the interconnect regime. time constraints. language. and the nature of regulatory intervention. because competitors may use the same facilities to provide service in whichever segment of the market they choose. As in most other sectors. Gender and Information and Communiation Technologies Introduction ICT is emerging as the fastest growing sector of the economy globally. training. and cultural contexts that affect access to facilities. Incumbent Operators have little incentive to make things easy for their new competitors. and employment in the information technology area. The uneven distribution of ICT across societies as well . allows for telecommunications to be viewed as other than a natural monopoly. Interconnect is Interconnect also important because it promotes infrastructure sharing. including costing/pricing methodology. Gender influence factors such as income. education. can send signals regarding policy intentions relating to the nature of competition.incumbent operator can affect the competitive landscape. and most of the bargaining power in negotiations lies with the incumbents. scope for negotiations.

is a cause of great concern.as across the world. especially for women within developing countries who are in the deepest part of the divide. . the "digital divide".

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