The Indian Telecom

Success Story
 Foreword

Havingemergedasthefastestgrowingtelecommarketintheworld,Indiahas
over500milliontelecomsubscribers,withmorethan120millionsubscribers
addedinthelasteightmonths.Theteledensitytoohasshownsignificantincrease
tocrossthe40percentmarkthisyear.ThesuccessoftheIndian
telecommunicationssectorhasbecomethecynosureoftheworldandhasmade
thecountryatrulyattractiveinvestmentdestination.

Thesuccessofthesectorcanbeattributedinnosmallparttothestrong
regulatorysupportprovidedbytheGovernment.Thepolicyinitiativescoupledwith
numerousgrowth-orientedstepstakenbyprivateplayersandotherstakeholders
havecreatedatrulystimulatingenvironment.

Thegrowthofthetelecommunicationsectorhasalsofueledtheinclusivegrowth
agendawiththeindustryseekingtomakeanactivecontributiontothe
developmentofthelessadvancedsectionsofsociety.Todayeveryfifthpersonin
ruralIndiaisconnected;fromwageearnerstoshopkeepers,farmersto
fishermen;mobilephonesarehelpinginincreasingtheirproductivity.

OntheoccasionofIndiaTelecom2009,the4thInternationalConferenceand
Exhibition,theDepartmentofTelecommunicationsispleasedtoreleasethis
reportontheIndiantelecomsuccessstory.CompiledbyKPMGandFICCI,it
providesanoverviewoftheIndiantelecommunicationssectorandwillserveasa
usefulreferencemanualforallstakeholdersincludingregulators,policymakers,
telecomoperatorsandthegeneralpublic.

P. J. Thomas
Secretary
DepartmentofTelecommunications&IT
GovernmentofIndia
NewDelhi

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 TheFederationofIndianChambersofCommerceandIndustry(FICCI)andKPMG
areproudtopresentthisreporton“IndiaTelecom2009–TelecomforInclusive
Growth”,inassociationwiththeDepartmentofTelecom(DoT).

ThisisanexcitingtimefortheIndiantelecommunicationsindustry.Thesectorhas
witnessedtremendousgrowthoverthelastfewyears,havingaddedmorethan
morethan120millionsubscribersineightmonthsalone.Whilethesuccesssofar
wasdrivenprimarilybyurbanareas,thenextphaseofgrowthisexpectedtohave
astrongruralflavor.Therewillbeastrongfocusonconnectingnewmarketsas
wellasexpandingcurrentmarketsthroughnon-voiceservices.Thispresents
attractiveopportunitiesforallstakeholdersoftheindustry,includingthe
Governmentandprivateplayers.

Thisreportprovidesthereaderwithanoverviewofhowtheindustryhas
developedoverthelastfewyears,withaspecialemphasisonkeytrends
impactingtheindustrytoday.Thisreportalsodiscussestheimpactthatthissector
hashadinpromotingtheagendaofinclusivegrowth.

WeareextremelygratefultotheDepartmentofTelecommunications(DoT)for
providinguswiththisopportunitytoworkwiththemfortheIndiaTelecom2009
event.

Amit Mitra
SecretaryGeneral
FICCI,India

Sean Collins Romal Shetty

GlobalChair ExecutiveDirector
CommunicationsandMedia HeadofTelecom
KPMG KPMGinIndia

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 Executive Summary

Overthelastfewyears,Indiahasobservedenviablegrowthinitseconomy,even
inthefaceoftheglobalslowdown.Thestrengtheningdomesticmarketandthe
domesticnatureofinvestmentfinancinghashelpedinminimizingtheimpactof
theglobaleconomiccrisis.Thechangingdemographicsinthecountryhavealso
contributedinmakingthisanattractivemarket,thusattractingsignificant
investmentsfrombothdomesticandinternationalplayers.

Thetelecomindustryspecificallyhashadabigroletoplayintheprogressthat
hasbeenmadebythecountry.TheIndiantelecomsectorhasbeenthefastest
growingintheworldandisnowthesecondlargesttelecommarketglobally.The
eyesoftheworldarenowonIndia,andthepolicymakersandprivateplayersare
workingtogethertoensurethatthetelecomsuccessstorycontinuesatthesame
pace.

Thesuccessofthesectorhaslargelybeendrivenbywirelessservices,with
operatorsreportingtotal(wireline+wireless)additionsofapproximately15million
subscriberseverymonth.Theoverallteledensityhascrossed43.5percent,with
urbanareasapproaching100percentteledensity.1 Clearly,thefocusnowisto
increasepenetrationinruralareastodrivethenextphaseofgrowth.All
stakeholders-includingthegovernment,theregulatorandtheprivateplayers
havetakensignificantinitiativestopromoteruralpenetrationandcontributeto
inclusivegrowth.

Contributingtoalmost70percentofthepopulationandasignificantpieceof
overalldemandforgoodsandservicesinthecountry,ruralIndiahasnowcometo
theforefrontoftheindustry’scollectivefocus.TheGovernmenthasintroduced
specificmeasuresandpoliciesforruralupliftment,includingenhancedprovisions
undertheNationalRuralEmploymentGuaranteeSchemeandtheBharatNirman
Program.Ofparticularinteresttothetelecomindustryaretheprovisionsunder
theUniversalServiceObligationFundwhichpromotethepenetrationoftelecom
infrastructureandservicesinruralareas.

InheraddressinJune2009,PresidentPratibhaPatilannouncedthatthe
government’stargetswillincludearuralteledensityof40percentinthenextfive
yearsandtheexpansionofbroadbandcoveragetoeverypanchayatinthreeyears.
ShealsomentionedthattheschemeforCommonServiceCentresore-kioskswill
berepositionedsoastobeanetworkofpanchayat-levelBharatNirmanCommon
ServiceCentresprovidinggovernmentservicestoruralcitizens.2

1TRAI,November2009;DoT
2http://presidentofindia.nic.in/sp040609.html

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 Ithasbeenintriguingtoobservetheimpactthatthetelecomsectorandtherural
populationhavehadoneachother.Whiletheruralareasbenefitedtheindustryby
openingupalargemarket,theindustryinturnplayedasignificantroleinthe
socialandeconomicupliftmentfortheruralpublic.Thesectorhascontributedin
generatingemployment,improvinglocalbusinessesandoverallstandardofliving
byeffectivelyintegratingwiththeeconomiclifecycleofthelocaleconomy.

Telecommanufacturingisanotherfacetofthesectorthathasemergedasahot
topicinindustrycircles.Indiaisfastemergingasahubforglobaltelecom
manufacturingandtheproductionandexportsoftelecomequipmentinthe
countryhavebeenonasteadyrise.Leadingglobalplayershavemadesignificant
investmentsinsettingupmanufacturingandR&DfacilitiesinIndia,withmany
morebeingplanned.

Whilevoiceserviceshavehistoricallybeenthekeyforcebehindtelecomgrowth,
industryobservershaveseenasteadyriseintheuptakeofvalueaddedservices
inrecenttimes.TheABCofVAS-namelyAstrology,BollywoodandCricket–still
continuestodrivetheprimeusageofvalueaddedservices.However,applications
likemobilecommerceareslowlyontheuptakeandareexpectedtogrowfurther
inthecomingyears.Theneedofthehouristodevelopmorelocallyrelevant
content–likenewsalertsinlocallanguages,weatherupdatesandothers–which
willdriveuptheconsumptionofVASevenfurtherinthefuture.

Theindustryisnoweagerlyawaitingsomekeyupcomingregulationsincluding
the3GandBWAauctions,scheduledforearlynextyear.Thesearelikelytohavea
significantpositiveimpactonthesectoranditsgrowthinthenextfewyears.
MobileNumberPortabilityisalsolikelytoberolledoutinthenextfewmonths
whichwillmakethemarketmorecompetitiveandoffertremendousbenefitsto
theconsumers.

Intheshortterm,themarketwillbeunderseverecompetitivepressureas
revenuesarestillprimarilydrivenbyvoice.Thelongtermlooksattractivedueto
anticipatedpotentialofVASandDataservicesaskeydifferentiatorsandrevenue
generators.

TheIndiantelecommunicationsindustryiswellsettobuildfurtheronthesuccess
ofthelastfewyears.Thepolicymakersandtheprivateplayershavesuccessfully
cometogetherwithvariousinitiativestoensurethattheindustrycontinuesto
remainashiningstarforIndia,tothebenefitofall.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
Table of contents

1 Macro-Economic View of India 01

2 Global Telecommunications Market 05
3 Indian Telecommunications Market 11
4 Connecting Rural India 19
5 Broadband Connectivity 27
6 Telecom Manufacturing 33
7 Telecom Research & Development 39
8 Value Added Services 41
9 Regulatory and Policy Environment 49
Conclusion 56
About Department of Telecommunications (DoT) 57
About Federation of Indian Chambers of Commerce
and Industry (FICCI) 57
About KPMG in India 58
01. Macro-Economic View of India
Macro-Economic View of India

Whileagriculture,manufacturingandserviceshavebeenthe
Resurgence in the time of global slowdown…
fundamentalpillarsoftheIndianeconomy,theservices
Theyeargoneby,wasonepackedwithsignificant sectorhasbeentheforerunnerofcontinuedrapidgrowth
developmentsontheworldeconomicfront.Despitethe contributingapproximately57percentoftheGDPin2008-
effectsoftheglobaleconomicturmoil,theIndianeconomy 092.
hasmanagedtoperformrelativelybetterthanits
contemporariesrecordingarealGDPgrowthrateof6.7
percentin2008-091.

Evolution of India’s GDP GDP Composition by Sector (2008-09)

Source:RBI,IMF Source:CSO(2009)

1RBI
2CSOEstimates

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 The Indian Telecom Success Story | 02

Thecountryisexpectedtoregisteragrowthrateof6 estimatedtobehigherwhencomparedtootherregions
percentin2009-103.Evenattheserates,India’sgrowthis globally.

Slowdown in Global Growth...India still in Positive Territory

0.7 1
9.1
9.1
8.2
8.2
6.5
6.5
-3.4

0.7 1.2 UK

Euro
Japan
1.2 Zone
1.1
USA
USA -3.3 China
China -
-0.2
--0.7

India
9
-3.3
-
6.7
6 -6.8

2008 2009 2010E

Source:EIUEstimates,EstimatesforIndia:RBI,EconomicSurvey2009

Reforms have enabled sustained growth
Whileliberalizationinindustry,foreigntrade,ForeignDirect
Investments(FDI)hasledtoIndiabecomingwellintegrated
withtheglobaleconomy;structuralstrengthslikeayoung
population,skilledmanpower,largedomesticdemandand
presenceofgloballycompetitivefirmshaveattracted
significantinvestorattentioninrecentyears.

FDI Inflows - Driving Globilization

40
34.4 35.2
35

30 CAGR: 52%

25 22.8
USD Bn

20

15

10 9.0
6.1
4.3
5

0
2003 - 04 2004 - 05 2005 - 06 2006 - 07 2007 - 08* 2008 - 09*

Source:DIPP;*=Provisional;

3RBIEstimates

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 ‘
03 | The Indian Telecom Success Story

Forward-looking policies, skilled workforce and large domestic

demand has helped India emerge out of the global economic
turbulence unscathed

Additionally,positiveeconomicdataandexpectationsofthe equitymarketsthatbeganearlierthisyearhascontinued
globaleconomicdownturnbottomingoutsoonhavealso withIndiaoutperformingotheremerginganddeveloped
revivedtheriskappetite.Consequently,therallyinglobal markets.

Sector-wise FDI Inflows

Source:DIPP,Apr’2008-Mar’09

Bytheyear2025,Indiaisexpectedtoemergeasoneofthe productivitysupportedbytechnologicalup-gradationand
foremostnationsintheworldpoliticallyandeconomically. greaterintegrationwithglobalflowsoftrade,financeand
India’sresilienceisreflectedinitsstrongfundamentals; technology.
namely,risingforexreserves,highsavingsrate,risein

Rising Forex Reserves Savings rates higher and better aligned

Note:*Apr-Sep2009 Source:CSO
Source:RBI,DGFT,EconomicSurvey2008-09

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.

Demographic dividend; encouraging demand
driver
Additionally,India’sdemographiccompositionensuresthatit
continuestoremainanattractivemarketforinvestments.
Thehigheconomicgrowthinthepastfewyearshas
resultedinarisingnumberofIndianswithagreater
propensitytospend.Thisriseinincomelevelsacrossurban,
Median Age Population of Major Countries (2008)
Source:CIAWorldFactbook;USCensusBureau;UrbanPovertyReport,2009;KPMGAnalysis
Further,India’sdemographiccompositionaugursfavorably;
withnearlyone-halfofthe1.1billionpeoplebelowtheage
of25years.Thesizeoftheworkingagepopulationexceeds
thesizeofthedependentpopulationanditisestimatedthat
itwillremainsountiltheyear2025andperhaps,even
beyond4.
4 CIA,www.india.gov.in
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The Indian Telecom Success Story | 04
semi-urbanandruralhouseholdshasledtochanging
consumptionpatterns.
Necessitiessuchasfoodandapparelareexpectedto
declineinrelativeimportancetocategoriessuchas
communications,education&recreationandhealthcare
creatinggreateropportunitiesforpublicprivatepartnerships
todriveinvestmentsininfrastructure.
Theserobustmacroeconomicindicatorsclubbedwith
socio-economicdriversarelikelytohelpthecountrysustain
itsgrowthtrajectory.WhileIndiahasnotbeencompletely
insulatedformtheimpactoftheglobaldownturn;ithas
shownsizeablesignsofrecoverycomparedtoitspeers
withthehelpoffocusedGovernmentintervention.Thekey
driversofeconomicgrowth,namelyconsumptionand
investment,arelikelytoprovidefurtherimpetustoIndia’s
growthstory.
02. Global Telecommunications Market
Global Telecommunications Market
Telecomremainsasasilverlininginthedarkcloudsof
recessionhoveringabovetheglobaleconomy.Theglobal
telecomservicesmarketispoisedtogenerateUSD1.4
trillionin20091,despitetheeconomicslowdown.Emerging
economieswillstillinvestheavilyinnetworkinfrastructure,
whilerecession-hiteconomieswilldelayupgrades.TheAsia-
Pacificregionwillexperiencethehighestgrowthrateinthe
nextfiveyears,atnearly16percent,ledbyChinaand
India2.ThetelecomsectorinLatinAmericaandthe
Caribbeanwillgrowby12percent,fueledbyemerging
economiesandtheexpansionofthemiddleclass.
Triple Play to ride on Broadband growth
Thegrowthofbroadbandaccesshasfueleddemandfor
convergedvoice,video,anddataservices-nowknownas
the"tripleplay".Togarnernewcustomers,holdontocurrent
ones,andensurerevenuegrowth,today'sprovidersmust
continuetomovetowardofferingthetripleplayasavalue-
addedservicebundle.
1CPIFinancials,“GlobaltelecomservicesmarkettogenerateUSD1.4trillion
in2009”,August2009
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FranceisoneofthetopthreeEuropeancountriesinfiber
deployment.Theincreasedinvestmentinbroadband
infrastructurealongwithincreasedcompetitionandreduced
priceisdrivingconvergedservices(DualandTriplePlay)and
boostingIPTVsubscriberbase,makingFrancealeading
IPTVmarketinEurope.CableTVoperatorsinBrazil&
Mexicowiththehelpofdualplayandtripleplaypackages
arelookingforwardtodrivetheirARPUsinthetimeto
come.InKenya,anISPhasintroducedtripleplayservice
underthebrand‘Zuku’,offeringTV,InternetandVOIP
services.IntheMiddleEast,Bahrain’s’Batelcohasrolled
outNGNtodriveconvergedservices;whileQatar’sQtelhas
launchedtripleplayunderthebrand‘MOSAIC’.InPoland,
thefixedbroadband(ADSL,Cable)operatorsare
increasinglylookingtodouble-andtriple-playpackages,
resultinginanumberofIPTVdeployments.InRussiaalso,
tripleplayistogiveanewfilliptoIPTVdeployments.
2InsightResearch,“GlobalTelecomServicesRevenueForecast:Emerging
MarketOpportunities”,2009

Mobile Payment fostering a trend for cashless
transactions
M-PESAisaninnovativenewmobilepaymentsolutionthat
enablescustomerstomakesimplefinancialtransactions
throughthemobilephone.TheM-PESAschemereliesonan
applicationinthemobilephoneSIMcard,whichis
authorizedbyaPINcodeanddoesnotrequireanyspecial
technology.
Currently,theserviceismainlyaimedatmobilecustomers
whodonothaveabankaccount,typicallybecausetheydo
nothaveaccesstoabankortheydonothavesufficient
incometojustifyabankaccount.Themoneyisheldsafely
inabankaccountrunbyM-PESAontheuser’sbehalfand
theuserdoesnothaveanycontactwiththebanknordoes
thebankhavetheuser’sdetails.TheM-PESAsystemallows
customerstodepositandwithdrawcashvialocalagents
andtransfermoneytoothermobilephoneusersviaSMS.In
acountrylikeKenyawhere90percentpeopledonothavea
bankaccount,theM-PESAservicehasseenadramatic
take-upsinceitslaunch.AsofMarch2009,theservicehad
over6.5mregisteredusers(vs.2.1minMarch2008)with
2mdailytransactionsinKenyaalone.M-PESAisdistributed
through8,650retailoutletscountrywide(2,262outletsin
March2008).Thistake-upclearlydemonstratesthedemand
foreasilyaccessible,securecashpaymentservicesin
emergingmarkets.Morerecently,commercialM-PESA
serviceshavebeenintroducedbyRoshan,theleading
mobileoperatorinAfghanistan,andbyVodacominTanzania.
Indianoperatorshavelaunchedsimilarinitiatives.Offerings
fromsomeoperatorsenableamobilephoneusertosendor
receivemoneyinstantlyusingtheirmobilephoneto
authorizethetransfer.AccordingtotheGSMAssociation,
mobilemoneyinemergingmarketscouldbringinUSD7.9bn
ofsalesforoperatorsby2012.Moneytransferservicesfor
handsetownerswithoutabankaccountmaybringin
USD5bnoftransactionfeesandtextmessage-linked
revenueby2012.Indirectrevenue,includingrevenuefrom
greatercustomerloyalty,willprobablyamounttoUSD2.9bn.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 06
Rural Expansion to help offset urban saturation
China,theworld'slargesttelecommarket,attributesits
phenomenalgrowthtoruralareas.Thecountry'slargest
operator,ChinaMobile,creditsruralareaswithcontributing
around50percentofitsmillionsofnewsubscribers.While
goingrural,ChinaMobilemanagedtoavoidanAverage
RevenuePerUser(ARPU)fallbycreatingademandfor
high-marginvalueaddedservicessuchasSMS,music
downloadsandringtones.
However,theroadtoruralexpansionwouldhaveseveral
roadblockslikelandacquisition(Lease/Purchase)forBTS,
availabilityofcheapandfastbackhaulconnectivity,costs
associatedwithsettinguptelecominfrastructure,availability
ofadequatepowersupply,higheroperational&
maintenancecostsandlowerpurchasingpowerofrural
population.TheOperatorsaretakingadequatestepsto
counterthesechallenges:
•Micro Financing: GrameenPhoneinBangladesh
providesmicrofinanceoptionstosetupVillagePhone
Operators(VPO).GrameenBankprovidesaloanpackage
toselectVPOstopurchaseahandsetandoperatetheir
VPbusiness.
•Developing locally relevant content: Qualcomm’s
FisherFriendBREWapplicationhasbeenimplemented
incoastalTamilNadu.Theapplicationworkson3G
CDMAhandsetsandgivesfishermanaccesstotimely
weatheralerts,real-timedataonfishmigration,market
pricesandupdatesonrelevantgovernmentschemes
andpoliciesinthelocallanguage.
•Setting up viable distribution and collection
channels: Mobitel,SriLanka'sNationalMobileservices
provider,expandeditsruralpenetrationwithatie-upwith
theSriLankanPostalDepartment.Asperthedeal,post
officesandpostmencouldsellMobitelprepaidcardsto
ruralcustomers.
07 | The Indian Telecom Success Story

Technology and Content to drive the growth

TheeffectsoftheslowingUSeconomybecamemore
predominantwithalloperatorsreportingadeclineinARPU
inthefinalquarterof2008.Howevertheprevalenceof
moresophisticatedhighendhandsetshashelpeddrive
growth.Anincreasedrelianceonmobilecontentwillbethe
definingthetrendsoftheUSmobilemarketinthenextone
yearalthoughtherangeofservicesonofferwillbeoperator
specific.Whiletheeconomyisalreadynegativelyimpacting
theinfrastructureandhandsetssegments,consumershave
notyetbeguncuttingtheiroverallmobiledataspending.The
confluenceof3G,high-enddevicesandtheevolving
applicationsecosystemwereresponsibleforthestrides
madebymobiledatain2008.

InEurope,Telefonica,whichisO2’sparentcompanyhave
outperformed,attributabletothecontinuedsuccessofhigh-
enddevicessuchastheiPhonewhichitcarriesexclusively.

ThemaingrowthengineinJapan,inboththefixedand
mobilesectors,isdataservices.WhenitcomestoMobile
TV,Japanisthelargestsubscriberbaseglobally.
WAP/Internetbrowsing,ring-tonesandmusiccontributes
uptotwothirdsofJapan'sdatarevenues.
• Encouraging entrepreneurial spirit: Pakistan
SouthAfricaontheotherhandisexpectedtowitness
TelecommunicationsAuthority'sRabtaGharinitiative
strongprivateinvestmentintherun-uptothe2010FIFA
encourageruralentrepreneurstosetuplocal
WorldCupandthiswillremainakeydriverforgrowthin
telecentres.PTA,withsupportfromtelecomoperators,
2009.Withmobilepenetrationcrossing100percent,
providestheselocalentrepreneurswithfreeequipment,
operatorsarelookingatalternaterevenuestreams:Mobile
installationandtraining.
broadbandcombinedwithmediacontent.Thelaunchof
•Exploring alternate fuels: EricssonandOrangeGuinea 3G/HSPAprovidesthemwithanopportunityofservice
Conakryrecentlyannouncedthedeploymentofover100 differentiationbyprovidingmobilebroadband,combined
fullysolar-poweredBTSstoprovideconnectivitytorural withmediacontent.InCzechRepublic,themobileoperators
Africa,whichisexpectedtoreduceenergybillsby50 arelookingatcontentandapplicationthroughHSDPAbased
percent. mobilebroadbandandmobileadvertisementasfuture
growthoption.
•Government support: TheIndiangovernmentprovides
asubsidyunderUSOFforcompaniesdevelopingrural
telecominfrastructure.Thegovernmentandtheindustry
havesetupajointinitiativeknownasProjectMOST
(MobileOperatorsSharedTowers)toidentifyruraland
remoteareasnotbeingcoveredbyUSOF.

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 ‘
The Indian Telecom Success Story | 08

The Asia-pacific region, with India in the lead, will be the key
growth market for global telecom over the next few years

In times of Recession Mobile subscriber base (% share of world)

Mostofthetelecomcompaniesinthedevelopedand
emergingmarketshavelaunchedapoints-basedloyalty
China,
program;whileasmallpercentageoptedfordiscounting 19%
theirservices,withtherestchoosingdifferentpromotional
andmarketinginitiatives.Withallplayersfacingchallenges
intermsofincreasingtheirAverageRevenueperUser
(ARPU)andavoidingcustomerchurn,mostareforcedto
implementprogramsontightmargins.
India, 12%
Others,
62%

Asia: The Epicenter of Telecom Growth

worldwide USA, 7%

Asia isaboomingmarketwithcountrieslikeJapanand
SouthKoreaimplementingadvancedtechnologieswhilethe
Chinesemarketispoisedforgrowthafterrestructuringand
Source:EIU
3Glicenseauctions.IndiaandChinacontribute31percent
ofworld’ssubscriberbase;yetthemobilepenetrationrates
arenotashighcomparedtoUSorotherdeveloped
Japan withover30millionbroadbandlinesinplace,isthe
economies.Needlesstomention,furthergrowthis
thirdlargestcountryintheworldaftertheUSandChinain
expectedtobewitnessedinthisregion.
termsofbroadbandusers.Muchofthesuccessof
broadbandinJapanisowedtothestunninggrowthsurge
thatoccurredbackin2003onthebackofDSLbroadband
technology.TherestructuringoftheChinese telecom
markethaschangedthecompetitivelandscapeofthe
country.Withthelargestmobileandbroadbandsubscriber
base,themarkethasstayedrelativelyinsulatedfromthe
globalmeltdown.Postrestructuringandtheawardingof3G
licensesinDecember2008,themarketispoisedforyet
anotherboost.Therestructuringwillprovidehugemarket
opportunitiestocommunicationsequipmentmanufacturers,
thusacceleratingtheall-roundupgradeoftelecomoperation
supportsystems.

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 09 | The Indian Telecom Success Story

Mobile Subscriber Data (Millions)

Source:PyramidResearch,NationalBureauofStatistics,CEIC

Fixed Line Data (Millions)

Source:PyramidResearch,NationalBureauofStatistics,CEIC

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 The Indian Telecom Success Story | 10

Indian telecomcrossedthetargetof500Million(Wireless operatorsaretryingtoincreasetheirsharebyoffering

&Wire-line)SubscriberinSeptember20094.Buoyedbythe
entryofnewtelecomplayerstheIndiantelecomindustry
clockedthehighestsubscriberadditionof15.87million
subscribersinMarch,20095.IndiaovertookUStobecome
the2ndlargestmobilegeographyafterChina.
FixedMobileSubstitution(FMS),provisionofbundled
servicesandincreasedconcentrationonwirelessbroadband
istheglobaltrendpresently.InAfrica,broadband
penetrationisincreasingduetocheapersubscriptionon
accountofnewsubmarinecablesreachingitsshoreand
rolloutofwirelessbroadbandservices.InEurope,all
bundledservicesoverthewire-linenetwork.TheMiddle
Eastregionshowsabalancedapproachtowardswireless
broadbandservices.ThetelecomindustryinNorthAmerica
hastakenahitasaresultoftheeconomicmeltdownand
reducedconsumerspendingwhileinSouthAmerica,the
operatorsareconstantlylookingtoinnovatebyproviding
video-on-demandandotherbundledservicesinorderto
increasethenumberofsubscribers.Theepicenterof
telecommarketcontinuestobeAsiawhereChinaandIndia
continuetoplayakeyrole.

4TRAI,November2009
5TRAI,April-May2009

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03. Indian Telecommunications Market
Indian Telecommunications Market
Indiahasemergedasoneofthelargestandfastgrowing
economiesoftheworld.Eveninthetimeofdownturn,
Indianeconomyhasshownconsiderableresistanceleading
togrowthacrosstheboardwhenmanyregionsoftheworld
hadshownsignificantdeclineingrowth.Thefar-reaching
measuresintroducedbytheGovernmentofIndiaoverthe
pastdecadetoliberalizetheIndianmarkethavehelpedthe
businessandregulatoryenvironmenttosuccessfullymove
towardsgreatertransparencyandefficiency.Servicessector
hasbeentheprimaryengineforthisgrowth.Telecom
industryisoneofthefastestgrowingsectorsofIndian
economywithsignificantcontributionfromtheprivate
sector.
Thetelecomsectorcanbedividedintobasic(fixed),mobile
andinternetservices.Therearealsosomesmaller
segmentssuchasradiopagingservices,VerySmall
ApertureTerminals(VSATs)andPublicMobileRadioTrunked
Services(PMRTS).Indianmobilemarketiscurrentlyoneof
themostattractivetelecommarketacrosstheworld.
1 TelecomServicesPerformanceIndicatorsApril–June2009”,October2009
2 TRAI,November2009
3 TRAI,“TheIndianTelecomServicesPerformanceIndicatorsApril–June
2009”,October2009,TRAI,November2009
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OverallteledensityinIndiahasrisentothelevelsof
approximately43.5percent1.Withalargepopulationyetto
haveaccesstotelecommunicationmarketthepotentialfor
thesectorremainslargeespeciallyinnon-urbanareas
wherewirelineandinternetservicesareyettomake
significantin-roads.Wirelineservicesinparticularareyetto
reachthevastmajoritywithalowteledensityof3.19
percentand1percent2 inurbanandruralregions
respectively.Eventhemobileservicesspace,whichhas
seenexponentialgrowthinurbanareas,hasnotreached
thevastmajorityinruralareaswithatotalwireless
teledensityofapproximately40.31percent3 indicatinga
largeuntappedpotentialforthesector.
Thenumberofinternet/broadbandsubscribershavealso
grownatafastrate;therewere14.05milliontotalinternet
subscribersasofJune,2009and6.62millionbroadband
subscribers.Thesectorhaspotentialforlargegrowthinthe
future.4
4 TRAIQuarterlyReportsonTelecomServicesPerformanceIndicators
 The Indian Telecom Success Story | 12

Mobile Subscribers (share of the world) Mobile Services

TheIndianmobilitymarketcanbecharacterizedasone
withaverylargesubscriberbase(~427millionasofJune
2009),highgrowth(additionof10Mn+subscribersevery
China,
19% month),lowARPUs(~INR165permonth)andsignificant
churnrates.5

TheGovernmentofIndiaopenedupmobileservicesto
privateparticipationin1994-95byinvitingbidsforproviding
India, 12% servicesinthefourmetropolitancitiesand18non-metro
Others,
62% circles.Serviceswereintroducedin1995withthehigh
tariffsresultinginpoordemand.TheNationalTelecomPolicy
1999,movedtheindustrytoarevenuesharemodelfrom
USA, 7%
thefixedlicensefeeandthelowertariffsresultedinthe
additionof~12millionsubscribersinthe1999-03period
ascomparedtolessthanamillionsubscribersaddedinthe
1995-99period.Theperiodwascharacterizedbysettingup
ofTelecomRegulatoryAuthorityofIndia(TRAI)in1997.
Source:EIUEstimates

Growth of Wireless Subscriber Base (year end numbers)

450 427

400
347
350
Subscriber base in mn

300

250 229

200
142
150

100 75
28 47
50 6 11

0
2001 2002 2003 2004 2005 2006 2007 2008 H1'09

Source:TRAIAnnualReportandQuarterlyReportsonTelecomServicesPerformanceIndicators

5TRAI,November2009

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
13 | The Indian Telecom Success Story

‘TelecomDisputeSettlementandAppellateTribunal(TDSAT)’
wassetupin2000inordertoadjudicatedisputesarising
betweenlicensorandlicensee;andtohearappealsagainst
anydecisionororderofTRAI.TheCallingPartyPaysregime
wasintroducedin2003-04whichmadeincomingcallsfree.
TelecomcirclesinIndiahavebeenclassifiedinto4
categoriesviz.Metros,CategoryA,BandC.With
penetrationratesinmetrosapproaching100percentthe
markethereisnearlysaturated.However,thereisstill
immensepotentialinothercirclecategoriesparticularlyB
andC.

Subscriber Base and Teledensity across Telecom Circles

J&K
J&K
4.1
4.1mn
mn
36%
36%
HP
HP
3.6 Delhi
Punjab 3.6 mn
mn
15.6 mn 54% 23 mn
55% 133%
Haryana
11 mn UP
UP(W)
(W) North East
43%
43% 21.5
21.5 mn
mn 3.8 mn
UP (E+W) 30%
Rajasthan UP25(E+W)
% Assam
26 mn 25 % UP UP(E)
(E) Bihar
Bihar 6.4 mn
38% 30.2
30.2mn
mn
38% 2424mn
mn 21%
19%
19%
Gujarat
Gujarat MPMP
25.8 West Bengal
25.8mn
mn 22.722.7
mnmn 17.4 mn
44% 17.4 mn WB + kolkata
44% 24% 24% 33%
Orissa
Orissa
Maharashtra 10mn
10 mn Kolkata
33.5 mn 25%
25% 12.4 mn
+ Mumbai
Maharashtra + Mumbai
Mumbai 48%
48%
20.4 mn
110% Andhra Pradesh
33 mn
Metros
Karnataka 40%
25.5 mn Circle A
44% Circle B
Circle C
Tamil Nadu
Kerela 40 mn
18 mn 59%
53%

Source:TRAI,“TheIndianTelecomServicesPerformanceIndicatorsApril–June2009”,October2009,KPMGAnalysis

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 The Indian Telecom Success Story | 14

Thesubscriberbaseof494.06Million(asofAugust,2009) marketsnearingsaturation,operatorshavebeenactively
iscomprisedof343.24Millionurbansubscribers seekinggrowthinruralIndia.
(teledensityof98.70percent)and150.82Millionrural
subscribers(teledensityof~18.37percent)6.Themarketis
highlycompetitivewitheachtelecomcirclehaving7-8 Wireline Services
operators.Inaddition,thereareseveralnewlicensees
whichareintheprocessofrollingoutservices.Competitive Thetotalnumber7 offixedservicesconnectionsinIndia

intensityinthemarketcontributedtoreductionintariffsand increasedfrom5.81Millionin1991-92to40.8Millionin

launchofinnovativeschemeslikelifetimeprepaidandlow 2006-07.During1999-2000to2001-02,approximately5-6

costhandsetbundlingwhichreducedtheentrycostfora Millioncustomerswereaddedtofixed-lineserviceseach

newsubscriber.WithreducingARPUs,changingeconomic year.However,withthedropinmobiletariffsandincrease

profileofsubscribersandtheneedtomeettheaggressive incoverageofmobileservices,netadditionsinfixed-line

roll-outtargets,theoperatorshavebeenundertremendous subscribersstartedslowingdownfrom2.5Millionin2002-

pressuretobringinoperationalefficiencies.Operatorshave 03goingdownto0.5Millionin2004-05.Duetomobile

beenrealizingefficienciesthroughextensiveoutsourcing substitutionandlowertariffsfromtheyearsfrom2006-07

acrossthetelecomvaluechain.Thishasresultedinlarge to2008-09haveseenadecreasein3.5Millionfixed

scaleopportunityforplayersbelongingtoallthecategories connections.However,thepotentialforwirelineservices

withinthetelecomecosystem.Someoftheprominent remainslargeduetoverylowpenetrationinthewireline

categoriesincludenetworkequipmentvendors,tower industry.Newplayersinthetelecomspacehadhitherto

infrastructurecompanies,telecomimplementationvendors, concentratedonwirelessspaceleadingtolowcompetition

ITvendors.
Ithasbeenobservedthatthepastsubscribergrowthhas
beenskewedinfavorofurban.Thelargeruralpopulation
baseandlowteledensityindicatesthatthereisstilllarge
untappedopportunityintheIndianmarket.Withurban
andpromotionofwirelineservices.Greaterpan-India
expansionbyprivateplayerscansignificantlyleadtogrowth
ofwirelineservices.Inaddition,withcombinedofferingof
internet/broadbandandalliedservicesshowingpromising
potential,thesectorcanbouncebackinthefuture.

Wireline Subscriber Base

45 41 42
41 41 41
38 39 38
40
35 33
Subscribers in Mn

30
25
20
15
10
5
0
Mar'01 Mar'02 Mar'03 Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 Mar'09

Source:TRAIAnnualReportandQuarterlyReportsonTelecomServicesPerformanceIndicators,CrisilResearch

6 DepartmentofTelecommunications,TRAI,“TheIndianTelecomServicesPerformanceIndicatorsApril–June2009”,October2009
7 CrisilResearch,“StateoftheIndustry”,October2007

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
15 | The Indian Telecom Success Story

Internet Services
InternetsubscriberbaseinIndia(dialupandbroadband),
thoughcurrentlyatalowlevelisexperiencingsignificant
growthforthelast2-3years.Thisgrowthisbeingdrivenby
growingpopularityofbroadband,increasingusercomfort
withusageofinternetapplications,continuousfallinPC
prices,cheaperaccessplans.
Thisgrowthhasbeenaccompaniedbyanassociated
increaseinthenumberofinternetuserswhichcanbe
attributedtogrowthofpublicinternetcafesandmultiple
membersofahouseholdaccessinginternet.
ThegovernmentofIndiahassettargetsof20Millionfor
broadbandfor2010,fromthecurrentfiguresof7.22Million
(September,2009),whichrequiresrelookattechnologies
usedinforbroadbandaccess.Whilethereanumberof
technologiesbeingusedbyserviceproviderstoprovide
broadbandservices,DSLcontinuestobethemost
preferredtechnologyandconstitutesnearly87percentof
totalbroadbandsubscribers8.Cablemodemtechnology
followswith7.4percentconnections9.Focusonincreasing
wirelineaccessaswellgreaterfocusontechnologieswhich
canberolledoutfaster(e.g3GandBWA)orhavesignificant
penetration(cableTVandDTH)cansignificantlyenhancethe
adoptionofbroadbandinIndia.

Internet Subscriber Base

Source:TRAIAnnualReportandQuarterlyReportsonTelecomServicesPerformanceIndicators

8 TRAIQuarterlyReportsonTelecomServicesPerformanceIndicators
9 TRAIQuarterlyReportsonTelecomServicesPerformanceIndicators

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 The Indian Telecom Success Story | 16

byincreasedoperatorfocusonVASduetocontinuousfallin
Value Added Services
voicetariffs,featurerichhandsets,vernacularcontentand
Currently,VASmarketisworthINR91Billionwhich alsowithincreaseduseradoptionofVASapplications.
translatesintoapproximately8percentofwirelessindustry
revenues.TheshareofVASinwirelessrevenueislikelyto
increaseto11percentby2011.Thisgrowthwouldbedriven

Growth of VAS Revenues

Source:Industryconsensusestimates,KPMGanalysis

Priorto2008,majorityofVASrevenueswereattributableto
Market Split for VAS
SMSandthattooPerson-to-Person.Itisinterestingtonote
thatoverthelast1-2years,non-SMSVAShasbeengaining
importanceandislikelytobecomeadominantcontributor Others
8%
toVASrevenueoverthenextfewyears.In2009,non-P2P
SMSVASaccountedforbetween5and6percentof
Voice Portals
operatorrevenues.Industryprotagonistsenvisagethis
20%
sharetoincreasetoaround8percentoverthenexttwo CRBT
years.Theaddressablemarketfornon-P2PSMSVAShas 45%

historicallybeendominatedbyringtonesandcallerringback
tones(CRBT)whichaccountforaround45percentof
revenues.
P2A SMS & Alerts
18%
GPRS/WAP
Products
9%

Source:IndustryEstimates,InformationInterviews

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
17 | The Indian Telecom Success Story

enabledhandsets.Atthesametimeoperatorswouldbe
New Frontiers for Growth
activelylookingatproviding3Gservicestootherincome
groupsasthiswillhelpspreadinginvestmentintechnology/
licenseoverawidersubscriberbase.
3G Technology

Whilethelast5yearshavebeentransformationalforIndian
telecomindustry,thenextfewyearslookevenmore Telecom Infrastructure Services
exciting.Oneofthekeyfrontierswhichwouldmakejourney
Infrastructuresharinghasbeenarelativelynewsegment,
incomingyearsexcitingisthelaunchof3Gtechnology.
whichwitnessedsignificantinvestmentandinterestfrom
Inthenearfuture,Indiangovernmentwillbeauctioning theinvestorcommunityinthepasttwoyears.
spectrumforthirdgenerationwirelessservicesforwhicha
Thekeytriggerforinfrastructuresharinghasbeenthe
numberofincumbentsandnewentrantsareexpectedtobe
MobileOperatorSharedTower(MoST)initiative
intherace.Eachtelecomcirclehasadesignatednumberof
implementedbytheDepartmentofTelecom,underwhich
spectrumblocksoutofwhich1blockisreservedforthe
pilotsharedtowerswererolledoutatdifferentlocationsin
staterunoperators.
NewDelhiin2006.Throughthisinitiative,thebusinesscase
Withthelaunchof3Gservicestheoperatorswouldbeable fortowersharingwaslaidoutclearly,andthisresultedin
toproviderichdataservicestoHNI’s,workingprofessionals, significantinterestinadoptionofthetowercompany
enterprisecustomersandyouth.Theywouldbespecifically businessmodel.
targetingcurrentusersof2.5Gand/orownersof3G

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.

Thebusinesscaseforthetowercompanywasquickly
establishedaroundthefollowingbenefits,whichmade
strongeconomicsenseforOperatorCompanies(OpCos)to
hiveofftowerassetsintotowercompanies.
•Buildandleasepassiveinfrastructure
•Lowercapitalandoperatingexpensesforcarriers
throughassetsharing
•Accesstolow-profitabilityruralareaswithoutCapex
•Monetisingtowerassetsasaneasierrouteofraising
capitaltofundcoreoperations.
Thetowerandtelecominfrastructureecosystemisfurther
‘
evolvingwiththeDOT’sassenttorecommendationson
Strong regulatory support, domestic demand and enterprise of
private sector telecom providers have been the key drivers for the
growth of the Indian telecom industry
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 18
activeinfrastructuresharinginMarch2008.Underthese
recommendations,sharingofinfrastructureamongstservice
providersbasedonthemutualagreementshasbeen
initiated.Infrastructuresharingisnowalsoallowedfor
antenna,feedercable,NodeB,RadioAccessNetwork
(RAN)andtransmissionsystems.Thishasalreadyledto
towercompaniesofferingend-to-endtowerinfrastructureto
thenewtelecomoperatorsinclusiveofbackhaulservices,
whichhithertohadbeenasignificantchallengedueto
inadequatefibreandmicrowavebackhaulcapacityexisting
attowerlocations.Weexpectsignificantfurtheractionand
innovationinthisspacewiththetowercompanieslooking
toofferenhancedportfolioofservicestotelecomoperators.
04. Connecting Rural India
Connecting Rural India

Whilemarketsallacrosstheglobewitnessedasignificant
reductioninconsumerspending,theruralIndianconsumer
managedtoremainanattractiveproposition,especiallyin
thedemandforconsumergoodsandtelecomservices.
Leadingcompaniesacrossindustrysectors,appreciatingthe
enormouspotentialofthismarket,havedevelopeda
focusedstrategytotargetruralIndia.
RuralIndiaisbelievedtocontributealmost45percentofthe
country’sGDP1.Thesegmentreportedlyalsoaccountsfora
significantchunkofdemandformanyconsumergoodsand
servicescompanies.Whilethepercapitaruralconsumption
spendremainsatnearlyhalfoftheurbancounterpart2,itis
believedtobegrowingatafasterrate.Ruralareashouse
nearly71percent3 ofthecountry’spopulationandthus
representanenormousconsumerbase.Perhapsevenmore
importantly,ruralIndiacontributestoroughly56percentof
incomeand64percentofthecountry’sexpenditure4.
Clearly,theruralmarketcannotbeignoredanylongerand
nowfiguresasanonnegotiablesuccessfactorinmany
corporatestrategies.

1 CreditSuisse,‘IndiaMarketStrategy’,June17,2009
2 CreditSuisse,‘IndiaTelecomsSector’,February23,2009
3 CIA–TheWorldFactbook,2008
4 TRAI,Draftrecommendationson‘AnApproachtoRuralTelephony–
SuggestedMeasuresforanAcceleratedGrowth’,March04,2009
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 The Indian Telecom Success Story | 20

Rural vs. Urban Population Rural vs. Urban Consumption

100 percent = 1.17 billion

Urban Urban
29% 43%
Rural
Rural 57%
71%

Source:CIAWorldFactbook,KPMGAnalysis Source:CIAWorldFactbook,KPMGAnalysis

Inthelastthreeyears,duetoanumberofregulatoryand Theappealoftheruralsegmenthasincreasedwithmore
non-regulatoryfactors,ruralIndiahasexperiencedhigh companieslookingatruralexpansionasaviablemeansto
incomegrowthofapproximately12percentperannum. overcometheimpactoftheslowdown.

Key Government Initiatives for Rural Rural Employment

Development Other Workers

23%

Asignificantportionoftheruralpopulationisengagedin
agricultureandagriculture-relatedemploymentactivities.The
Cultivators
impactofanyapplicableregulatoryinitiativesoranynatural 40%
Household
phenomenonlikethedelayedmonsoonisthusfeltbyalarge Industry
4%
sectionofthepopulation.

TheGovernmenthastakenastronginterestinthegrowth
anddevelopmentofruralareas.The2009-10budget,
Agricultural
announcedinthebackdropoftheeconomicslowdown,
Labourers
includedspecificmeasuresforthesocialandeconomic 33%

upliftmentofthissegment,clearlyhighlightingtheintentof
Source:Census,CreditSuisse
thegovernmenttoworkforthebettermentofthecommon
man.

5 CreditSuisse,‘IndiaMarketStrategy’,June17,2009

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
21 | The Indian Telecom Success Story

Thegovernment’sNationalRuralEmploymentGuarantee
Scheme(NREGS),forinstance,providesajobguaranteefor
adultworkers.Thisinitiativehashelpedover3crore
householdimprovetheirstandardoflivingandhavemore
moneyattheirdisposal6.
ThegovernmenthadalsoinitiatedtheBharatNirman
Programin2005asatime-boundprogramtoupgraderural
infrastructure.Thisincluded,amongotherthings,provisions
toimproveruralwatersupply,electrificationandtelecom
connectivity.Forthetelecomsector,thisprogramhas
providedanimpetustosetupmoretelecomtowersand
improveruralpenetration.
Initiatedin2003,theUniversalServiceObligationFund
(USOF)wasestablishedtofulfilltheUniversalService
Obligationbypromotingthesettingupofinfrastructureto
promoteruralconnectivity.Thefund,managedbytheUSOF
Administrator,providessubsidiestoprivateplayers
establishingruraltelecominfrastructure7.

Telecommunications and Rural India Key Statistics

ThetremendousgrowthwitnessedbytheIndiantelecom TotalTelecomSubscribers 494.07million

sectorhasbeendriveninalargepartbytheimmense UrbanSubscribers 343.24million
demandoriginatingfromurbanareas.Urbansectorsalone
RuralSubscribers 150.83million
havecontributedtoover17millionsubscribersbeingadded
everyquarter8.Despitehousingonly30percentofthe OverallTeledensity 42.27percent
country’spopulation,urbanareasaccountfornearly69 UrbanTeledensity 98.70percent
percentoftelecomsubscribers9.Withalargenumberof
RuralTeledensity 18.37percent
playersineverycircleandtheteledensityapproaching100
percent,theurbanmarketisclosetosaturation. RuralWirelineSubscribers 10.20million

RuralWirelessSubscribers 140.63million

Note:AsofAugust,2009
Source:DepartmentofTelecommunications

6 EnamSecurities,‘BudgetStrategy2009-10’,July06,2009;PressSearch; 8 TRAI;MinistryofUrbanDevelopment
NREGAwebsite 9DepartmentofTelecommunications
7 TRAI,“MeasurestoimprovetelecompenetrationinruralIndia-Thenext100
millionsubscribers”,December16,2008

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 The Indian Telecom Success Story | 22

Thetelecomsectorhasalsoobservedawideningrural-urban allstakeholdersabouttheimmensegrowthpotentialthat
divide.Urbantelecomadoptionhasfaroutpaceditsrural ruralmarketscanoffer.
counterpart.Thishasleadtoanincreasingawarenessamong

Rural VS. Urban Teledensity

88.7%

63.7%

47.2%
38.0% 37.0%

26.2% 25.6%
21.3%
18.2%
12.7% 14.8%
7.6% 9.1% 9.3%
5.8%
1.7% 1.7% 1.9%

Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 Mar'09

Rural Urban Overall

Source:TRAIPerformanceIndicators,July13,2009;TRAI,DraftRecommendationson'AnApproachtoRuralTelephony-SuggestedMeasuresforan
AcceleratedGrowth',March04,2009

Telecomadoption,historically,hadimpliedtheadoptionof fewyears.Anincreasingnumberofprivateoperatorsare
wirelineservices.Thistrend,however,hasmovedtowards alsomakingaconcentratedefforttodriveupwireless
anever-growingadoptionofwirelessservicesoverthelast adoption.

Rural Wireless vs. Wireline

11% 10% 9%
18% 16% 14%
25% 21%
27%

73% 75% 79% 82% 84% 86% 89% 90% 91%

Mar'07 Jun'07 Sep'07 Dec'07 Mar'08 Jun'08 Sep'08 Dec'08 Mar'09

Wireless Wireline

Source:TRAIPerformanceIndicatorReports(2007-2009)

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
23 | The Indian Telecom Success Story
Rural Telecommunications and the Inclusive
Growth Agenda
Urbandevelopmentalonecannothelpacountryprogressat
aquickpace.Theruralagendathusbecomesincreasingly
importanttoachieveawell-rounded,sustainablegrowth.The
Indiangovernmenthasbeenfullyappreciativeofthisand
hasestablishedastrongagendaforinclusivity.
Withaviewtobridgingtheurban-ruraldivideandimproving
theeconomicstrengthofruralIndia,thegovernmenthas
broughtinclusivegrowthforallsectionsofsocietyontothe
mainplatform.Telecommunicationsisacriticallynchpinin
thisendeavorandislikelytobeasuccessfulpartofthis
agenda.Thegovernmentisstronglypromotingthiseffort
throughvariouslarge-sizedbudgetaryallocationsandthe
telecommunicationsindustryalsohasaclearagendaofrural
expansion.
Mobile Banking and Mobile Commerce
Indiahasoneofthemostexpansivebankingsystemsinthe
world.Acombinationofscheduledcommercialbanks,
regionalruralbanksandspecializedfinancialinstitutions
coveralargesectionofsocietyinIndia.Despitethese
focusedefforts,itisestimatedthatcloseto65percentof
thecountry’spopulationstillfallsinthe“unbanked”
categoryduetovariousreasons,includinggeographical
isolationandlackofbasicinfrastructure10.
Publicsectorbanks,privatebanksandotherfinancial
institutionshaveconstantlypushedthelimitsoftechnology
toreachouttoeverypartofsocietyaswellasmakingtheir
businesssystemsandprocessesmoreefficientfromacost
andtransactionprocessingperspective.However,despite
nearly76,518branches11 ofscheduledcommercialbanks,
thereisstillalongwaytogo.Corebankingsystemshave
helpedbankstocomputerizetheirrecordsaswellasprovide
seamlessservicessuchasinternetbanking.Mobilebanking
representsthenextleveloftechnologicalevolutioninthe
bankingindustry.Thisevolutionmakesbanking‘anyplace
10 Mediareports,KPMGanalysis
11 ReportonTrendandProgressofBankinginIndia,2007-08
12 www.safaricom.co.ke
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
anytime’serviceandrelievestheexistingpressuresonthe
branchexpansion.
Inrecognitionofitsmanybenefits,theReserveBankof
Indiaissuedanoperatingguidelineonmobilebanking
transactionsinOctober2008.Thisguidelineprimarily
addressessecurityovermobilebankingtransfers;however,
RBIbelievesthatthiscouldbeafeasibleandalternate
channelfordeliveryofbankingservices.Thisservedasan
indicatorthatmobilebankinghasanimportantparttoplayin
expandingbankingservicestoall.
Thesuccessofruralmobilebankinginitiativesinother
countriesbodeswellforIndia’saspirationstomakeita
successinthecountry’sruralareas.M-PesaandG-Cashare
twouniversallyknownmobilebankinginitiativesundertaken
inKenyaandPhilippinesrespectively.Boththesenations
haveinfrastructure,bankingandtechnologyconstraintsdue
towhichlargesectionsofthecountrywere‘unbanked’and
basicbutsafemeanstotransfermoneybetweenindividuals
wasabsent.Usingsimplemobilephonetechnologyand
SMS,individualscouldtransfermoneyinstantaneouslyand
atfractionofstandardmoneytransfercosts.Money
transferscanbemadeacrossthecountryinstantaneouslyat
lessthan1percentofthetransactionvalue12.In2008,1.6
millionKenyanshadtransactedoverUSD145millionusing
theM-Pesasystemusing1,500intermediarieswhoare
typicallycornershops13.Suchabankingsystemislikelyto
workinIndiaaswellgiventhecurrenttelecommunication
networkandavailabilityofneighborhoodshopkeeperor
‘localagents’.
Itisimperativethatmobilebankingstandardsarecarrier
agnosticandinteroperabilityismaintained,toensurethe
lowestpossiblecostoftransactions.Thecostoftransactions
canhavealargeimpactoftheeffectivenessofvarious
developmentprojects.Mediareportshavesuggestedthata
mobilepaymentmechanismforNREGAisduetostartin
variousstates14.Thiscouldbeaneffectiveprovingground
formobilebankingandaidsocialinfrastructuredevelopment.
13 ReportoftheThirdAnnualJointRoundtableonCommunicationsPolicy
2008–AspenInstituteIndia
14 http://www.financialexpress.com/news/delhi-firm-in-talks-with-govt-to-
digitise-nrega-payments/514077/
 The Indian Telecom Success Story | 24

Mobile Governance governmentorinstitutionaldevelopmentwork,fromremote

Beingtheworld’slargestdemocracymeansthatthepeople,
theexecutivebranchandthelegislativebranchofthe
governmentneedtoworkcloselytoensurethatthepeople’s
mandateiseffectivelycarriedoutconsistentlyandwithinthe
frameworkofourconstitution.Thisleadstoastrong
requirementforaneffectiveandsafemeansofexchanging
information,especiallyoverthelargegeographicspreadof
thecountry.Mobilegovernancecanplayacriticalpartin
maintainingconstantdialoguebetweenthepeopleandthe
government.
Today,variousgovernmentagenciessuchasthepassport
issuingauthorityenableapplicantstochecktheprogressof
theirapplicationusingasimpleSMScode.Thishas
significantlyincreasedtheleveloftransparencyinthetime
takenforsuchprocesses,whichwasconsideredtobe
tediouspreviously.Suchmechanismscombinedwiththe
greateruseoftheinternetwillenablecompanies,
organizationsandthecommoncitizentoperformother
routinetaskssuchasfilingvariousdirectandindirecttax
returnswithgreaterefficiencyandtransparency.
Governmentinstitutionsareconstantlytryingtoincrease
theircoverageandreachoftheirmandatedservices,and
withtheuseoftelecommunicationsthesecansolvetheir
deficienciesaround‘lastmile’connectivitywithcitizens.
Variousstategovernmentshaveinitiatedpilote-governance
projects.SomeoftheseincludetheBhoomiprojectandthe
eSevaproject.IntheBhoomiproject,20millionlandrecords
of6.7millionlandownersweremadeintoelectronic
information15.
locationswithoutthehurdlesofbureaucraticprocesses.This
Actandtheabilitytopursueiteffectivelywillgivea
significantboosttoourruraldevelopmentefforts.
Telecommunications for Rural Employment
Thetelecommunicationsindustry,duetoverynature,
requiresparticipationfromalargenumberofpeopleto
ensuresmoothoperation.Fromtheactualsettingupof
physicalinfrastructure,totheservicebeingprovidedtothe
endconsumer,thetelecomsectorinitsentiretyisabig
employerofpeopleresources:
• InfrastructureSetup:Thetaskofidentifyingappropriate
sites,obtainingrequisitepermissions,layingthe
foundation,settinguptelecomtowers,andothersuch
activitieshavelargemanpowerrequirements
• SalesandDistribution:Thisincludesactivitiesforthesale
oftelecomhandsetsaswellasconnections.Thiswould
alsoincludebilldistributionandrentcollection
• OtherAssociatedServices:Thisincludessupport
activitiesrangingfromtransportationoftelecom
equipment,securityforphysicalinfrastructure,
maintenanceservicesandothers.Telecomcallcentres
alsogenerateadditionalemploymentopportunities
Forthedualpurposeofincreasingruralpenetrationaswell
astoachievecosteffectiveness,manycompaniesare
lookingtoexpandtheirruralsetups.

Anothersignificantareaofgovernancethatcangohandin
handwithtelecommunicationsistheRighttoInformation
Act(RTI)of2005.Thisactprovidestherighttocitizensto
querycentralandstategovernments.Further,theact
requiresthegovernmenttocomputerizesignificantamount
ofinformationmakingitaccessibletothecommonman.
Abilitytoaccessthisinformationthroughtheinternetgives
Indiatheabilitytotrackandreviewvariousaspectsof

15 http://www.bhoomi.kar.nic.in/Bhoomi/Home.htm

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
25 | The Indian Telecom Success Story

Thispresentsagoodprospectfortheruralpopulationin
Key Challenges in Going Rural16
termsoftheemploymentopportunitiesgenerated.Another
advantageisthattheseopportunitiescanbenefitthe Despitetheinherentattractivenessoftheruralmarket,many
educatedaswellastheuneducatedpeopleduetotherange operatorshavefacedsignificantchallengesinpenetrating
ofskillrequirements.Telecomcompaniesalsoofferdifferent themarket.
internaltrainingprogramstoensurethataruralemployee’s
Acquisition of Customers
skillsareatparwithhisurbancounterpart.
Duetothemanydifferencesexistingbetweentheurbanand
Indiahasalsoseentelecommanufacturingcomingupina
ruralmarkets,itisimpossibletoapplyurbanlearningsand
bigway.Manyinternationalplayersaresettinguptheir
businessmodelsinaruralsetup.Ruralareascomewitha
manufacturingaswellasR&Dfacilitiesinthecountry.
completelydifferentsetofconstraintsandissueswhichthe
Significantinvestmentshavebeenearmarkedforthese
operatorsneedtoaddressinordertoattractthisfreshpool
initiativesandcompaniesarelookingtohirelocaltalentto
ofcustomers.Operatorsfaceanumberofchallengeswhen
bringtheseplanstoasuccessfulconclusion.
itcomestotheacquisitionofruralcustomers.
Anotherinitiativethathasbeenimmenselysuccessfulin
Affordabilityoftelecomservicescontinuestobeakey
generatingemployment,speciallyforruralwomen,isthatof
concerninruralmarkets.Althoughthecostofowningand
theVillagePublicTelephones(VPT).Inmanyvillages,rural
usingtelecomequipmentandserviceshascomedown
womenhavetakenontheentrepreneurialresponsibilityand
considerablyinthelastfewyears,thetypicalruralconsumer
operatelocalVPTs.Notonlydoesthisbenefitthelocality,it
findsithardtoputasidemoneyforwhatisstillbelievedto
alsobringsinadditionalincomefortheVPToperator’s
beadiscretionaryspend.Microfinancingcouldprovidea
household.
possiblesolutionforthisproblem.Tie-upswithstate-owned
Telecom in Education bankscouldenabletheruralconsumerstopurchasetelecom
equipmentandservicesataffordablerates.
UrbanIndiahasalreadywitnessedthebenefitsoftelecom
connectivityinpromotingeducation.Largeuniversitiesoffer Operatorshavealsofoundthatamongtheruralcustomers
distancelearningcoursestostudents,especiallyforhigher whoareabletoaffordtelecomservices,theAverage
educationcourseslikeMBAs. RevenuePerUser(ARPU)remainsquitelow,especially
whencomparedtotheurbancounterparts.Thus,thelow-
Theaspirationwouldbetoreplicatethesuccessoflarge
subscriber,low-volumemarketdoesnotprovideenough
universitiesinurbanareas,totheremoteareasinruralIndia.
incentivesfortheplayerstoventureintotheregionswiththe
Thefirstprioritywouldremaintheprovisionofprimary
revenuesnotjustifyingthecosts.TheruralARPUarenot
educationtoallchildreninthecountry,irrespectiveof
expectedtobedrivenupsolelythroughvoiceservices.Itis
geographicalremoteness.
believedthattheavailabilityofdataserviceswillhavea
TheIndiraGandhiNationalOpenUniversity(IGNOU)has positiveimpactontheruralARPUs.
forayedintothisbyworkingtowardsdevelopingrelevant
distancelearningprogramsforstudentsandproviding
assistanceinfinancialsupportandgrants.
The largely untapped rural market will
drive the next phase of telecom growth in
the country, supported by an enabling
environment and focused initiatives by
16 “3GandBWA–ThenextFrontier”,FICCI,January2009
telecom players

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.

Currently,thelackoflocallyrelevantcontentisanother
challengethatrestrictstelecompenetration.Toincrease
adoption,itisessentialtodevelopserviceslikenewsinlocal
languages,weatheralertsforfishermen,comparativemandi
ratesforfarmers,andsuchothers.
Anotherfactorthatimpactstheadoptionoftelecomservices
(especiallybroadband),istheprevalentliteracylevels.To
derivemaximumbenefitsfromtheseservices,itisessential
fortheconsumerstohavebasicreadingandwritingskillsin
place.
GrameenPhone17
GrameenPhoneinBangladeshisasuccessfulexampleof
ruralpenetration.Theirapproachincludes:
• ProvidingmicrofinanceoptionstosetupVillagePhone
Operators(VPO).GrameenBankprovidesaloan
packagetoselectVPOstopurchaseahandsetand
operatetheirVPbusiness
• Solicitingheavyinvolvementfromlocals(especially
women)insettingupVillagePhoneoperationsby
pitchingitasanadditionalincomesource
• Subsidizingcallchargestoallowlocaloperatorsto
earnahealthyprofitmargin
• Providingrecommendedratecardstoensurethatthe
localoperatorstayscompetitive
• Trainingsonusage,callrates,collectionsandother
tariffschemes
Infrastructure-Related Challenges
Inadditiontoacquisitionofcustomers,telecomplayersalso
facesomeinfrastructure-relatedroadblockswhilesettingup
theirruralinfrastructure.Theseleadtoasteepescalationin
coststherebyreducingthefinancialattractivenessofthe
ruralmarket.
Thetelecomsetuprequireslargeamountsoflandforsetting
upinfrastructureelementsliketheBaseTransceiverStations
(BTS).Inmanycases,thelandisownedbyGovernment
bodiesorGramPanchayats,andtheprocessofleasingor
17 "WhatWorks:GrameenTelecom'sVillagePhones",June2001;KPMG
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 26
purchasingthelandisarduousandexpensive.Similar
problemsarisedueto‘RightofWay’issues.Layingofcable
orfibreinruralareasoftengoesacrossmultiplejurisdictions.
Thisinvolvesobtainingtherequisiteapprovalsand
permissionsfrommultipleauthoritieswhichcouldbecome
laborious.
Oncesetup,thetelecominfrastructureinvolvesimmense
operatingandmaintenanceexpenditures,considerably
higherascomparedtourbanareas.Anumberoffactors
contributetothisincludingthelimitedavailabilityofskilled
workforceaswellaspoorroadconnectivity,amongothers.
Theissueofirregularpowersupplyalsoremainsakey
concern.Currently,anumberofvillagesinIndiaeitherdonot
haveanelectricityconnection,orfacelimitedpower
availability.Abatterybackupisnotasustainablesolution
sincethebatteryneedstobechargedregularly.Asaresult,
otherbackupsintheformofdiesel-poweredgenerators
needtobemaintainedtopowertheBaseTransceiver
Stations.Itisestimatedthatover35percentofaruralcell
site’snetworkoperatingexpensesareduetothecosts
associatedwithelectricityanddiesel.Theprovisionsunder
theBharatNirmanProgramareexpectedtoaddressthis
concernbyprovidingaregularsupplyofelectricityacross
thecountry.Onealternativewaytoaddresstheconcernof
powersupplycouldbetoexploretheviabilityofalternate
sourcesoffuel,includingsolarenergy,windpowerandbio-
fuels.Theseprovideacleanandeffectivewayofharnessing
naturalenergy,whilekeepingtheequipmentmaintenance
costatsignificantlylowerlevels.
Theconcernofhighcostsassociatedwithsettingupofrural
infrastructurecanbewelladdressedthroughinfrastructure
sharingbetweenthetelecomplayers.Thismodelhasbeen
fairlysuccessfulinurbanareas,butisyettopickuptraction
inruralareas.
Thelackofefficientandlow-costbackhaulconnectivity
continuestohavealimitingeffectontelecompenetration.
Theoptionofdeploymentofopticalfibreisbeingexplored
andislikelytobeabletoresolvethisissue.
05. Broadband Connectivity
Broadband Connectivity
Broadbandisdefinedasan“alwayson”dataconnection
thatisabletosupportinteractiveservices,includinginternet
accessandhasthecapabilityofminimumdownloadspeed
of256kilobitspersecond(kbps)toanindividualsubscriber.
Variousstudieshaveindicatedthatbroadbandconnectivity
hassignificanteconomicimpact.Thisisprimarilydueto
improvedgrowthinliteracyandvocationalskillsduetoe-
initiatives,increasedemploymentofruralyouthdueto
accessibilityandteleworking,higherlaborproductivity,real-
timehealthcare,speedygovernmentclearancesandsuch.
Realizingthesebenefits,DepartmentofTelecomissued
BroadbandPolicy2004,on29thApril2004,inabidto
encouragehighspeedinternetgrowthinthecountryand
addressthedemandofapplicationsenablingeconomic
growth.Thepolicyalsosetanambitiousgrowthpathfor
broadbandgrowthinIndiabyfixingstifftargetstobe
achievedtill2010.

Targets for broadband subscribers as set by the Broadband Policy, 2004

Source:TRAI,BroadbandSubscribers,2009

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Actualbroadbandsubscriberbasehasfallenshortofset
targetswithAugust2009subscriberbaseat7.0millionas
againstanenvisaged9millionby2007!In2007,Indiahad
oneofthelowestbroadbandpenetrationintheworldof
~0.3percent.Whilstthepenetrationhasdoubledsince,
Indiacontinuestobeoneoftheleastpenetratedregions
Broadband penetration in India vs. other countries, 2008
30% 28.5%
25.8%
25%
Global Broadband penetration
20%
15%
10%
5%
0%
UK USA
Source:OECD,BroadbandStatistics,2008
Thesurgeinbroadbandpenetrationisexpectedtobeone
ofthekeydriversfornextphaseoftelecommunications
growthinthecountry,andbroadbandgrowthseemsto
havealreadybegunwiththefirstvisiblesignofrisein
subscriberbase.During2008,thebroadbandbasehas
grownby2.7million,whichismorethantwoandahalf
timesthe1.0millionbroadbandsubscribersaddedduring
20071.Suchtrendisexpectedtoonlyimprovewith
broadbandwirelessaccessalleviatinglast-mileconnectivity
concerns,PCpenetrationlikelytoincreaseandbroadband
servicesanticipatedtobecomemoreaffordable.
1 TRAI,BroadbandSubscribers,2009
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The Indian Telecom Success Story | 28
withcurrentpenetrationof~0.6percent.PCpenetration
continuestobeverylow,andlimitedwirelineinfrastructure
includingRoWchallenges,hightariffsandlackofquality
webcontentinlocallanguage,havefurtherconstrainedthe
growthofbroadband.
23.6%
22.4%
7.8% 7.2%
0.6%
Japan OECD Turkey Mexico India
Challenges in adoption of broadband
Poorwirelineinfrastructure:Incontrasttodevelopedworld,
Indiahasfavoredwirelesstelephonyoverwireline
telephony.InCY08,wirelinesubscribersdeclinedto~38.0
millionandwirelineteledensityreducedto~3.4percent.
Thislackofanddeclineofwirelineposesa‘lastmile’
accesschallengeforbroadband,whichispresentlyprovided
mainlybyDSLtechnologywhichinturnreliesonthe
availabilityofcopperloopinlocalnetwork(iewireline
network).Tocompoundmattersfurther,majorityofavailable
copperlocalloopsarenotsuitabletosupportbroadband
connectionsduetolonglengthofcablelocalloop,qualityof
cableandmaintenanceconstraints.
29 | The Indian Telecom Success Story

Wireline subscribers in India (FY07-FY12E)

60

49
50 45
41 42
40
38
40
Subscribers (Million)

30

20

10

0
FY07 FY08 FY09 FY10E FY11E FY12E

Wireline

Source:TRAI,KPMGAnalysis

Inaddition,thefactthatIndiaisavastcountryimpliesthat Low PC penetration, increased regulation of internet

itisnotpossibletorolloutwirelineaccessnetworkto
supportbroadbandinacosteffectiveandaffordablemanner.
Whilstsomeprivateplayershavebeenrollingoutwireline
networkstoprovidebroadbandconnectivity,suchinitiatives
arelargelyrestrictedtourbanareas.Thegovernment
realizingtheserealitiesissupportingincreasedpenetration
ofwirelineandbroadbandconnectivityinruralandremote
areasthroughitsUniversalServiceObligationFund(USOF)
activities.InJanuary,2009,itsignedanagreementwith
BSNLtoprovide8,61,459wirelinebroadbandconnections
toindividualusersandgovernmentinstitutionsoveraperiod
ofnext5-years.
Right of Way (RoW) procedures: RoWisoneofthemajor
impedimentsinlayingwirelineinfrastructure.Beforelaying
thecablesoperatorshavetoapproachmunicipalities/local
authoritiesforobtainingRoW,whichnotonlydelaysthe
rolloutplansoftheserviceprovidersbutalsoincreasestheir
cost.Moreoverthechargesthatmunicipalities/local
authoritieslevyforgrantingRoWarenotuniformacrossthe
country.
cafes: WhilstPCpenetrationinIndiaisincreasing,only3
percenthouseholdsinIndiahaveaPC.Thisposesamajor
challengetouptakeofinternet/broadband.Toovercome
thischallenge,thekeyliesinmassmarketingofaproduct
thatiscosteffective,powerefficientandresilienttothe
harshrealitiesoftheIndianenvironment(hightemperature,
dust).Variousinitiativeshavebeenlaunchedinthisrespect
(e.g.SimputerwithanestimatedcostofINR9,000afterit
hasachievedsalesofmorethan100,000units2,Microsoft’s
IQPCthatwaslaunchedin2007withanestimatedpriceof
INR20,0003),howeverthesehavenotbeensuccessfulin
creatingamassmarket.Further,duetotightenedsecurity
measuresandthinmargins4 thegrowthofcybercafes(the
mostpopularaccessmedium)hascomedownfromc.60
percentin2004,2005toc.20percentin2008anditis
estimatedthattherearearound180,000cafesinIndia5.

2 Simputer.org 5 Siliconindia.com
3 Zdnet.com
4 Mediareports

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
‘
Broadband connectivity at the gram-panchayat level will provide
rural citizens access to services like mobile banking, e-governance
applications, e-education and telemedicine
Affordability: Whilebroadbandtariffshavebeendecreasing
overthepastfewmonthsasprivateoperatorsexpandtheir
services,thetariffscontinuetoremainhighwhencompared
totariffsformobileservices.Thisispartlyreflectiveoflow
volumesandhighcostofprovisioningofbroadband
services.Thisseemstobeabigchallengeandthereisa
needforcostefficientmeansofbroadbandaccess.
GovernmentagenciessuchasTRAIhavetakenseveral
stepstoensurelowerinternetandbroadbandprices(eg:cut
inInternationalPrivateLeasedCircuitprices).The
Government,underUSOF,isalsoconsideringaproposalto
providesubsidysupportforbroadbandconnectivityinrural
andremoteareasofthecountrybyutilizingexistingpassive
andcoreinfrastructureavailablewithbothwirelineand
wirelessserviceproviders.
Lack of quality web content in local languages: While
businessusersseemtobetheimmediatebeneficiariesof
broadband,stakesforruralIndiaareevenhighergiventhe
unparalleledbenefitsthatbroadbandenabledapplications
suchastelemedicine,e-commerce,e-educationande-
governancecanunleash.Forthistohappen,theavailability
ofcontentthatcaterstotheneedsoftheruralpopulationis
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 30
critical.Thecurrentlackoflocallanguagecontentcould
provetobeamajorstumblingblockintheuptakeofinternet
amongsttheruralmasses.
Benefit of quality content in local language
Peoplefromremoteareasseemtobeincreasinglyusing
theinternet,luredbyitsabilitytoprovideinformation
crucialtotheirlives,inalanguagetheyunderstand.For
example,womenofKangraMahilaSabha(KMS),aself-
helpgroupforwomeninmountaincommunitiesof
HimachalPradesh,makealivingexportingpineneedle
hats,coastersandbaskets,whentheydiscoveredonthe
internetthatpeopleinMexicoandCanadamake
handicraftitemswithpineneedle.Thiswasenabled
throughcontentthatwasavailableinlocallanguage.
Likewise,inGujarat’sAnanddistrict,YashodaBen,an
Englishilliteratemotheroftwodaughters,frequentsa
localinternetkiosktoaccessinformation,inGujarati,on
differentcollegesandcourses,downloadapplication
formsandfindoutabouteducationloansforherteenager
kids
Source:EconomicTimes,“InternetimproveslivesofwomeninHimachal
Pradesh”,September2009
31 | The Indian Telecom Success Story

Enablers of broadband growth Applications of broadband

BroadbandsubscribersinIndiaareexpectedtogrowto~46 Therearevariousapplicationsthatwouldbesupportedby
millionby2013atacompoundedannualgrowthrateof~70 broadbandandcoulddriveinclusivegrowth:
percent.6 TheGovernmenthasidentifiedavailabilityof3G
Mobile banking: Broadbandaccessthroughwirelesswould
andbroadbandwirelessaccessservices(BWA)and
enablemobilebanking,forwhichthegreatestopportunity
streamliningRightofWay(RoW)proceduresaskeyenablers
liesinservingtheneedsoftheunbanked,whichismore
toboostdeploymentofbroadband.7 Theseenablerswould
than65percentofthepopulation9 (vis-à-vismobiledensity
addressconcernsofwirelineaccess,PCpenetrationand
ofc.42percentandrisingeachyear).Thereareseveral
affordability.
initiativesbeingtakenbythegovernment,serviceproviders,
3G and BWA services: TheGovernmentisexpectedto andthelike,toenhancetheofferingandextenditsreach.
auction3Gandbroadbandwirelessaccess(BWA)licenses Accordingtoaglobalconsultancyfirm,mobilebankingin
inthenearfuture.Withtheopeningofaccessnetworkto Indiahaswitnessed94percentgrowthsince2002and
thesewirelesstechnologies,itisanticipatedthatwireless Indiaisbecomingapromisingnationforsuchservices.The
broadbandwill,inashorttimeframe,provideawider firmexpectsthepenetrationofIndia'smobilebankingactive
coverageandovercomeconstraintsofwireline. userbasetoreach2percent(2.5crore)by2012,upfrom
thecurrent0.2percent10.
GiventhelowlevelofPCpenetrationintheconsumer
segmentinIndia,3GandBWAdefinitelyholdsthepromise Tele-education: InIndia,schoolsandlibrariesinruralor
toprovidethefirstexperienceofbroadbandtomillionsof remoteareaswithoutwiredinfrastructureorbroadband
usersinIndia.Thiscouldbethroughawidearrayofdevices servicescanbecosteffectivelyconnectedtobroadband
includingconnectedcomputingdevices,lowcostportable usingwirelessaccess.Extensiveandreliablebroadband
internetdevices,affordablemininotebooks,andcheap internetcanhelpinternet-basedqualitydistanceeducation
mobilehandsets..As3Gsubscriberbaseexpandsfurther, reachmorepeopleacrossthenation.TheIndiraGandhi
handsetpricesareexpectedtodeclineovercomingthe NationalOpenUniversity(IGNOU)isalreadyencouraging
constraintsofaffordabilityofbroadbandaccessdevices. stategovernmentsandconventionaluniversitiestoestablish
distancelearningprograms,providingfinancialsupportand
Right of Way (RoW): Inordertoencourageservice
grantsforprogramsandfacilitatingdevelopmentof
providersforrollingoutnewinfrastructureandproviding
multimediamaterialsfordeliverythroughdistancelearning
advancedbroadbandservicesinatimelymannerTRAIhas
programs.
recommendedthatacommitteebeformedatdistrictlevel
tostudyRoWrequirement,anditshouldevolveaduct-
sharingmechanismamongserviceproviders.TheCentral
Governmentshouldalsoconsidermandatingthestate
governmentstoadoptuniformRoWproceduresand
streamline/rationalizeRoWcost,whichmayprimarilybe
limitedtocostofre-instatement8.However,implementinga
uniformRoWframeworkmayrequireaconsensual
approach,whichcouldbealongdrawnprocess.

6FICCI-BDAReport,“BusinessModels,ProjectionsandImperatives”, 9 Mediareports,KPMGanalysis
January2009 10 Mediareports
7TRAI,“RecommendationsonGrowthofBroadband”,January2008
8 TRAI,“RecommendationsonGrowthofBroadband”,January2008

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.

E-governance: Indiaisalreadyrunninge-Governancepilot
programsaimedatbringinglocalgovernmentservicesto
peoplethroughinternetaccess.E-sevaisonesuchinitiative,
createdbytheAndhraPradeshgovernmenttoprovideits
citizenswithonlineservicessuchasobtainingbirth
certificatesandvariouslicenses,paymentofutilitybillsand
taxes,ticketreservationsfortransportationservices,and
listingsofgovernmentordersandpolicies.Similarinitiatives
havebeentakenbyotherstategovernments.TheCentral
Governmentisalsocreatinganenvironmentfor
establishmentofCommonServiceCentres(CSCs)that
wouldprovidehighqualityandcost-effectivevideo,voice
anddatacontentandservicesintheareasofe-governance,
education,health,telemedicine,entertainmentaswellas
otherprivateservices.
Telemedicine: InIndia,around1millionpeopledieeach
yearbecauseofalackofbasichealthcare.Doctorscanuse
real-timevideoconferencingtodiscusspatientsymptoms
withfarawayexperts,thusprovidingfasterandbettercare
tothepatients.Oneoftheleadinghospitalsinthecountry
havesetuparound45RuralTelemedicineCentresacross
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 32
differentlocationsinthecountry,workingwithdifferent
kindsofentitiesinthehealthcareindustrytoprovide
healthcaretoruralmasses.
Others: Broadbandaccesshasotherinclusivegrowth
benefits.Forexample,high-resolutionpicturesorreal-time
imagesofcropdiseasescanbetransmittedtoagricultural
expertsinadifferentgeographiclocationforimmediate
expertadvice,thuscontainingthecropdiseasesfaster.
Therearemanysocialadvantagesofbroadbandsuchas
telecastingofentertainmentprogramsandinfotainment
service.Suchentertainmentdeliveredviabroadbandcould
beaneventforsocialgatheringsinisolatedvillages.
Toconclude,broadbandcansupportvariousapplications
thatcoulddriveeconomicgrowthinruralandremoteareas.
Whiletheseapplicationsseemtoholdhugepotential,and
havebeensuccessfullypilotedinsomecases,greater
accesstobroadbandserviceswouldprovidethenecessary
triggertoachievewidercoverageandachieveinclusive
growth.
06. Telecom Manufacturing
Telecom Manufacturing

Despitetheeconomicslowdowntheglobal tele-densityof43.5percent.3 Giventhisgrowth,

telecommunicationsequipmentmarketgrewnearly5 Government’stargetofover1.1billionsubscriptionsby2015
percentin2008.Thismoderaterateofgrowthwaslargely seemsmorethanachievable4.
duetocontributionsmadebythehandsetcomponentsand
Thisboominthetelecomsectorhasslowlyandsteadily
infrastructurehardwareverticals.Thispavedthewayforrise
pavedthewayforanotherindustry;thetelecomequipment
ofAsianmanufacturerswhoaccountedfortwo-thirdsofthis
manufacturingindustry.
increase.

WhileAsiarepresentedslightlyover40percentshareofthe
totalmarket,asignificantportionoftheAsiangrowthcould
beattributedtoChinaandIndiawhichtogetheraccounted
fornearly20percentofthisglobalpie1.
The telecom manufacturing sector is

‘
Fromabroaderperspective,Asia-Pacificregion’s
contributiontoglobalspendingontelecomnetworks
poised for growth due to the impetus
increasedbyfourpercentagepointsduringthattime,while provided by telecom services, with
thatofWesternEuropeandNorthAmericalostsixandfive India having the potential to emerge
percentagepoints,respectively2.
as a global hub for telecom
Indiaisaddingaround14millionnewwirelesssubscriptions
monthonmonth,withSeptember2009aloneseeingan
manufacturing
additionof~15millionsubscribers.AsofSeptember2009,
totalsubscriberbasecatapultedto509.03millionwitha

1iDatePressReleaseonPRLog.com,“TelecomEquipment:AMarketin 3 TRAI,November2009
Transition”,March11,2009 4 TEPC,Policyrecommendationstoincreasedomestictelecomgrowthin
2 iDatePressReleaseonPRLog.com,“TelecomEquipment:AMarketin exportsoftelecomequipmentandservices
Transition”,March11,2009

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 The Indian Telecom Success Story | 34

Telecom Equipment Production

600,000

500,000
518,000

400,000
412,700
(INR Million)

300,000
236,560

160,900 178,330
200,000 144,000 140,000

100,000

-
2002 - 03 2003 - 04 2004 - 05 2005 - 06 2006 - 07 2007 - 08 2008 - 09

Source:TEPC

In2003-04,thetelecomequipmentmanufacturingindustry
postedanegativegrowthrateof3percent(YoY)whereas
by2008-09,theindustryhadgrowntoboastapositive
growthrateof26percent(YoY).Invaluetermsthe
productionoftelecomequipmentsmanufacturedincreased
fromINR144,000millionin2002-03toINR518,000million
in2008-09.
Thisgrowthinthetelecomequipmentmanufacturing
industryislargelyattributabletotherapidlygrowingtelecom
sector.Otherfavorablefactorssuchaspolicymovestaken
bytheIndiangovernment,incentivesoffered,largetalent
poolintheresearchanddevelopment(R&D)spaceandlow
laborcostsarefurtherprovidinganimpetustothisindustry.
Key milestones in the sector
Thefoundationsofdevelopingthetelecomequipment
manufacturingindustryinIndiawerelaidin1999.
• 1999: Openingupoftheindustrytoprivatesector
participation
• 2005:
- FDIceilingintelecomserviceswasraisedfromthe
existing49percentto74percent
- TheUnionMinistryofCommunicationsand
InformationTechnologybegantopromoteIndiaasa
viableoptionforsettingupmanufacturingplants.This
wasstronglysupportedbyitsfastgrowingtelecom
market,itstalentpoolandthesuccessofthe
BusinessProcessOutsourcing(BPO)industry.
35 | The Indian Telecom Success Story

• 2006: Policyreformsandgovernmentinitiativessuchas In2003-04,exportsoftelecomequipmentsmanufacturedin

100percentForeignDirectInvestment(FDI)inthe Indiareportedanegativegrowthof38percent(YoY).By
sectorthroughtheautomaticroute 2008-09,theexportsmarketreportedapositivegrowthof
35percent(YoY).Invalueterms,exportsincreasedfrom
• 2008: Allowingserviceproviderstoshareactive
INR4,020millionin2002-03toINR110,000millionin2008-
infrastructure
09accountingfor21percentofthetotalequipment
Suchgovernmentinitiatives,coupledwiththegrowth producedinthatyear.
prospectsofferedbyasurgingdomestictelecomsector
haveattractedglobaltelecomequipmentvendorstosetup
theirmanufacturingbaseinIndia.

Telecom Equipment Exports

120,000

100,000 110,000
81,310
80,000
(INR Million)

60,000

40,000

15,000 18,980
20,000
4,020 2,500 4,000

2002 - 03 2003 - 04 2004 - 05 2005 - 06 2006 - 07 2007 - 08 2008 - 09

Source:TEPC

Until2007-08,significanttelecomequipmentneedswere
stillbeingmetthroughimports.AccordingtoGlobalSMT
andPackaging,over80percentoftheelectronic
componentsusedforproductionoftelecomequipment
manufacturingareimported.Giventherelativelystable
macro-economicenvironmentandrobustdomestictelecom
demandIndiahasemergedafavorabledestinationtoglobal
equipmentmanufacturersforsettinguptheirmanufacturing
units.
RealizingthisopportunityacommitmenttothetuneofINR
75,000million(USD1.5billion)inthepasttwoandahalf
yearshasbeenmade.Indiaisexpectingfreshcommitments
tothetuneofINR100,000million(USD2billion)inthenext
oneyear5.
TheDepartmentofTelecommunicationshassetatargetof
1.1billionsubscribersby2015.Tomeetthistargetby2015
andtomeetthedemandcreatedbythetelecomservices
sector,itissaidtelecomequipmentworthINR3,500,000
million–5,000,000millionwillberequiredby2015.

5 ELCINA-AVISTA,EnvisagingtheNextWaveofICTEManufacturinginIndia,
February2009

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 The Indian Telecom Success Story | 36

Thesetargetsthoughambitiousareastepintheright
How can India inch towards doing so?
direction.Theaimisnotonlytobeaglobaltelecom
Indiahasallthemakingsofagloballycompetitivetelecom manufacturinghubbutalsoensureinclusivegrowthforthe
manufacturingandR&Ddestination.Thisisevidentfrom countryassuchbyfocusingonareaslikeemployment
• AlargeandboomingdomesticmarketwithIndian generation.
operatorsreachingouttotheglobalmarketproviding
Favorablegovernmentinitiativesandtimelypolicychanges
wideraccesstoIndiantelecomcompanies
hasensuredthatIndiahastransformeditselfintoatelecom
• Strongmanagementexperienceincriticalfunctionssuch servicesgiant.ThesameneedstobedonetospeedIndia’s
asSCM,hightechmanufacturingsystems,working transformationtowardsbecomingaglobalmanufacturing
capitalmanagement,valuechainwithEMScompanies, hubthatcancatertothedomesticandglobaltelecom
captivefacilitiesofMNCs(willingtoinvestfurtherin equipmentdemand.
India),auxiliarycomponentmanufacturingbase(e.g.,for
cables,cabinets,shelves,powerelectronics,tooling,
barePCBs,etc.)
A Case-in-Point
• StrongtechnicalandR&Dworkforcehavingexperience
Seamlesseffortstakenbythegovernmenthavecertainly
inR&DcentersofMNCcompanies,ITservice
initializedIndia’stransformationtobecomingaglobal
companiesdoingtelecomprojects,strongacademicand
manufacturinghub.
researchlabsandanincreasingnumberofIndianswho
arereturningbackfromUSA/Europe SriperumbudurinTamilNaduisleadingIndia’s
• Skilled&trainedshopfloorworkforceforelectronics transformationintoaglobaltelecommanufacturinghub.
circuitassembly,testingandintegrationfromwidely DuetotheprogressivepolicyinitiativeoftheGovernment,
availableresourcesfromIndustrialTrainingInstitutesand Sriperumbuduristodaychurningmoremobilephonesthan
Polytechnics. ShenzheninsouthernChina.Thisisnotasmall
• Costadvantagearisingfromlowermanufacturingplant achievement,consideringShenzhenmakesoneoutofeight
establishmentcostandcompetitivelaborcosts. handsetssoldanywhereintheworld.TheclusterofSEZ
unitsemerginginSriperumbudurneedtobesupportedwith
• Availabilityofcapitalfromawellestablishedfinancing
suitabletaxbreaks,world-classpublicinfrastructuresuchas
industryaswellasprivateequitynetwork
expressways,railwaylinksandanairport,andprivate
TheTelecomEquipmentandServicesExportPromotion
amenities,includinghotels,apartments,shoppingmallsand
Council(TEPC)hassetitssightsoncertainmilestones
entertainmentsites.Alreadymanycomponent
tobeachievedbytheyear20146
manufacturershavebegunworkinSriperumbudurtomake
• Exportsgrowthat25percentCAGRovernext5years,
partsandcomponentsforthecellphoneindustry.
reachingoverUSD10Billion
Approximately20,000peopleareestimatedtobeworking
• Domestictelecomproductsgrowthof18percentCAGR inthearea7.
overnext5years
Largeinternationalplayershavemadesignificant
• Employmentgeneration(directandin-direct)of20
investmentsinthecountry,includingthefollowing
million
investmentsinChennaialone:
• Atleast70percentofIndiandomestictelecomneeds
aremetbyproductsmanufacturedinIndia
• AtleastafewIPR-driven,Indianproductcompaniesshould
succeedgloballyandbecomebilliondollarcompanies

6 TEPC,Policyrecommendationstoincreasedomestictelecomgrowthin 7 TEMApressrelease,"TelecomEquipmentProductiontoCrossRs.50,000
exportsoftelecomequipmentandservices Croresin2008-2009",November20,2008

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
37 | The Indian Telecom Success Story

Company Description Estimated Investment

Nokia HandsetManufacturing INR10,000million

Motorola HandsetManufacturing INR5,000million

Ericsson R&Dfacilityandglobalservicedeliverycentre INR2,500million

Flextronics Telecomhardwaremanufacturing INR5,000million

NokiaSiemensNetwork TelecomEquipment INR5,000million

Mobilehandsetsandcomponentsandelectronic
HonHai(Foxconn) INR5,500million
hardwareandrelatedservices

LairdTechnologies MobilePhoneaccessories INR1,250million

Perlos MobileHandsetmechanics INR600million

Salcomp MobileHandsetchargers INR400million

TelecordiaTechnologies SoftwareandservicesforIPwirelineandcable INR1,500million

XLTelecom Capacitytomake10,000handsetsinSKDfacility INR2,500million

Source:‘ELCINA-AVISTA,EnvisagingtheNextWaveofICTEManufacturinginIndia,February2009,PressreleasefromTEMAdatedNovember20,2008
Note:TheabovefigureshavebeencalculatedusingexchangerateasINR/USD-50

Globally,therehavebeeninstanceswhereinawell
How can India benefit from becoming a global
developedSEZmodelhassupportedthemanufacturing
industry.ThegovernmentshaveencouragedastrongR&D manufacturing hub?
infrastructuretofacilitatethegrowthinthesector.Fiscal
Indiahaswitnessedfastergrowthinurbanareas,as
measuresandincentivessuchassubsidies,easycredit/
comparedtoruralareas.Thegovernmenthasframed
linesofcreditandtheuseofbi-lateraltradearesomeofthe
inclusivegrowthasoneoftheaspectsoftheirpolicythis
measuresthathavebeenimplementedtoattractforeign
term.Thisorientationismostvisiblymanifestedinthe
investmentandprovideboosttothedomestic
themeoftheEleventhFive-YearPlan,whichrunsfrom2007
manufacturingindustry.
to2012.Thethemeis'towardsfasterandmoreinclusive

Giventhegeographicalspreadofourcountry,itmightbea growth,'whichclearlyreflectstheneedtofindasustainable

goodstrategyforIndiatogoforaphasedandplanned balancebetweengrowthandinclusion.

expansion.PlanningprivateSEZsinstrategiclocationswill
Inclusivegrowthisunderstoodbydifferentpeoplein
fosteranenablingenvironmentforglobalanddomestic
differentways.Forgrowthtobeinclusiveitshouldinvolve
manufacturingmajorstosetupplants.Highquality
keyattributeslike
infrastructureatSEZswillfurtherprovidethenecessary
• Creatingnewandvariedopportunitiestoearna
pushwhichthetelecomequipmentmanufacturingmajors
livelihood
require.
• Providewaystoenhancecapabilitiestoexploitvaried
opportunities
• Providingsecurityagainstapermanentlossoflivelihood

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.

Telecommanufacturingisonesuchindustrythatislikelyto
providethisinclusivegrowththatIndiahasbeenlookingfor.
Therehavebeeninstanceswheredeploymentoftechnology
inrelatedindustrieshaveledtocreationofnewer
employmentandincomegenerationopportunitiesfor
peopleintheruralareas.Forinstance,settingupofIndia’s
firstruralBPOinKrishnagiribythegovernmentin2007
undertheFoSTERA(FosteringTechnologiesinRuralIndia)
initiativeledtoitstransformation.Thegovernmentplayeda
keyroleinprovidingtheemployeeswiththebasic
computing,communicationandothersoftskills.Similar
benefitscanalsobereplicatedbyamanufacturingunitin
ruralareastoprovideemploymentandincomegeneration
opportunitiestherebyaidinginreducingthedependenceof
peopleonagriculture.
Additionalincomegeneratingopportunitiesforpeoplein
ruralareaswillmostlikelyleadtotheirchildrenhavinga
betteraccesstotheeducationwhichinturncanimprove
ourcountry’sliteracyratesandemployability.
Accesstobettertechnologyanditsinnovativeapplication
canplayaverycriticalroleinimprovingthehealthcare
facilitiesinruralIndia.Forinstance,ahospitalcanleverage
telecomconnectivitytoprovidehealthcareservicestorural
areasthroughtele-medicine.Adoctorintheruralareacan
remainincontactviaavoiceanddataconnectionwiththe
doctoratthehospital.Thehospitalcanemploytele-
medicinetoassistdoctorsinruralareasastheyanalyseand
treatpatients.
Otherthanbenefitingtheruralareas,telecom
manufacturingcanalsobringalotofpositivesforthe
countryasawhole.
Employment Opportunities –Astrongtelecom
manufacturingindustrywillaidtheancillaryand
componentsindustriesandtherebygenerateemployment
opportunities.Thetelecomsectoremploysover1Million
directlyandisestimatedtoemployanother4Million
indirectly8.
8 TEPC,Policyrecommendationstoincreasedomestictelecomgrowthin
exportsoftelecomequipmentandservices
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 38
Large export potential –Telecomequipmentindustry
offersatremendouspotentialforincreasingIndia’sexports
especiallysincethetraditionalsectorshavesufferedon
accountofthecurrentglobalcrisis
Creation of Intellectual property (IP) –Thereisan
opportunityforcreationofIndianIPrightsthroughtelecom
equipmentindustrywhichcaninturnleadtovalueadditions
andinnovationsinotherrelatedindustriessuchas
componentsandsemi-conductors.
Self-reliance in Strategic sectors –Telecombeinga
sensitivesectorfromthesecuritypointofview,capabilities
inR&Daswellmanufacturingwillhelpusinbecomingself-
reliantinstrategicsectorssuchasdefenseandinternal
security,e-governance,educationandresearch,andothers.
Increased competitiveness –Emergenceofglobally
competitivemanufacturingandR&DfromIndiawillnotonly
maketelecomservicesmoreaffordableinIndia,butwill
alsomakeIndiancompaniesmorecompetitiveglobally,and
willbenefitoureconomyinthelong-run.
Thetelecomequipmentmanufacturingindustrycanthus
playasignificantroleinacountry’ssocio-economicgrowth
(especially,developmentofIndia’sruralareas).Itnotonly
providesnewavenuesforemployabilitybutalsoensures
developmentofskillsandsecuresagainstlossoflivelihood
experiencedbytheagriculturalsector.
Indiaisbuoyedbyarobustdomestictelecomdemand,low
costmanufacturingcapabilities,andalargetalentpool.With
anadditionalpushfromthegovernmentintheformof
necessarypolicyinitiatives,Indiacancatapultitselfintoa
globaltelecomequipmentmanufacturinghub.
Possessingthecapabilitytogrowaslargeasthe
automobile,IT/ITeSindustry,orthetelecomservices
industryandcontributetoIndia’sGDPinasignificantway,
theindustrycanpositionIndiaontheglobalmapbutyet
needstobenurturedtofulfillitslatentpotential.
07. Telecom Research & Development
Telecom Research & Development
Telecom Centres of Excellence
Inordertobuildcapacitytostrengthenthecapabilityfor
telecomtechnologyenhancement,theGovernmentofIndia
initiatedtheconceptofTelecomCentresofExcellence
(TCoE),establishedinaPublicPrivatePartnership(PPP)
modeinvolvingleadingtelecomcompaniesinIndiaand
leadingeducationalandresearchinstitutionsinthecountry.
Apartfromapplicationorientedresearch,thecentresare
designedtoassistandoffertrainingtocorporatemanagers
forthemanagementofnetworksandservicesaswellas
decision-makersoftelecommunicationentitiestomanage
sectorreforms.
TherearesevenTCoE’sestablishedinthecountryatleading
academicandresearchinstitutionswiththesupportof
sevenmajortelecomoperators.Eachcentrehasafocused
areaofexcellence,thusthesevencentrescoverallaspects
oftelecomfromtechnologytodisastermanagementof
telecominfrastructuretocustomercare&businessmodel
innovation.Duringthisyear,around78R&Dprojectswere
undertakenbytheTCOE’s.Theseincludedenergyefficient
devicesforruralapplications,useofnon-conventional
sourcesofenergyandenergyefficientpowerconversion,
1 ContractResearchforGlobalFirmsCreatesHotspotsforIT,Telecomand
Biotech,Knowledge@Wharton
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
applicationsrelatedtopromotingbroadbandwireless
access,ruraleducationalandrurallivelihoodrelated
applications,valueaddedservicessuchasmobilebased
videoconferencing,developmentworkonnextgeneration
networksetc.Inaddition,theTCOEatIITChennaihasbeen
acceptedbyITU-RasanevaluatorforInternationalMobile
Telecommunication-Advance(IMT-A)proposalfor4G
networks.
Contract R&D: Laying the foundation
TheadventofasignificantproportionoftheR&Drevenue
comingIndia'swayinthetechnologyarenainthepastfew
yearshasbeenintheformofcontractresearch.
TheEconomistIntelligenceUnit(EIU)hasdefinedIndiaas
anR&Dhotspot:aplacewherecompaniescantapinto
existingnetworksofscientificandtechnicalexpertise;
whichhasgoodlinkstoacademicresearchfacilities;and
providesanenvironmentwhereinnovationissupportedand
easytocommercialize.1
‘
The government, private players and institutions of higher learning
have come together to develop Centres of Excellence focusing on all
aspects of telecom including technology and business model innovation
TheEIUfurthernotes,"Indiabecameasoftwarehubinthe
1990s.AsalargeAsiancountrywhereEnglishisspoken,
wagesaremodestandWesterneducationisavailable,India
hasquicklygrownasanR&Dpowerhouse."Thecost
advantageofhavingalargepoolofinexpensive,English-
speakingworkersisabigpartofIndia'sattractiveness.The
possiblecostsavingsfigureshavemadethebusinesscase
quiteevident.Theavailabilityofgoodqualitytalent,is
bolsteredbythepresenceofgoodqualityhigher
educationaltechnologicalinstitutesandalargenetworkof
governmentresearchlabs.
ThebestresultsforoutsourcedR&Dhavebeenmost
evidentinthetechnologysector.India'sleadingtechnology
companiesarebeginningtobuildsustainablecontractR&D
businesses.
Withinthetechnologysector,semiconductordesignor
designofchipsisanareawheremultinationalscameto
Indiaalongtimeago,anditremainsagrowthareaforR&D
outsourcing.IndiahasaboutahundredVLSIcompanies,
withmorethan5,000engineersprovidingsemiconductor
designservices.2 Manylargesemiconductorcompanies,
includingTexasInstruments,NationalSemiconductors,Intel,
AnalogDevices,STMicroelectronics,Cadence,and
MotorolahaveestablishedresearchfacilitiesinIndia.
IndianITcompanieshaveconsiderablenumbersof
engineersworkingintheareasofVLSIdesignand
embeddedsystemsaswell.WhileVLSIinvolvesthedesign
ofchips,thescopeofembeddedsystemswouldbemuch
broader,involvingchipdesign,software,signalprocessing
andoperatingsystems,andisexpectedtobeasignificant
opportunityforcontractR&Dproviders.3
Designed for India
India’stelecommunicationsinfrastructurecontinuesto
developrapidlytryingtomeetlocalneeds,andtoovercome
awidevarietyofchallengingregionalcharacteristics,local
customerrequirementsandconditions.Thishelpsvendors
understandthegrowingneedsoftheglobalmarketwith
regardtoissuessuchasscalability,densityand
environmentalruggedness.
2 VLSISocietyofIndia
3 IndiaR&D2005organizedbyFICCI:BackgroundPaperpreparedby
Evalueserve
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 40
TheunparalleledgrowthoftheIndianmarket,innovative
telecombusinessmodels,andchallengingenvironmental
conditions,makeitidealforinnovationandafocusareafor
globaltelecomOEMR&D.Theknowledgethatcanbe
gainedintheIndianmarketisinvaluable,andgives
companiesasignificantedge,improvingtheirproduct
offeringforIndiancustomersandothersaroundtheworld.
TelecomvendorsdoingsignificantbusinessinIndiaare
designingproductstoaddressthisdemand,allowing
increasedscalabilityandtheadditionofnewfunctionalities
onexistingplatformswithouttheneedtoreplaceexisting
legacyequipment.Forexample,productsdevelopedwiththe
Indianmarketinmindarecapableofexpandingtheircapacity
fourfoldsimplybyswappingtheplatform’slinecards.
India’sclimateisnotableforitsextremetemperaturesand
moisture-ladensummers.This,coupledwithitsharsh
environmentalconditionsandhighlevelsofairpollution,
requiresadditionalqualificationproceduresfortelecom
equipment,inadditiontothosespecifiedinexisting
internationalstandards.Inresponsetotheseconditionsand
theresultinglocalandinternationalstandards,vendorshave
begunapplyinganti-sulphurcoatingtocardsdeployedin
Indiatoprotectthemfromchemicalsinthecountry’s
ambientpollutedair.Inaddition,thechippackagingfor
criticalcomponentsisupgradedtoindustrial-gradeto
sustainawiderrangeoftemperaturelevelsrangingfrom-5
Cto80Cdegrees.
Theadjustmentsrequiredbythechallengingconditionsin
Indiahavealsobeencontributingtoimprovereliability
elsewhere;flexibilityandscalabilitytheybringwillhelp
increaseavendor’ssuccessaroundtheglobeoffering
operatorsthesamebenefitsofscaleandadaptability
dictatedbytheIndiamarket.
Indiaiswithoutquestiononeofthemostcompelling
emergingtelecommarketsintheworld.Duetoitslow-cost,
high-qualitynetworksandinnovativemarketing,thecountry
isamodelofefficiencyinglobaltelecom.Vendorsworking
inIndiabelievethattheirpresencethereandrelationship
withIndiancompanieswilleventuallybenefitalloftheir
customersglobally.Multinationalsareincreasinglytaking
noticeofIndiabeyondjustitstalentpoolandviewingitasa
keyprovinganddevelopmentgroundfortheirR&Defforts.
08. Value Added Services
Value Added Services

Mobile Value Added Services in India
Bornoutofvanillavoiceoperations,MobileValueAdded
Servicesencompassservicesthatarenotpartofthebasic
voiceofferandareavailedseparatelybytheenduser.They
areusedasatoolfordifferentiationandallowmobile
operatorstodevelopanotherstreamofsustainablerevenue.
TheoverallMVASmarketcanbesegmentedeitheronthe
basisofconsumptionpatternsoronthebasisofthemode
ofdelivery.Furthermore,themarketmayalsobesegmented
onthebasisoftheconsumertypei.e.individualor
enterprise.

Mobile VAS

Consumer Enterprise
VAS VAS

Text IVR GPRS USSD B2C B2B

Entertainment VAS
Text USSD

Information VAS P2A SMS

Commerce A2P SMS

Communication

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 The Indian Telecom Success Story | 42

Modes of Delivery

Asoutlinedpreviously,theprimarymodesofdeliveryfor
VASservicesinclude,TextorSMS,InteractiveVoice
Reponses(IVRVoicePortals),GPRS/EDGEandUnstructured
SupplementaryServiceData(USSD).

Text/SMS

Widelyusedbecauseitshandsetagnostic;however,still
dependantonliteracyofsubscribers.

Interactive voice response system

IVRSisakeydeliverymediuminIndia.Althoughitisalmost
non-existentinmostotherdevelopedwirelessmarkets,IVR
maycontinuetoexistinIndia.IVRallowsuserstosurf
(menubased)forservicesandisavailableinalmostallmajor
regionallanguages. Mostlymusic-basedproductssuchasringtonesandCRBT
canbepurchasedofftheshelfthroughthischannel.This
GPRS/EDGE channelhasthepotentialofbecomingasignificantdelivery
mode,particularlyinthelesssophisticatedmarkets.
Alloperatorsarelookingtodriveadoptionratesfortheirdata
services.Keyproductssuchasvideos,streaming,mobileTV,
sophisticatedm-commerceapplications,etccanbe
deliveredonlythroughGPRS/EDGE. The Ecosystem and Value Chain
Retail channel ThusfarindustryprotagonistsfocusedondefiningaTelecom
ecosystemwithMVASbeinganintegralpartofit.However,
Popularizedbyoperatorsthoughtheirexistingretailchannel inrecenttimes,thehighgrowthprospectsofMVASinIndia
wherebyasubscribercanjustwalkinforaparticularservice. aregivingrisetoanentireecosystem1 ofitsown.

MVAS Ecosystem Existing Value Chain

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
43 | The Indian Telecom Success Story
ThecentralpointoftheMVASecosystemremainsthatof
themobileoperators.AlthoughtheVASmodel,incubatedby
theoperators,hastranscendedfroma“walledgarden”toa
slightlylesscontrolledversion,mobileoperatorscontinueto
retainanoverwhelmingmajorityoftherevenuefromVAS
relatedservices.
Giventheimportancethismarkethasgainedoverthelast
fewyears,operatorshavestartedtoextendthemselves
againbyexploringmargingeneratingsourcesincluding
venturingintoin-housecontentaggregationwingsetc.This
hascreatedsomepressureonvariousbusinessesinthe
MVASecosystemasithasbeguntodriverevenueshares
lower.
Furthermore,largeInternetportalsalreadyhavemajor
resourcescommittedfortheprocessingandaggregationof
newsandothercontent,thusalsomakingthemapartofthe
overallMVASpie.
SMS versus Non-SMS VAS (2009)
SMS VAS 36%
Non-SMS VAS 64%
Source:Industryconsensusestimates,KPMGanalysis
Addressable Market
Although,theoverallVASpiewasestimatedataroundINR
90billionin2009,thispieismorerelevantfortheoperators
asitconstitutestheirrevenue.ForotherplayersintheVAS
ecosystemthepieisalotsmallerasresultof
1 ThomasWeisel,EnamSecuritiesandInterviewswithIndustrySources
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
Market Size and Growth
EstimatedataroundINR90billionin2009,theMVAS
industryinIndiahaswitnessedstronggrowthoverthelast
fewyears.ThusfarthecontributionofVASrevenuetototal
operatorrevenueshasrangedbetween8and9percenton
average.However,withvoiceARPU’ssteadilydecliningand
MOU’spanningoutoverthelastcoupleofyears,the
importanceofVAShasincreasedsignificantlyasitisfast
becominganimportanttoolforARPUstability.
Priorto2008,amajorityofVASrevenueswereattributable
toSMS’s.However,recenttrendsindicatethatthismixis
evolving,withgreaterpenetrationofnewservices,
availabilityofrelativelyin-expensivefeaturerichhandsets
andconsumereducation,VASotherthanSMSisgaining
importance.Itisfurtherexpectedthatoverthenextfew
years,non-SMSVASwouldbecomeadominantcontributor
toVASrevenue.
SMS versus Non-SMS VAS (2011)
SMS VAS 27%
Non-SMS VAS 73%
• P2PSMS’scontinuetobecontrolledbytheoperatoras
theyareviewedasasubstitutetovoice
• Sincetheoperatorprovidestheconnectivityaswellas
thesupportfordeliveryoftheservicestotheenduser,a
significantportionofrevenueisretainedbytheoperators
andacertainrevenueshareispassedontotheVAS
providersalongthevaluechain.
 The Indian Telecom Success Story | 44

Furthertotheabove,theaddressablemarketforVASservice Revenue Share

providerswasestimatedataroundINR16billionin2009and
isexpectedtogrowataCAGRofbetween25and30
percentoverthenextcoupleofyears.
Share of Non-P2P SMS
Ashasbeenenumeratedearlier,theshareofnon-P2PSMS
VASisexpectedtoincreaseinthecomingyears.In2009,
non-P2PSMSVASaccountedforbetween5and6percent
ofoperatorrevenues.Industryprotagonistsenvisagethis
sharetoincreasetoaround8percentoverthenexttwo
years.
TheotherprimaryrevenuedriverforindependentVAS
companiesistherevenueshareontheservicepassedonto
thembytheoperators.
Historically,thissharehasbeenpeggedataround30
percentofoperatorrevenuesforaservice.However,in
recenttimestheaveragerevenuesharehaswitnesseda
declineandaccordingtoindustryexperts,itisexpectedto
continuetodeclinemarginallyoverthenextcoupleofyears.
Thereasonsforthisdeclinehavebeenattributedto:
• Competitivepressuresinthemarket

• Lowentrybarriers

• LowIPRaroundtechnologyandserviceofferings

Share of Non-P2P SMS VAS Revenue Share

Source:Industryestimates,Informationinterviews

Key Highlights
• Theshareofnon-P2PsmsVASisexpectedtoincreaseoverthenexttwoyearstoaround8percentofoperator
revenues.
• Revenueshareacrossservicesisexpectedtostabilizeataround25percentonaverageforindependentVAS
companies.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
45 | The Indian Telecom Success Story

Market Segmentation Market Split

Theaddressablemarketfornon-P2PSMSVAShas
historicallybeendominatedbyringtonesandcallerringback
tones(CRBT)whichaccountforaround45percentof
revenues.Voiceportalbasedserviceofferingsarethe
secondlargestcontributortorevenue,accountingforaround
20percentofthenon-P2PSMSVASmarket.Enterprise
solutionsandAlertscontributearound18percenttorevenue
whereasthegaminganddatadrivenservicessegmentis
presentlyatarelativelynascentstageinIndia.Thisis
manifestedinarelativelylowpenetrationofGPRS/WAP
basedproductsandservicesacrosstheVASspectrum. Source:Industryestimates,Informationinterviews

Key Highlights

• CRBT’sandVoicePortalscontinuetobethedrivingforcebehindnon-P2PSMSVASinIndia.
• Otherservices,includinggaminganddatadrivenservicesaregainingprominence,however,theyremainnascentin
comparisonwithringtones.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 The Indian Telecom Success Story | 46

downloadsatpresent.However,otherservices,suchas
Growth Drivers
bankingrelatedproducts,videoondemandetc.maygain
Ashasbeenenumeratedearlier,MVASrevenuesare prominenceintheyearsahead.
expectedtogrowatasignificantpaceoverthenextthree
years.Theprimaryfactorsexpectedtofueltheaforesaid
growthinclude:

1. Subscriberadditions

2. IncreasingconsumerdemandforVAS

3. DecliningARPU’sandmobiletariffs

4. Reductioninhandsetcosts

5. Growingruralmarket

6. Mobilephonebeingconsidereda“new-medium”for
advertising

7. Introductionof3Gbasednetworks
Source:‘MobileValueAddedServices-India’,Netscribes

Subscriber additions
Indiaisthesecondlargestmobilemarketintheworldandis
alsoamongthefastestgrowingglobally.Thetotalnumberof
mobilesubscribersinIndiaincreasedfromaround1million
inMarch1998to392millioninMarch2009,ataCAGRof74
percent.Astheend-userbaseforMVAScompanies
continuestoexpandoverthenextfewyears,the
addressablepopulationandthusproductpenetrationsfor
MVASserviceprovidersareexpectedtobenefit.
Declining ARPU’s and Mobile Tariffs
MobilevoicetariffsinIndiaareoneofthelowestglobally.In
ordertoincreaserevenues,telecomoperatorsaretargeting
customersbyreducingtariffsandofferingvoiceservicesat
veryattractiveprice.
Theaforesaidlowtariffshaveledtoasignificantdeclinein
ARPU’sovertheyears.AsofDecember2008,GSMARPU’s
wereestimatedataroundINR220persubscriberpermonth
asagainstINR316persubscriberpermonthinDecember
2006,representingadeclineofover30percentinashort

Increasing consumer demand for MVAS spanof2years.CDMAARPU’sontheotherhandhavebeen

estimatedtohavedeclinedbyover43percentinthesame
Thereisagrowingpreferenceamongconsumersfor periodtoaroundINR111persubscriberpermonth.
mobility.Thusconsumersareincreasinglyusingtheirmobile
phonesformusic,entertainment,gamesandinformation.

ThishasledtogrowthinacceptabilityofMVASamong
consumersastheirwillingnesstopayfordifferenttypesof
serviceshasincreasedsignificantly.Onascaleof0to6,it
hasbeenestimatedthatmobilesubscribersarethemost
willingtopayforringtones,MMS’saswell;asmusic

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
47 | The Indian Telecom Success Story

Inordertosustainprofitability,itisessentialforoperatorsto lowertariffsinordertogainmarketshare,theimportanceof
tryandstemthisdecliningARPU.However,withtheentry MVASasatooltostabilizeARPU’sislikelytoincrease
ofanumberofnewtelecomserviceproviders,offeringeven significantlyoverthenextcoupleofyears.

Mobile Tariff per unit Decline in ARPU’s

0.3
350 316 298
297
300 275
0.23 261 264
0.22
239
0.19 250 221 220
United States Dollar

0.2 196 202 206

INR/Subscriber/Month
0.17 176
0.16 200 173
159
139
150 122
0.11 111
0.09
0.1 100
0.05
0.03 50
0.02
0
0.0

Aug-07

Aug-08
Dec-06

Dec-07

Dec-08
Jun-07

Jun-08
Feb-07
Apr-07

Feb-08
Apr-08
Oct-07

Oct-08
Brazil
Belgium

Taiwan

Malaysia

China

India
Thailand
France
UK
Italy

GSM CDMA

Source:‘MobileValueAddedServices–India’,Netscribes

Reduction in handset cost phonesarecontinuallybeingupdatedi.e.theULHC’sare

continuallybeingenhancedinfeaturesetsatthesameor
MajorityofIndianmobilesubscribersuseUltraLowCost
perhapsrelativelylowerpricepointsinordertofuelsales.
Handsets(ULCH)andastheruralpenetrationofmobile
Thedeclineinhandsetcostscoupledwiththeaugmentation
telecomincreasesthedemandfortheseultralowcost
offeaturesthereinislikelytogiveafilliptotheMVAS
handsetsshallcontinuetogrow.Severalplayershave
industryfromabottom-of-the-pyramidsubscribers’
launchedlowcostmodelswithIndiaspecificfeaturesto
perspective.
effectivelytapthegrowingbottomofthepyramid
subscribers.Itisalsoimportanttopointoutthatfeatureson

Source:Netscribes,KPMGAnalysis

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 Telecom for Inclusiv Growth | 48

Growing rural market servicessuchasmobileTV,movieondemand,live

streamingofmusic/videosandothers.ResultsfromtheUS
AmajorityofIndia’spopulation,around70percent,resides
aswellastheUKshowthat3Gisabletosubstantially
outsideofthedevelopedcitiesandtownswhereasthe
impactdataandVASrevenue.Theintroductionof3Ghas
wirelesssubscriberbaseattributabletoruralareasisonly
twoimportantandrelevantimpactsontheMVASindustry:
around27percent.Thusatpresentwirelesspenetrationin
ruralareasisestimatedtobeonlyaround9percentas 1. Thelaunchof3Gnetworkswouldcreateadditional
against72percentinurbanareas.Giventhelowwireless capacitywherebyover50percentofthetotalcellsite
penetrationinruralareas,theseregionsareexpectedto capacitycouldpotentiallybededicatedtodataandVAS
contributesignificantlytogrowthinwirelesssubscribersin productsandservices.
thenearfuture.MVASasaresultoftheabove,shallnotonly
2. Thenetworkwouldenablehigherdatatransferratesand
getafillipfromtheperspectiveofalargercustomerbase,
anenhancedconsumerexperienceintermsof
moreimportantlyinnovativeservicestargetedtowardsthe
download,interactionandqualityofcontentonexisting
ruralmarketmaycreatesustainablerelevanceforservice
dataservicesandapplications,whichmaydrivethe
providers.
usageofnewaswellasexistingVASservices.

Medium of advertising

AnotheremergingdriverfortheincreaseduseMVAS
Services and Applications Outlook
servicesisthatofadvertisingdrivenonmobiledevices.
Giventhereachandpenetrationofmobiledevicestoday,
AlthoughentertainmentcontinuestobeadominantMVAS
Companiesareincreasinglyadoptingmobileadvertisingasa
categoryinenduserpreferences,theintroductionof3G
viableoptiontomarketbrandsandproducts.
technologyaswellasthegrowthindemandforM-
Introduction of 3G based applications commercewillboostdemandforinformation/commerce
basedapplications.Thetop10applicationsfor2010are
Theintroductionof3Gisalsoexpectedtoboostmobile
expectedtorevolvearoundMusic,games,UGCandsocial
broadbandpenetrationasitwillallowforhighspeeddata
networking,IVRbasedservices,Mcommerceandlocation
transfer.Thisisexpectedtousherinawidespectrumof
basedservices.

‘
Value Added Services (VAS) will play an important role in
improving the Average Revenue Per User (ARPU) which is
decreasing and affecting operators’ margins

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09. Regulatory and Policy Environment
Regulatory and Policy Environment

TheIndiantelecommunicationsindustryissupportedbya
strongregulatoryframework,whichensuresefficientpolicy
developmentandexecution.Thegovernmenthasmade
considerableeffortstoensurethatregulationtakescareof
theinterestsoftheindustry,aswellasthecountryatlarge.
• TheTelecomDisputesSettlementandAppellateTribunal
(TDSAT)wassetuptoresolvealldisputesbetweena
licensorandalicensee;twoormoreserviceproviders;
betweenaserviceproviderandagroupofconsumers

ThetelecomregulatoryframeworkinIndiaconsistsof,
amongothers,thefollowingkeybodies1:
Regulatory Evolution
Thegovernmenthasmadesignificantcontributionstothe
•TheDepartmentofTelecommunication(DoT)isthe
telecomsectorbydevelopingaregulatoryenvironmentthat
licensorandthecentralgoverningbodyforthe
promotesthegrowthofthesector.Severaltelecom
telecommunicationindustry.Itformulatesthepoliciesfor
regulationshavebeenintroducedoverthepastfewdecades
thedevelopmentofthesector,awardstelecomlicenses
toensurethedevelopmentofthetelecomindustry.
andisalsoresponsibleforfrequencymanagement

• TheTelecomRegulatoryAuthorityofIndia(TRAI)
regulatestariffs,advisesthegovernmentabout
introducingnewtechnologiesandtrackstheservice
providerstoensurethattheyadheretotheguidelines
andmeetthequalityofservicebenchmarks

1IBEF,December2008

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 The Indian Telecom Success Story | 50

Regulatory Evolution

Source:TRAI,FitchReport,DoT,IBEF,PressSearch

National Telecom Policy

TheNationalTelecomPolicywasannouncedintheyear
1994.Theprimaryobjectivebehindthispolicywastoensure
rapidgrowthofthetelecommunicationsectorsuchthat
everyIndianhasaccesstoatelephoneondemand.Rural
expansionwasandisstilloneofthekeyobjectivesofthis
policy.Worldclassservicequalityandspecialredressalof
customercomplaintsaresomeoftheotherimperative
objectivesofthispolicy2.

Afreshroundofreformswasintroducedintheformofthe
NewTelecomPolicyin1999.Thispolicyessentially
attemptedtoestablishaclearroadmapfortelecomreforms
andexploredtheoptionofopeningupallsegmentsofthe
sectortoprivatesectorparticipation.3 Thekeyfeaturesof
thispolicyincludedthestrengtheningoftheregulatorand
openingupNLDandILDtoprivateparticipants,among
otherfeatures.

TheNTP-99wasamendedin2003topermitalicenseeto
providewirelineandwirelessservicesusinganytechnology
inapredeterminedlicenseareaafterconversiontoa
UniversalAccessServiceLicense(UASL).

2 DoTwebsite
3 DoT,“Auctionof3GandBWASpectrum-RevisedInformationMemorandum”,
October23,2009

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51 | The Indian Telecom Success Story
Telecom Regulatory Authority of India
TheTelecomRegulatoryAuthorityofIndiawasestablished
undertheTRAIActof1997,asanindependentauthority.
Thisactwasfurtheramendedin2000.TRAIwas
establishedtoprovidea“fairandtransparent”environment
ofpolicy-makingwhichwouldensurefaircompetition
amongalltelecomplayers.4 TRAIlookstoprotectthe
interestoftheconsumers,ensuringcompliancewiththe
servicequalitybenchmarks,fixingoftariffsforplayers,
advisingthegovernmentonmattersrelatingto
telecommunicationdevelopmentandtrackingthe
performanceandworkingofallplayerswithintheindustry.
Current FDI policy for the Telecom Sector5:
• ForBasicandcellular,UnifiedAccessServices,National/
InternationalLongDistance,V-Sat,PublicMobileRadio
TrunkedServices(PMRTS),GlobalMobilePersonal
CommunicationsServices(GMPCS)andothervalue
addedtelecomservices,equityinvestmentupto74
percent6 ispermittedwithalimitof49percentunderthe
automaticroute.
Panoramic view on limits under FDI regime:
• Upto74percent(49percentunderautomaticroute)for
Basicandcellular,UAS,NLD/ILD,V-Sat,PMRTS,
GMPCSandothervalueaddedservices;
• Upto74percent(49percentunderautomaticroute)for
ISPwithgateways,radio-paging,end-to-endbandwidth;
4 TRAIwebsite
5 AtelecomventureinanycaseneedstocomplywithDoTregulations
(licensingandotherrequirements)
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
• ForISPwithgateways,radio-paging,end-to-end
bandwidth,equityinvestmentupto74percentis
permittedwithalimitof49percentunderautomatic
route.
• For(a)ISPwithoutgateway,(b)infrastructureprovider
providingdarkfibre,rightofway,ductspace,tower;(c)
electronicmailandvoicemail,equityinvestmentupto74
percentispermittedwithalimitof49percentunder
automaticroute.Thesameissubjecttoaconditionthat
suchcompaniesshalldivest26percentoftheirequityin
favourofIndianpublicin5years,ifthesecompaniesare
listedinotherpartsoftheworld.
• Formanufactureoftelecomequipments,100percent
equityinvestmentispermissibleunderautomaticroute.
• Further,recentlyspecificnormshavebeenlaiddownfor
computingaforesaidlimitsincaseofdownstream
investmentsforallsectors(includingtelecomsector).
• Upto100percent(49percentunderautomaticroute)
forISPwithoutgateways;electronicandvoicemail;IP
category1;
• Upto100percentformanufactureoftelecom
equipments
6 ThisincludesinvestmentsbywayofFDI,FII,NRI,FCCBs,ADRs,GDRs,
convertiblePreferenceshares,andproportionateforeignequityinIndian
promoters/InvestingCompany)
 ‘
The Indian Telecom Success Story | 52

The regulatory and policy environment has played a key role in the
development of the Indian telecom sector and, with initiatives like the 3G
spectrum auctions, will be an important contributor to future growth

Upcoming Regulatory Events

A snapshot

S. No. Regulation Status

MNPisexpectedtoberolledoutinmetrosbyearly2010.Thesecond
1 MobileNumberPortability
phasewillbeimplementedbyendof2010

DoTwillcreateawarenessonNGN;TECwillstudyglobalexamplesof
2 NextGenerationNetworks
NGNdeployment

3 3GandBWASpectrum 3GandBWAauctionislikelytotakeplaceinearly2010

Highspeedbroadbandtobemadeavailableatall25lacgrampanchayats
4 GrowthofBroadband
in3years

MobileVirtualNetworkOperators
5 Policieslikelytobeannouncedsoon
andVoiceOverInternetProtocol

Source:‘ConnectingRuralIndia:TheUntappedGrowthOpportunity’,December2008,Mediareports,DoT

3G Telecom Services7 3Gauctionsisapioneeringactivitythatwill,forthefirsttime

inIndia,provideamarket-determinedpriceofspectrumand
TheexplosivegrowthofthetelecomindustryinIndiais
alsobringinrevenuesforthegovernment.
beingfollowedbytheurgetomovetowardsbetter
technologyandthenextlevelofservicedelivery.The
industry,theregulatorandthegovernmenthaveindulgedin
Broadband/Broadband Wireless Access (BWA)
significantamountofdialogueinthelastfewyearsto
establishapropermechanismtousherinthe3Gera. TheintroductionoftheiPhoneandBlackberryhasopened
upawholenewavenueofdataservicestomobilephones.
Thegovernmenthasrecentlyannouncedthatthe3G
Thepopularityofthesedevicesandtheservicesthatcould
auctionswillbetakingplaceinJanuary,2010.Allexisting
beloadedontothemendedupcloggingupnumerouscell
operatorswillbeeligibletoparticipate,aswellasforeign
phonenetworks.Thesedevicesandnumerousother
operatorswithexperienceofproviding3Gservices.Thiswill
applicationshavehighlightedthepopularityoftheinternetas
provideagoodopportunityforforeignplayerstomakean
wellasbroadbandwirelessaccessacrosstheworld.
entryintotheIndianmarketandbringinnewtechnologyand
innovations.

7 DoT,“Auctionof3GandBWASpectrum-RevisedInformationMemorandum”,
October23,2009;Mediareports

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53 | The Indian Telecom Success Story

ThelevelofinternetandbroadbandaccessinIndiaislower
ascomparedtoglobalstandards.Whilethemobile
subscriberbaseisapproaching500million,thebroadband
userbaseisonlysevenmillionwithanadditional13million
internetsubscribers.Notonlyhasthesubscriberbasein
mobilephoneszoomedpastbroadbandnumbers,thequality
ofbroadbandaccessremainsatrelativelylowlevelsas
comparedtocertaincountriesinEastAsia,Europeand
Americas.
Toaddressthisconcern,thegovernmenthasinitiated
changeswithregardtointernetaccessandbroadband
programsandmadebroadbandinfrastructureandservice
provisioninruralandremoteareaseligibleforsubsidyfrom
theUniversalServiceObligationFund(USOF).
2010couldbethebreakoutyearforbroadbandaccessin
India.Thegovernmenthasinitiatedauctionsforbroadband
wirelessaccessspectrum,tobeheldsoonafterthe3G
auctionsinJanuary,2010.Broadbandwirelessaccess
providesaconvenientwaytoaccesstheinternetand
removestheproblemoflastmilephysicalconnectivitythat
plaguedISPandfixedlinetelecomoperators.Withthe
increasinguseofpersonalcomputers,laptopsandother
mobilecomputingdevices,theabilitytousebroadband
accessathomeandonthemove,makesthisanexciting
periodfortheindustry.
Broadly,MNPallowsanysubscribertochangehisservice
providerwithoutchanginghismobilephonenumber.At
present,ifasubscriberwishestochangeserviceproviders,
thesubscriberwouldlosethebenefitofhavingaknown
mobilephonenumber.Thisformedadeterrentforthe
subscribertomovebetweenserviceprovidersirrespective
ofthequalityofserviceandcompetitivepricing.MNPbrings
outawholenewfacettothishighlycompetitiveindustry
andwillforcetelecomserviceproviderstoimprovethe
qualityoftheirservicetoavoidlosingsubscribers.
Indianmobilitymarketcanbecharacterizedasonewitha
verylargesubscriberbase,highgrowthratesandlow
ARPUs.Themarketishighlycompetitivewith10-12players
operatingineachtelecomcircle,andtheentryofnew
licenseesisexpectedtofurtherintensifythecompetition.All
thismakesforaverypotentcombinationwhichwilllikely
driveupthechurnratesonceMNPisintroduced.
TherealimpactofMNPwilltaketimetorealizeanditwillbe
another18to24monthsbeforeanyquantifiedanalysiscan
bereleased.Amongthevarioussegmentsofsociety,price
sensitivesegmentssuchasstudents,smallbusinessmen
andshopkeepersaremostlikelytobenefitfromMNP.

Mobile Number Portability (MNP)

Governmenthasannouncedthatmobilenumberportability
willbeimplementedinmetrosandCategoryAcircles,andin
therestofthecountryinaphasedmannerover20108.In
manyways,thiscanbeseenasmaturingelementofthe
Indiantelecomindustryandanaturalstepfortheindustryto
gotowards.

8 TRAIPressrelease–68/2009datedSeptember23,2009

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Mobile Virtual Network Operator (MVNO)
TheTRAIissueditsrecommendationsonvariousregulatory
andoperationalaspectsonAugust6,2008andthese
recommendationswereacceptedbytheDepartmentof
TelecommunicationsonFebruary25,2009,subjectto
responsesoncertainissues.Inthesetwosteps,theMVNO
aspectofthetelecomindustryhastakenanimportantstep
insegregatinginfrastructurefromtheserviceaspect,which
istheessenceoftelecomindustryacrosstheworld.With
rapidchangesintechnologyandconstantcustomizationin
servicerequirements,thetelecomindustryisevolvinginto
twoco-existingparts–onewhichdevelops,deploysand
managestechnology,theotherusestechnologytoacquire
andservicecustomers.
AspertheTRAI,thereareapproximately360plannedor
operationalMVNOs9 acrosstheworld.Thisisasignificant
numberconsideringthatthisaspectoftheindustryisless
thanadecadeold.TheMVNObusinessmodelhasevolved
toaddressvariousmarketoroperatordeficienciesregarding:
• Extendingmobileservicestomarketsegmentswith
whichMNOshavenothadmuchsuccesspreviously
• Marketexpansionbyreachingentirelyneworpreviously
un-servedmarketsegmentorgeographicalarea
• Betternetworkutilizationandrealizationofeconomiesof
scale
• Loweroperationalcost
• Effectiveproductbundlingandcrossselling
• UtiliselowoperationalcostofMVNOtoexpandintolow
margin/nicheareas
• Deepeningofthemarketbywayofofferingmore
innovativevalueaddedservicestoconsumerswhose
needsareconstantlychanginggiventhetechnological
progressandfastmovingcontentspace
9TRAIRecommendationsonMobileVirtualNetworkOperators–August6,
2008
10DoT;TRAI;ISPAI;ResearchOnIndia,‘VoIPMarket-India’,August2009
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 54
Thoughtheregulatorandthegovernmenthavetriedto
envisageasmanyaspectsaspossibleinthe
recommendationdocument,theactualoperatingissueswill
emergewhenmanyMVNOsactuallystartoperatingona
largerscaleoncethispolicycomesintoeffect.
Voice over Internet Protocol (VoIP)10
Therapidgrowthofthetelecommunicationindustryhas
createdademandforlowcostdomesticandinternational
calls.ThisiswhereVoiceoverInternetProtocol(VoIP)comes
in;atechnologythatallowstheexchangeofvoiceover
internetprotocolpackedswitches.Thisisalowcostoption
andallitrequiresisalargebandwidthtoensureservice
quality.Thistechnologycanbeeffectivelyutilizedbetween
twopersonalcomputers,apersonalcomputeranda
conventionalphoneaswellasbetweentwoconventional
phones.
LowercallratesarethekeydriverforadoptionofVoIP.India
beingamongthefastestdevelopingeconomiesacrossthe
globeislikelytohaveunprecedenteddemandfor
communicationatlowertariffsespeciallybythelarge
enterprisesaspiringtobecomeglobalbusinesshouses.
Recentsurveysrevealthattheinternetsubscriberbasein
Indiahasrisenfrom11.1millioninMarch2008to13.5
millioninMarch2009;thesefiguresareindicativeofthe
abilityofVoIPtoflourish.Thesefactorsarelikelyto
contributetothegrowthofthissegment;howevertheonly
deterrentisthecostinvolved,whichmaynotbejustifiedin
termsofthereturnsrealized.
Therehasbeenalotofregulatoryactioninthisfieldoverthe
pastdecade.In2002,aspertherecommendationofTRAI
theDoTdecidedtoopenthissector,butinarestricted
manner.Laterin2005theDoTallowedunlimitedinternet
telephonytoallaccessprovidersinIndia.In2006limited
accesswasalsogiventointernetserviceproviders,who
werealsoaskedtopay6percentoftheirrevenuesas
licensefeeandtheywererestrictedfromterminationand
carriageinIndia.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
 The Indian Telecom Success Story | 56

Conclusion

TheworldhasbeenwitnesstothetremendoussuccessoftheIndian
telecommunicationsindustry.Fromtheonset,thesectorhasdisplayedenormous
potentialandplayedanimportantroleindevelopingthecountry’seconomy.The
telecommunicationsindustryhasalsobeenhighlysuccessfulinpromotingthe
publicagendaanddrivinginclusivegrowth.

Thesuccessofthetelecommunicationssectorsofarhadbeenlimitedmoreor
lesstotheurbanareas.Overthelastfewyears,however,theGovernmentaswell
asprivateplayershavebeenmakingaconcentratedattempttoreplicatethe
successesachievedinurbanareastothenewermarketsofruralIndia.Whilevoice
serviceshavetraditionallybeenthekeydriverforthedevelopmentofthesector,
theindustryisnowatthethresholdofthenextbigshiftandispoisedtodrive
growththroughotheravenues.Broadbandconnectivityislikelytoopenupnewer
marketswhileatthesametimeimprovethesocialandeconomicconditionsof
thelowerpenetratedareas.MobileVASisexpectedtobenefitallsectionsof
societywithrelevantcontentbeingdevelopedtoenhancebusinesses,provide
financialassistance,andpromoteeducationandhealthcareforthemasses.The
relativelynewerindustriesoftelecommanufacturingandresearchand
developmentbringwiththemaplethoraofemploymentopportunitiesforall.

TheGovernment,recognizingtheneedsoftheindustry,hasannouncedmany
upcomingregulationsthatareexpectedtofurthergrowtheindustry.This
proactiveregulatoryenvironmenthashadanextremelypositiveimpactandhas
heraldedthenextphaseofdevelopmentforthetelecommunicationssector.

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57 | The Indian Telecom Success Story

About Department of
Telecommunications (DoT)
TheDepartmentofTelecommunicationsoftheGovernmentofIndiaisresponsible
fortelecompolicyformulation,telecomlicensing,wirelessspectrum
management,universalserviceobligation,promotionofInternationalco-operation
intelecommunications,promotionofprivateinvestmentsintelecomsector,
standardizationandresearchinthefieldoftelecommunicationsandadministration
of:

• IndianTelegraphAct,1885

• IndianWirelessTelegraphyAct,1933

• TelecomRegulatoryAuthorityofIndiaAct,1997

About Federation of Indian Chambers

of Commerce and Industry (FICCI)
FICCI,setupin1927isthelargestandoldestapexbusinessorganizationofIndian
business.Withanationwidemembershipofover1500corporatesandover500
chambersofcommerce,FICCIespousesIndianbusinessesandspeaksdirectly
andindirectlyforover2,50,000businessunits.FICCImaintainstheleadasthe
proactivebusinesssolutionsproviderthroughresearch,interactionsatthehighest
politicallevelandglobalnetworking.

FICCIorganizesalargenumberofexhibitions,conferences,seminarsand
businessmeetsforpromotingbusiness.

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 The Indian Telecom Success Story | 58

About KPMG in India

KPMGisaglobalnetworkofprofessionalfirmsprovidingAudit,TaxandAdvisory
services.Weoperatein140countriesandhave135,000peopleworkingin
memberfirmsaroundtheworld.TheindependentmemberfirmsoftheKPMG
networkareaffiliatedwithKPMGInternational,aSwisscooperative.EachKPMG
firmisalegallydistinctandseparateentityanddescribesitselfassuch.

TheIndianmemberfirmsaffiliatedwithKPMGInternationalwereestablishedin
September1993.Asmembersofacohesivebusinessunittheyrespondtoa
Clientserviceenvironmentbyleveragingtheresourcesofaglobalnetworkof
firms,providingdetailedknowledgeoflocallaws,regulations,marketsand
competition.Weprovideservicestoover2,000internationalandnationalclients,
inIndia.KPMGhasofficesinIndiainMumbai,Delhi,Bangalore,Chennai,
Hyderabad,Kolkata,PuneandKochi.ThefirmsinIndiahaveaccesstomorethan
2000Indianandexpatriateprofessionals,manyofwhomareinternationally
trained.Westrivetoproviderapid,performance-based,industry-focusedand
technology-enabledservices,whichreflectasharedknowledgeofglobalandlocal
industriesandourexperienceoftheIndianbusinessenvironment.

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Contact Us

Department of The Telecom Regulatory Telecom Disputes Settlement

Telecommunication Authority of India & Appellate Tribunal
Sudhir Kumar Saxena Mahanagar Doorsanchar Bhawan Room No.282 & Room No.478, Hotel Samrat
Director Jawaharlal Nehru Marg Chanakyapuri, Kautilya Marg
Room No.501, Sanchar Bhavan New Delhi: 110 002 India New Delhi - 110 021 India
Ashoka Road, New Delhi -110001 Telephone: 91-11-2321 1934, 2323 3466, Telephone: 91-11-26876882,
+91 (11) 2337 2575 2322 0534, 2321 3223 91-11-26873411, 91-11-24102563
Fax: 91-11-2321 3294 Fax: 91-11-24105171, 91-11-26876882
Website: www.trai.gov.in Website: www.tdsat.nic.in

Telecommunication Engineering Centre for Development of

Centre Telematics (C-DOT)
Gate No. 5 C-DOT Campus
Khurshid Lal Bhavan, Janpath Mandi Road, Mehrauli
New Delhi – 110001 India New Delhi-110030 India
Telephone: 91-11-23717138 Telephone: 91-11-26802856
Website: www.tec.gov.in Fax : 91-11-26803338
Website: www.cdot.com

Federation of Indian Chambers

of Commerce and Industry
Dushyant Thakor
Sarika Gulyani
IT & Telecom Division
Federation House, Tansen Marg,
New Delhi -110001
+91 (11) 2373 8760-70
ficcitelecom@ficci.com

KPMG

Sean Collins Rajesh Jain Romal Shetty

Global Chair - Communications and Media Executive Director Executive Director
seanacollins@kpmg.com rcjain@kpmg.com romalshetty@kpmg.com
+65 6213 7302 +91 (22) 3090 2370 +91 (80) 3065 4100

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Theinformationcontainedhereinisofageneralnatureandisnotintendedtoaddressthecircumstancesofanypartic- firmoftheKPMGnetworkofindependentmember
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Associates: