The Telecommunications Industry in India -- Michael

Porter'sFive Forces Analysis

TELECOM INDUSTRY India continues to be one of the fastest growing telecom

markets in theworld. Reforms introduced by successive Indian governments over the
lastdecade have dramatically changed the nature of telecommunications in thecountry.
The sector ranks second in the world, with over 225.7 milliontelephone subscriptions by
2008-end.The fast track growth of the Indian telecom industry has made it a
keycontributor to India¶s progress. India adopted a phased approach for reforming the
telecom sector right from the beginning. Privatization wasgradually introduced, first in
value-added services, followed by cellular andbasic services. An independent regulatory
body, Telecom RegulatoryAuthority of India (TRAI), was established to deal with
competition in abalanced manner.This gradual and thoughtful reform process in India has
favored industrygrowth. Today, there are more than 225 million telecom subscribers in
India.Every month, 6-7 million new subscribers are added. Upcoming servicessuch as 3G
and WiMax will help to further augment the growth rate.Furthermore, the Indian
economy is slated to sustain its 7-9 per cent growthrate in the near future. This is
supported by the political stability that thecountry is experiencing currently. India¶s
demographic outlook makes it oneof the largest markets in the world. A conducive
business environment isalso created by a favorable regulatory regime.There exists
enormous business potential for telecom companies on accountof the country¶s low
teledensity, which is close to 19 per cent presently. TheIndian telecom industry is
growing at the fastest pace in the world and Indiais projected to be the second largest
telecom market globally by 2010.
The Telecommunications Industry in India in MichaelPorter's Five Forces Analysis
: It uses concepts developed in Industrial Organization economics to derivefive forces
that determine the competitive intensity and thereforeattractiveness of a market. Porter
referred to these forces as the micro-environment, to contrast it with the more general
term macro-environment.They consist of those forces close to a company that affect its
ability to serveits customers and make a profit. A change in any of the forces
normallyrequires a company to re-assess the marketplace.
1. RIVALRY AMONG EXISTING COMPETITORS
Competition in Indian Telecom Industry Major Players
 There are three types of players in telecom services: ‡ State owned companies (BSNL
and MTNL).‡ Private Indian owned companies (Reliance Infocomm, TataTeleservices.‡
Foreign invested companies (Vodafone, Bharti Tele-Ventures, IdeaCellular, Spice
Communications).
BSNL:

On October 1, 2000 the Department of Telecom Operations, Government of India

became a corporation and was renamed Bharat Sanchar NigamLimited (BSNL). BSNL is
now India¶s leading TelecommunicationsCompany and the largest public sector
undertaking. It has a network of over 45 million lines covering 5000 towns with over 35
million telephoneconnections. The state-controlled BSNL operates basic, cellular (GSM
andCDMA) mobile, Internet and long distance services throughout India (exceptDelhi
and Mumbai). BSNL will be expanding the network in line with theTenth Five-Year Plan
(1992-97). The aim is to provide a telephone densityof 13.6 per hundred by March 2008.
BSNL, which became the third operator of GSM mobile services in most circles, is now
planning to overtake Bhartito become the largest GSM operator in the country. BSNL is
also the largestoperator in the Internet market, with a share of 21 per cent of the
entiresubscriber base

BH
ARTI
:

Established in 1985, Bharti has been a pioneering force in the telecom sector with many
firsts and innovations to its credit, ranging from being the firstmobile service in Delhi,
first private basic telephone service provider in thecountry, first Indian company to
provide comprehensive telecom servicesoutside India in Seychelles and first private
sector service provider to launchNational Long Distance Services in India. Bharti Tele-
Ventures Limited wasincorporated on July 7, 1995 for promoting investments
intelecommunications services. Its subsidiaries operate telecom services acrossIndia.
Bharti¶s operations are broadly handled by two companies: theMobility group, which
handles the mobile services in 16 circles out of a total23 circles across the country; and
the Infotel group, which handles the NLD,ILD, fixed line, broadband, data, and satellite-
based services. Together they
have so far deployed around 23,000 km of optical fiber cables across thecountry, coupled
with approximately 1,500 nodes, and presence in around200 locations. The group has a
total customer base of 6.45 million, of which5.86 million are mobile and 588,000 fixed
line customers, as of January 31,2004. In mobile, Bharti ¶s footprint extends across 15
circles. Bharti Tele-Ventures' strategic objective is ³to capitalize on the growth
opportunities thecompany believes are available in the Indian telecommunications market
andconsolidate its position to be the leading integrated telecommunicationsservices
provider in key markets in India, with a focus on providing mobileservices´.

MT
NL

MTNL was set up on 1st April 1986 by the Government of India to upgradethe quality of
telecom services, expand the telecom network, and introducenew services and to raise
revenue for telecom development needs of India¶skey metros ± Delhi, the political
capital, and Mumbai, the business capital.In the past 17 years, the company has taken
rapid strides to emerge asIndia¶s leading and one of Asia¶s largest telecom operating
companies. Thecompany has also been in the forefront of technology induction
byconverting 100% of its telephone exchange network into the state-of-the-artdigital
mode. The Govt. of India currently holds 56.25% stake in thecompany. In the year 2003-
04, the company's focus would be not onlyconsolidating the gains but also to focus on
new areas of enterprise such asjoint ventures for projects outside India, entering into
national long distanceoperation, widening the cellular and CDMA-based WLL customer
base,setting up internet and allied services on an all India basis. MTNL has over 5million
subscribers and 329,374 mobile subscribers. While the market for fixed wireline phones
is stagnating, MTNL faces intense competition fromthe private players²Bharti, Hutchison
and Idea Cellular, RelianceInfocomm²in mobile services. MTNL recorded sales of Rs.
60.2 billion($1.38 billion) in the year 2002-03, a decline of 5.8 per cent over theprevious
year¶s annual turnover of Rs. 63.92 billion.
RE
L
IA
NC
EI
N
FO
C
OMM
:

Reliance is a $16 billion integrated oil exploration to refinery to power andtextiles

conglomerate. It is also an integrated telecom service provider with
licenses for mobile, fixed, domestic long distance and international services.Reliance
Infocomm offers a complete range of telecom services, coveringmobile and fixed line
telephony including broadband, national andinternational long distance services, data
services and a wide range of valueadded services and applications. Reliance IndiaMobile,
the first of Infocomm's initiatives was launched on December 28, 2002. This markedthe
beginning of Reliance's vision of ushering in a digital revolution in Indiaby becoming a
major catalyst in improving quality of life and changing theface of India. Reliance
Infocomm plans to extend its efforts beyond thetraditional value chain to develop and
deploy telecom solutions for India'sfarmers, businesses, hospitals, government and public
sector organizations.Until recently, Reliance was permitted to provide only ³limited
mobility´services through its basic services license. However, it has now acquired
aunified access license for 18 circles that permits it to provide the full rangeof mobile
services. It has rolled out its CDMA mobile network and enrolledmore than 6 million
subscribers in one year to become the country¶s largestmobile operator. It now wants to
increase its market share and has recentlylaunched pre-paid services. Having captured the
voice market, it intends toattack the broadband market.
TATA TE
L
E
S
ERVI
C
E
S

Tata Teleservices is a part of the $12 billion Tata Group, which has 93companies, over
200,000 employees and more than 2.3 million shareholders.Tata Teleservices provides
basic (fixed line services), using CDMAtechnology in six circles: Maharashtra (including
Mumbai), New Delhi,Andhra Pradesh, Tamil Nadu, Gujarat, and Karnataka. It has over
800,000subscribers. It has now migrated to unified access licenses, by paying a Rs.5.45
billion ($120 million) fee, which enables it to provide fully mobileservices as well. The
company is also expanding its footprint, and has paidRs. 4.17 billion ($90 million) to
DoT for 11 new licenses under the IUC(interconnect usage charges) regime. The new
licenses, coupled with the sixcircles in which it already operates, virtually gives the
CDMA mobileoperator a national footprint that is almost on par with BSNL and
RelianceInfocomm.. The circles include Bihar, Haryana, Himachal Pradesh,
Kerala,Kolkata, Orissa, Punjab, Rajasthan, Uttar Pradesh (East) & West and
WestBengal.
V
SNL:
On April 1, 1986, the Videsh Sanchar Nigam Limited (VSNL) - a whollyGovernment
owned corporation - was born as successor to OCS. Thecompany operates a network of
earth stations, switches, submarine cablesystems, and value added service nodes to
provide a range of basic and valueadded services and has a dedicated work force of about
2000 employees.VSNL's main gateway centers are located at Mumbai, New Delhi,
Kolkataand Chennai. The international telecommunication circuits are derived viaIntelsat
and Inmarsat satellites and wide band submarine cable systems e.g.FLAG, SEA-ME-WE-
2 and SEA-ME-WE-3. The company's ADRs arelisted on the New York Stock Exchange
and its shares are listed on major Stock Exchanges in India. The Indian Government
owns approximately 26per cent equity, M/s Pantone Finvest Limited as investing vehicle
of TataGroup owns 45 per cent equity and the overseas holding (inclusive of FIIs,ADRs,
Foreign Banks) is approximately 13 per cent and the rest is owned byIndian institutions
and the public. The company provides international andInternet services as well as a host
of value-added services. Its revenues havedeclined from Rs. 70.89 billion ($1.62 billion)
in 2001-02 to Rs. 48.12billion ($1.1 billion) in 2002-03, with voice revenues being the
mainstay. Toreverse the falling revenue trend, VSNL has also started offering
domesticlong distance services and is launching broadband services. For this,
thecompany is investing in Tata Teleservices and is likely to acquire TataBroadband.

HU
T
CH
(Vodafone)
:

Hutch¶s presence in India dates back to late 1992, when they worked withlocal partners
to establish a company licensed to provide mobiletelecommunications services in
Mumbai. Commercial operations began inNovember 1995. Between 2000 and March
2004, Hutch acquired further operator equity interests or operating licenses. With the
completion of theacquisition of BPL Mobile Cellular Limited in January 2006, it
nowprovides mobile services in 16 of the 23 defined license areas across thecountry.
Hutch India has benefited from rapid and profitable growth inrecent years. It had over
27.8 million customers by the end of June 2008.
IDEA
:
Indian regional operator IDEA Cellular Ltd. has a new ownership structureand grand
designs to become a national player, but in doing so is likely tobecome a thorn in the side
of Reliance Communications Ltd. IDEA operatesin eight telecom ³circles,´ or regions, in
Western India, and has receivedadditional GSM licenses to expand its network into three
circles in EasternIndia -- the first phase of a major expansion plan that it intends to
fundthrough an IPO, according to parent company Aditya Birla Group
2.
B
ARGAI
N
I
N
G POWER OF
C
O
NSU
MER
S

Recent Status : Indian Telecom industry is one of the fastest growing telecom markets in
theworld. In telecom industry, service providers are the main drivers; whereasequipment
manufacturers are witnessing growth and decline in successivequarters as sales is
dependent on order undertaken by the companies. Airtel,Reliance, Tata and Sterlite are
some of the companies that are expected tospur the growth in 2008, as compared to
AMJ07. According to Cygnusestimates, telecom industry was expected to grow by 25%
in 2008 ascompared to AMJ07, in terms of sales. EBDITA and PAT are expected togrow
by 32% and 34% respectively in 2008 as cost expenses are beingcontrol by major
companies like Airtel and Reliance. The major booster isthe wireless mobile subscriber
base; crossing over 261m in March 2008.Other services like Internet subscriber base has
also provided significantimpetus with its subscriber base reaching over 11m in March
2008. The totalsubscriber base of Wireline services stood at 39.42 million as on 31st
March2008. The incumbents BSNL and MTNL have 80.05% and 9.33% marketshare
respectively in the subscriber base, while all the five private operatorstogether have
10.62% share. Wireline subscriber base has been declining inthe last few years.
Subscriber base for some of the companies like Bharti,Tata (Tele & Communications),
MTNL and Reliance increased marginally.On the other hand, BSNL, Shyam and
Telelinks have lost marginalsubscriber base in 3rd QUARTER OF 2008, as compared to
the previousquarter.
MARKET
SH
ARE OF WIRE
L
E
SS
OPERATOR
S
TI
LL

2008
3
.
B
argaining Power of
S
uppliers
: As far as telecom industry is concerned, it is service based industry which isintangible,
so in this case there are less suppliers or we can say the role of suppliers are almost
negligible in the case of telecom industry. We are tryingto analyze that minor role 1.

Mobile hand set suppliers: - There can be many suppliers for handset,some of them are
Nokia, Sony Ericsson, Motorola, and Siemens etc.Many big telecom giants have their
own handset manufacturing(back ward integration) like Reliance Classic, Tata Indicom
or theyhave collaboration with some known companies like Reliancecommunication have
tie ups with Samsung and LG for their CDMAservices. 2.

Some other suppliers for this industry can be the Optical fibresuppliers, Aluminum
suppliers (aluminum is required for the tower)but their bargaining power is limited.
3.

Other important parameters can be the software assistance wheresuppliers can have the
edge some of the main software solutionprovider are TCS, Infosys, Wipro, Satyam etc.
Again one thing isnoticeable that big giants like Reliance and Tata have their own
unitsfor software solution and companies like Vodafone, Spice are takingservices from
above stated companies. So here software providershave bargaining power because
suppose Vodafone can¶t go to
Reliance info for their software solution so here suppliers can haveedge over the
companies
.
4.THREAT TO NEW ENTRANTSThe Indian telecom sector offers unprecedented
opportunities for foreigncompanies in various areas, such as 3G, virtual private
network,international long distance calls, value added services, etc. The market is
witnessing M&A activities that are leading to consolidationsin the industry. This trend
has assisted companies in expanding their reach inthe Indian telecom market to offer
better services to customers.The Indian telecom industry has always allured foreign
investors. In fact, thecumulative FDI inflow, from August 1991 to March 2007, in
thetelecommunication sector amounted to US$ 3,892.19 million. This
makestelecommunication the third-largest sector to attract FDI in India in the
postliberalization era.
In India large numbers of players are emerging in the market on the nationallevel from its
state level existence such as:
y

Aircel
y

Virgin
y

Spice
y

Idea
y

Unitech5.SUBSTITUTE TO PRODUCTTelecom sectors offers a wide range of services

in India, such as wireline,CDMA mobile, GSM mobile, internet, broadband, carrier,
MPLS-VPN,VSAT, VoIP, IN, etc.Internet telephoneIt is emerging as a best option in
place of because it is cheaper and videoas an added advantage.
INTERNET SEVICEPROVIDERMARKETSHARE(%)BSNL 45.2MTNL 19SIFY
8.9BHARTI AIRTEL 6.8RELIANCE 6.1
 As we can see that use of internet in our country is on growing rate. Asthere are many
tools which can be accessed through internet like videoconferencing other important tool
is talking through internet for eg.Google talk, rediff bol, yahoo messenger. Important
thing is that internetis cheaper medium of communication and one can have many
facilities if he/she is connected to the world through the internet. As we have seengovt
has several plans to increase the speed of internet so that one canexploit the resources
which are available.
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The Telecommunications Industry in India -- Michael Porter's Five Forces Analysis

• The rivalry between existing sellers in the market.
• The power... (More) The Telecommunications Industry in India -- Michael Porter's Five
Forces Analysis
• The rivalry between existing sellers in the market.
• The power exerted by the customers in the market.
• The impact of the suppliers on the sellers.
• The potential threat of new sellers entering the market.
• The threat of substitute products becoming available in the market.
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