Enabling the next wave of

telecom growth in India

Industry inputs for
National Telecom Policy 2011
2 Enabling the next wave of telecom growth in India
Foreword
The Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young
have collaborated on this deep review of the telecoms sector in India.

The National Telecom Policy 1999 (NTP 1999) has served the sector in India for well
over a decade, in which time we have witnessed significant changes in the socioeconomic
environment, technological advancements and business dynamics. The telecom industry
in India is ready to take the next leap forward with new developments such as launch of
third generation (3G) services by private operators, 3G and broadband wireless access
(BWA) auctions, launch of mobile number portability (MNP), and the emergence of mobile
commerce (m-commerce). In the future, rural and semi-rural markets are expected to
drive growth, especially in the wireless segment.

The Ministry of Communications & Information Technology has released the

100-day agenda for the Indian telecom sector, and announced formulation of a
new and comprehensive National Telecom Policy 2011 (NTP’11). Therefore, the
time is ripe for a comprehensive review to build a forward looking and transparent policy
that will be the backbone to achieve the ”India telecom vision 2020.”

This report focuses on specific areas where the Government of India (GoI) needs to
intervene and move the policy to the next generation of reforms. It aims to capture
developments witnessed in the telecom sector in the last decade and analyze historical
performance to estimate growth over the next ten years. It includes inputs from
stakeholders in the telecom industry, encompassing operators, telecom equipment
manufacturers, infrastructure providers, industry associations and industry practitioners.

We would like to extend our gratitude to the industry leaders who participated in the
report and helped us to present the industry’s perspective.

Amit Mitra Virat Bhatia Prashant Singhal

Secretary General Chairman Telecom Industry Leader
FICCI, India FICCI Committee on Ernst & Young, India
Communications and
Digital Economy

Enabling the next wave of telecom growth in India iii

Executive
summary
The liberalization of the domestic economy and increasing
integration with the global economy has positioned India
as the second fastest expanding economy of the world.
After embracing a closed, centralized economic model for
four decades, India shifted to a market-oriented model.
Liberalization initiatives, especially in the 1990s, resulted
in an improved business climate and in an increase in
investment across the country, boosting the industrial
growth over the past decade. Indian telecom is an
economic miracle in the making. Connecting such a vibrant
economy of more than a billion people together and with
the rest of the globe is an extraordinary achievement in
terms of a nation’s socioeconomic development.
India has faced challenges in liberalizing its telecom
industry from a monopoly to a decentralized competitive
model. The announcement of the National Telecom
Policy (NTP) in 1994 marked the first steps toward the
iv Enabling the next wave of telecom growth in India
new model. It aimed at making available “telephone
on demand,” the provision of leading class services at
reasonable prices, promoting India’s emergence as a
major manufacturing and export base of telecom
equipment and universal availability of basic telecom
services to all villages. In 1999, Government, recognizing
the need to overhaul its policy framework, issued the
NTP 1999, which had played a key role in shaping the
sector. India has reached the goals set in NTP 1999 far
ahead of time, with the market evolving into the world’s
second largest in terms of subscribers. Presently, there
are more than 700 million subscribers in India, and the
overall teledensity has reached more than 60%.
With plenty of strong potential value remaining, the sector
requires much attention and a robust policy framework to
address the challenges that exist in the present scenario
as well as help to capture the opportunities that the sector
holds for the country.
The present challenges include the spectrum and licensing framework, Universal Service
Obligation Fund (USOF) structure, broadband, equipment manufacturing, infrastructure
segment, mergers and acquisitions scenario, taxation and aspects of foreign direct
investment (FDI). The opportunities around which the policy initiatives need to be
designed include financial inclusion, m-commerce and convergence.

The major recommendations for the policy framework for the Indian telecom industry
are as follows:

Focus areas Recommendations

Licensing Need to have a single universal license for all telecom services
There should be a uniform fee structure across all telecom circles
Pure internet service providers should continue to be allowed
without payment of any license fees
Provide a clear license renewal regime that includes legislation,
renewal procedures, reasons for refusal to renew and appeals to
regulatory decisions

Enabling the next wave of telecom growth in India v

 Focus areas Recommendations
Spectrum Need to re-farm available spectrum
Spectrum up to contracted limit should be ensured as initial
spectrum to the existing players
Spectrum usage charge should be identified upfront at the time
of spectrum allocation
USOF The USOF should be utilized for the following in rural and remote
areas:
• P
 rovision of public telecom and information services
• Provision of household telephones
• Creation of infrastructure for provision of mobile services
• Provision of broadband connectivity to villages in a phased
manner
• Creation of general infrastructure for development of
telecommunication facilities
• Induction of new technological developments in the telecom
sector
Subsidies should be distributed through transparent market-
oriented allocation strategy
Broadband Backhaul connectivity and optic fiber communication (OFC)
should be provided to all telecom towers, base station controllers
(BSCs) and base transceiver stations (BTS) from nearest block
headquarters
Make available more spectrum for wireless broadband
Make broadband connectivity mandatory for all buildings to
get completion certificate on the lines of water and power
connectivity
Create content and applications in regional languages to promote
rural broadband
Mergers and acquisition M
 erger should not result in less than six operators in a circle
The share of a merged entity should not be greater than 30% in
terms of sub-base or adjusted gross revenue (AGR)

vi Enabling the next wave of telecom growth in India

 Focus areas Recommendations
Taxation The upcoming goods and service tax (GST) regime should aim to
simplify the tax structure for the industry, with all services and
goods being taxed at a standard rate
Special consideration needs to be given on certain areas in the
backdrop of the peculiarities of the telecom sector such as “place
of supply rules” i.e., the state where GST will be paid for different
kind of telecom services; ease in state-wise compliances
Equipment manufacturing There is a need to set up hardware manufacturing cluster parks
(HMCP) across the country and upgrade localized infrastructure
to support large volume contract manufacturing
R&D should be the key focus
Telecom infrastructure Need to lay down a National Telecom Critical Infrastructure Policy
on the lines of NTP 1999 elaborating uniform procedures for land
acquisition, a uniform system of taxation and subsidies and other
incentives designed to create an environment that encourages
the build-out of the national telecom infrastructure and the
increased participation of all stakeholders
There is a need for a national right of way (ROW) policy for the
rollout of backhaul network
Enterprise data Upgrading encryption levels in international long distance
(ILD) and national long distance (NLD) licenses to allow strong
encryption of up to 256 bits to protect confidential information in
accordance with international best practices
Telecom Regulatory Authority of India (TRAI) and Department
of Telecommunications (DOT) should eliminate the cumulative
assessment of licensing fees on the purchase of inputs, which
imposes double taxation on ILD and NLD license holders
FDI Given the importance of foreign investment, the policy should
consider raising the upper limit on foreign investment to
encourage more foreign players to invest in the capex-intensive
telecom sector

Policies should also cover areas like financial inclusion, m-commerce, convergence, security
concerns and consumer affordability. However, there is no unique, perfect model accepted
globally which can be implemented in India and leading practices across the globe should be
adopted for transforming the Indian telecom sector into the greatest possible success story.

Enabling the next wave of telecom growth in India vii

Methodology
In 2010, Ernst & Young conducted a research study on the Indian
telecom sector in collaboration with one of the leading business
organizations in India — FICCI. The study gives a detailed perspective
on the telecom sector in India, outlining the phenomenal growth
witnessed by the sector and recommendations for the existing policy
framework that will enable the next level of growth. It examines the NTP
1999, which is used by the Government of India (GoI) as a decision-
making guide for the Indian telecom sector. This report reflects the key
conclusions of that wider study.

The research program studies in detail all the key segments of the
telecom landscape — wireless, wireline, broadband, infrastructure,
NLD, ILD, value-added services (VAS), equipment manufacturing,
infrastructure and convergence. It identifies and evaluates the critical
success factors that are applicable across all telecom segments such
as spectrum, USOF, licensing framework, FDI, security, consumer
affordability and the role of the regulator.

As a part of the research program, Ernst & Young conducted

comprehensive interviews with senior executives in the Indian
telecom sector. These interviews provided a firsthand perspective
on the opportunities and challenges faced by various stakeholders
in the sector. These findings have been combined with secondary
research, analysis and insights provided by Ernst & Young.

viii
 Syed Safawi
President
Reliance
Communications Ltd.

List of Vsevolod Rozanov

participants
P Balaji President and
Head of Communications, Chief Executive Officer
Corporate Affairs & Business Sistema Shyam
Development, India TeleServices Ltd.
Ericsson India

Virat Bhatia
President, Mahendra Nahata Shamik Das
External Affairs, South Asia Managing Director Chief Executive Officer
AT&T Communication Himachal Futuristic S Tel Pvt. Ltd.
Services India Pvt. Ltd. Communication

Rajan S. Mathews Rajat Mukarji Anil Sardana

TV Ramachandran Director General Chief Corporate Managing Director
Resident Director Cellular Operators Affairs Officer Tata Teleservices Ltd.
Vodafone Essar Association of India Idea Cellular Ltd.

Sanjay Kapoor Lt. Col. HS Bedi, VSM

Chief Executive Officer Mahesh Uppal B S Shantharaju Chairman and
Bharti Airtel Director Chief Executive Officer Managing Director
(India & South Asia) Com First (India) Pvt. Ltd. Indus Towers Ltd. Tulip Telecom Ltd.

Rajiv Mehrotra
Ashok Sharma Chief Executive Officer
Brijendra K Syngal Parag Kar
National Head — Regulatory
Senior Director — Vihaan Networks Ltd.
Aircel Ltd. Senior Principal
Dua Consulting Pvt. Ltd. Government Affairs
Qualcomm India Pvt. Ltd.

SC Khanna Naresh Ajwani

Secretary General Himanshu Kapania CS Rao Chief Regulatory &
Association of Unified Deputy Managing Director Corporate Affairs
Head of Corporate Affairs
Telecom Service Providers Idea Cellular Viom Networks Ltd.
and Regulatory Division
of India ix
Reliance Communications
Industry associations

Federation of Indian Chambers of Commerce and
Industry (FICCI): established in 1927, FICCI is one of
the largest and oldest apex business organizations
in India. It plays a leading role in policy debates that
are at the forefront of Indian social, economic and
political change. FICCI is active in 39 sectors of the
economy, and its stand on policy issues is sought
after by think tanks, governments and academia. The
organizations’ publications are widely read for their
in-depth research and policy prescriptions. Home to
400 professionals, it has joint business councils with
79 countries across the world.
Cellular Operators Association of India (COAI):
established in 1995, COAI is a registered, non-
profit, non-governmental society dedicated to the
advancement of modern communication through the
establishment of a world-class cellular infrastructure.
Over the years, COAI has emerged as the official
voice for the Indian GSM industry and interacts
directly with ministries, policy-makers, regulators,
financial institutions and technical bodies. It provides
a forum for discussion and exchange of the ideas
between these bodies and service providers, who
share a common interest in the development of
cellular mobile telephony.
Association of Unified Telecom Service Providers
of India (AUSPI): constituted in 1997, AUSPI is
a registered society that works as a non-profit
organization with the aim of delivering improved
access, coverage and teledensity in India. AUSPI
is the representative industry body of unified
access service licensees providing CDMA and GSM
mobile services, fixed–line services and VAS across
the country.
Association of Competitive Telecom Operators
(ACTO): established in 2008, ACTO is an industry
body that focuses on policies that enhance enterprise
telecommunications in India. The association
was formed by several leading non-integrated
long-distance carriers that provide service to
the enterprise market segment, which includes
IT-enabled services, business process outsourcing
and multinational company segments.
Internet & Mobile Association of India (IAMAI):
founded in January 2004, IAMAI is an industry
body representing the interests of online and
mobile VAS industry. The association’s activities
include promoting the digital economy, evaluating
and recommending industry standards and
practices, conducting research, creating platforms
for its members, communicating on behalf of the
industry and helping to create a favorable business
environment for the industry.
Telecom Equipment Manufacturers Association
(TEMA): established in 1990, TEMA is an industry
association for telecom equipment manufacturers
as well as component and cable manufacturers.
It plays an active role in the dissemination and
exchange of information among the GoI,
foreign agencies, embassies, trade missions,
Indian missions abroad and leading national and
international trade associations.
Internet Service Providers Association of India
(ISPAI): founded in 1998, ISPAI acts as a collective
voice of the ISP community, with the mission of
promoting internet for the benefit of all. It has helped
in shaping telecom policies for ISPs and internet
entrepreneurs to grow their services in a supportive
and enabling environment.
Other Service Providers Association of India
(OSPAI): established in 2008, OSPAI is the
representative industry body, functioning as an
association of companies operating in areas such
as domestic and international call centers, business
process outsourcing, knowledge process outsourcing,
information technology (IT), medical transcription,
financial services, tele-medicine, tele-education,
tele-trading, billing services and network operating
centers. It acts as an interface with government
bodies for the growth of all services covered under
the registration of other service providers.
Contents
1. Indian telecom sector 3
1.1. Overview 3

1.2. Importance of telecom 5

2. Evolution of the telecom sector in India 9

2.1. History of the Indian telecom industry 10

2.2. Regulatory framework 12

2.3. Overview of the Indian telecom industry 14

2.4. Wireless 15

2.5. Wireline 16

2.6. Internet and broadband subscribers 17

2.7. National long distance and international long distance 19

2.8. Telecom equipment manufacturing in India 21

2.9. Infrastructure 22

2.10. Value-added services 27

2.11. Outlook 28

3. Achievements and setbacks of NTP 1999 31

3.1. Key achievements of NTP 1999 34

3.2. Key challenges of NTP 1999 41

4 Key enablers 45
4.1. Connected India: telecom vision 2020 46

4.2. Connected Indian: telecom mission 2020 47

4.3. Key enablers under existing scenario 48

4.3.1 Licensing 48

4.3.2 Spectrum 50

1 Enabling the next wave of telecom growth in India

 4.3.3 Universal Service Obligation Fund (USOF) 53

4.3.4 Broadband 55

4.3.5 Mergers and acquisition 57

4.3.6 Taxation 58

4.3.7 Foreign direct investment (FDI) 60

4.3.8 Consumer affordability and rural penetration 61

4.3.9 Human resource 63

4.3.10 Equipment manufacturing 64

4.3.11 Telecom infrastructure 66

4.3.12 Enterprise data 69

4.3.13 Convergence 70

4.3.14 Security 71

4.4. Key enablers for potential opportunities 72

4.4.1 m-commerce 72

4.4.2 M2M communication 73

4.4.3 Mobile money 73

4.4.4 M-health 73

4.4.5 M-education 74

4.4.6 Financial inclusion 74

4.4.7 MNREGA and UID 74

5. Global practices 75
Conclusion 87
Glossary 89

Enabling the next wave of telecom growth in India 2

1
Indian telecom
sector
1.1. Overview
Over the past two decades, India has grown rapidly from a “command
and control” economy to a market-based economy. India is now closely
integrated with the global economy and is considered one of the pillars
of global economic growth. The process of liberalization started in the
mid-1980s and gathered momentum in the 1990s, with the further
opening of the economy and the creation of regulatory institutions to
march toward fully competitive markets. As a result of liberalization,
India’s GDP has been rising by more than 7%1 annually in the past
decade, compared with 3.5%2 annually from 1950 to 1980. The Indian
economy maintained a growth rate of more than 5% even during the
global recession.

In FY10 (financial year ended 31 March 2010), India’s service sector

was estimated to account for 56.9%3 of GDP, while the industrial sector
and agriculture sector contributed 28.5% and 14.6%, respectively, to
GDP. Within the services sector, the telecom sector has been the major
contributor to India’s growth, accounting for nearly 3.6%4 of total GDP
in FY10. In less than a decade, the mobile phone has been transformed
from being a luxury that few could own into one of the essentials of an
average Indian’s existence. The easy access to mobile services is the
outcome of positive regulatory changes, intense competition among
multiple operators, low-priced handsets, low tariffs and significant
investments in telecom infrastructure and networks.

1 India: Rising growth potential, DBS Group Research, 13 October 2010.

2 “Redefining The Hindu Rate Of Growth,” The Financial Express,12 April 2004, http://www.financialexpress.com/news/redefining-the-hindu-rate-of-
growth/104268/0, accessed 19 October 2010.
3 “India’s Macroeconomic Indicators,” Export-Import Bank of India website, 26 August 2010, http://www.eximbankindia.com/ind-eco.pdf, accessed
10 October 2010.
4 India 2012: telecom growth continues, Ernst & Young report, November 2008, page 8.
3 Enabling the next wave of telecom growth in India
Indian telecom model

Outsourcing non-core
Infrastructure sharing
activities like IT, network

Paradigm shift
from average
Focus on Low cost
revenue per user
prepaid distribution,
(ARPU) to revenue
e-Charge
per min

Low acquisition cost

Economies of scale (no handset subsidy)

Source: “How can carriers make 40% EBIDTA margin at 2 cents/min

tariff?,” http://www.telecomcircle.com/2009/02/carriers-ebidta/,
accessed 25 October 2010.

Enabling the next wave of telecom growth in India 4

1.2. Importance of telecom
Telecommunication is pivotal to a country’s socioeconomic
growth. It is one of the main architects of the accelerated
growth and progress of different segments of the
economy. Narrowing access gaps and removing barriers
to information dissemination are prerequisites for
promoting equitable and sustainable development as well
as political and social cohesion. Increasing connectivity
is highly instrumental in improving governance, business
communication, security, response to emergencies
and in the overall strengthening of the sociocultural
ethos of the country. The advantages of the advent of
telecommunications are manifold and explicitly verifiable
from the phenomenal success of the sector.
1.2.1 Economic growth
Indian telecom has emerged as one of the greatest
economic success stories, registering a consistent
overall growth rate of more than 35% over the past decade
in terms of subscribers. According to a World Bank study,
a 10%5 increase in teledensity is known to boost GDP
growth by 0.6% points. In other words, a 1% increase in
mobile subscribers is estimated to increase per capita
GDP by about US$200. According to a study by the Indian
Council for Research on International Economic Relations
(ICRIER), states with a higher teledensity have grown faster
than those with lower teledensity. States with 10%6 higher
teledensity have grown 1.2% faster; for instance, Bihar
could have witnessed 4% faster growth if it had enjoyed the
same teledensity as Punjab. The well-distributed network
of telecommunication services results in widening markets,
creates efficient information flows, lowers transaction
costs and is an effective substitute for infeasible
physical transport.

There is a substantial relationship between increase in teledensity and the economic

development of a region. Mobile telephony had a profound impact on the fishing
community in the southern state of Kerala. By virtue of being a carrier and disseminator of
information, mobile telephony has made the rural and underdeveloped markets much more
efficient. The MS Swaminathan Research Foundation (MSSRF), a government organization,
has partnered with a leading telecom equipment and service provider to provide “Fisher
friend,” through which fishermen are provided free mobile handsets, shared on a rotating
basis, along with free access to information service.
The usage of mobile phones has enabled fishermen to respond quickly to market demand
and prevent wastage. Mobiles have helped to co–ordinate demand and supply, and have
helped those who catch the fish communicate with merchants and transporters in an
efficient and effective manner. It has helped to reduce the time spent by agents and owners
waiting for boats, reduced business risk and made those involved with fishing feel much
safer at sea.

5 Unfinished Business: Mobilizing new efforts to achieve the 2015 millennium development goals, World Bank, September 2010, page 17.
6 Samar Srivastava, “High-teledensity states grew faster, says study,” LiveMint, 19 January 2009,http://www.livemint.com/2009/01/19224316/
Highteledensity-states-grew-f.html, accessed 10 October 2010.

5 Enabling the next wave of telecom growth in India

1.2.2 Job creation
Besides being one of the largest revenue generators,
telecom is also a major creator of jobs. The telecom
sector has led to the growth of a range of communication
technology-enabled activities and services. Operations
such as data entry, revenue accounting, processing
of insurance claims, human resource services, call
center operations, customer support centers, software
development, systems engineering and systems design and
integration are popular examples. Further, the spread of
telecom and information services to rural areas is enabling
the setup of rural business process outsourcing (BPO).
1.2.3 Social development
Connectivity fosters social development, including
improved education, health and increased citizen
participation in civil society. Telecommunication helps
provide access to health care and allied services. It
helps combat epidemics such as HIV/AIDS and malaria
by supplying information on treatment and control,
generating awareness, improving access to and
connectivity with health centers, and establishing the
mobile testing of diseases. The current synergy between
health reform initiatives and advantages in technologies
has resulted in the proliferation of e-medicine projects.
This represents an innovative approach in providing quality
health care whenever and wherever needed.
1.2.4 Rural development
According to FICCI and Nielsen study, Indian villages
account for 70%7 of the country’s total population, 56% of
the country’s income, 64% of consumption expenditure and
33% of national savings. The provision of telecom services
in rural areas and the obscure hinterland has made
previously abandoned areas highly accessible. With more
untapped territories being connected through telecom, the
hitherto dormant economic potential is being increasingly
tapped. Communication facilities in rural areas are critical
for the development of rural India, providing the
following advantages:
7 Challenges Before An Integrated India: Bridging The Urban - Rural Divide, Nielsen, August 2010, page 13.
RuralShores: bringing jobs to
rural India
Over the years, the lack of employment
opportunities in rural India has forced people
belonging to villages to move to the cities.
However, RuralShores is an initiative that aims
to reverse the trend. It aims to introduce rural
youth to BPO and to provide employment in
their village.
In return, corporations benefit through
cost-effectiveness due to the lower costs
associated with a rural ecosystem, low
employee attrition and the potential for
scalability. Participation in the initiative is
an act of corporate social responsibility.
Moreover, it ensures complete information
protection, guaranteed service levels, a
committed workforce and business continuity.
• Helping to stem urban migration by generating greater
income and employment potential in rural areas
• Facilitating emergency response and access to health
care and allied services
• Facilitating m–commerce and e-commerce through
trade along the agriculture supply chain, resulting in
the organized aggregation of supply and demand
• Providing enhancement of microfinancing, technology
transfer and entrepreneurship
• Facilitating national and regional integration,
creating an atmosphere of economic diversification,
employment and a strong socio-cultural ethos
• Open rural areas to foreign investment,
leading to the inclusion of rural India in the
global economic milieu and reducing the
rural-urban divide. As a result, the quality of
life in rural area improves, thus reducing the
pressure of urban migration
Enabling the next wave of telecom growth in India 6
1.2.5 E-governance
E-governance that helps exploit the power of
information and communication technology to
transform accessibility, quality and the cost-effectiveness
of public services has been made possible by the telecom
revolution. Since the advent of IT and communication
technology, Indian ministries and government departments
are working to computerize their operations to make them
simpler and increasingly accessible for Indian citizens.
Most relevant information about these entities is now
available on their websites, making it easily accessible and
increasing transparency. Significant progress has been
made in the computerization of railway bookings, allocation
of the Permanent Account Number (PAN) to income
tax payers, processing of passport application, conduct of
public examination and customs clearance, among others.
The four main types of e-governance services provided are
as follows:
• Government to citizen (G2C): this comprises
information dissemination to the public, as well
as basic citizen services such as license renewals,
ordering of birth/death/marriage certificates and
filing of income taxes, as well as citizen assistance for
basic services such as education, health care, hospital
information and libraries.
• Government to business (G2B): this entails
services between government and the business
community, including the dissemination of policies,
memos, rules and regulations. Business services
offered include obtaining current business information,
downloading application forms, renewing licenses,
registering businesses, obtaining permits and the
payment of taxes. The services offered through G2B
transactions also assist in business development,
specifically the development of small and medium
enterprises (SMEs). Simplifying the application and
approval procedures process for SME requests would
encourage business development.
• Government to employee (G2E): this includes
G2C services as well as specialized services that cover
only government employees, such as the provision of
human resource training and development that could
improve the day-to-day functions of the bureaucracy
and dealings with citizens.
8 “Fact Sheet on Foreign Direct Investment (FDI) from August 1991 to March 2010,” Department of Industrial Policy & Promotion, http://dipp.nic.in/,
accessed 10 October 2010.
7 Enabling the next wave of telecom growth in India
• Government to government (G2G): these services take
place at two levels — the local or domestic level and
the international level. G2G services are transactions
between the central/national and local governments,
and between the departments and their agencies
and bureaus. On a global footing, G2G services are
transactions between governments, and can be used
as an instrument of international relations
and diplomacy.
1.2.6 Strengthening investments
Attractive trade and investment policies have transformed
the Indian telecom sector into one of the most investor-
friendly markets. Between FY00 and FY10, the inflow
of FDI into India’s telecom sector was approximately
INR407.1 billion (US$8.9 billion),8 accounting for more
than 8% of approved FDI.
1.2.7 Gender equality
The advent of communications technology has helped
overcome institutional and social barriers of mobility,
high illiteracy and negative social norms. It is facilitating
women’s participation in the political and economic
processes of the country. Achieving gender equality and
empowering women is crucial because of its cross-cutting
influence. It is an irreplaceable component for achieving
most developmental goals, including the “Millennium
Development Goals.” Mobile telephones and the internet
can advance gender equality by:
• Empowering women and surmounting gender
inequality: this is being achieved by promoting
the awareness among women about their social
and political status, and creating new economic
opportunities for women through digital
empowerment.
• Delivering literacy and education to women wherever
they live or work: this opens up new avenues and
allows for flexible learning times. One prime success
story of communication technology promoting
women’s education is India’s “Distance education for
women’s development and empowerment” jointly run
by the Department of Women and Child Development
 and the Indira Gandhi National Open University.
This program provides a multimedia training
package to make women’s self-help groups
sustainable by developing their decision-making ability
and resource management skills in 150 low-literacy
districts. This is one of the most befitting instances of
the telecom and internet revolution, taking relevant
education that is well aligned to the needs of the
communities to their doorstep, thus overcoming
cultural and language barriers.
• Helping lower child mortality and improve maternal
health: this is done by providing information on
nutrition, strengthening health networks, monitoring
health trends and provisioning primary health care.
1.2.8 m–commerce
This is the next revolution that is expected to emerge
through the use of mobile phones, as these become a
tool for commerce. Mobile phones provide consumers
an opportunity to transact anytime and anywhere.
m-commerce finds its applications across various end
markets such as banking and financial institutions, paying
bills for utilities such as power and gas, booking tickets
for transportation services such as trains and taxis and
online shopping. Mobile banking enables customers of
banks and other financial institutions to access their
account information, transfer funds, trade stocks and
purchase financial products such as insurance. According
to Cybermedia India Online Limited, the value of mobile
payment transactions in India is expected to reach
approximately US$1.3 billion by 2013.9
1.2.9 Facilitating research and
development
The growth in high-speed communication and advances
in internet technology are making India a major R&D
hub. Efforts are constantly being made to devise more
affordable technology for the masses. In India, there is
a significant focus on technology with the potential to
improve rural connectivity. NTP 1999, formulated by the
GoI, places great emphasis on research and development
9 “Nokia to rollout mobile banking in India,” CyberMedia India Online Ltd., 14 April 2010, http://www.ciol.com/News/News/News-Reports/Nokia-to-roll-
out-mobile-banking-in-India/134910/0/, accessed 12 October 2010.
(R&D). In pursuance of the NTP 1999’s objective toward
R&D, organizations such as Telecom Centers of Excellence
(TCOE), the Center of Excellence in Wireless Technology
(CEWIT) and the Broadband Wireless Consortium of India
(BWCI) have been established. These organizations have
helped to create synergy among academia, the telecom
industry and the Government for the creation of new
services and applications, the generation of intellectual
property right (IPR), the development of manufacturing
capability, focus on global telecom standardization
activities and the promotion of entrepreneurship. For
instance, the TCOEs have focused on the technological
and management challenges that Indian operators face in
reaching all sections of society while offering affordable
solutions, leading class services and a global presence.
1.2.10 Provide impetus to initiatives such
as MNREGA and Aadhaar
The GoI has undertaken programs such as the
Mahatma Gandhi National Rural Employment
Guarantee Act (MNREGA) and AadhaaR — Unique
Identification Authority of India (UIDAI), which aim to
provide inclusive growth. The challenges surrounding these
programs include job cards for those demanding work, the
elimination of ghost workers, the introduction of electronic
muster rolls, wage payments and the authorization of
wages electronically. Furthermore, the introduction of
GPS-enabled biometric systems at the grass-roots level
continues to remain a challenge. The integration of such
programs with mobile telephony is expected to benefit
such programs of national importance. For instance,
an integrated system for taking biometric attendance
through handheld devices and transmitting it through
mobile phones for authentication is expected to solve the
challenge of attendance. Once a worker has logged in, this
data could be transmitted to MNREGA, making sure the
worker is paid for the day.
Enabling the next wave of telecom growth in India 8
 Evolution of the

2
9
telecom sector
in India
Enabling the next wave of telecom growth in India
 2.1. History of the Indian
telecom industry

The Indian telecom sector has evolved from the bygone days of “telephone on
demand” to the advent of 3G telephony. Its history begins with the laying down of the
first experimental electric telegraph line in Kolkata. In 1881, telephone services were
introduced, with exchanges being opened in Kolkata, Mumbai, Chennai, Karachi and
Ahmedabad. Following independence, all foreign telecommunication companies in India
were nationalized to constitute the Posts, Telephone and Telegraph (PTT), and were under
government control.

In the early 1980s, the sector underwent its first wave of change. DoT was established in
1985 to provide domestic and long-distance services in India. Further, in 1986, two wholly
government-owned companies — Videsh Sanchar Nigam Limited (VSNL), which is now
known as Tata Communications, and Mahanagar Telephone Nigam Limited (MTNL) were
formed. VSNL and MTNL aimed at providing services to international and metropolitan
areas, respectively.

The introduction of the New Industrial Policy 1991 initiated the liberalization process in
India. Telecom equipment manufacturing was also de–licensed in 1991, and the NTP was
announced in 1994. The formulation of NTP 1994 was followed by the launch of mobile
telephony in India in 1995. However, growth in the initial years was very slow due to
high mobile handset prices as well as the high tariff structure of service providers. The
introduction of NTP 1999 heralded pro-consumer policies. NTP 1999 enabled the telecom
sector to reach an average subscriber growth rate of more than 35%, primarily due to
initiatives taken by the regulator and service providers. The liberalization of the sector
resulted in the need for a regulator, and the TRAI was established in 1997. In January
2000, the Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) was
established to take over the adjudicatory and disputes functions from TRAI.

Brief history of the Indian telecom sector

• 2006: DoT announces

criteria for additional
spectrum
• 2007: Cap on number
• 1991: Telecom • 2003: Unified Access of players in a circle
equipment manufac- Service License removed
turing completely (UASL); Interconnect • 2008: New licenses
deregulated Usage Charges (IUC); granted by DoT
• 1992: VAS opened to and calling party pays • 2010: 3G and BWA
private sector (CPP) spectrum auction
participation • 2004: Broadband • 2011: MNP launched
• 1981: Contracts with a • 1994: NTP 1994 policy; universal Pan-India
French company to • 1997: Establishment licensing regime; and
merge with the of TRAI guidelines for
• 1947: Nationalization state-owned ITI, to set • 1999: NTP 1999 intra-circle M&A
of all foreign up 5 million lines per • 2000: Establishment 2005–11
telecommunication year of TDSAT
companies to • 1985: Establishment
constitute the posts of DoT 2000–05
and telegraph • 1986: Establishment
• 1950: Telephone of VSNL and MTNL
exchanges taken over 1990–2000
from the princely
states
1980–90

1947–80

Enabling the next wave of telecom growth in India 10

In 2002, the Universal Service Support Policy came into
effect, providing statutory status to the USOF in December
2003. The fund was introduced to provide access to
telegraph services to people in rural and remote areas
at affordable prices. In May 2003, the calling party pays
(CPP) regime was introduced, through which all local
incoming calls were made free. During the same year, the
GoI introduced the Unified Access Service (UAS) licensing
regime, which permitted an access service provider to offer
both fixed and/or mobile services under the same license,
using any technology. The GoI subsequently issued licenses
in November 2003, January 2004, December 2006,
March 2007 and January 2008.
The GoI also introduced the Broadband Policy 2004,
which recognized the ubiquitous potential of broadband
services and their contribution toward the GDP growth
and improved quality of life through e–governance,
e–commerce, entertainment, education and medicine,
among others. The Broadband Policy 2004 specified
targets in terms of subscribers. In 2004, mobile services
had outpaced fixed-line services with nearly 45 million
mobile subscribers. Further, in February 2004, the DoT
issued guidelines for the intra-circle merger of cellular
mobile telephone service (CMTS)/UAS licenses.
In November 2005, new UASL guidelines were issued. The
licenses were to be issued on continuous basis without
any restriction on the number of entrants in a circle and
applications were to be processed within 30 days of
submission. Allocation of spectrum and grant of wireless
license was subject to availability and, in case UASL was
not allocated spectrum due to non-availability, the licensee
was required to endeavor to rollout services using wireline
technology. FDI limit in the telecom sector was increased
from 49% to 74%. In February 2008, the DoT approved
11 Enabling the next wave of telecom growth in India
the sharing of infrastructure among mobile operators.
Operators were allowed to share infrastructure in their
tower installations. In March 2008, the TRAI abolished the
access deficit charge (ADC), which covered the levy paid by
mobile operators to the state–run operator, BSNL. ADC was
the fee paid by private mobile operators to the state-owned
BSNL, which mainly used the proceeds of ADC to develop
rural telephony services. In July 2010, telecom towers
were accorded “Infrastructure Status” by the Reserve Bank
of India (RBI), as these constitute an essential and possibly
the most expensive component in the entire telecom
service delivery infrastructure.
The GoI commenced the auction for 2x5MHz in the
2100MHz band for 3G services in April 2010, which
witnessed fierce bidding for spectrum. The reserve price
for 3G services was categorized on the basis of circles —
INR3.2 billion for the more populated A and Metro circles;
INR1.2 billion for the B circles; and INR300 million for the
rural C circles. The auction aimed at allotting three
to four 3G licenses for each of the 22 regional circles.
The bidding process continued for 34 days, reaching
the final stage in May 2010. The seven winners were
required to pay INR509.7 billion to the GoI. Additionally,
the amount payable by BSNL and MTNL for 3G services
pushed the total auction revenue to INR677.2 billion
(US$14.6 billion). Following the auction of 3G mobile
services, the Government concluded the auction of BWA
services across India. The GoI offered two 20MHz blocks in
the 2.3GHz range in each of the country’s 22 circles. The
bidding process continued for a period of 16 days, raising
INR385.4 billion (US$8.2 billion) in auction revenues. Thus,
the GoI raised in excess of INR1 trillion from the auction of
3G and BWA services.
2.2. Regulatory framework
A number of positive regulatory changes have driven growth in the sector. The key feature
of India’s regulatory regime is transparency in industry information, an open approach and
encouragement of consultation with stakeholders. The key stakeholders as a part of the
regulatory environment in the telecom ecosystem include the Ministry of Communications
& Information Technology (MICT), Department of Telecommunications (DoT), the Telecom
Commission, the Telecom Regulatory Authority of India (TRAI) and the Telecom Dispute
Settlement & Appellate Tribunal (TDSAT).

MICT

• The MICT is part of the Indian Government. The key departments of the ministry include the Department of
Telecommunications, the Department of Information Technology, and the Department of Posts
• The MICT formulates policies with respect to telecom, post, telegraph and other means of communication
• The laws governing the telecom sector include the Indian Telegraph Act, 1885; the Indian Wireless Telegraphy Act, 1933; and
the Telecom Regulatory Authority of India Act, 1997

DoT

• The DoT is a part of the MICT. Its key responsibilities include:

• Policy, licensing and coordination matters relating to telegraphs, telephones, wireless, data, facsimile and telematic
services and other like forms of communications
• International cooperation
• Promotion of standardization and R&D
• Promotion of private investment

Telecom Commission

• The Telecom Commission was set up in 1989 by the GoI to deal with various aspects of telecommunications
• The commission consist of four full-time members that are ex-officio Secretary to the GoI in the DoT, and four part-time
members that are secretaries to the GoI of the concerned departments
• The Telecom Commission is responsible for policy formulation, licensing, wireless spectrum management, administrative
monitoring of public sector undertakings (PSUs), R&D and standardization and validation of equipment, among other matters

Enabling the next wave of telecom growth in India 12

TRAI

• TRAI was established as an independent statutory regulatory authority under the TRAI Act in 1997. The key powers and
functions of the authority include:
• Recommending the need for a new service provider, and the terms and conditions of license to a service provider
• Ensuring technical compatibility and effective inter-connection between different service providers
• Regulating revenue-sharing arrangements among service providers
• Ensuring compliance with the terms and conditions of license
• Setting and enforcing the time frames for providing local and long-distance telecommunication circuits
• Recommending revocation of licenses for non-compliance of their terms and conditions
• Facilitating competition and promoting efficiency in the operation of telecommunication services
• Protecting the interests of the consumers
• Monitoring the quality of service and conducting periodical surveys
• Inspecting the equipment used in the network and recommending the type of equipment to be used by service providers
• Settling disputes between service providers
• Advising the central government in matters related to the development of telecommunication technology and the
telecom industry
• Levying fees and other charges
• Ensuring compliance with universal service obligations
• Performing other functions, such as administrative and financial functions, that may be entrusted to TRAI by the central
government, or as may be necessary to carry out the provisions of the TRAI act

TDSAT

• In April 2000, the GoI established the Telecom Dispute Settlement & Appellate Tribunal (TDSAT), as an authority separate
from the TRAI to handle disputes in the telecom sector
• The functions of TDSAT are to adjudicate any dispute between a licensor and licensee, between two or more service providers,
and between a service provider and a group of consumers; and to hear and dispose of appeals against any decision or order
of TRAI
• The appellate tribunal consists of a chairperson and two other members

13 Enabling the next wave of telecom growth in India

2.3. Overview of the Indian
telecom industry
India is the world’s second-largest telecom market. The total subscriber base (including
wireline and wireless) reached 723.3 million10 in September 2010. The wireless segment
has been registering monthly mobile additions of about 15 to 2011 million subscribers.

Subscriber base and teledensity (wireless and wireline)

800 61.0% 70%

700 52.7% 60%
Total subscribers (million)

600 50%

Teledensity (%)
500 37.0% 723.3
40%
400
26.2% 30%
300 621.3
18.2%
12.9% 429.7 20%
200
7.0% 9.0% 300.5
100 2.9% 3.6% 4.3% 5.1% 205.9 10%
28.5 45.0 98.4 140.3
0 36.3% 54.6 76.5
0%
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Sep-10
Total subscribers Teledensity
Source: TRAI

According to TRAI, the total subscriber base grew from with US$200–US$350 per subscriber for wireline.
FY00 through FY10 at a compound annual growth rate Lower costs and the additional benefit of mobility that
(CAGR) of 36.1% to reach 621.3 million subscribers. In is associated with wireless subscribers have led to the
the past decade, the total teledensity has risen above stagnation of the wireline subscriber base.
50%, with the mobile segment leading this growth. Such
phenomenal growth can be attributed primarily to the Urban and rural subscriber base, September 2010
country’s large population, high economic growth, hyper- 100%= 723.3 million
competition in the sector, affordable handsets, reduced
tariffs, infrastructure sharing and the introduction of
positive and enabling regulatory reforms. The telecom Rural
revolution in the country has impacted both the urban Urban
32.3%
and rural population. However, urban subscribers account
for more than 65% of the overall subscriber base, leading
toward a huge urban–rural digital divide.

As of September 2010, wireless subscribers constitute 67.7%

the majority of the total subscriber base, accounting for
95.1%,12 whereas wireline subscribers account for 4.9%.
The capital cost to provide mobile service varies in the
range of US$50–US$90 per subscriber,13 in comparison
Source: TRAI

10 “TRAI Press Release No. 63 /2010,”TRAI website, http://www.trai.gov.in/Default.asp, accessed 10 December 2010.
11 Shauvik Ghosh, “Telcos to recoup 3G bid money in 5-6 years: Analysys Mason,” LiveMint, 30 May 2010, http://www.livemint.
com/2010/05/30230743/Telcos-to-recoup-3G-bid-money.html, accessed 12 October 2010.
12 Ernst & Young analysis.
13 “Position paper on the Telecom sector in India,” Department of Economic Affairs – Ministry of Finance, December 2009, page 4, http://pppinindia.com/
pdf/ppp_position_paper_telecom_122k9.pdf, accessed 10 October 2010.

Enabling the next wave of telecom growth in India 14

2.4. Wireless
India has emerged as one of the world’s fastest-growing
telecom markets, and this growth is primarily attributed to
the growth in wireless services. India’s mobile market is the
second largest in terms of subscribers in the world after
China. The wireless subscriber base in India grew from
FY00 through FY10 at a compound annual growth rate
(CAGR) of 77.5%14 to reach 584.3 million15 subscribers in
FY10. Mobile services were commercially launched in
India in 1995. In the initial years of mobile telephony,
the growth in the number of subscribers was very low,
with average monthly subscriber additions in the range
of 0.05–0.1 million16 subscribers. The advent of NTP
1999 paved the way for aggressive growth in the wireless
subscriber base.

Wireless subscribers in India

800 70%

700 58.0% 60%

49.6%
600 50%
Wireless subscribers (millions)

500
33.7% 40%

Teledensity (%)
400
687.7 30%
300 22.8%
584.3
14.6% 20%
200 391.8
9.0%
4.8% 261.1 10%
100 0.4% 0.6% 1.2% 3.2% 165.1
1.9 3.6 6.5 13.0 33.7 52.2 98.8
0 0%
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Sep-10
Source: TRAI
Wireless subscribers Teledensity

Wireless subscribers: GSM vs. CDMA, September 2010 GSM subscribers constitute about 84.1% of the total
100% = 687.7 million wireless subscriber base. Over an extended period, the
gap between GSM and CDMA has widened as the GSM
subscriber base has grown more rapidly. The road ahead
CDMA
for the Indian telecom sector is expected to be more
15.9% GSM
eventful, primarily due to the advent of new services such
as 3G, VAS, mobile number portability (MNP) and the
growth of manufacturing.

84.1%

Source: TRAI

14 Ernst & Young analysis.

15 “TRAI: The Indian Telecom Services Performance Indicators (January - March 2010),” TRAI website, July 2010, http://www.trai.gov.in/Default.asp,
accessed 10 October 2010.
16 “Penetration of Mobile Telephony in India & Value added services in Indian Mobile Telephony market,” Zinnov Research and Consulting, October 2006,
http://www.zinnov.com/presentation/Mobile_VAS.pdf, page 2, accessed 15 October 2010.

15 Enabling the next wave of telecom growth in India

2.5. Wireline
The Indian wireline market grew at a CAGR of 3.3%17 during wireless infrastructure, there is a significant opportunity
the period between FY00 and FY10. In the recent past, the for future growth, driven by the immense potential for
wireline subscriber base has declined due to lower mobile data growth.
tariffs, cheaper handsets, improved mobile coverage,
In FY10, the wireline subscriber base was 37 million,18
the advantage of mobility among wireless networks
with a teledensity of 3.1%. Over the years, the urban
and inadequate infrastructure of the wireline network.
market has dominated the wireline subscriber base,
Furthermore, the major wireline operators in India also
accounting for 73.1% of the subscribers in FY10. As of
operate mobile networks, where they see higher revenue
September 2010, there were 3.5 million19 public call
growth and continue to invest extensively. Although
offices (PCOs) and 0.6 million village public telephones
wireline infrastructure in India is not as extensive as
(VPTs) in India.

Wireline subscribers

50 22.7% 25%
45 18.9% 41.3 41.4 41.5 40.8
38.3% 40.1 39.4 20%
38.0
Wire line subscribers (million)

40 37.0
35.6
35 32.7 15%
7.9%

Growth rate (%)

30 26.7 17.1%
10%
25
3.3%
20 5%
-3.0% 0.3%
15 -1.9% -2.6% 0%
-3.3% -3.7%
10
-5%
5
0 -10%
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Sep-10
Wire line subscribers Growth rate
Source: TRAI

Change in the composition of subscribers In FY00, the wireline market accounted for 93.4% of
the subscribers; in FY10, it accounted for 5.9%. The
100% 5.9% wireline market is dominated by the government-
80%
controlled incumbent players. Apart from these two
players, additional private players have also ventured into
60% the fixed-line market. Although fixed-line operators are
93.4%
94.1% trying to offer VAS such as high-speed internet access,
40%
video on demand and videoconferencing, besides other
20% new technologies, wireline service continues to face stiff
0% 6.6% competition from wireless services. In the future, the
FY00 FY10 emergence of new technologies such as fiber to the home
Wireless Wireline is expected to drive the growth of the wireline market
Source: TRAI; DoT in India.

17 Ernst & Young analysis.

18 “TRAI: The Indian Telecom Services Performance Indicators (January - March 2010),” TRAI website, July 2010, http://www.trai.gov.in/Default.asp,
accessed 10 October 2010.
19 “TRAI: The Indian Telecom Services Performance Indicators (July - September 2010),” TRAI website, January 2010, http://www.trai.gov.in/Default.asp,
accessed 15 January 2011.

Enabling the next wave of telecom growth in India 16

2.6. Internet and broadband

The internet has revolutionized the lifestyle of many broadband subscribers has increased at a CAGR of
Indians by creating a new means of communication, 23.9%20 and 117.5% to reach 16.2 million and 8.8 million,
knowledge sharing, governance, employment and the respectively in FY10. This falls short of a Broadband
delivery of services. Although the internet is a function Policy’s goals of 40 million internet subscribers and
of various factors such as literacy, access to personal 20 million broadband subscribers by the end of 2010.
computers and electricity, it has made significant
Broadband infrastructure plays a vital role in a country’s
inroads in the urban market. Further, the evolution of
achievement across domains such as social progress and
technology and increase in bandwidth has given rise to
economic development. According to Booz & Company, it is
internet connections at speeds faster than traditional
estimated that a 10%21 increase in broadband penetration
dial–up connections. The minimum threshold speed for a
translates to a 1.5% increase in labor productivity in a
broadband connection is 256 kilobits per second (kbps)
country. Also, a 10%22 increase in broadband penetration
or more, whereas traditional internet connections have a
leads to a 1.3% increase in GDP. Broadband brings a
speed of less than 256 kbps.
number of benefits, such as opportunities for education,
The DoT formulated the Broadband Policy 2004, which governance, entrepreneurship and services. The
envisions the creation of a framework through various opportunities hold a much larger promise for India’s large
access technologies such as optical fiber, digital subscriber low-income population and a growing economy.
lines (DSL) on copper loop, cable television networks,
satellite media, terrestrial wireless and future technologies.
From FY05 through FY10, the number of internet and

Internet and broadband subscribers (million)

20 17.9
16.2
15 13.5
11.1
10.3
9.3 8.8
10
6.9 6.3
5.6
5 3.9
2.3
1.4
0.2
0
FY05 FY06 FY07 FY08 FY09 FY10 Sep 10
Internet subscribers Broadband subscribers
Source: TRAI

20 Ernst &Young analysis.

21 Bringing Mass Broadband to India: Roles for Government and Industry, Booz & Company, June 2010.
22 “Broadband Commission Presents Report to United Nations,” International Telecommunications Users Group website, September 2010, http://intug.
org/2010/10/09/international-insights-%E2%80%93-september/, accessed 25 October 2010.

17 Enabling the next wave of telecom growth in India

Market share by subscribers of technologies in internet Market share by subscribers of technologies in
access, September 2010 broadband, September 2010

0.5% 1.6% 0.8%

3.6%
DSL
4.5% DSL
4.0% Dial-up
Cable modem
Wireless 6.5%
10.3% Ethernet
Cable modem
Wireless
Ethernet
Others Others
50.5%

31.0%

86.6%

Source: TRAI
Source: TRAI

Digital subscriber line (DSL) is the preferred technology

among service providers for both internet access and
broadband services. As of September 2010, DSL
constituted 50.5% of the market share in internet access,
and 86.9% of the market share in broadband access. The
share of wireless technology continues to be negligible
and remains to be fully exploited, especially in the case of
broadband services.

Broadband penetration continues to be very low in India,

despite a structured framework that included ambitious
goals to be met in 2010. Currently, broadband users are
concentrated in urban areas, primarily in business districts
or high–end residential areas of the larger cities. The
key factors responsible for the widespread adoption of
broadband include affordability and availability.
2.7. National long distance and
international long distance
The Indian enterprise data connectivity market is growing
at 10% annually and annual revenue is expected to near
the US$10 billion mark in the next five years. The growing
demand for connectivity is coming primarily from the
IT and IT-enabled services sectors (ITeS), the financial
services sector and the government. Most large global
players have set up operations in India to cater to the
connectivity needs of their customers. With telecom and
IT converging, managed services and network security
services are provided by global operators in partnership
with Indian IT companies.
Voice over Internet Protocol (VoIP) is considered a key
enterprise application for lowering operating costs. It has
spurred the demand for IP-based virtual private network
(IP-VPN) services in India. The other services relevant
to this segment are international private leased circuits,
internet connectivity, multiprotocol label switching (MPLS)
based IP-VPN services, and national and international data
connectivity. A majority of global operators in this space
are also offering VAS such as network security, network
integration, network management, network storage and
enterprise voice solutions.

Enterprise segment revenues23

Activity FY08 FY09 FY10 FY11E
Private line 829 930 1,064 1,200

VPN 423 480 495 510

Ethernet 40 70 92 130
Managed business VoIP 92 110 125 150
Managed IP telephony 51 65 75 80
Hosting services 161 210 260 350
Application services 170 250 370 600
Security 110 130 150 180
Continuity and recovery 20 30 45 52
Managed storage 40 56 61 72
Outsource task 1,600 1,900 2,251 2,800
Contact center 20 31 39 45
Total (US$ million) 3,556 4,262 5,027 6,169

23 Industry estimates.

19 Enabling the next wave of telecom growth in India

 NTP 1999 opened up the NLD service for private
operators, without any restriction on the number of
operators. As of December 2009, the GoI had issued 29
NLD24 service licenses. In FY10, the Indian market for NLD
grew by 13.7% to reach total revenues of INR164 billion.25
However, the market slowed in FY10, primarily due to a
decline in ARPU across all operators.

Market size of NLD

180 60%
160 48.3%
Market size (INR billion)

50%
140
120 35.3% 40%
Growth (%)

164.0
100 25.0% 30%
80 144.3
60 20%
97.3
40 71.9
13.7% 10%
20
0 0%
FY07 FY08 FY09 FY10
Market size (INR billion) Growth (%)
Source: Voice and Data

In 2002, India’s ILD services were opened up for private

players, with the sale of the strategic stake in VSNL to
the Tata Group. ILD has witnessed steady growth, with
its revenues reaching INR176 billion26 in FY10. As of
December 2009, the GoI had issued 24 ILD27 service
licenses, with the annual license fee being reduced to 6% of
the AGR.
Market size of ILD

200 30.0% 35%

30%
Market size (INR billion)

150 25%
17.3%
Growth (%)

20%
100
15%
115.1 115.3 150.0 176.0
50 10%
0.2%
1.0% 10%
0 0%
FY07 FY08 FY09 FY10
Market size (INR billion) Growth (%)
Source: Voice and Data

24 DoT Annual Report 2009–10,Department of Telecommunications, FY10.

25 “India’s NLD market has grown by 13.6% in FY 2009-10,” Voice & Data, http://voicendata.ciol.com/content/vnd100_2010vol-II/110070520.asp,
accessed 18 October 2010.
26 “India among the Top Few Fastest Growing Telecom Markets,” Voice & Data, http://voicendata.ciol.com/content/vnd100_2010vol-II/110070519.asp,
accessed 18 October 2010.
27 DoT Annual Report 2009–10,Department of Telecommunications, FY10.

Enabling the next wave of telecom growth in India 20

 2.8. Telecom equipment manufacturing
The telecom equipment industry comprises products Value of telecom equipment imports to India
such as cell phones, chipsets, wireless and landline
infrastructure equipment, DSL and cable modems and 10
8.9
networking devices, including routers and switches. India is

Imports (US$ billion)

8
a strong market for global telecom equipment vendors.
6
3.7
Telecom equipment manufacturing and exports 4

2 1.3 1.7
600 1.2
518.0 140
Production (INR billion)

0
500
Exports (INR billion)

110.0 120 2005 2006 2007 2008 2009

412.7
400 100 Source: International Trade Centre
81.3
300 80
236.6
178.3 60
200 140.0 160.9
40 Share of imports by country of origin, 2009
15.0 19.0
100 4.0 20
2.5 100%=US$8.9 billion
0 0
FY04 FY05 FY06 FY07 FY08 FY09
Production Exports
Note: Includes both indigenous and offshore production
Source: DoT; “Indian telecom firms may get DoT boost,” LiveMint, 19.4% China
http://www.livemint.com/2010/04/01215017/Indian-telecom-
firms-may-get-D.html, accessed 02 August 2010; “Policy recommenda- South Korea
tions to increase domestic telecom growth and exports of telecom 3.3%
Sweden
equipment and service,” “Telecom Equipment & Services Export Promotion 3.4% 59.1%
Council (TEPC), Ministry of Communications and IT, GOI.” US
3.9%
According to industry estimates, the demand for 4.5% Singapore
telecom equipment is expected to be worth US$70–100 6.4% Hong Kong
billion28 in 2015. From 2005-09, the manufacturing and Others
exports of telecom equipment grew at a CAGR of 33.9%
and 112.1%,29 respectively. Furthermore, according to
a leading telecom equipment manufacturer, the market Source: International Trade Centre

for wireless infrastructure equipment is estimated to be

US$8–10 billion,30 and equipment worth INR190 billion
was imported in 2009. Despite the growth of a localized
manufacturing environment in India, only 40% of the
requirement for equipment is met through local sourcing,
with the remainder coming from global companies
manufacturing in India. The majority of telecom segments
are highly dependent on imports, with the exception of
telecom towers and cables.
Although a few Indian mobile operators have a significant
presence globally, companies in the manufacturing
segment are yet to feature in the global telecom
landscape. Manufacturers in India face challenges such
as high logistics costs, an unreliable power supply,
inadequate tax benefits and competition from low-cost
Chinese equipment.

28 “Telecom equipment manufacturing in India needs help urgently,” India Climate Portal, 21 July 2010, http://www.climatechallengeindia.org/telecom-
equipment-manufacturing-in-india-needs-help-urgently-21-july-2010-t, accessed 12 October 2010.
29 Ernst & Young analysis.
30 “Time to go local in telecom equipment purchase,” CyberMedia India Online, 02 September 2010, http://www.ciol.com/News/News/News-Reports/
Time-to-go-local-in-telecom-equipment-purchase/140758/0/, accessed 10 October 2020.

21 Enabling the next wave of telecom growth in India

2.9. Infrastructure
The Indian telecom success story is built around the
wireless segment. The wireless sector has charted an
impressive growth trajectory, growing at a CAGR of
more than 75%31 in the past decade in terms of the number
of subscribers. Infrastructure development plays a crucial
role in the development of the wireless sector. The high
level of growth in the Indian wireless telecommunications
market will continue to drive huge investment in
infrastructure as well as a speedy rollout of networks
into new areas. As of March 2010, there were 425,45532
telecom towers in the country.
The development of the telecom infrastructure depends
on four key factors: rollout, competition, price, and
safety and aesthetic concerns. The rollout of services by
operators takes place only on the back of robust telecom
infrastructure. Competition will give further impetus
to the development of infrastructure. Falling prices of
telecom services will help to increase their affordability,
and the demand for more services will translate into the
development of more telecom infrastructure. Finally, as the
safety and aesthetic issues related to the setup of towers
are addressed, the rollout of infrastructure will become
easier. The National Telecom Critical Infrastructure Policy
is expected to address these concerns as well as the issues
affecting telecom providers on the state level, including
ROW related issues, hurdles to the erection of cellular
towers and value added tax (VAT) levies on broadband
services delivered through fiber media. The policy should
clearly define the role of the Central Government and the
states to help catalyze telecom sector growth.
2.9.1 Mobile network
Typically, a mobile network in a circle consists of mobile
switching centers (MSCs), each of which is connected
to base station controllers (BSCs), with each BSC being
connected to a base transceiver station (BTS). The BTSs
are installed in a contiguous manner, so as to facilitate the
handing over of signals from one BTS to another like a
chain. The radius of each BTS varies from 500 meters to
as much as 8-10 km,33 depending upon subscriber usage,
topography, frequency band of operation and spectrum
31 Ernst & Young analysis.
32 “Growth of Telecom Sector,” Lok Sabha, http://loksabha.nic.in/, accessed 28 October 2010.
33 Telecom towers and allied infrastructure, Crisil Research, December 2008, page 9.
34 Telecom infrastructure industry in India, ICRA Rating Feature, March 2009, page 5.
35 Telecom infrastructure industry in India, ICRA Rating Feature, March 2009, page 6.
availability. The components of mobile networks include
the electronic infrastructure, the civil infrastructure
and backhaul. Typically, civil infrastructure forms about
60% of the cost of setting up a network, while electronic
infrastructure forms the remaining 40%.34
Electronic infrastructure consists of the electronics
needed to run a wireless network such as a BTS or cell site,
radio antennas, feeders, radio access network, cables,
node B, core network and other transmission equipment.
Civil infrastructure includes the complementary elements
of a cellular network that ensure that the electronic
components are operational. However, it does not play
any role in carrying wireless signals. Civil infrastructure
includes components such as tower site, steel tower,
shelter room, power regulation equipment, battery backup,
a
 ir conditioner, fire extinguisher, diesel generator set
and security cabin. It is not influenced by the type of the
communication technology being used, whether it is GSM,
CDMA, 3G or BWA. However, the number of operators
providing their services from a particular site influences the
extent of civil infrastructure installed at the site. Backhaul
consists of the intermediate links between the core of the
network and the various sub-networks. It connects the
electronic infrastructure at the tower site with the BSC
and MSC.
Infrastructure Provider-I (IP-I) can provide assets
such as dark fiber, ROW, duct space and tower through
simple registration without paying any license
fee. It can also create active infrastructure, on behalf
of the licensee.
2.9.2 Towers and in-building solutions
Telecom towers are broadly classified as ground-based
and rooftop towers. Ground-based towers (GBT) are
200 to 40035 feet high and are mostly used in rural and
semi-urban areas because of the easy availability of real
estate. GBTs involve a capital expenditure in the range of
INR2.4 to 2.8 million, depending on the height of the
tower. GBTs can accommodate up to six tenants. Rooftop
towers (RTTs) are placed on the roofs of high-rise buildings,
Enabling the next wave of telecom growth in India 22
are shorter than GBTs and are common in urban and highly
populated areas, where there is paucity of real-estate
space. Typically, these involve a capital expenditure of
INR1.5-2 million. RTTs can accommodate two to three
tenants. Over the past couple of years, telecom operators
have hived off their telecom towers into separate entities.
As a result, there are three types of tower companies —
pure-play tower companies, operators with towers and
operator-owned tower companies.
2.9.3 Telecom infrastructure in India
Initially, operators used their tower infrastructure for
competitive advantage. However, over the past few
years, the leading operators have opted to share their
infrastructure. Today, there are an estimated 425,455
telecom towers in India, implying a subscriber-per-tower
ratio of 1,460. Currently, tenancy level for the industry
stands at 1.55.36

In recent years, the growth of mobile communications
has made the provision of radio coverage within airports,
mass transit systems, shopping malls, stadiums and office
buildings an essential requirement. Coverage is required to
meet the needs of both the general public, which expects
its mobile phones to work at all times, and emergency
services, which need reliable communications for efficient
incident management and personal safety. In-building
solutions are designed to improve the reception of radio
frequency signals indoors to meet the increasing demand
for high-quality mobile services.
In July 2010, telecom towers were accorded Infrastructure
Status37 by the RBI. This constitutes an essential and
possibly the most expensive component in the entire
telecom service delivery infrastructure. The GoI provides
certain benefits specifically to infrastructure companies.
The tax benefit encourages the participation of private
sector through investment. Extending Infrastructure
Status to telecom towers and the resultant income tax
benefits should certainly encourage tower companies to
expeditiously set up more towers in underserved areas.

State-wise number of towers

States Public sector Private sector Towers
Rajasthan 2,028 23,322 25,350
Gujarat, Daman and Diu 2,271 26,121 28,392
Maharashtra and Goa 3,608 41,494 45,102
Karnataka 2,154 24,766 26,920
Madhya Pradesh and Chhattisgarh 1,854 21,323 23,177
West Bengal, Orissa, Sikkim, Andaman and Nicobar 3,337 38,371 41,708
Assam and Arunachal Pradesh 720 8,275 8,995
Delhi, Haryana and Chandigarh 2,008 23,090 25,098
Uttar Pradesh and Uttarakhand 4,577 52,630 57,207
Andhra Pradesh 2,752 31,644 34,396
Punjab and Himachal Pradesh 1,512 17,387 18,899
Jammu and Kashmir 488 5,614 6,102
Tamil Nadu and Pondicherry 3,071 35,321 38,392
Bihar and Jharkhand 1,794 20,634 22,428
Nagaland, Meghalaya, Manipur, Mizoram and Tripura 369 4,242 4,611
Kerala and Lakshadweep 1,494 17,184 18,678
Total 34,037 391,418 425,455
Source: “Growth of Telecom Sector,” Lok Sabha, http://loksabha.nic.in/, accessed 28 October 2010.

36 “TRAI: Consultaion paper on issues related to telecommunication infrastructure policy,” TRAI website January 2011, http://www.trai.gov.in/Default.
asp, accessed 01 February 2011.
37 “Master Circular - Exposure norms,” Reserve Bank of India, http://www.rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx, accessed
20 September 2010.
23 Enabling the next wave of telecom growth in India
2.9.4 Energy requirements
Currently, telecom towers consume an average of about
5-6 kilo watt of energy coupled with an average of 8 hours
of diesel generator running time due to power outages.
On average, 27 million units of electricity are consumed
per day. Average diesel consumption per site per hour is
about 2.5 liters, translating to 6 million liters of diesel per
day. This translates to consumption of more than 2 billion
liters of diesel per year for cell sites, which is subsidized
by GoI. The dependence on diesel could be reduced if the
Government utilized that subsidy to support a move toward
renewable energy options such as solar, fuel cells or wind
power by treating these toward renewal effort as a part
of the overall effort to reduce greenhouse gases and the
country’s carbon footprint.
2.9.5 Future growth potential,
investments required and emerging trends
The industry faces low profitability, and has a pre-tax
margin of 7%–8%. Overall, the industry has pumped in
INR1 trillion and another INR400–500 billion is expected
to be invested in the next two years. It is estimated that
tenancy levels will rise to between 2–2.5x in the course of
this decade.38
2.9.6 Goals of infrastructure sharing
The key beneficiary of infrastructure sharing is
the subscriber. Infrastructure sharing serves the
following goals:
Optimal use of scarce resources: infrastructure sharing in
its simpler forms will lead to better use of scarce national
resources, such as land and energy. In its more complex
forms, it will allow a better use of spectrum.
Rollouts in rural and semi-urban areas: as wireless service
providers penetrate rural and semi-urban areas, significant
investments will be required, and infrastructure sharing
will act as an important tool to achieve faster rollouts and
save operating and capital expenditure in these areas.
Due to higher costs of land development, additional
security, insurance costs, power shortages, a higher
proportion of ground-based towers, unclear land ownership
and expensive backhaul connectivity costs in the rural
areas, service providers have strong incentives to share
infrastructure.
38 Industry estimates.
39 Industry estimates.
Spectrum constraints and network quality: for operators
in urban areas, superior network quality is a sustainable
differentiating factor that helps to reduce customer churn
and command premium prices. Tower sharing could help
operators maintain quality network coverage throughout
the city.
Capital expenditure (capex) and operating expenditure
(opex) savings: the setting up of a countrywide cellular
network requires substantial capex. A significant part of
the network rollout is likely to come in the untapped rural
areas, where mobile teledensity is barely in the double
digits. Since many rural areas are far-flung, more ground-
based towers will be needed, further increasing capex
requirements. With sharing, massive amounts of funds
can be saved, and newer operators can build an asset-
light model. It is estimated that infrastructure sharing in
its current form has helped achieve savings of INR557.6
billion resulting from savings in infrastructure provisioning
fee (IPF), energy, capital and interest costs.
Estimated cost savings resulting from
infrastructure sharing39
Component Savings
(INR billion)
Capex (including interest) 476.0
Opex saving as a result of infrastructure 71.4
provisioning fee savings
Opex saving as a result of shared energy 10.2
costs
Total opex savings 81.6
Total savings (capex and opex) 557.6
Reduction in execution risks: erecting towers carries
with it significant execution risks and requires as many
as 40 clearances from separate authorities such as
the Standing Advisory Committee on Radio Frequency
Allocation (SACFA), state electricity boards, land owners
and so on before the tower and electronic infrastructure
can be completed. Against this background, the concept of
infrastructure sharing assumes special importance. Such
an arrangement works well for both partners, as the tenant
paying a higher rent to the tower company accelerates
the time-to-market process, while the tower company
earns revenues.
Enabling the next wave of telecom growth in India 24
Revenue stream for incumbents: sharing enables
incumbents to earn revenues from a new source,
apart from improving capex and opex efficiencies,
freeing up significant resources and management time
to focus on their core business. The tower business can
become a profit center by itself, rather than just leading to
cost savings.
Expeditious time-to-market for new players: sharing
significantly speeds up the time-to-market, as operators
can dramatically reduce site acquisition times and load
their electronics and electronic network elements onto
the civil infrastructure of incumbent operators in a civil
sharing model.
Government initiatives on infrastructure sharing:
regulators favor faster deployment and investment
optimization in the telecom sector. Infrastructure
sharing limits duplication and gears investment toward
underserved areas, product innovation and improved
customer service. There are many government initiatives
that support infrastructure sharing. These provide
incentives for companies to participate in infrastructure
sharing, thus contributing to the growth of the industry
as a whole.
Local restrictions and environmental benefits: as
local authorities become more concerned about the
environmental and aesthetic effects of the number and
location of antennas in an area, zoning regulations may
start to play an important role in driving service providers
to share civil infrastructure.
Less negative environmental impact: although
environmentalists show limited support for telecom
network deployment, infrastructure sharing typically
receives the backing of many conservation groups
because less network buildup means fewer negative
environmental impacts.
Thus, infrastructure sharing reduces operating costs and
provides additional capacity in congested areas where
space for sites and towers is limited. It also provides an
additional source of revenue but may be limited by differing
strategic objectives. It helps to expand coverage into
previously unserved geographic areas. For operators who
have been awarded 3G licenses and will be launching 3G
operations, it provides an opportunity to reduce capital and
operational expenditure by sharing infrastructure from the
start of the build-out.
40 “Mobile infrastructure sharing,” GSMA, page 12.
25 Enabling the next wave of telecom growth in India
2.9.7 Models of infrastructure sharing
As India’s mobile networks have expanded over the past
few years, coverage is no longer a source of competitive
advantage. Operators have realized that the industry needs
significant capital expenditure, which can be reduced by
sharing their networks. What started off as arrangements
between two telecom operators has evolved into the
creation of tower companies. Commercial considerations
appear to be driving the increasing trend to adopt a
variety of infrastructure models. The level of sharing
among wireless service providers varies depending on the
complexity of the arrangements and the interdependence
of the wireless service providers. Infrastructure sharing can
take the following forms40:
Civil infrastructure sharing: this refers to the sharing of
physical sites, buildings, shelters, towers, masts, power
supply and battery backup. This is by far the most common
form of infrastructure sharing in India now.
Electronic infrastructure sharing: this refers to the sharing
of electronic elements such as antennas, feeders, radio
access network (RAN), cables, node B and transmission
equipment.
RAN sharing: this is the simplest type of electronic
infrastructure sharing. It involves all the access
network elements to the point of connection with the
core network, including radio equipment, mast and site.
An extended version of RAN can be in the form of
intra-circle roaming. Service providers can agree to
provide mobile services to each other’s subscribers to
ensure converage wherever their own network signal is
not available or weak. This can increase the coverage area
and improve the quality of service. Usually, operators
either establish a joint venture company to operate the
shared network or establish an agreement on the use of
each other’s networks.
Node B sharing: in the Node B sharing model, one physical
unit is shared by two distinct nodes B. The radio network
controller (RNC) and core network are not shared in this
model, so that each service provider can maintain control
of its equipment and spectrum use. The separation of the
core network also allows each service provider to offer
differentiated services to its subscribers.
Core network: the most complex form of network sharing
involves both radio and core network elements, permitting
one or more partner service providers to access some or
all of the mobile network, including electronic components
such as optic and feeder fiber cables, radio links, network
elements, backhaul, antenna and transmission equipment.
This can be implemented to various levels depending on
which platforms operators wish to share.
Radio and core sharing: all electronic components in the
access and core network as well as civil infrastructure are
shared. In Sweden, there are five operators, four of whom
have formed two consortiums of two operators each. Each
consortium has built out a joint network. The regulator
permitted this level of sharing, but required each operator
to maintain 30% of its network separately.
Backhaul sharing: common backhaul sharing will be very
useful in rural environments where traffic from BTS to
BSC is very low. A common RF or optical fiber medium can
be utilized, reducing cost and maintenance efforts. Exits
from such sharing arrangements can easily be provided if
warranted due to an increase of traffic or other reasons.
Mobile virtual network operators (MVNOs): these typically
do not have their own network and have no rights to
spectrum. They typically rely on operator network sharing
to get access to subscribers and offer services.
National roaming: mandatory national roaming is a form
of infrastructure sharing that allows new operators, who
have yet to complete their network deployment to provide
national service coverage through sharing incumbents’
networks in specific areas. National roaming accelerates
competition by allowing new players to launch their
services within a shorter time frame.
Distributed antennae sharing (DAS): over the past few
years, DAS has emerged as a powerful tool for wireless
carriers to bolster their coverage and boost their capacity,
especially with the advent of smartphones and 3G.
Essentially, DAS is a collection of small antennas spread
over a specific geographic area and connected by fiber to
a central location or power source, usually a base station,
to provide wireless service within a geographic area or
structure. DAS technology can be used to boost signal
coverage in large buildings, stadiums and shopping malls
as well as for outdoor purposes. The benefits of DAS are
twofold — the technology allows carriers to fill in coverage
gaps and dead spots in their macro network and, by
breaking down the macro cell site into smaller pieces, it
helps add much-needed capacity to operators’ networks.
Enabling the next wave of telecom growth in India 26
2.10. Value-added services (VAS)
According to the Internet and Mobile Association of India (10%–20%) and content aggregators (10%–15%). Content
(IAMAI), the mobile VAS in India was estimated to be owners end up getting approximately 5%–10% of the
worth INR145.0 billion41 in 2010, growing at a CAGR overall revenues.
of more than 50% during 2006–10. The rollout of 3G
The demand for mobile VAS is driven by the increase in the
services is expected to drive the mobile VAS market in the
mobile subscriber base, which has exceeded the
future, creating opportunities for both telecom operators
700 million44 mark, as well as aggressive marketing efforts
and companies engaged in VAS. Entertainment mobile
by telecom operators to spread awareness about their
VAS constitutes 57% of the overall revenues followed by
services such as updates and alerts. Moreover, the decline
information mobile VAS (39%) and m-commerce (4%).42
in ARPU has compelled mobile operators to focus on
The key mobile VAS include person-to-person (P2P) SMS, mobile VAS to generate additional revenues. The rollout
monotones, polytones and truetones as well as caller of 3G services in the near future is expected to provide
ring-back tones (CRBT), person-to-application (P2A) SMS, consumers with new and improved services such as high-
application-to-person (A2P) SMS, games and services speed data transfer.
such as m–commerce and m–radio. The key participants in
The demand for mobile VAS is mostly driven by the youth,
the mobile VAS market include content owners, content
with India being one of the leading mobile markets for the
aggregators or developers, media companies, technology
young. The mobile VAS revenues in the country are driven
enablers, short-code providers, handset manufacturers and
by the P2P SMS service, followed by music. The growth
content converters.
of m–commerce, which provides services such as mobile
In terms of revenue distribution among various market banking, mobile payments and money transfer, is also
participants, out of the total amount paid by end users expected to drive the market for mobile VAS.
(excluding P2P SMS), approximately 60%–80%43 is captured
by mobile operators, followed by technology enablers

Market size of VAS Revenue distribution of VAS services (%)

160 100
145.0
140 10
15
Market size (INR billion)

120
15
100 93.0
Growth (%)

60
80 75.1
60 45.6
40
28.5
20
Operator Technology Content Content Total
0 revenue enabler aggregator owner
2006 2007 2008 2009 2010F
Source: Mobile VAS in India: 2010, IAMAI, July 2010
Source: Mobile VAS in India: 2010, IAMAI, July 2010

41 Mobile VAS in India: 2010, IAMAI, July 2010.

42 Mobile VAS in India: 2010, IAMAI, July 2010.
43 Mobile VAS in India: 2010, IAMAI, July 2010.
44 “TRAI Press Release No. 63 /2010,” TRAI website, http://www.trai.gov.in/Default.asp, accessed 10 October 2010.

27 Enabling the next wave of telecom growth in India

2.11. Outlook
2.11.1 Wireless
At the end of December 2010, there were 752.2 million45 mobile subscribers, with a
significant number of multiple and inactive Subscriber Identity Module (SIM) owners.
According to Ovum, during the period 2010–15, the number of wireless subscribers in
India is expected to increase at a CAGR of 10.1%,46 to reach 1,217.1 million47 subscribers
in 2015. Further, the country’s wireless teledensity is expected reach 97.2% and 110% in
2015 and 2020, respectively. Future subscriber growth is likely to hinge upon rural and
low-income users. Although the telecom sector is witnessing strong customer additions
every month, the ARPU continues to shrink, leading to falling profit margins of mobile
operators. The presence of as many as 14 mobile operators in certain parts of the country
and rising financial pressures are expected to drive consolidation in the sector.

Wireless subscribers in India

1,600 109.9% 120%

Wireless subscribers (million)

92.9% 95.9% 97.2%

1,400 87.1% 100%

Teledensity (%)
1,200 77.7%
1,000 63.2% 80%
800 44.7% 60%
1,516.8
600 1,134.5 1,185.3 1,217.1
40%
923.8 1,049.1
400 752.2
200 525.1 20%
0 0%
2009 2010 2011F 2012F 2013F 2014F 2015F 2020F
Wireless subscribers Teledensity
Source: TRAI; DoT; Ovum; Ernst & Young analysis

2.11.2 3G subscribers
3G subscribers forecast
3G is the next generation mobile technology which is
capable of delivering broadband content, including a host
350 25%
3G subscribers as a percentage of

of rich multimedia services such as video calling, video 20.0%

on demand, location based services and remote access/ 300
wirless subscribers (%)

20%
3G subscribers (million)

VPN applications. 3G services will drive the expansion of 250

wireless services in future. 3G subscribers are expected 15%
200 11.7%
to reach 142 million by 2015, accounting for 12% of the 10.0%
total wireless subscriber base. Further, 3G subscribers are 150 8.9% 303.4 10%
6.9%
expected to be more than 300 million by 2020, accounting 100
3.8% 142.0 5%
for 20% of the total wireless subscriber base. 118.0
50 101.0
72.0
35.0
0 0%
2011F 2012F 2013F 2014F 2015F 2020F
3G subscribers 3G subscribers as a % of
wireless subscribers
Source: Ovum; Ernst & Young analysis
45 “TRAI: The Indian Telecom Services Performance Indicators (January - March 2010),” TRAI website, July 2010,
http://www.trai.gov.in/Default.asp, accessed 10 October 2010.
46 Ernst & Young analysis.
47 Ovum: Mobile regional and country forecast pack: 2010–15, Ovum website, http://www.ovumkc.com/, accessed 16 October 2010.

Enabling the next wave of telecom growth in India 28

2.11.3 Wireline
There were 35.1 million48 wireline subscribers at the end of December 2010. The wireline
market is in decline, a trend that is expected to continue. According to Ovum, during the
period 2010–15, the number of wireline subscribers in India is expected to decrease at a
CAGR of nearly 4%,49 to reach 29.1 million50 by 2015. Further, the wireline subscribers are
forecasted to reach 26.3 million in 2020. The growth in the mobile market is seen as the
cause of the decline.
Wireline subscribers in India

40
Wire line subscribers (million)

35
30
25
37.1 35.1 34.9 33.5
20 32.1 30.5 29.1
26.3
15
10
5
0
2009 2010 2011F 2012F 2013F 2014F 2015F 2020F
Source: TRAI; DoT; Ovum; Ernst & Young analysis

2.11.4 Broadband
As of September 2010, there were 10.3 million broadband subscribers in India. The
growth of broadband is expected to increase with uptake of 3G and BWA services.
Considering increasing broadband demand, the broadband connections are estimated to
reach 150 million by 2020.

Broadband subscribers forecastc

Year Number of % of households to be Number of broadband
households covered for broadband connections (million)
2010 236 5% 11.5
2012 241 20% 48
2014 250 40% 100
2020 275 55% 150
Source: “TRAI: Consultation Paper on National Broadband Plan,” TRAI website, June 2010,
http://www.trai.gov.in/Default.asp, page 16, accessed 10 October 2010; Ernst & Young analysis

48 “TRAI: The Indian Telecom Services Performance Indicators (January - March 2010),” TRAI website, July 2010,
http://www.trai.gov.in/Default.asp, accessed 10 October 2010.
49 Ernst & Young analysis.
50 Ovum: Fixed voice connections forecast pack: 2008–15, Ovum website, http://www.ovumkc.com/, accessed 16 October 2010.

29 Enabling the next wave of telecom growth in India

2.11.5 Revenue and capex
Over the years, the Indian telecom sector has witnessed an increase in revenues and
contribution toward GDP. The growth in revenues is driven by cheaper mobile handsets,
lower tariffs, the increase in mobile penetration in both urban and rural areas, and the
adoption of VAS. According to Ovum, during the period 2009–15, industry revenues and
capital expenditure are expected to increase at CAGR of 8.1%51and 7.0%, respectively,
to reach US$51.0452 billion and US$14.97 billion by 2015. Further, industry revenues
and capex are expected to increase to US$57.2 billion and US$ 13.9 billion, respectively
by 2020. The future revenue growth and increase in capex is expected to be driven by
the rollout of 3G services and the increase in broadband penetration across the country,
including BWA penetration. Other services such as ILD, NLD and VAS are also expected
to drive revenue growth.

Revenue and capex forecast

70
Revenue and capex (US$ billion)

60
50
40
30 57.2
45.9 15.1 48.4 51.0
20 38.7 11.8 43.1 13.8 14.8 15.0
32.0 10.0 34.5 13.9
7.3
10
0
2009 2010F 2011F 2012F 2013F 2014F 2015F 2020F
Revenues Capex

Source: Ovum; Ernst & Young analysis

Over the years, with the introduction of 3G and BWA services, the contribution of
non-voice services towards the industry revenues is expected to reach 38% by 2020.

Revenue break-up: voice and non-voice

10% 17% 22% 27% 32% 38%

90% 83% 78% 73% 68% 62%

2011F 2012F 2013F 2014F 2015F 2020F

Voice Non-voice
Source: Pyramid Research; Ernst & Young analysis

51 Ernst & Young analysis.

52 Ovum: Forecast of service provider revenue and capex, 2009-2014, Ovum website, http://www.ovumkc.com/, accessed 16 October 2010.

Enabling the next wave of telecom growth in India 30

Achievements

3
and setbacks of
NTP 1999
31 Enabling the next wave of telecom growth in India
The NTP 1999 aims at making India competitive in the global telecom market through
growth in exports, FDI and domestic investment. The key objectives of the policy include
telecommunication for all and within the reach of all, achieving universal service across
all villages, global standards in the quality of service, the emergence of India as a major
manufacturing base and a major exporter of telecom equipment, and protection of the
country’s security interests. The policy includes specific targets:

• Make available telephone on demand by 2002 and sustain it thereafter so as to

achieve a teledensity of 7% by 2005 and 15% by 2010
• Encourage the development of telecom in rural areas, making it more affordable by
fixing a suitable tariff structure and making rural communication mandatory for all
fixed service providers
• Increase rural teledensity from 0.4% to 4% by 2010, and provide reliable transmission
media in all rural areas
• Achieve telecom coverage of all villages in the country and provide reliable media to
all exchanges by 2002
• Provide internet access to all district headquarters by 2000
• Provide high-speed data and multimedia capability, using technologies including
international services digital network (ISDN), for all cities with a population greater
than 200,000 by 2002

Enabling the next wave of telecom growth in India 32

 NTP 1999 has been a catalyst for the telecom sector:
• Growth in the subscriber base (723.3 million) and in
teledensity (61.0%)
• Contribution of telecom to overall GDP of almost 3%, up
from 1.5% in 2000
• Creation of jobs across sales and marketing, technology,
R&D and customer care, among others
• Among the lowest tariffs in the world, and the adoption of
per-second billing by various operators
• Robust growth in revenues — industry revenues recorded
at US$35 billion
• Increased FDI in the telecom sector — accounts for more
than 8% of cumulative FDI inflows in the past decade
• The promotion of manufacturing of telecom equipment in
India and the growth of telecom exports
• Growth of the telecom industry has led to the development
of new business ecosystems, e.g., mobile value-added
services (MVAS) encompass mobile operators, content
creators, providers, aggregators and technology enablers

Sector still faces challenges for growth:

• Spectrum re-farming and effective management of
spectrum in a transparent manner
• Creation of an effective licensing framework where
amendments are carried out in consultation with
service providers
• “Critical” Infrastructure Status along with uniform policy
and single window clearance
• Energy requirements, especially reliability, resulting in
huge operating expenditure
• Effective utilization of USOF to increase rural penetration
• Increasing broadband penetration and rural connectivity
• Overcoming security concerns over the use of mobile
handsets and telecom equipment
• Limited availability of talent, especially telecom specialists
• Fixed mobile convergence (FMC)

33 Enabling the next wave of telecom growth in India

3.1. Key achievements of NTP 1999

3.1.1 Teledensity poses a critical challenge due to low population density,

Reforms in the telecom sector have been encouraged by
the active participation of the public and private sector.
Following independence, the teledensity level in the
country was 0.02%53; by 1998, the level had increased
to only 1.9%. NTP 1999 has been instrumental in the
growth of telecom in both urban and rural areas, and its
targets have been achieved well in advance. The overall
teledensity target of 15% by 2010 was achieved in FY07.
Furthermore, the overall teledensity as of September 2010
stood at 61.0%.54 Urban teledensity and rural teledensity
at the end of September 2010 were 137.3%55 and 28.4%,
respectively, with rural teledensity being far ahead of the
NTP 1999 target, which was set at 4% by 2010.
Although India has witnessed a steep rise in teledensity
over the past few years, the disparity between urban and
rural areas in terms of mobile penetration has increased
significantly. The improvement in rural teledensity
geographical spread, low per capita income and the cost
of maintaining phones in rural areas. As a result, there is
an uneven distribution of teledensity among Indian states
resulting in slow economic development of the states and
their surrounding regions.
Currently, about 70% of the population in India lives in
rural areas, and mobile penetration stands at a meager
28.4% in rural India. There is a significant opportunity for
service providers to increase penetration in rural areas
and generate revenues. The impact of mobile telephony
on rural areas has been profound. It has helped reduce the
cost and time of transactions and has visibly compensated
for the poor infrastructure. According to a study by Robert
Jensen, a Harvard University economist, the introduction
of mobile telephony in Kerala increased the fishing
community’s profits by 8%,56 decreased fish prices by 4%
and consumption of fish increased by 6%.

Urban and rural teledensity

140% 137.3%
119.7%
120%

100%
89.4%

80%
Teledensity (%)

65.9% 61.0%
60% 52.7%
47.3%
38.0% 37.0%
40% 28.4%
26.2% 26.2% 24.3%
20.8% 18.2%
20% 10.4% 14.3% 12.9% 14.9%
12.2% 9.2%
8.2% 2.9% 9.1% 5.8%
4.3% 5.1% 4.0%
2.3% 0.7% 0.9% 3.6% 1.2% 1.5% 1.6% 1.8%
0%
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Sept 10
Urban teledensity Rural teledensity Total teledensity

Source: TRAI

53 “Rural Telecom and IT,” Indian Institute of Kanpur website, http://www.iitk.ac.in/3inetwork/html/reports/IIR2007/04-Rural Telecom.pdf, page 76.
54 “TRAI Press Release No. 63 /2010,” TRAI website, http://www.trai.gov.in/Default.asp, accessed 10 December 2010.
55 “TRAI: The Indian Telecom Services Performance Indicators (July – September 2010),” TRAI website, January 2010,
http://www.trai.gov.in/Default.asp, accessed 15 January 2011.
56 Jensen, R., “The Digital Provide: Information (Technology), Market Performance and Welfare in the South Indian Fisheries Sector,” The Quarterly Journal
of Economics, 2007.

Enabling the next wave of telecom growth in India 34

Total teledensity by state in India, FY10 The Indian telecom industry employs more than 430,00057
direct employees, with the majority of these employees
being a part of the public sector undertakings (PSU). The
ratio of the number of subscribers per employee is very
high in the case of private operators in India.

Mix of private and PSU operators, by subscriber base

100%= 98.4 140.3 205.9 300.5 429.7

million
26.5% 20.8%
34.7%
43.5%
52.9%

73.5% 79.2%
65.3%
56.5%
47.1%

FY05 FY06 FY07 FY08 FY09

Low teledensity: 0%–50%
Medium teledensity: 50%–100% Private operators PSU operators
High teledensity: 100% and above Source: TRAI; Dun & Bradstreet

Source: TRAI

3.1.2 Teledensity and employment Employees of private and PSU operators

Over the past decade, private telecom players have 100%= 436,891 429,400 432,771
considerably expanded their operations, which has
resulted in an increase in employment opportunities 9.7% 11.0% 14.7%
in the telecom sector. The sector has created direct
employment across various business areas such as sales 90.3% 89.0% 85.3%
and marketing, technology, R&D and customer care, as well
as indirect employment. The expansion of the Indian BPO
FY05 FY06 FY07
industry is a classic example of indirect employment.
Private operators PSU operators

Subscribers per employee ratio in India

FY05 FY06 FY07
PSU operators 132 158 193
Private operators 1,089 1,678 2,110

The development of telephony in India has played an

important role in altering the structure of the economy. It
has paved the way for a knowledge- and information-based
economy, which augurs well for sectors such as IT/ITES,
media, technology, education, R&D and financial services.

57 Overview of Telecom Industry, Dun & Bradstreet website, December 2009.

35 Enabling the next wave of telecom growth in India

 3.1.3 Size of the telecom sector and
contribution to GDP
The revenues of the Indian telecom sector have The contribution of the telecom sector to India’s GDP
increased by almost fivefold from US$7 billion in FY00 is estimated to increase from 1.5% in 2006 to 2.8%59 in
to US$35 billion58 in FY09. The growth in revenues has 2010. The Indian economy is expected to sustain an 8%
been driven by favorable factors such as the availability or a higher growth rate in the future. As the country aims
of cheaper mobile handsets, lower tariffs, the increase in to achieve higher teledensity, the contribution of the
mobile penetration in both urban and rural areas and the telecom sector in GDP is expected to increase. According
adoption of VAS. In addition, infrastructure sharing has to an ICRIER study, a 10%60 increase in mobile penetration
enabled operators to improve margins by bringing down results in a 1.2% increase in GDP.
costs significantly.
Contribution of telecom to GDP
India’s telecom sector is a voice-centric market
characterized by high MoU and ARPU. A sharp decline in 3.0% 2.6% 2.8% 2.4%
call charges and the cost of services has enabled the rise of 2.5% 2.2% 2.2% 2.3% 2.3%
mobile subscribers and revenues. 2.0% 1.7% 1.6% 1.6%
1.5%
1.5%
Indian telecom sector gross revenues 1.0%
0.5%
40
35 0.0%
35 33
FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10
31
30
Revenue (US$ billion)

25 Source: TRAI; Ernst & Young estimates

25
20
20 The contribution of the telecom sector also has a
17
15 multiplier effect on growth, due to associated individuals
15
and businesses. Further, the GoI’s aim to reach rural
8 8 9
10 7 teledensity of 40%61 by 2014 from the current levels
5 and achieve broadband coverage of all 250,000 village
panchayats under the Bharat Nirman Program is
0
expected to enhance the contribution of the telecom
FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

sector to India’s GDP.

Source: TRAI; Ernst & Young analysis

58 Transfer Pricing Report — Telecom (general), Ernst & Young, 2010.

59 Ernst & Young analysis.
60 “High-teledensity states grew faster, says study,” LiveMint, http://www.livemint.com/2009/01/19224316/Highteledensity-states-grew-f.html, accessed
10 October 2010.
61 “Bharat Nirman: A business plan for rural infrastructure,” Bharat Nirman website, http://www.bharatnirman.gov.in/page2.html, accessed
20 October 2010.

Enabling the next wave of telecom growth in India 36

3.1.4 FDI in the Indian telecom sector From FY08 through FY10, FDI equity inflows in the
telecom sector increased at a CAGR of 42.3%65 to reach
In the past decade, India has witnessed a considerable rise US$2.6 billion. Higher levels of FDI in the telecom sector
in FDI. During the last decade, FDI in India increased at a have intensified competition and strengthened market
CAGR of 28.0%62 to reach US$37.2 billion63 in FY10. The penetration. They have also opened up opportunities for
telecom sector is among the leading sectors attracting FDI, telecom manufacturing and related business areas in
accounting for 8.1% of the cumulative FDI equity inflows the sector.
from FY00 to FY10. Over the past few years, a number of
foreign ownership and equity regulation reforms have been
introduced in the telecom sector. These reforms have led to 3.1.5 Restructuring mobile tariffs
an increase in FDI inflow in the sector.
The decline in tariffs has enabled the industry to reach a
FDI limits in telecom64 phenomenal size in terms of subscribers, while at the same
time diluting the ARPU. In the early days, mobile tariffs
• 100% FDI is permissible in the case of infrastructure
providers that offer dark fiber, ROW, duct space, tower, email, were targeted toward both the calling and receiving party,
and voice mail: with the regime popularly known as “receiving party pays.”
• FDI of up to 49% can be done on the Automatic Route In January 2003, TRAI announced the implementation of
(without prior government approval); beyond that, prior the “calling party pays” regime, with incoming calls being
approval is required free of charge for the receiving party.
• 74% FDI is permissible in the case of basic, cellular, unified
access services, NLD/ILD, V-Sat, public mobile radio trunked
services (PMRTS), global mobile personal communications
services (GMPCS) and other VAS
• FDI of up to 49% can be done on the Automatic Route
(without prior government approval); beyond that, prior
approval is required
• 74% FDI is permissible in the case of ISPs with gateways,
ISPs not providing gateways, radio paging and end-to-end
bandwidth
• FDI of up to 49% can be done on the Automatic Route
(without prior government approval); beyond that, prior
approval is required

Cumulative FDI equity inflow in India, FY00-10

Services sector
21.4%
Computer hardware and software FDI equity inflow in the telecom sector
Telecommunications (US$ billion)

9.0% Housing and real estate

38.3% Construction activities
8.1% Power 2.6 2.6
Automobile 1.3
7.6%
Others
4.1% 7.3%
4.2% FY08 FY09 FY10

Source: Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce and Industry

62 Ernst & Young analysis.

63 “Fact Sheet on Foreign Direct Investment from August 1999 to July 2010,” Department of Industrial Policy & Promotion, http://dipp.nic.in/, accessed
10 October 2010.
64 Department of Industrial Policy & Promotion: Consolidated FDI policy effective from April 2010, Department of Industrial Policy & Promotion,
April 2010, page 58.
65 Ernst & Young analysis.

37 Enabling the next wave of telecom growth in India

The effective price per minute for an outgoing mobile GSM operators: ARPU and MoU
call has declined from approximately INR16.4066 in 1995 600 600
to almost INR0.30 today. Since the formulation of NTP
493 484
1999, the industry has experienced a decline of about 471
500 500
410 423
95% in mobile tariffs. The entry of new service providers

MoU (minutes)
395
400 400

ARPU (INR)
has resulted in a tariff war, as the market entrants have
used pricing to grab market share. Per-second billing has 366
300 300
emerged as an industry norm, thereby creating a win-win
298
situation for subscribers. 200 264 200
205
The intense competition in the telecom sector
100 164 100
has led to declining ARPU among mobile operators. 131
From FY06 through FY10, the ARPU of GSM and 0 0
CDMA operators decreased by 64.2% and 70.3%, FY06 FY07 FY08 FY09 FY10 Sep10
respectively. The average annual decrease for GSM and
ARPU MOU
CDMA operators was 22.1% and 25.8%, respectively.
ARPU levels are estimated to continue declining over Source: TRAI

the next few years, though the rate of decline is expected CDMA operators: ARPU and MoU
to be slow. Following the introduction of the NTP 1999, 600 600
the MoU among telecom service providers have also
witnessed an increase. Although India has recorded one of 500 550 500

MoU (minutes)
the highest MoU globally in the past few years, the sector
471
ARPU (INR)

has also experienced a decline in MoU, especially in the 400 400

case of CDMA operators. In addition, the rate per minute 364
300 256 352 300
(RPM) has declined due to the increase in competition in 308
202 307
the sector. 200 159 200
99
3.1.6 Handset prices 100
76 78
100
The Indian mobile handset market is estimated to be
0 0
worth INR500 billion.68 The market has witnessed the FY06 FY07 FY08 FY09 FY10 Sep10
entry of a number of mobile manufacturers, raising
ARPU MOU
the total number of manufacturers to about 30 from
approximately 5 in 2008. Source: TRAI

GSM and CDMA operators: RPM

The Indian mobile handset market is dominated by
established global brands. The market is characterized 1.0 0.9
by the presence of both high–end and low–end mobile 0.9
phones, with a wide gap between handset prices. The 0.8
market is also inundated with unbranded and cheap 0.7 0.6
imported mobile phones, which are primarily Chinese in 0.6 0.5
INR

origin. The growing mobile subscriber base in India has led 0.5 0.4
0.5 0.4
to the entry into the market of a number of “homegrown” 0.4 0.3
0.4 0.4
mobile handset manufacturers. 0.3
0.2 0.3 0.3
0.1 0.2
0.0
FY06 FY07 FY08 FY09 FY10 Sep10

GSM CDMA
Source: TRAI

66 “One Minute at a Time,” Outlook India, http://business.outlookindia.com/printarticle.aspx?266748, accessed 21 October 2010.

67 Ernst & Young analysis.
68 “Small handset makers making big strides,” Business Standard, 15 April 2010, http://www.business-standard.com/india/news/small-handset-makers-
making-big-strides/391912/, accessed 5 October 2010.

Enabling the next wave of telecom growth in India 38

 Average selling price (ASP) of mobile handsets

200
180
Average selling price (US$)

160
140
120
100
80
60
40
20
0
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 2Q09E 4Q09E 1Q10E 2Q10E
Nokia Motorola Samsung Sony Ericsson Others
Source: Company data; Macquarie Capital

In the past decade, mobile handsets have evolved
rapidly, adding numerous features ranging from
monochrome screens to touch screens, monotone
ringtones to MP3 ringtones, Video Graphics Array
(VGA) to 8-to-12-megapixel cameras, enhanced memory,
Global Positioning System (GPS), email, 3G and an
improved user interface. Globally, the average selling price
(ASP) of both feature phones and smartphones has been
on the decline. However, the price of feature phones is
declining at a faster rate than smartphones. Over the next
few years, the ASP of feature phones is expected to be
US$50, and the ASP of smartphones is expected to drop
below US$200.
Indian mobile handset market
120
6.0
5.4
100
4.7
Volume (million units)
3.1.7 Global outreach of Indian telecom
companies
In the early 1990s, greenfield investments were a
popular mode of overseas investment among Indian
firms, and foreign affiliations were formed through joint
ventures, usually with a minority ownership. Over the
period, India has witnessed prominent diversification in
the industry composition of overseas activities of Indian
firms. Over the past decade, FDI by firms belonging to
developing countries has gained momentum and has
become an integral part of globalization. Indian companies
have reached overseas destinations to tap new markets
and have acquired technologies. The market has witnessed
investment in the form of greenfield projects, and the
7
majority of this capital value has been used to acquire
companies. M&A provide benefits such as expansion of
5.6 6 global footprint, access to niche technologies, new product
mix, a wider customer base and growth momentum. In
5
line with the change in the pattern of investments, the

80
Value (US$ billion)

4 structure of ownership has also shifted toward majority and

3.2 full ownership.
60
101.5 108 3
95.6 According to the National Council of Applied
40
71.8 2 Economic Research (NCAER), India’s FDI outflows (debit)
20 have grown at a CAGR of 47.5% to reach a projected
33.4 1
US$18.6 billion69 in FY09, from US$0.8 billion in FY01.
0 0 The share of manufacturing in the investment activity has
FY06 FY07 FY08 FY09 FY10
Source: Voice & Data

69 “NCAER: FDI in India and its growth linkages,” Department of Industrial Policy & Promotion, August 2009, http://dipp.nic.in/, page 13, accessed
10 October 2010.

39 Enabling the next wave of telecom growth in India

declined considerably, whereas the share of services has
increased. The Indian telecom sector has actively been a
part of the global M&A activity, leading to the emergence
of telecom giants from India.

Key overseas M&A by Indian firms

Year Target company Acquirer company Deal value
(US$ million)
2010 Zain Africa BV Bharti Airtel Ltd 10,700.0
2010 Warid Telecom, Bangladesh Bharti Airtel Ltd 300.0
2003 FLAG Telecom Group Ltd Reliance Gateway Net Pvt Ltd 194.8
2005 Teleglobe International Holdings Ltd. TCL 177.0
2010 Telecom Seychelles Bharti Airtel Ltd 62.0
2000 Astratel Nusantara PT CDC Capital Partners 30.0
Source: Thomson ONE Banker

Enabling the next wave of telecom growth in India 40

3.2. Key challenges of NTP 1999
NTP 1999 envisaged the affordability and availability of
telecommunication services for the common populace,
along with the benefit of VAS such as internet for the
urban and rural population and the abolition of the digital
divide. However, the telecom sector continues to face
various issues that act as impediments to its growth.
3.2.1 Growth of wireline
The wireline segment has added just 10 million users since
the introduction of the NTP 1999, and the number of
wireline subscribers has fallen from 41.5 million in FY06
to 37 million in FY10. Although wireline infrastructure
in India has been in place for an extended period, the
growth of wireline phones is not in sync with the rise in
the number of wireless subscribers. The decline has been
due to lower mobile tariffs, cheaper handsets, improved
mobile coverage, the advantage of mobility among wireless
networks and the inadequate infrastructure of the wireline
network. However, wireline and wireless complement
each other. The stagnancy in the growth of wireline
networks has an impact on the overall growth of the
telecom sector and other services such as internet and
broadband services.
Globally, broadband penetration is accepted as a measure
of a country’s ability to compete as an economic power.
Despite India’s status as an IT superpower, broadband
penetration levels in India are far below other emerging
countries such as Brazil, Russia and China. According to
Boston Consulting Group, India has an internet penetration
of 7%,72 in comparison with 33% in Brazil, 31% in Russia
and 28% in China. The Broadband Policy 2004 has failed to
keep pace with advances in technology and failed to boost
the telecom sector.
3.2.3 Spectrum challenges
The Indian telecom industry has witnessed phenomenal
growth in the number of subscribers, with a CAGR of 77.5%
during the period FY00–10. Furthermore, according to
TRAI, the Indian telecom industry is expected to reach
1 billion73 wireless subscribers by March 2014. In line
with the growth of subscribers, the need for spectrum to
service these subscribers has also increased. According to
TRAI, the bandwidth required by 2014 may be as high as
800MHz.74 Spectrum bands such as the 900MHz band are
of great value to mobile operators due to the longer ranges
these can support, therefore requiring lesser BTSs density
and lower capital and operating expenditure.

3.2.2 Growth of broadband Currently, in the absence of a long-term plan to meet

As of September 2010, there were 17.9 million70
internet subscribers and 10.3 million broadband
subscribers in India; the Broadband Policy 2004 had
anticipated 40 million71 internet subscribers and
20 million broadband subscribers by 2010. The sluggish
growth in broadband services is attributable to the absence
of low-cost devices, inadequate content and applications
in regional languages, the affordability and availability of
broadband services and inadequate infrastructure.
future requirements, the advent of new technologies is
expected to create conflicts for spectrum. The availability
of spectrum for commercial services in India is below the
required levels. Despite being the second-largest market in
terms of the subscriber base, India lags behind in terms of
availability of spectrum for commercial use.

70 “TRAI: The Indian Telecom Services Performance Indicators (July - September 2010),” TRAI website, January 2010, http://www.trai.gov.in/Default.asp,
accessed 15 January 2011.
71 “Broadband Policy 2004,” DoT website, http://www.dot.gov.in/ntp/broadbandpolicy2004.htm, accessed 10 October 2010.
72 The Internet’s New Billion, Boston Consulting Group, September 2010, page 7.
73 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, page 339, May 2010, http://www.trai.gov.in/Default.asp, accessed
10 October 2010.
74 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, May 2010, page 18, http://www.trai.gov.in/Default.asp, accessed 10 October 2010.

41 Enabling the next wave of telecom growth in India

Spectrum and license allocation timeline in India
First stage: 1995–2003
Auctioning scarce spectrum
• In 1995, the GoI auctioned 2x4.4MHz of start–up spectrum for GSM-based services
• Two operators were selected for each License Service Area (LSA). Subsequently,
in 2001, the third operator license was awarded, along with 2x4.4MHz of start-up
spectrum in the 900MHz band, to the government operator on a pro bono basis
• In 2001, the fourth operator license was issued using a three-stage auction
procedure. Start-up spectrum of 2x4.4MHz in 1,800MHz was given to the
winning bidder:
• In addition to the entry fees, licensees were required to pay a percentage of
annual revenue as spectrum charges
• In 2002, subscriber based norms (SBN) was introduced. It laid down a roadmap for
the allotment of 2x12.5MHz of spectrum per operator in each LSA

• In November 2003, GoI announced UASL that allowed basic service license holders
Second stage: 2003–06 to provide full mobility-based services with a stipulated entry fee based on the bid
price paid by the fourth operator in 2001
Unified Access Service (UAS) • The fixed fee-based license allowed any number of mobile licenses to be provided and
licenses implicitly de-linked spectrum allocation from licensing. Although firms were awarded
licenses after paying the required entry fee, they were given start-up spectrum only
as and when available
• Following the entry of two or three CDMA-based mobile operators in each LSA, one
or two new firms also paid the stipulated entry fee and obtained a license to operate
GSM services in certain LSAs

• 3G services were treated as a separate service from 2G, and TRAI continued to
Third stage: 2006–08 maintain that there was a shortage of 2G spectrum
• A new SBN policy was defined, and incumbents were kept out of fresh allocations.
Criterion for allocation of The GoI allocated spectrum to new telecom players in service areas across India
spectrum • The defense services agreed to vacate 2x20MHz in the 1,800MHz band, in addition
to 25MHz in the 2.1GHz UMTS band
• The DoT proposed new 2G spectrum usage charges for all operators. All operators
were expected to pay higher spectrum usage charges, irrespective of the quantity
they held. This differed from the earlier strategy of increasing spectrum charges only
for those operators who held more than 6.2MHz per circle in case of GSM players
and above 5MHz for CDMA

• In August 2008, the GoI announced the policy for 3G mobile services, in line with
Fourth stage: 2008–10 TRAI’s recommendations, and opted for the auction of a start–up spectrum of
2x5MHz in the 2.1GHz band with reserve prices for different categories of LSAs
Policy on 3G and 3G auctions • In May 2010, the e–auction of 3G mobile services was concluded after 183 rounds
of bidding across all service areas. All of the 71 blocks up for auction across the 22
service areas were sold:
• All the winners of the auction were required to pay INR509.7 billion to the GoI
within 10 days of the closing of the auction. Including the amount paid by
state-owned BSNL and MTNL, it totalled to INR677.2 billion
• Following the completion of the 3G auctions, the bandwidth for broadband
services (WiMAX) was auctioned by the GoI. It auctioned two 20MHz blocks
in the 2.3GHz range in each of the country’s 22 service areas. The GoI raised
INR385.4 billion from the broadband wireless auction

Source: “A peep into RF spectrum allocation process in India,” Integrated Defense Staff http://ids.nic.in/tnl_jces_Sep_2009/Spectrum%20allocation%20
procedure.pdf accessed 02 August 2010

Enabling the next wave of telecom growth in India 42

3.2.4 Licensing challenges
NTP 1999 permitted Cellular Mobile Service Providers
(CMSPs) to provide all types of mobile services, including
voice and non-voice messages, data services and PCOs, in
their service area of operations, using any type of network
equipment that met the International Telecommunication
Union (ITU) or Telecommunication Engineering Center
(TEC) standards. Prior to this, licensees were required
to use GSM technology. The policy made the cellular
license technology neutral, and also allowed licensees to
migrate from a fixed license regime to a revenue-sharing
arrangement starting in August 1999. In November 2003,
the GoI introduced the UAS licensing regime, permitting
an access service provider to offer either fixed or mobile
services or both. Since the introduction of the UAS
licensing regime, the total number of licenses in a circle
ranges from 12 to 14.75
Globally, the allocation of spectrum is separate from the
grant of license to provide service. However, in India,
licenses are bundled with the allotment of a certain amount
of spectrum.
3.2.5 Equipment manufacturing
The Indian telecom sector has witnessed rapid growth.
However, telecom manufacturing in India has not been
able to keep pace. Currently, there is a limited number
of telecom equipment manufacturers and providers tend
to be highly dependent on imported equipment during
the setup of mobile networks. Moreover, the country lags
behind in terms of telecom R&D and continues to be reliant
on imports.
75 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, May 2010, page 59, http://www.trai.gov.in/Default.asp, page 59, accessed
10 October 2010.
43 Enabling the next wave of telecom growth in India
3.2.6 Infrastructure
Telecommunications infrastructure, despite being a
“key infrastructure,” is far from ubiquitous. There are
huge gaps in low-income or sparsely populated areas,
especially away from cities and towns, where telecom
companies see poor returns on the expensive investment
required in setting up the infrastructure. Completing the
important task of connecting the remaining areas therefore
requires an all-round effort by improving the economics
of rolling out networks and addressing any other
stakeholders’ concerns that act as a barrier.
Telecom infrastructure service providers face several
challenges, which are highlighted below:
Role played by multiple state agencies: there is no
uniform approval process across the states, and the
biggest barrier to setting up telecom towers and other
infrastructure is the wide variation in the approval
process adopted by local bodies. Several demand
prohibitive fees; others require dealing with multiple
agencies; some treat infrastructure business in the same
way they treat petty commercial undertakings; and some
look at infrastructure companies as a means to finance
deficits. Tower companies, therefore, incur huge costs
and delays because several state agencies are involved in
granting approval for setting up towers.
Inadequate utilization of towers: towers are not fully
utilized as no law ensures that no new tower is built in an
area where an existing tower is under utilized.
Civic issues: there is a need to address civic issues
such as zoning regulation, single window clearance,
preferential treatment for sharing and incentives in a
timely manner.
Taxation on towers: multiple levies and high taxes are
imposed for setting up mobile towers. For instance, the
Municipal Corporation of Delhi (MCD) charges INR100,000
per tower and the New Delhi Municipal Council (NDMC)
charges INR200,000 per tower as a one-off registration
fee in Delhi.
Delays and cumbersome processes for the SACFA
clearances: the SACFA gives siting clearance of all wireless
installations in the country. The site clearance basically
requires examination from the point of safety for flight
navigation and interference with existing wireless systems.
Utilization of USOF and incentives: since the next level
of growth is expected to come from rural areas, there
is a need to accelerate the pace of setting up the tower
infrastructure in these areas. Although the USOF was
created with the sole aim of promoting rural telephony,
the fund rules are too cumbersome and lack focus. They
do not reflect the fact that USOF subsidies are perhaps
most urgently required to defray the cost of infrastructure
creation in rural areas.
Grievance redressal: there is no clear grievance escalation/
redressal mechanism that infrastructure companies can
seek when a conflict arises.
Safety: the construction of telecom towers is still a
self-regulated activity throughout India. Currently all the
telecom operators are following IS codes, namely IS:800,
IS:802 and IS:875, for the design of towers. The above IS
codes are primarily meant for electric/power transmission
line tower design, and the load criteria for telecom towers
and transmission line towers are different.
76 Industry estimates.
Power consumption: one of the major problems faced is
the lack of reliable grid power. Without it, service providers
are forced to use diesel generator sets at tower sites most
of the time. Secondly, the power connection to telecom
towers is treated as one to a “commercial establishment,”
and thus, the highest tariff is applied to the telecom site.
In large parts of India, the power is either unavailable or
erratic. This increases the dependence on diesel, which
is not only more expensive but also polluting. Further,
there is no clarity on the rates to be paid by infrastructure
companies. Some agencies charge them “industry” rates,
while others charge “commercial” rates, and there are
other options as well. This adds avoidable uncertainity in
an already tough business.
Energy consumption: cell sites account for most of the
energy consumed by mobile networks, as these are
dependent on diesel generators to keep running. Diesel
fuel is subsidized, and it is estimated that India as a country
consumes more than 2 billion liters of diesel per year for
cell sites.
Environmental issues: diesel consumed by towers results
in about 17,000 tonnes of CO2 and 24,000 tonnes of
carbon equivalent. The cumulative carbon footprint of
telecom towers due to diesel consumption in a year is more
than 5.5 million tonnes.76 The thrust in increasing rural
telephony will further aggravate the diesel dependence by
telecom towers.
Misplaced apprehensions on health hazards of
electromagnetic radiation from mobile antennas:
many state governments and municipalities have barred
towers in residential areas, citing concerns over alleged
health hazards relating to BTS.
Enabling the next wave of telecom growth in India 44
4Key enablers
As we enter the second decade of the 21st century, India’s telecom industry
is at a crossroad. This is the appropriate time to look again at the NTP 1999
and customize it to meet current and future needs. The NTP 1999 has
served the sector well for more than a decade, which witnessed significant
changes in the socioeconomic environment, technological advancements
and business dynamics of telecommunications. Therefore, the time is
ripe for a comprehensive review to build a forward-looking, strong and
transparent policy framework that will be the backbone to achieving the
India Telecom Vision 2020. India needs a principle and objective-based,
transparent, efficient, independent and competitively neutral policy that will
accelerate the pace of growth in telecom services and manufacturing.

• A principle- and objective-based policy that provides a clear roadmap of

the telecom sector and is reviewed regularly to keep abreast with rapid
technological developments in the sector
• A transparent approach to policy formulation, providing interested
parties with concrete opportunities to navigate the growth of the
telecom sector
• The creation of an efficient mechanism to implement regulatory
decisions. It needs to identify and address barriers to growth
• The functioning of the regulator in an unbiased manner, and the
formulation of a competitively neutral policy that is not discriminatory
toward any of the stakeholders

45 Enabling the next wave of telecom growth in India

4.1. Connected India:
telecom vision 2020
The policy initiatives should focus on achieving the vision for connected
Indian Telecom 2020: India should have a convergence services enabled
network with voice, data, video, media, broadband and internet services
delivery to subscribers with high quality of experience. It should be
supported by different metrics of quality of services at affordable tariffs
meeting the needs of different segments of society, with inclusive
participation from rural India to ensure telecom coverage for all.

Enabling the next wave of telecom growth in India 46

4.2. Connected India: telecom mission 2020

Connected India: telecom mission 2020 should aim to achieve the

following objectives:

• To recognize and treat telecom infrastructure as critical

infrastructure to accelerate the pace of growth of the sector and
increase its contribution to the Indian economy
• To connect the unconnected at affordable prices to ensure 100%
telecom coverage of the country; achieve rural penetration of 100%
and reach overall wireless penetration of 110%
• To strengthen broadband penetration to reduce the digital divide;
achieve total broadband connections of 150 million
• To earn revenues of around US$60 billion
A two-pronged strategy is needed to achieve connected India
Telecom Mission 2020. First, the existing challenges faced by various
stakeholders need to be addressed. This involves key enablers such as
licensing framework, spectrum, USOF, broadband penetration, M&As,
equipment manufacturing and infrastructure development. Second,
the policy should be able to meet future opportunities. This will, among
other things, include the unique identification number (UID) scheme,
financial inclusion and m-commerce.

47 Enabling the next wave of telecom growth in India

4.3. Key enablers under existing scenario
4.3.1 Licensing77
The telecom sector has evolved from a monopolistic regime in the early 1990s to 12–14
licensees in a circle now. In November 2003, the GoI introduced the UAS licensing regime,
which let the provider offer fixed, mobile or both services under the same license, using
any technology. The GoI has issued many new UAS licenses since the introduction of the
UAS regime. Globally, the number of incumbent telecom service providers varies from
four to six, with the allocation of spectrum separate from the allocation of a license.
However, in India, under the UAS regime, a licensee is entitled to obtain a certain amount
of spectrum, subject to its availability and efficient usage.

Parameters Recommendations
Spectrum and license Need to have a single universal license for all telecom services.
The policy must preserve competition and ensure that no service is
given a price arbitrage over others.
Fee There should be a uniform license fee across all telecom circles.
Multiple levies, including service tax and license fees (such as universal
service obligation fees and spectrum charges), are currently imposed
on the industry. Moreover, states levy additional taxes such as octroi,
VAT, stamp duty, entry tax and levies on towers, which aggregate to
30% of the revenues earned by telecom companies. A uniform revenue
share license fee of 1%, excluding the USOF, should be fixed. Since
there is a significant cash reserve lying unutilized in the USOF, DoT
should consider lowering the contribution from 5% of AGR to 1%
of AGR.
Pure internet service providers should continue to be free of any
license fees.

77 See 5.1. for global practices.

Enabling the next wave of telecom growth in India 48

License renewal Ensure regulatory certainty and ease investor concerns:
• Provide a clear license renewal regime that includes legislation,
renewal procedures, reasons for refusal to renew and appeals to
regulatory decisions
• Provide details along with the license, if the legislative framework is
not comprehensive
• Create a balance between certainties in the renewal process
• Regulatory discretion to clear parameters of license renewal with
appropriate checks and balances
Procedures for license renewal:
• Initiate renewal process well in advance of expiry
• Perform periodic forward review of market and needs
• Disclose and publish reasons for non-renewal of licenses
• Adopt a public consultation process
• Guarantee a right to appeal
In the event of non-renewal:
• Provide minimum notice period
• Delay vacancy of spectrum to give enough time for operators
to adapt strategies
• Ensure exit strategies for operators and continuity of service
to consumers
Change in license conditions and obligations:
• Renewal process is a good occasion to review license conditions
• Ineffective mandatory service obligations create an anti-competitive
impact, if the burden is not kept at a manageable level
Amendments Currently, amendments to license agreements are carried out
unilaterally. Service providers should be consulted before provisions in
license agreements are amended.

49 Enabling the next wave of telecom growth in India

4.3.2 Spectrum78
Spectrum, being a scarce natural resource, plays a critical role in the provision of mobile
telecom services. In India, the National Frequency Allocation Plan (NFAP) is the basis
for spectrum utilization and development and the manufacturing of wireless equipment.
The next five years are going to see the spread of telecom services enabling subscribers
to benefit from voice, data and other application services. An increasing availability of
smart-phones with significant processing capacity and a wide array of applications are
resulting in higher requirements of spectrum. It is estimated that the total requirement of
spectrum in the next five years would be of the order of 500-800MHz including 275MHz
for voice services alone. In line with estimated demand of approximately 500-800MHz
spectrum across various bands out of a total 1,161MHz79 of identified spectrum by TRAI,
a minimum of 287MHz and a maximum of 454MHz is currently available. A mechanism to
ensure transparent and non-discriminatory spectrum management is needed.

Spectrum available for telecom operators in different frequency bands80

Frequency band Spectrum available in the Spectrum available
(in MHz) band (in MHz) for telecom sector
450-470 20 -
698-806 108 -
806-824 18 -
824-844 20 20
869-889 20 20
890-915 25 18.6-21.8
935-960 25 18.6-21.8
1,710-1,785 75 35-75
1,785-1,805 20 -
1,805-1,880 75 35-75
1,880-1,900 20 0-20
(after coordination)
1,900-1,910 10 -
1,920-1,980 60 0-60
2,010-2,025 15 -
2,110-2,170 60 60
2,300-2,400 100 40
2,500-2,690 190 40
3,300-3,400 100 100 (ISPs)
3,400-3,600 200 -
Total 1,161 287.2-453.6

78 See 5.2. for global practices.

79 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, May 2010, page 22, http://www.trai.gov.in/Default.asp,
accessed 10 October 2010.
80 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, May 2010, page 22, http://www.trai.gov.in/Default.asp,
accessed 10 October 2010.

Enabling the next wave of telecom growth in India 50

 Country-wise spectrum availability
Country Total licensed Wireless subscribers, Subscriber/MHz
spectrum for mobile 2008 (million) (million/MHz)
services, MHz (2008)
Argentina 170 46.5 0.27
Brazil 200 150.6 0.75
Canada 265 150.6 0.57
Chile 140 14.8 0.11
Colombia 120 41.4 0.35
Mexico 120 75.3 0.63
Spain 358 49.6 0.14
UK 353 77.4 0.22
US 294 270.3 0.92
Source: “Digital Dividend Pavilion - Latin America Wireless Roadmap,” 3g Americas website, February 2009,
http://www.3gamericas.org/documents/MWC%202009%20Digital%20Dividend%20Pavilion-3G%20Americas%20
Erasmo%20Rojas.pdf, accessed 14 January 2011; ITU - ICT Statistics 2008; Ernst & Young analysis.

Circle-wise spectrum allocated in India81

Circle Allocated spectrum (MHz) No. of operators Subscriber Subscriber/MHz
(million) (million)
GSM CDMA Total GSM CDMA Total
Delhi 53.6 15 68.6 12 4 16 33.5 0.49
Mumbai 72.4 15 87.4 11 4 15 31.3 0.36
Kolkata 60.4 13.75 74.15 10 4 14 19.2 0.26
Maharashtra 69.4 15 84.4 12 4 16 50.7 0.6
Gujarat 60.4 12.5 72.9 11 4 15 38.9 0.53
Andhra Pradesh 69.4 13.75 83.15 12 4 16 52.7 0.63
Karnataka 69.4 13.75 83.15 12 4 16 43.1 0.52
Tamil Nadu 67 12.5 79.5 11 4 15 62.2 0.78
Kerala 61.2 15 76.2 11 4 15 28.1 0.37
Punjab 63.2 15 78.2 12 5 17 24 0.31
Haryana 63.8 12.5 76.3 12 4 16 17.2 0.22
Uttar Pradesh — West 61.2 13.75 74.95 11 4 15 37.2 0.5
Uttar Pradesh — East 62.4 13.75 76.15 11 4 15 53.3 0.7
Rajasthan 63.8 15 78.8 12 4 16 37.6 0.48
Madhya Pradesh 63 12.5 75.5 11 4 15 37.3 0.49
West Bengal 53 11.25 64.25 10 4 14 31 0.48
Himachal Pradesh 57.6 10 67.6 11 4 15 6.1 0.09
Bihar 66.8 13.75 80.55 12 4 16 44.7 0.55
Orissa 59.4 11.25 70.65 11 4 15 18.6 0.26
Assam 55 10 65 10 4 14 10.2 0.16
North East 53.2 10 63.2 10 4 14 6.2 0.1
Jammu & Kashmir 49.4 10 59.4 10 4 14 4.7 0.08

81 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, May 2010, page 22, http://www.trai.gov.in/Default.asp,accessed
10 October 2010; “TRAI: The Indian Telecom Services Performance Indicators (July-September 2010),” TRAI website, January 2010, http://www.trai.
gov.in/Default.asp, accessed 15 January 2011; Ernst & Young analysis.

51 Enabling the next wave of telecom growth in India

Operator spectrum holdings
Country/Region/Operator Spectrum holding per operator, MHz
India 28-37
Denmark 118.4
EU average 92.6
France 138.5
Germany 65
Italy 72.7
Spain 100.6
Sweden 92
UK 82.2
US 75-96
Source: “Digital Dividend Pavilion - Latin America Wireless Roadmap,” 3g Americas website, February 2009,
http://www.3gamericas.org/documents/MWC%202009%20Digital%20Dividend%20Pavilion-3G%20Americas%20
Erasmo%20Rojas.pdf, accessed 14 January 2011; “Presentation to the DoT committee on spectrum allocation
criteria,” Communications Today, http://www.communicationstoday.co.in/images/1-pdotfinal.pdf, accessed 14
January 2011.

Parameters Recommendations
Availability Align spectrum bands with globally harmonized bands to achieve interference-free coexistence and
economies of scale.
Identify and vacate new spectrum bands for future use.
Re-farming Need to bring in additional spectrum for commercial telecom services.
Need to review the present usage of spectrum available with government agencies so as to identify
the possible areas where spectrum can be re-farmed, and to draw up a suitable schedule.
Regular spectrum audits should be carried to oversee the efficient utilization of spectrum.
Spectrum allocation Spectrum allocation should be based on technology neutrality, service flexibility, timely allocation,
timely spectrum reconciliation and enhanced transparency.
Need to lay down a clear roadmap for spectrum management which should state the requirement and
availability of spectrum for each circle as well as for the whole country. This roadmap should be made
available publicly to ensure transparency.
N
 ational frequency allocation plan should be reviewed every two years.
Spectrum allocation to 2G spectrum up to the contracted limit should be ensured as initial spectrum.
existing players
Allocation of spectrum beyond the contacted limit should be based on market mechanisms.
The contacted limit of spectrum will be 6.2MHz for GSM operators and 5MHz for CDMA operators.
Spectrum allocation to new Allocation of spectrum should be based on auctions. Spectrum should be provided to the highest
players bidder, based on a transparent auction mechanism to determine the price.
Spectrum usage charges The criteria for levying spectrum usage charges should be identified upfront at the time of allocation
of spectrum.
Spectrum sharing and Service providers should be allowed to enter into arrangements for transfer/sharing of spectrum
trading among themselves so as to effectively utilize it and attain maximum spectral efficiency in the sector.
It should be based on market price and not administered pricing.

Enabling the next wave of telecom growth in India 52

 4.3.3 Universal Service Obligation Fund
(USOF)82
NTP 1999 envisaged access to basic telecom services for
all, especially those in rural and remote areas, at affordable
prices. In 2002, the Universal Service Support Policy came
into effect, with a universal service levy of 5% being levied
on the adjusted gross revenue (AGR) earned by all telecom
operators except on VAS such as internet service, voice
mail and email. The USOF is estimated to hold around
INR180 billion,83 at the end of FY10. However, rural
teledensity is at 28.4%, whereas urban teledensity is about
137.3%, resulting in a huge digital divide. The USOF has a
long way to go to provide impetus to rural telephony and
bridge the gap between the funds collected and disbursed
in an effective manner.
The USOF covers rural and remote areas with public access
telephones and individual rural household telephones in net
high cost rural and remote areas. The USOF has enabled
telecom development in rural areas through the following
key developments:
VPT and RCP: around 570,000 VPTs are currently eligible
for financial support for operation and maintenance. As of
31 December 2009, BSNL has provided VPTs to 61,186
out of 62,302 uncovered villages. Out of the target of
40,705 rural community phones (RCPs), 40,694 have
been provided as of December 2009.
Tower infrastructure: provide infrastructure support to
set up and manage 7,436 infrastructure sites spread over
500 districts in 27 states. As of 31 December 2009, about
6,950 towers have been set up under this scheme.
Rural broadband: 95,011 broadband connections out of
the proposed 888,832 wireline broadband connections
have been provided as of 31 December 2009.
Multi access radio relay (MARR)-based VPT: out
of 185,121 MARR-based VPTs installed before
April 2002, about 184,500 have been replaced as of
31 December 2009.

Disbursement of the USO levy to the operators

60 54.1 55.2

50
39.4
40 34.6
(INR billion)

32.2
30
17.7 18.5
20 15.0 16.0
13.1 12.9
10
N/A
0
FY05 FY06 FY07 FY08 FY09 Dec-09
Funds collected Funds disbursed

Source: DoT

82 See 5.3. for global practices.

83 “Minister Sachin wants to ‘Pilot’ IT revolution in northeast,” Indo-Asian News Service, 7 March 2010, via Dow Jones Factive, © 2010 HT Media Limited.

53 Enabling the next wave of telecom growth in India

Parameters Recommendations
Objectives The USOF framework needs to be reviewed regularly to effectively utilize the funds to achieve universal
service. The USOF should aim to achieve the following:
• 100% rural teledensity by 2015
• 25-30 million broadband subscribers in rural areas over the next five years
• Data coverage to all villages through cable modem termination system (CMTS) data technology
by 2015
• Broadband connectivity for 250,000 gram panchayats by 2012
• At least 20 active public information kiosks with at least 256 kbps speed in every district
headquarters by 2015
Potential usages The USOF should be utilized for the following:
• Provision of public telecom and information services
• Provision of household telephones in rural and remote areas as may be determined by GoI from time
to time
• Creation of infrastructure for provision of mobile services in rural and remote areas
• Provision of broadband connectivity to villages in a phased manner
• Creation of general infrastructure in rural and remote areas for development of telecommunication
facilities
• Induction of new technological developments in the telecom sector in rural and remote areas
Method of allocation Subsidies should be distributed through transparent market-oriented allocation methodology.
Fund collection There is a significant cash reserve lying unutilized in the USOF, so DoT should lower the contribution
from 5% to 1% of AGR.

Enabling the next wave of telecom growth in India 54

4.3.4 Broadband84
India trails all developing Asian countries, as well as
its BRIC counterparts, with a broadband penetration
of just 0.74%.85 There were just 8.8 million broadband
connections at the end of FY10, against the target of 20
million by 2010 set in the Broadband Policy of 2004. The
net broadband addition per month is just 0.1 to 0.2 million.
The growth of broadband is restricted by several factors
such as its perceived utility, application, connectivity, lack
of vernacular content, cost of device and affordability.
Today, socioeconomic growth is dependent on the spread
of broadband services across the country. India has set
a target of 100 million broadband connections by 2014,
connecting 40% of the households in the country. The
drivers for broadband services are broadly classified
as technological, economic, social, behavioral and
government initiatives. India lags behind in terms of ITU’s
ICT Development Index (IDI),86 with a ranking of 129, 106,
and 118 out of 154 countries in terms of ICT access, use,
and skills, respectively. This calls for a critical review of the
Broadband Policy 2004 and the creation of appropriate
infrastructure to support broadband growth.
84 See 5.4. for global practices.
85 “TRAI: Consultation Paper on National Broadband Plan,” TRAI website, June 2010, page 3, http://www.trai.gov.in/Default.asp, accessed 10 October 2010.
86 “TRAI: Consultation Paper on National Broadband Plan,” TRAI website, June 2010, page 28, http://www.trai.gov.in/Default.asp, accessed 10 October 2010.
55 Enabling the next wave of telecom growth in India
Broadband services should be encouraged using wireless
media because the laying of fibers block by block at district
headquarters would be costly and time-consuming. To
kick-start the broadband penetration in rural and far-flung
areas, deployment of wireless access should be given
preference and fiber media should be utilized from the
already available fiber capacity across nation. The last mile
access issue can be addressed through the deployment of
wireless technology.
Broadband should be redefined and clauses such
as ‘’always on’’ and minimum speed should be removed
from National Broadband Policy, 2004, in order to
encourage broadband.
The 3C’s — customer, cost and competition — are
essential for improving broadband penetration. The
need to provide broadband services in rural areas should
be met with the help of easy financing and the means
to share capital expenditures. Further, there should
be balanced competition to ensure the quality and
affordability of services.
Parameters Recommendations
Infrastructure Optic fiber communication (OFC), high-capacity microwave and satellite connectivity should be
extended to rural, remote and inaccessible areas.
Backhaul connectivity and OFC should be provided to all telecom towers, BSCs and BTS from the
nearest block headquarters.
The development of the customer premises equipment (CPE) model should be supported for the
interoperability of broadband. There is a case for private-public partnership (PPP) in broadband
along the lines of highway construction in India through the build, operate and transfer route.
The Government should foster competition to improve the pace of penetration. More than two
service providers with a rollout obligation should be funded.
Wireless broadband More spectrum should be made available.
Since growth will be through wireless broadband, the government and private sector should
collectively work toward developing low-cost mobile applications.
Regional content Content and applications in regional languages should be created to promote rural broadband.
Investments should be made in key content development and services such as e-health and
e-education. The support for local access and content delivery to towns should extend beyond the
150 commercially viable towns.
PC penetration Workshops by local entrepreneurs should be promoted under the common services centers (CSC)
scheme, which is a part of the National e-Governance Plan (NeGP).
Computer usage by government employees should be encouraged. Online fee payments should
be encouraged for land records, vehicle registration, driving licenses, payment of electric and
water bills.
Discounts should be provided for online payments.
Fiscal incentives Tariffs need to come down. This can happen only if there are incentives to build infrastructure and
provide broadband services.
The GoI should consider a differential tax to encourage the private sector to set up common access
points. The tax status for expenditure on connectivity/usage should be similar to policies on other
public welfare services such as education and medical allowance.
Right of way (ROW) ROW procedures should be uniform, and charges for broadband services should be rationalized
across all states.
Broadband connectivity should be made mandatory for all buildings requiring a completion
certificate, on the lines of water and power connectivity. In addition, building and cooperative
society bylaws can be effectively modified to make it mandatory for such entities to invite
broadband service providers to broadband-enable buildings by at least 10 Mbps per household.
Similarly, all national and state highway projects should include the laying of an optic fiber
backbone.

Enabling the next wave of telecom growth in India 56

4.3.5 Mergers and acquisitions87
At present, intra-circle M&A is allowed subject to the
following conditions:

• The total number of operators in a circle should not fall

below four
• Market share and revenues of the merged entity should
be less than 40% in each circle
• A three-year lock-in for owner’s equity in the new
operators that have been given licenses recently (no
lock-in if fresh equity)
• Maximum spectrum of the merged entity will be
capped at 15MHz for Metros and A circle and 12.4MHz
for B circle and C circle
• No one entity can hold equity stake of 10% or
more in more than one licensee company in the
same circle
The Government should continue to follow the policy
to permit mergers but at the same time retain enough
competition in the market so as to protect the consumer
interest. The TRAI recommendations dated 11 May 2010
should be followed to maintain the balance between the
interests of consumers and service providers.

Parameters Recommendations
Number of operators Mergers should not result in less than six operators in the circle.
Service area and license Merger of licenses shall be restricted to the same circle.
stipulations
Merger of license(s) shall be permitted in the following category of licenses: cellular mobile
telephone service (CMTS) license with CMTS license, unified access services license (UASL) with
UASL, CMTS license with UASL, and UASL with UASL.
Merged licenses in all the categories above shall be in UASL category only.
Market share of merged entity The share of a merged entity should not be greater than 30% in terms of sub-base or AGR.
Lock-in period The stipulation regarding the minimum period of three years from the effective date of license for
merger or acquisition should be done away with.

87 See 5.5. for global practices.

57 Enabling the next wave of telecom growth in India

4.3.6 Taxation
Over the years, the significance of the telecom sector
to the Indian economy has grown immensely. Currently,
the sector contributes significantly to GDP, as well as tax.
According to TRAI, the operators pay up to 30%88 of their
total revenues toward different levies, which is 23%–25%
higher than their counterparts in other Asian countries.
The Indian telecom sector is subject to numerous taxes
and levies. This includes the uniform license fee, 5% levy
for USOF, VAT, custom duty and other taxes. Currently,
the revenue share license fee (including the USOF) is
prescribed as follows:
• 6% to 10% of AGR for access services, depending on
the category of circle
• 6% of AGR for NLD/ILD services
• 6% of AGR for internet service providers for revenues
accruing from internet telephony service
Despite the significant contribution of the Indian telecom
sector to the growth of the GDP and the tax revenue of the
Indian economy, there are certain key challenges faced by
the sector which are outlined below:
• Sale of light energy: broadband services also continue
to face taxation-related concerns. Various states across
India have issued show cause notices, or passed orders
demanding VAT/sales tax on the activity of providing
broadband connectivity by use of optical fiber cables
treating it to be sale of “artificially created light
energy” under the respective state VAT legislation. The
issue was first taken up in the case of a leading telecom
player by the state of Karnataka, with the matter
going up to the Supreme Court. The Supreme Court
without going into the merits of the case has ordered
a relook at the matter by the state VAT authorities. It
is important to note that currently the industry players
are paying service tax on such broadband services.
The levy of VAT on the activity of providing broadband
connectivity services would lead to double taxation
of such services, thereby leading to greater financial
burden on the telecom sector.
88 “Telecom firms want lower tax burden,” The Economic Times, http://economictimes.indiatimes.com/news/news-by-industry/telecom/telecom-firms-want-
lower-tax-burden/articleshow/2753840.cms, accessed 10 January 2011.
89 “TRAI: The Indian Telecom Services Performance Indicators (July – September 2010),” TRAI website, January 2010, http://www.trai.gov.in/Default.asp,
accessed 15 January 2011.
• Recharge coupon vouchers (RCVs): the Indian
telecom sector is also characterized by a large prepaid
subscriber base. As of September 2010,89 96.4%
of the GSM subscribers and 94.1% of the CDMA
subscribers were prepaid subscribers. RCV is one of
the most popular ways to pay for telecommunication
services, which account for 80%–85% of the operator
revenues. Over the years, the bouquet of services has
changed, as the RCVs are witnessing liberalization
in the flexibility of their usage, such as to procure
merchandise, or other services. The issue whether
the sale of RCVs should attract service tax or VAT has
been a subject of constant debate and discussion. It
is important to note that currently industry players
are paying service tax on RCVs, while the dominant
purpose for selling these RCVs is provision of telecom
services to subscribers. The levy of VAT on the sale of
RCVs to subscribers would result in double taxation,
thereby leading to greater financial burden on the
telecom sector.
• Central value-added tax (CENVAT) position on tower
materials and shelters: telecom operators are availing
CENVAT credit on goods such as angles, channels
and beams, which are used for building transmission
towers. Towers and shelters fall under Chapter 73 and
94 respectively of the Central Excise Tariff Act 1985.
The classification of tower, tower material and shelters
has been an industry issue on which even the service
tax authorities in different jurisdictions have taken
a different stand and have sought to deny credit on
these goods treating such goods as not qualifying as
“capital goods” under the CENVAT Credit Rules 2004.
However, these goods could be treated as “component/
spare/accessories” of “capital goods” (i.e., BTS etc.)
and accordingly they can be treated as capital goods
in the hands of an operating company given that
towers and shelters are essential for the provision of
telecommunication services. This position has been
adopted by industry players. Denial of credit on such
goods would lead to an increase in the financial burden
on telecom operators.
Enabling the next wave of telecom growth in India 58
 • Levy of entertainment tax on VAS products: there is
a proposal in certain states to levy entertainment tax
on VAS products as such products to entertain
the caller. It is important to note that as per the
current proposal, entertainment tax is not proposed
to be subsumed in goods and services tax (GST).
In case entertainment tax is levied on VAS products,
the non-subsumation of entertainment tax in GST
could impose a significant financial impact on the
telecom industry.
• Upcoming GST regime: according to industry experts,
in view of the exponential growth witnessed by
the telecom sector, GST should not translate into
an ambitious target to generate higher service tax
revenues from the telecom sector. The upcoming GST
regime should aim to simplify the tax structure for
the industry, with all services and goods being taxed
at a standard rate. Further, special consideration has
to be given on certain areas in the backdrop of the
peculiarities of the telecom sector such as “place of
supply rules90” i.e., the state where GST will be paid
for different kind of telecom services; ease in state-
wise compliances. The upcoming GST regime should,
thus, aim to rationalize the tax structure in the Indian
telecom industry, along with the creation of a roadmap
for a single unified levy. The sector should be provided
tax benefits and incentives in recognition of being a
key contributor to the socioeconomic development and
GDP of the country.

90 Place of supply rules define the place (state) which has the right to tax a service transaction.

59 Enabling the next wave of telecom growth in India

4.3.7 Foreign direct investment (FDI)
In the past decade, globalization has led to a rapid increase
in FDI, thereby enhancing economic growth in developing
countries. The telecom sector has been among the sectors
that have witnessed substantial growth in FDI. The telecom
sector has a substantial impact on a nation’s economic
development, social stability and national security.
Hence, the balance between economic gains from foreign
investment and national telecommunications sovereignty
presents a challenging task.
FDI in telecom brings advanced technological skills and
large amounts of funds, and enhances market competition.
However, many countries control FDI in telecom
according to their economic and developmental needs,
and due to its influence on national security. As a result,
telecommunication industries are often state-operated and
monopolized in many countries.
The Indian telecom sector needs to foster a suitable
environment where investment and entrepreneurship,
including the development of new forms of electronic
commerce, prosper together. Globally, major FDI in
the telecom sector is facilitated by two international
organizations — the World Trade Organization (WTO) and
the International Telecommunication Union (ITU). The
WTO aims to promote foreign and domestic investment,
and the ITU allocates global spectrum to particular
services and manages scarce communications resources
among countries for the benefit of trade liberalization
and to prevent discrimination between domestic and
foreign suppliers. Together, the WTO and the ITU
encourage the development of a global telecommunication
infrastructure and the formation of an integrated global
telecommunication market.
In the Asia–Pacific region, the telecommunications
market reform has continued, with countries such as the
Philippines, Taiwan and Thailand opening their markets
to foreign investment. In Latin America, several countries
that first privatized their domestic operators in the early
2000s are now preparing for a second round of market
openings. Foreign private investment has entered the
developing markets through joint ventures with local
telecommunication operators or the sale of equity stakes
in state-owned telecommunication entities to private
foreign investors.
FDI in developing countries enables the development of
a local telecommunication infrastructure and universal
access. It results in substantial progress in meeting such
countries’ basic telecommunication requirements. Given
the importance of foreign investment, the policy should
consider raising the upper limit on foreign investment to
encourage more foreign players to invest in the capex-
intensive telecom sector.
Enabling the next wave of telecom growth in India 60
4.3.8 Consumer affordability and
rural penetration
The Indian telecom market has some of the lowest tariffs
in the world, with a large majority of people using low-cost
mobile handsets. The DoT has been successful in providing
world-class telecom infrastructure at globally competitive
tariffs and has reduced the digital divide by extending
connectivity to unconnected areas.

Mobile tariffs per minute in US$

0.3

0.2

0.2
0.23
0.1 0.19
0.17 0.16
0.1 0.11
0.09
0.05 0.04 0.03 0.01
0.0
Belgium UK France Brazil Phillipines Malaysia Thailand Pakistan China India
Source: DoT; India Telecom 2010 brochure

In February 2006, a leading operator launched the
“One India Plan.” It was considered affordable,
customer friendly and innovative for both local and long
distance calls. It also removed the distinction between
fixed-line and cellular tariffs. The plan enabled customers
to make calls to any phone from one end of the country
to the other for INR1 any time during the day. This was
followed up by incumbent operators introducing cheaper
tariffs, giving India some of the lowest tariffs in the
world. Furthermore, the increase in subscriber base and
teledensity has enabled telecom companies to achieve
economies of scale and, at the same time, provide
leading class services.

61 Enabling the next wave of telecom growth in India

Drivers of affordable mobile communication
Policy and regulatory approach
Affordable mobile
communications
Operator strategies
Affordable mobile communication is driven by policy and
a regulatory approach and operator strategies. Factors
such as transparent regulation, easy market entry, lower
tax burden, and low risk enable the creation of policy and
a regulatory approach that helps to drive down tariffs. On
the other hand, operator strategies such as innovative
business models, reduction in capital expenditure and
operational expenditure, increased usage and highly
utilized networks also help lower tariffs. Pakistan has taken
initiatives on the policy and regulatory front by removing
import duties on mobile handsets and reducing SIM
card activation charges to make mobile communication
more affordable. Similarly, operators in Bangladesh have
designed products and services such as micro prepaid top-
ups, which are available in very small increments, and also
allow consumers to transfer airtime between each other
and use it as currency.
• Transparent regulation
• Easy market entry
• Lower tax burden
• Low risk
• License reforms to permit
mobile resale
• Innovative business model
• Reduction in capex and opex
• Increased usage
• Highly utilized networks
There is a need to create a regulatory framework that
enables greater sharing. In order to drive penetration in
rural and remote areas, it is important that alternative
models such as mobile resale be introduced. Resale of
mobile services will allow an entity to resell mobile services
after buying connections in wholesale from the underlying
service provider. The entity will sell the connections to
their end customer and contract and bill them in their
own capacity for the services provided. The entity will not
replicate the efforts of service provider. The services will be
provided only by the underlying access provider who will
continue to address the related compliance requirements.
For the service provider, the entity buying connections in
wholesale will be the customer. This arrangement will allow
SMEs, small office, home offices and other organized/
unorganized groups in rural and remote areas to serve the
needs of the population in a holistic way.
Enabling the next wave of telecom growth in India 62
 4.3.9 Human resource Number of students by field of study in India

India has the benefit of a huge population, which is

1% 2%
characterized by a dynamic young population base– more Arts
3%
than half of which is under 25 years old. However, only 3% Science
17%91 of those in their mid–20s or older have completed
Commerce/
their secondary education. India possesses a developed 7% Management
higher education system that offers training in many fields. Engineering/
45% Technology
In terms of size and diversity, India has the largest
18% Medicine
number of higher education institutions, followed by the
US and China. As of December 2009,92 there were 504 Law
universities and university-level institutions, including 243 Agriculture
state universities, 53 state private universities, 40 central Others
universities, 130 deemed universities and 33 institutions of 21%
national importance. However, India lags behind China and
the US in terms of student enrollment.
Source: Making the Indian higher education system future ready,
Ernst & Young, 2010

Number of higher education institutions and

student enrollment In keeping with the NTP 1999’s R&D objective,
organizations such as the Telecom Centers of Excellence
30,000 30 (TCOE), the Center of Excellence in Wireless Technology
25.4
25
(CEWIT) and the Broadband Wireless Consortium of
Number of higher education

Student enrollment in higher

21,213 India (BWCI) have been established. Such organizations

20,000 17.8 20 promote R&D and help in creating a talented workforce.
education (million)
institutions

12.9
For instance, in May 2007, a committee comprised of the
15
DoT, COAI, and AUSPI submitted a report that suggested
10,000 10 ways to form seven TCOEs across India in a PPP mode.
6,706
21,213
Each TCOE is sponsored by a telecom operating company
5
and is hosted by a premier technical or management
0 0 institute. The main funding for a TCOE comes from
India US China the sponsoring telecom operators, while the GoI provides
Source: Making the Indian higher education system future ready, basic and research infrastructure.
Ernst & Young, 2010

91 Unleashing India’s Innovation, World Bank website, October 2007, page xv.
92 Ministry of Human Resource Development, Government of India — Annual Report 2009–10, Ministry of Human Resource Development, FY10.

63 Enabling the next wave of telecom growth in India

4.3.10 Equipment manufacturing93
The production of telecom equipment in India has • Significant export potential: according to the Telecom
increased at a CAGR of 29% from FY04 to FY09, reaching Equipment and Services Export Promotion Council
a value of INR518 billion94 in FY09 during the last five (TEPC), the segment holds an export potential of
years. The value of telecom equipment exports was INR450-500 billion96 by FY14, further strengthening
INR81 billion in FY09 during the last five years. According the case for a robust telecom manufacturing industry.
to DoT estimates, the requirement for telecom equipment
• Increased competitiveness in the global market: a
in India is expected to be about INR5 trillion95 by 2015.
technologically advanced manufacturing ecosystem
However, the share of locally manufactured equipment
in India prospectively offers an international platform
has declined to 30% in FY09 from 74% in FY04. India
to telecom manufacturers. Thus, localized players
needs to position itself as a telecom manufacturing hub in
can expect to compete globally with established
the long term, and policy initiatives should be focused on
manufacturers and make their own mark in foreign
encouraging localized manufacturing.
markets in the long run.
The case for a growing telecom electronics and equipment
manufacturing industry is as follows:

• Employment generation: given the right impetus,

growth in the segment holds the potential to triple the
country’s current employment base by FY14.

Parameters Recommendations
Manufacturing hub There is a need to set up hardware manufacturing cluster parks (HMCP) across the country and to
upgrade localized infrastructure to support large volume contract manufacturing.
The policy should provide encouragement to localized manufacturers for products designed and
manufactured in India as well as products that are manufactured but not designed in the country.
Fiscal incentives Domestic telecom equipment manufacturers may be allowed to have access to external commercial
borrowing for capital expenditure and working capital requirements.
In addition, financial institutions should lend money for the capital expenditure and working capital
requirements of the telecom equipment manufacturers at the rates they use when lending to telecom
service providers or infrastructure providers.
It is necessary to ensure the free movement of the equipment/raw materials. In addition, the
provision of a single window clearance for all state-level approvals would be a vital fiscal measure.
Other significant incentives would encompass the removal of withheld tax on the fee for transfer of
technology and software import.
The tax on the payment of royalty should be as low as possible. In order to encourage technology
transfer, royalty payments of up to 5% on domestic sales and 8% on exports should be exempted from
income tax. In order to reduce transaction costs, customs clearance for imports and exports should
be done on a self-declaration basis.
There should be provision for round-the-clock customs clearance, supported by the banking system.
Export promotion The Government could create a sizable export promotion fund for the Telecom Equipment and
Services Export Promotion Council (TESEPC), resulting in the significant growth of exports to
developing nations.
There is a need to align product certification with international standards and to facilitate global
accreditation for the testing facility.

93 See 5.6. for global practices.

94 “Indian Telecom: A Tale of Stupendous Growth,” The Viewspaper, 28 February 2010, http://theviewspaper.net/indian-telecom-a-tale-of-stupendous-
growth/, accessed 20 October 2010.
95 “Indian telecom firms may get DoT boost,” LiveMint, 01 April 2010, http://www.livemint.com/2010/04/01215017/Indian-telecom-firms-may-get-D.
html, accessed 02 August 2010.
96 Policy Recommendations to Increase Domestic Telecom Growth and Exports of Telecom Equipment & Services - Telecom Equipment and Services Export
Promotion Council (TEPC), page 4.

Enabling the next wave of telecom growth in India 64

Bilateral trade programs Telecom exports from India may be included in bilateral trade agreements with emerging markets in
regions such as South Asia, Africa, Latin America, Russia and Eastern Europe.
Indian trade missions in these regions should proactively seek opportunities in the telecom electronics
and equipment domain and facilitate business interactions.
Taxation The current taxation structure for mobile handsets must be maintained for long-term growth.
Financial support Set up an autonomous body, similar to the Telecom Finance Corporation, to assist and provide
guidance to those who want to set up a manufacturing facility.
Investments for accessories A detailed program should be created to attract investment in the manufacturing of accessories such
as batteries and chargers for mobile handsets.
R&D R&D should be the key focus. The active participation of the private sector in multiple projects is
expected to lead to R&D benefits that will flow to both the public and the private sector.
A fund for R&D and product development for the segment should be created. Leading class R&D
centers in the PPP mode should be promoted.
Service hubs Telecom equipment manufacturers should be encouraged to create service hubs to develop a global
network and strengthen their presence across India.

65 Enabling the next wave of telecom growth in India

4.3.11 Telecom infrastructure97
Infrastructure growth is critical to the rollout of services. scale and spread of the tower portfolio and the ability to
For India to achieve 85% teledensity, it needs 95% raise capital. The biggest barrier to setting up telecom
coverage. At present, there is no uniform approval process towers and other infrastructure is the wide variation in the
across states for setting up telecom infrastructure. The approval process adopted by local bodies.
telecom infrastructure service provider needs to apply to
Given the challenges that the industry faces, there is a
the local municipality or panchayats for permission to build
need to lay down a National Telecom Critical Infrastructure
a tower. But the lack of guidelines or standard procedures
Policy on the lines of NTP 1999 elaborating uniform
results in enormous delays and huge cost implications.
procedures for land acquisition, creating a uniform taxation
Moreover, the tower business is characterized by high
regime, and extending subsidies and other packages to
initial capital investments, stable and predictable cash flow,
create a conducive environment to boost national telecom
low working capital requirements and high incremental
infrastructure building and thereby ensure the increased
profitability. The profitability is dependent on the ability
participation of all the stakeholders.
to increase tenancy on the tower, the rents charged, the

Parameters Recommendations
State subject There is an urgent need for simplification and harmonization of complex rules and processes so that
unreasonable barriers do not impede the rollout of infrastructure. GoI should announce a National
Telecom Critical Infrastructure Policy (NTCIP). If legislative amendments are needed, they should be
adopted in a timely manner.
There is a need for national ROW policy for rollout of backhaul network.
Tower infrastructure needs to come under the Indian Telegraph Act, and GoI should declare mobile
and tower infrastructure as “Critical Infrastructure Services.”
Tower infrastructure should be erected in accordance with the NTP and licenses granted by the
GoI under the Indian Telegraph Act. These are not matters of local self-government or municipal
departments, but are matters liable to be governed by the GoI or regulatory authority constituted by
it in accordance with the NTP.
Telecom/broadband connectivity should be considered a necessity such as water and power in every
housing facility. This mandate should be included in bylaws of the local and state governments.
There is also a need for an empowered committee or similar structure to engage with roads and
power ministries, which are directly connected with the growth of tower infrastructure.
Full utilization of towers— There should be laws governing the rollout of towers. A 70-meter tower could service an area of 2-3
optimum sharing square kilometers, and there could be distance guidelines for the same.
The rollout subsidy could be fixed at a flat amount based on the approved tower design for a period of
five years.
Every tower should be fully utilized. If an existing tower is not operating at 100% capacity, then
no new tower should be allowed in that zone, which avoids duplication of capex. Once the existing
tower is at capacity, a new tower could be awarded through a bidding process. Such practice is being
followed in developed countries such as the US.
Technological approaches that can potentially reduce the direct and indirect costs of creating telecom
infrastructure should be encouraged. The march of technology-IP/converged platforms is leading to
integrated technology-neutral host platforms. Also, in-building solutions and DAS make it possible to
conserve spectrum and reduce the visual impact of towers.
Civic issues Civic issues such as zoning regulation, single window clearance and preferential treatment for sharing
and incentives need to be addressed in a timely manner.

97 See 5.7. for global practices.

Enabling the next wave of telecom growth in India 66

Taxation on towers
SACFA clearances
Utilization of USOF and
incentives
Grievance redressal
Safety concerns
Power tariffs and
consumption
Energy consumption
67 Enabling the next wave of telecom growth in India
Rationalize the tax structure across states in the form of tax cuts, fiscal incentives and subsidies. The
fee levied on tower companies should not be viewed as a source of income to fund the development
of a municipality.
T
► he Central Government should not impose a cess on tower operators. Since tower operators do not
directly serve the end consumer, a cess should not be levied on them. Currently, there is no cess on
handset manufacturers, call centers (with about 40,000 employees) and BTS manufacturers.
T
► he immediate cost of infrastructure creation can be brought down significantly by reducing
government duties and taxes, which account for 60% of infrastructure companies’ outgo.
Infrastructure companies are akin to players such as equipment vendors and network management
companies. There is little justification for imposing costs such as lincense fees on these players,
because they do not interface directly with end users.
Telecom service providers coordinate with a variety of departments for site clearances which is a
time-consuming process. The SACFA Committee should be revamped as part of a faster and simpler
site clearance process.
USOF subsidies are required to defray the cost of infrastructure creation in rural areas.
The USOF contribution toward the setup of telecom infrastructure and its role for rural rollouts should
be specified.
Time-related incentives ought to be provided to tower infrastructure providers to speed up
deployment.
A broader framework should be created to handle and settle grievances involving infrastructure
companies in the event of a conflict.
Each tower should have a structural certificate, which should be approved by a competent authority.
Tower specification and standardization requirements should be clearly spelled out. There could be
6-10 standard designs for a tower, which would be approved by a “design approving authority.”
The development of specific IS code of telecom towers will help the industry to follow optimized
design parameters, which will make towers safer. Standardized design across operators and
geography would further help optimize sharing and potentially reduce cost.
Telecom services should be treated as a public utility service, and the industrial rate structure should
be made applicable to towers across all states.
The state electricity boards should be advised to place a priority on applications for utility connections
from telecom infrastructure service providers.
Grid power supply should be made available.
Indian mobile operators and equipment vendors need to develop energy-efficient networks by
designing and deploying low-energy BTSs that are powered by renewable energy.
Operators should reduce their existing diesel generator run times by deploying the latest fast-
charging batteries and improving their partial-state-of-charge capabilities.
The energy used by tower companies should fall under a uniform classification in all states.
The dependence on diesel could be reduced if the Government utilizes the current diesel subsidy to
support a move toward renewable energy options such as solar, fuel cells or wind power, and treating
these efforts as part of the overall effort to reduce greenhouse gases and the country’s carbon
footprint.
There should be a method to cash in carbon credits.
Aesthetic concerns There could also be special consideration made for camouflaging towers in and around certain
specific urban areas having heritage or other architectural significance; and not for all generic
urban areas.
Even for limited camouflaging, there should be a joint endeavor between civic agencies and other
related departments.
Environmental issues If these BTSs can be run on renewable energy resources, annual carbon emissions could be reduced.
118,000 renewable energy base stations could reduce annual carbon emissions by up to
6.3 million tonnes.
Alternative sources of energy need to be developed and deployed wherever found feasible. Service
providers are using green shelters or deploying outdoor BTS wherever found feasible to reduce power
consumption. Operators are also experimenting with the use of non-conventional sources of energy
wherever feasible for meeting energy requirements. The feasibility of using biofuels is also being
studied. These measures have the potential to reduce the carbon footprint significantly, increase the
energy efficiency of new network equipment and optimize network technology to increase energy
efficiency. There should be incentives for tower companies to optimize fuel and power costs.
Operators should be encouraged to use green technologies.
Misplaced apprehensions International institutions like the World Health Organization, the British Medical Association, the
on health hazards of International Commission on Non Ionizing Radiation Protection (ICNIRP) and the GSM Association
electromagnetic radiation have opined that there is no conclusive evidence of any health hazards due to radiation from mobile
from mobile antennae-BTS towers. Local authorities and consumer groups should be made more aware of this. While the
operators are making their best efforts to educate the general public, a positive public stand by the
regulator would be extremely helpful. Furthermore, there is a need to fix the feed strength to control
radiation emissions.
Recent surveys have shown that the radio frequency exposure from base stations ranges from
0.002% to 2% of the levels of international exposure guidelines, depending on a variety of factors
such as the proximity to the antenna and the surrounding environment. In fact, due to their lower
frequency, at similar radio frequency exposure levels, the body absorbs up to five times more of the
signal from FM radio and television than from base stations. This is because the frequencies used in
FM radio (around 100MHz) and in TV broadcasting (around 300 to 400MHz) are lower than those
employed in mobile telephony (900MHz and 1,800MHz) and because a person’s height makes the
body an efficient receiving antenna. Further, radio and television broadcast stations have been in
operation for the past 50 or more years without any adverse health consequence being established.

Enabling the next wave of telecom growth in India 68

4.3.12 Enterprise data
The share of data service in India’s total telecom revenue is The Indian enterprise sector requires the ability to provide
about 11% as compared with many other countries where sophisticated IP-based and other data communications
it ranges from 20% to 40%. India does not rank in the top services to meet needs of enterprise and multinational
10 data revenue earning countries. customers. However, current ILD and NLD licenses
were drafted before the development of current GTS
Ranking of subscribers, data revenue, and services and technologies, and are largely premised on
service revenue98 by country the provision of mass market consumer voice services.
Rank By By data By service Therefore, these licenses do not allow the use of adequate
subscribers revenue revenue encryption in accordance with current commercial
1 China US US standards to protect confidential information. They also
do not address the contracting and billing arrangements
2 India Japan China
required by enterprise and multinational customers and
3 US China Japan do not clearly set forth licensee obligations regarding data
4 Russia UK France services required by customers. Despite the large number
5 Brazil Italy Italy of players entering the enterprise data segment, telecom
licenses are voice-centric. Therefore, most regulations
6 Indonesia Germany UK
are voice-centric and do not cover issues related to
7 Japan France Germany
enterprise service providers. Regulatory restrictions
8 Germany Korea India related to interconnection of data and public switched voice
9 Pakistan Spain Spain networks interfere with the realization of these services’
10 Italy Australia Brazil full potential.

Focus area Recommendations

Encryption
Lawful interception
International private leased
circuit (IPLC) regime
Interconnection regime and
cable landing station (CLS)
access
Taxation
Encryption levels in ILD and NLD licenses should be upgraded to allow strong encryption of up to 256
bits to protect confidential information in accordance with international best practices.
In the interest of national security, the customer should undertake to make its encryption key
available to the licensed entity on demand.
T
„ he proper treatment of data services under the ILD and NLD licenses, including lawful interception
and monitoring conditions, should be clarified.
The security/lawful monitoring and interception requirements applicable to enterprise data services
should be specified, with attention given to MPLS and IP-VPN services, which do not connect to a
public network.
Indian BPOs are addressing contact center requirements globally to collect voice calls outside of India
and transporting them over an IPLC or MPLS link provided by the authorized service providers. In line
with international practice, BPO customers need variable per minute usage-based pricing model both
for inbound and outbound calls.
To promote competition in the IPLC segment, a wholesale pricing regime should be introduced. It
should be retail minus and avoid vertical price squeeze by the incumbent.
Access charges under existing Reference Interconnect Offers (RIOs) should be fair, non-discriminatory
and cost-based.
Access charges under new RIOs for accessing new cables should represent only the actual
incremental network costs of providing the access services.
Costing should be in place for RIO charges to ensure proper cost-oriented charges, specifically LIRC.
Need to eliminate the cumulative assessment of licensing fees on the purchase of inputs, which
imposes double taxation on ILD and NLD license holders.

98 Enterprise Sector, Association of Competitive Telecom Operators, November 2010.

69 Enabling the next wave of telecom growth in India

4.3.13 Convergence99
Market-related convergence arises due to consumer
The ITU defines convergence as the integration of
expectations of one-stop service availability and
customer end terminal equipment, or access devices such
bundling of services. Today, most of the telecom
as the telephone, television and personal computer. Triple
operators provide broadband services in addition to voice
play is also used to define the end result of convergence,
communication services. As a result, the convergence of
which refers to the combination of three services —
voice and data has created a trend for tariff plans based
internet, telecom and telephone. Convergence has evolved
on the volume of data transferred with common billing
due to the processes of digitalization and computerization.
for interchangeable use of voice calls and data services.
Technological convergence has made way for business
Convergence has led to increased competition in the
convergence, with a service provider offering a bundle of
marketplace, impacting both the telecommunications
services. Hence, a telco provides video, data and telephone
and broadcasting sector as a whole.
through separate channels, whereas another telco provides
triple play through a single channel.

In the US and Hong Kong, commercial power lines have

been used to provide telecommunication and internet
services. In the near future, it is expected that these lines
will become an alternate medium for providing information
services, taking convergence to a new level. Convergence
creates opportunities such as the combination of
either equipment or businesses to provide multiple
telecommunications, broadcasting and internet-based
services by a single operator. At the same time, it poses
challenges that need to be addressed from a regulatory
perspective. It is essential to create a regulatory framework
that addresses the issues arising from both technological
and business convergence.

99 See 5.8. for global practices.

Enabling the next wave of telecom growth in India 70

4.3.14 Security
In the recent past, India has witnessed a series of terrorist manufacturers, as the requested information is considered
attacks, with terrorism being primarily attributable to sensitive and proprietary.
religious communities and radical movements. The
In 2009, the DoT blocked calls to mobile devices without
key stakeholders associated with security concerns
a 15-digit International Mobile Equipment Identity (IMEI)
surrounding telecom equipment include the DoT, the
number, which is a unique number allotted to every mobile
Ministry of Home Affairs, Indian intelligence agencies,
phone for the identification purposes. The IMIE number
telecom equipment manufacturers and telecom operators.
helps intelligence agencies track mobile phone users and
As a result, the GoI has taken steps regarding telecom
curb anti–national activities. This move is expected to have
infrastructure equipment, issuing guidelines related
impacted approximately 25 million users, with Chinese
to the import of network equipment from foreign
mobile phones being the major category.
telecommunications vendors. The key players that have
been impacted by the security concerns include one of Although the GoI has initiated these steps to enhance
the world’s leading mobile handset manufacturers, virtual security and curb terrorism with the help of mobile
private networks (VPNs), internet service providers and telephony, other issues remain that continue to raise
one of the world’s leading internet search engines. concerns over security. Firstly, Know Your Customer (KYC)
verification process for a mobile connection faces issues
The guidelines mandate the sharing and monitoring of
such as forged documents, leaving the telecom system
source code and design along with Indian security agencies.
highly vulnerable. Secondly, with the rapid growth in
Further, the guidelines put the onus for compliance on the
voice and data traffic, modern data mining and network
mobile operator, with penalties for non-compliance. The
management infrastructure that is able to monitor
DoT has also mandated thorough inspection of hardware,
terabytes and exabytes of data need to be set up, along
software and facilities at the time of procurement and
with a trained workforce. Thirdly, any suspicious equipment
periodic review thereafter. The guidelines outlined by the
that is active in a network should be liable to being disabled
GoI impact the commercial viability of telecom equipment
via government-approved encryption.

71 Enabling the next wave of telecom growth in India

4.4. Key enablers for potential
opportunities
Telecom will find its immense use in schemes and in India is expected to boost market growth, driven by the
initiatives aimed at socioeconomic development in the uptake of services such as mobile web browsing, mobile
years to come such as m-commerce, the UID scheme and banking and multimedia messaging service (MMS).
financial inclusion.
The m-commerce service umbrella in India has been limited
primarily to payment and transfer systems, with each
4.4.1 m-commerce100 broad category providing an array of services.

Going forward, the rollout of 3G services and

The next revolution that is expected through the use of
increasing usage of WAP, web-enabled phones
mobile phones is the emergence of m-commerce. Mobile
and smartphones by mobile subscribers is expected to
phones provide the consumer an opportunity to transact
play an important role in the growth of m-commerce.
anytime and anywhere. m–commerce finds its applications
It is forecasted to overtake e-commerce in terms of the
across various end markets such as banking and financial
number of transactions, with synergy existing between
institutions, paying bills for utilities such as power and gas,
e–commerce and m–commerce, especially in the case of
booking tickets for transportation services such as trains
banking and internet-based purchases.
and taxis and online shopping. The rollout of 3G services

m-commerce
Mobile banking Mobile payments Mobile transfer
• Inter–account fund transfer • Information services, including • Prepaid card top-up
• Account inquiry current affairs, tourism and • Person-to-person transfers
search engines
• Stock trading • International remittances
• Ticketing (e.g., train, cinema)
• Bill payment
• Shopping (i.e., purchase of goods
and services)

100 See 5.9. for global practices.

Enabling the next wave of telecom growth in India 72

4.4.2 M2M communication
According to Ericsson, the world is expected to witness
50 billion101 connected devices in 2020, with machine–
to–machine (M2M) communication being the key driver
behind this exponential increase in connected devices.
Utilities, government, health care, education, finance,
transportation and other emerging industries are expected
to be at the forefront in adopting M2M communication.
M2M is characterized by small amounts of data between
the device and network, and will enable networks to
support automated machine communications. The key
advantages provided by M2M include cost and spectrum
efficiency, service quality and security, redundancy and
coverage.
4.4.3 Mobile money
Mobile communication and secure mobile transaction
opportunities will bring a transformation in the manner
in which money is managed, mobilized and generated in
future. It will significantly impact the banking industry,
where the ability to conduct transactions from anywhere
and at any time inherently lends itself to real-time
101 The World of 50 billion connections, Ericsson, December 2010, page 2.
73 Enabling the next wave of telecom growth in India
monetary settlements. Mobile payment technology will
transform the nature of physical interaction between
consumers, merchants and banks. The initial application
will focus on mobile banking, to look at account information
and transfer small amounts of money between various
accounts; over a period of time, bill payment related
to utility and others will become a major application;
thereafter, adoption of other services such as ticketing,
coupons and advertising would pick up, with mobile
money becoming a truly rich and integrated application for
consumer convenience. This will cause a reduction in the
cost of transactions, owing to increased volume, disruptive
business models and reduced legal and professional fees.
4.4.4 M-health
M-health applications include the use of mobile devices in
collecting community and clinical health data, delivery of
health care information to practitioners, researchers and
patients, real-time monitoring of patient vital signs and
direct provision of care via mobile tele-medicine. It offers a
huge potential for health care delivery in India. There are a
number of government schemes and other initiatives from
medical service providers offering tele-medicine services,
to extend affordable health care to all in the country.
4.4.5 M-education
M-education offers innovative use of mobile and wireless
technologies for education. It aims to bridge the supply-
demand gap of high-quality teachers in the country. It
enables a virtual community to facilitate the learning
activities of teachers, students and peers through
collaboration in a distributed environment.
4.4.6 Financial inclusion
Financial inclusion is central to the overall task of
inclusive growth. Financial inclusion aims to bring
the unbanked and under-banked population into the
organized financial services framework and assist in growth
of the electronic payments market in India. In India, about
80% of households do not have bank accounts. The ability
of the Indian telecom sector to reach the masses owing
to its scale and built-in affordability will help to achieve
financial inclusion.
4.4.7 MNREGA and UID
MNREGA and UID strive for providing inclusive growth.
MNREGA aims at enhancing the livelihood security of
people in rural areas by guaranteeing 100 days of wage-
employment in a financial year to a rural household whose
adult members volunteer to do unskilled manual work.
MNREGA achieves twin objectives of rural development and
employment. The UID program is critical to improving the
delivery of social services, subsidies and other government
programs while also strengthening national security.
The integration of such programs with mobile
telephony will benefit the nation. For instance, an
integrated system for taking biometric attendance through
hand-held devices and transmitting it through mobile
phones for authentication is expected to solve the
challenge of attendance. Once workers have logged in, this
data could be transmitted to MNREGA, and help them earn
their daily wages.
Enabling the next wave of telecom growth in India 74
5. Global practices

75 Enabling the next wave of telecom growth in India

5.1. Licensing
In February 2001, the Hong Kong Government released its 3G licensing framework. Following the
Hong Kong pre–qualification exercise, the Government decided to issue four licenses through auctions.
The pre–qualification criteria included investment, network rollout, quality of service and financial
capability.
The Government selected a royalty-based proposal that required the bidder to pay a certain
percentage of its annual 3G revenue turnover determined by the auction, with a guaranteed minimum
payment. The royalty auction included the following:
• Bidders were asked to bid for a level of annual royalty of the percentage of turnover from their 3G
services network operations.
• Successful bidders were expected to pay a minimum royalty fixed by the Government for the
first five years of the license. From the sixth year on, the successful bidders were required to pay
royalties according to the royalty percentage determined at the time of auction, with the same
royalty percentage applying to all licensees.
• Successful bidders were required to provide a five-year rolling guarantee of the minimum royalty
payment for the entire license period.

• In May 2000, Sweden issued an invitation to provide network capacity for UMTS mobile
Sweden telecommunications services. The Government decided to issue four licenses for up to
31 December 2015.
• The selection of applicants was based on the “beauty contest” criteria (i.e., allotting licenses to
operators who best meet stated pre-set criteria).
• The Government focused on rapid rollout and nationwide coverage. Further, the Swedish law
states that licenses are allocated based on specific criteria, which is to the advantage of operators
and consumers, as operators do not pay expensive fees to the state for the issue of licenses.

• In 1998, the Japanese Ministry of Posts and Telecommunications (MPT) published the draft for
Japan the introduction of 3G services and solicited public comment. In March 2000, the MPT established
the technical regulations and publicized the licensing policies.
• The number of 3G operators was fixed at three per region, with new as well as incumbent
opeartors — but not fixed regional operators — being eligible.
• Since the 3G license allocation in Japan was straightforward, with the number of applicants
matching the number of licenses, the policy for comparative selection was not invoked.
• The three-license limit was driven by a shortage of spectrum, with the regulator having a total of
60MHz of spectrum for 3G services.

Enabling the next wave of telecom growth in India 76

 Allocation of 3G mobile licenses102
Country Number of Mobile Method Date Sum paid
licenses incumbents (US$ million)
Austria 6 4 Auction November 2000 610.0
Australia 6 4 Auction March 2001 351.7
Canada 5 4 Auction January 2001 1,482.0
Finland 4 3 Beauty contest + nominal fee March 1999 Nominal
France 4 3 Beauty contest + nominal fee July 2001 4,520.0
Germany 6 4 Auction July 2000 45,870.0
Italy 5 4 Auction October 2000 10,070.0
South Korea 3 2 Beauty contest + fee End 2000 3,080.0
Netherlands 5 5 Auction July 2000 2,508.0
New Zealand 4 2 Auction January 2001 51.4
Norway 4 2 Beauty contest + fee November 2000 44.8
Portugal 4 3 Beauty contest + fee December 2000 360.0
Spain 4 3 Beauty contest + fee March 2000 120.0 each
Sweden 4 3 Beauty contest December 2000 44.08
Switzerland 4 2 Auction December 2000 116.0
UK 5 4 Auction April 2000 35,390.0
Note: The “beauty contest” approach purports to allocate licenses to operators who best meet stated pre-set criteria.

Policy-makers and regulators should focus on creating

interest among providers and providing incentives for
long-term investment. This is done through the principle
of renewal expectancy, and through promoting regulatory
certainty through a fair, transparent and participatory
renewal process. It is essential to provide details about
license renewal or reissue, and ensure sufficient lead times
and transitional arrangements in the event of non-renewal
or changes in licensing conditions. Public consultation
procedures and the right to appeal also increase the
prospects for a successful renewal process.
5.2. Spectrum
Re-farming of spectrum
• The US Government created the Spectrum Relocation
Fund (SRF) in December 2004, which provides a
funding mechanism through which federal agencies
can recover the costs associated with relocating their
radio communications systems from certain spectrum
bands, which were authorized to be auctioned for
commercial purposes. In September 2006,103 the
Federal Communications Commission (FCC) concluded
the auction of Advanced Wireless Services (AWS) in
the 1,710–1,755MHz band paired with the 2,110–
2,155MHz band. The 1,710–1,755MHz band used by
federal agencies was reallocated to AWS under the
provisions of Commercial Spectrum Enhancement
Act (CSEA), including the use of the SRF to facilitate
relocation of federal communications systems. The

102 “3G Mobile Licensing Policy,” ITU website, page 50, http://www.itu.int/osg/spu/ni/3G/casestudies/GSM-FINAL.pdf, accessed 22 October 2010.
103 “1710–1755MHz spectrum band relocation,” National Telecommunications and Information Administration website, page 1, http://www.ntia.doc.
gov/reports/2008/SpectrumRelocation2008.pdf, accessed 12 October 2010.

77 Enabling the next wave of telecom growth in India

 AWS auction raised US$13.7 billion in net winning
bids, and facilitates the provision of innovative new
wireless services in the commercial market.
• I n March 2007, the UK Department of Trade
and Industry’s spectrum strategy committee, in
consultation with the Office of Communications
(Ofcom), formulated policies and a strategic plan
for the future allocation of spectrum to meet the
needs of users in both the public and the private
sector. The committee formulated the strategic plan
for the Ministry of Defense (MoD), civil aeronautical,
civil maritime, emergency and public safety
services (E&PSS) and science services. The MoD has
management rights to 35%104 of the spectrum
bands listed in the UK Frequency Allocation Table
(UKFAT), and it has begun a program to identify
which spectrum can be released and time frame for
releasing it.
• I n 2006, the Australian Communications and Media
Authority (ACMA) reviewed government spectrum
holdings, sharing or reallocation opportunities for
spectrum, and spectrum regulation. One of the key
recommendations of the Independent Review of
Government Spectrum Holdings (IRGSH) was a regular
review of all defense band allocations.
• In 2010, the Brazilian telecommunications regulator,
ANATEL, agreed to re-allocate spectrum in the 2.6GHz
band to support the nationwide deployment of next-
generation mobile broadband services. The 2.6GHz
band had previously been allocated to multichannel
multipoint distribution service (MMDS) operators to
support pay-per-view TV services. The re–allocation
benefits the country’s mobile operators, giving them
the option to deploy LTE immediately.
• In Italy, as a part of spectrum re–farming, the Ministry
of Communications and the Ministry of Defense have
agreed to make 2x75MHz spectrum available for
WiMAX in the 3.4–3.6GHz band.
Sharing of spectrum
• Time sharing: defense needs to use part of the
spectrum only in crisis situations during exercises.
While it is important to ensure that access to spectrum
104 “A Strategy for Management of major Public Sector Public Holdings,” UK Department for Business, Innovation and Skills website, page 28, http://www.
bis.gov. uk/files/file38572.pdf, accessed 12 October 2010.
is guaranteed the moment it is needed, the possibility
exists to use the spectrum for other applications
the primary user does not need. Spectrum could be
shared on a short-term or long-term basis under the
condition that the use is vacated immediately when
the need arises.
• Geographical sharing: in certain situations, spectrum
is needed only in certain geographical areas. Spectrum
assigned to the maritime sector may need to be used
for maritime radio services only near the coastline,
inland waterways and rivers. Such spectrum could be
made available for other applications inland.
Spectrum trading
• Spectrum trading gives public and private sector entities
the opportunity to decide which spectrum to release
or share. It also provides the terms and flexibility to
enter into leasing arrangements for a limited time if
the bodies do not wish to dispose of the spectrum
permanently. The critical success factors for spectrum
trading include a large number of buyers and sellers; an
inefficient primary mechanism of spectrum allocation
that makes it necessary to move to a market-based
method of secondary allocation; and innovation in the
supply and demand for radio-based technologies.
• In 1989, New Zealand was the first country to introduce
open market trading of spectrum. The secondary
trading of spectrum provided benefits such as economic
efficiency, promotion of innovation and flexibility.
• In 2003, the FCC formulated rules for spectrum trading,
simplifying them in mid-2004. The FCC distinguished
between de jure rights, i.e., assignment of the license
to another party, and de facto control, i.e., transferee
retains the license and legal responsibilities, but
transfers management control of the spectrum. Further,
in 2004, the FCC proposed the concept of developing
smart devices that adjust to the spectrum they use and
take advantage of underused spectrum.
Enabling the next wave of telecom growth in India 78
5.3. Universal Service
Obligation Fund
In many countries, a separate universal service fund has In Greece, USO services were provided by incumbent
been set up, with the aim of increasing overall teledensity. operators. However, after liberalization of the telecom
sector, a competitive tender mechanism was used. In the
Most European countries, with a relatively small UK, BT is the designated USO provider. In Mexico, the
geographical area and high population density, have incumbent operator was required as part of its privatization
not considered the creation of a universal fund. On the to install payphones in 20,000 rural areas over a five-year
other hand, countries with large geographic areas and period to meet the policy goal of ensuring some telephone
consequently much higher costs to serve rural areas have access in all villages with at least 500 residents.
funds that aim to cater for the rural population.
Universal service levies by country105
Communication service providers are obliged to contribute
to this fund in many countries. The contribution rate Country Contribution by operators
ranges from 0.1% in France to 6% in Malaysia. In most Malaysia 6%
countries, subsidies are granted according to formulas for India 5% of license fee
compensating operators already serving high-cost rural
Colombia 5%
areas within their operating territory, or proposing to
expand into high-costs areas. US Less than 4% (plus state levies)
Russia 2%
Brazil has developed a mechanism that achieves universal
objectives through obligations imposed on its licensees. Canada 1.5% (plus federal contributions)
The Brazilian legal framework uses a variety of tools Peru 1%
to achieve universal service. As a result, the telecom Uganda 1%
regulator, ANATEL has imposed a coverage obligation
Nigeria 1%
rather than a funding mechanism.

Considering USOF for rural wireless broadband services

With the rising importance of broadband, governments should consider whether they should create a USOF for
broadband services. The key reasons include:

• Considering whether broadband is an essential service of significant “social importance”

• Estimating the degree of expected market penetration of broadband service
• Assessing the nature and extent to which broadband will not be made available by the market and the
associated reasons
• Identifying and specifying the objectives and desired outcomes
• Assessing the extent to which market demand and delivery will meet the specified objectives
• Considering the social and economic disadvantages incurred by those without access to broadband if there
is no government intervention
• Estimating the costs of intervention to widen broadband deployment through the use of the USO
mechanism
• Estimating the costs of intervention through the use of the USO mechanism compared with the use of other
approaches

105 Organization for Economic Co-operation and Development: Working Party on Telecommunication and Information Services Policies, page 19, http://
www.oecd.org/dataoecd/59/48/36503873.pdf, accessed 20 October 2010.

79 Enabling the next wave of telecom growth in India

 Methods of utilizing USOF across various countries106
Developed countries
Country Source of revenue Method of allocating funds
Australia Levy on licensed operators depending on The Government determines the level of subsidy
market share of eligible revenue. paid to the USO provider.
Canada Both fixed and mobile operators pay a fixed Universal service fund compensates costs
percentage of eligible telecom revenue. estimated on the basis of long run marginal
costs, and additionally 15% for joint and
common costs.
France Operators contribute a percentage of Compensation for costs incurred by USO
revenue i.e., 0.1%. provider.
Italy Major operators contribute 1% of revenue. The USO provider makes an offer to provide
services at specified cost, and the regulator
decides what part to accept.
Japan Telecommunications carriers contribute to The telecommunication carriers are eligible to
the USOF. receive universal service funds.
Developing countries
Country Source of revenue Method of allocating funds
Argentina 1% of all operators’ gross revenues. Government to determine based on its goal to
increase wireless and wireline teledensity.
Brazil 1% of service providers’ gross operational Universal service fund supports ICT projects
revenues earned from telecom services. consistent with the Government’s development
objectives.
Chile Government budget. Subsidies distributed through competitive
bidding, with the lowest bidder being the winner.
Colombia 5% of national and long distance operators’ Subsidies distributed through competitive
revenues, plus funds from license fees. bidding, with the lowest bidder being the winner.
Malaysia Fixed and mobile network operators Starting in 2002, operators invited to submit
contribute 6% of their weighted revenue proposals for universal service provider and
from designated services to the fund. to be compensated from the fund through a
competitive process.
Nepal 2% levy on the revenues of the incumbent Subsidies distributed through competitive
operators, ISPs and mobile operators. bidding, with the lowest bidder being the winner.
India 5% levy on the revenue of Subsidies distributed through competitive
telecommunication operators. bidding, with the lowest bidder being the winner.
Peru 1% of all operators’ gross revenues. Subsidies distributed through competitive
bidding, with the lowest bidder being the winner.
South Africa 0.16% of all operators’ revenues. Subsidies mainly awarded to tele–center projects
and areas of greatest need.
Uganda 1% levy on all sector participants, including Subsidies distributed through competitive
telecom operators, the postal service, bidding, with the lowest bidder being the winner.
couriers and ISPs.

106 Organization for Economic Co-operation and Development: Working Party on Telecommunication and Information Services Policies, April 2006, page 19.

Enabling the next wave of telecom growth in India 80

5.4. Broadband
Broadband networks are an essential infrastructure for the
global economy, as they provide businesses and consumers
with fast and continuous access to internet–based
services, content and applications. Broadband services
have economic benefits both in developed and developing
nations. However, infrastructure, regulatory environment,
urban–rural divide and other factors that impact broadband
penetration are very different in developing nations.
Emerging markets such as India need to adopt leading
practices that facilitate rapid and cost-effective deployment
of broadband technologies.
23%,108 in comparison with 4% in developing economies.
Furthermore, it declined to just 2%, if China is excluded
from the developing world. Although the world is
witnessing a rise in broadband penetration, the growth
rate is much higher in the developed world. For instance,
during 2005–08, Eastern Europe added 19.5 million fixed
broadband subscribers, whereas African countries were
able to add 2.4 million fixed broadband subscribers.
Broadband penetration by country 2009

The essential leading practices that enable countries Netherlands 37.1%

to increase broadband penetration include: adoption of Korea 33.5%
regulations that embraces innovation and competition; UK 29.5%
form PPPs, invest in infrastructure and latest technology;
Finland 26.7%
encourage competitive ecosystems; and release spectrum
for the sustainable deployment of broadband services. US 26.4%
The firm combination of national objectives toward Australia 23.3%
broadband services with leading practices is expected to China 7.7%
enable developing nations to achieve benefits of
India 0.7%
broadband growth.
0% 10% 20% 30% 40%
Source: OECD; TRAI; Intel

Monthly broadband charges on a purchasing power parity basis (US$)

60
50
40
30 56
20 35 34 32 29
10 23 22 20 18 16
7
0
UAE Germany Saudi China Japan UK Canada US Hong India Israel
Arabia Kong
Source: “Measuring the Information Society,” ITU, 2010; Booz & Company analysis

There are more than 497.8 million107 broadband

subscriptions across the world. However, a large digital
divide exists between the developed and the developing
1. Investment in information 2. Increased security aware- 3. The number of organiza-
world in terms of broadband penetration. The broadband
security has increased: ness controls will be imple- tions currently evaluating the
penetration rate ingrowth
The survey revealed developed
in theeconomies ismented
nearly to mitigate new or use of virtualization
organization’s annual investment in increased risks: techniques is growing:
information security. Of all The survey revealed that more A total of 34 % of respondents
participants, 61% (46% globally) than 60% of the respondents are revealed that they are either
agreed that their organization will implementing security awareness evaluating or planning to evaluate
spend more this year in information controls to mitigate new or virtualization techniques in the
security than it did last year. increased risks. Other top trends next 12 months. However, 23% of
107 World Broadband Statistics: Short report, Point Topic Ltd., page 4.
that emerged were increases in the global respondents stated that
108 “Intel: Realizing the benefits of broadband,” Intel website, page 2, http://www.intel.com/Assets/PDF/Article/WA-323857001.pdf, accessed 12
October 2010. auditing capability and stronger they have embraced cloud
identity and access management computing, as against only 8% by
systems. Indian organizations.

81 Enabling the next wave of telecom growth in India

4. The trend of actions that 5. The Information Security
organizations have taken to Management System (ISMS),
control the leakage of which covers the overall
South Korea
Policy element Action
Objectives • ►The South Korean Government created an action plan for the emergence of a knowledge-based
society, with each citizen having access to a personal computer. The Korean Digital Divide Act
created the five–year master plan to close the digital divide, formulated the action plans, and
launched the Korean Agency for Digital Opportunity and Promotion (KADO)
Priorities • ►Encourage infrastructure investment by incumbents and market entrants
• Support construction of new high-capacity digital broadband backbone, through funding
• Financial support for R&D, technology demonstration projects, subsidies for purchase of personal
computers by low-income citizens
• Promote digital literacy
• Support e–governance, e–commerce, education and other information and communications
technology (ICT) services
Incentives and initiatives • ►Offer a 30%-50% discount on telecom service charges to low-income and disabled users
• Provide low-interest loans for communications infrastructure development in less-advantaged
regions, as well as funding for information society–related R&D
• Plan to implement number portability for both wireline and wireless services
• Create fund for promotion of digital literacy
• Develop content for disabled people and elderly people
• Create and support ICT

United Kingdom
Policy element Action
Objectives • Create a “digitally rich” UK, where all have the confidence to access the new and innovative
services delivered by computer, mobile phone, digital television or any other device
• Bridge the digital divide arising due to access cost related to internet services
• Establish the UK as a world leader in digital excellence with public services that are responsive,
personalized and efficient
• Use ICT to reduce social exclusion
Priorities • Transform learning with ICT
• Set up a digital challenge for local authorities to achieve both excellence and equity in ICT
• Make the UK a safe place to use the internet
• Promote the creation of innovative broadband content
• Create a strategy for the transformation of delivery of key public services
• Have Ofcom (the independent regulator and competition authority for the UK telecom industry)
set out regulatory strategy
• Improve access to technology for the digitally excluded and ease technology use for the disabled
Incentives and initiatives • Ensure that ICT is embedded in education to improve the quality of the learning experience for all,
re-engage those who have been disaffected and equip children with skills increasingly essential in
the workplace
• Have Ofcom research the prospects for home broadband adoption, focusing on adoption among
the more disadvantaged
• Provide support to BBC and commercial market for experimentation in broadband content using
commissions and partnerships

Enabling the next wave of telecom growth in India 82

5.5. Mergers and acquisitions

The telecom sector has evolved at different rates In the UK, the telecom regulator, Ofcom, has proposed a
around the world, with different views on each cap on the award of spectrum to a mobile operator. The
regulatory issue. The emergence of new technologies spectrum under 1GHz is the obvious choice for mobile
and applications worldwide has forced mobile operators broadband as the airwaves have higher propensity which is
to expand their global footprint through mergers and needed for high data rate services. Ofcom has proposed a
acquisitions, especially in emerging markets. However, cap on the amount of spectrum held by any operator in the
there is a lack of regulatory consistency at the spectrum range under 1GHz. In March 2010, the merger
international level, which would help overcome the of the UK operations of two mobile operators was cleared
challenges posed by globalization. by the European Commission. The combined amount of
spectrum held by the two parties — at 1,800MHz — was
In any country, the key to the telecom sector is radio
larger than that of their competitors. As a result, the
spectrum management. A spectrum cap refers to the
parties offered to surrender 15MHz of spectrum, allowing
amount of spectrum any operator or group of operators
other competitors to rollout services.
can hold in a geographic area. The US and the UK have
gradually eased their respective spectrum caps. Similarly, a spectrum cap has been implemented in
Canada, Mexico and Guatemala. However, other countries,
In the US, a spectrum cap was in place from 1994 to 2003.
such as Australia, have abstained from the implementation
It placed a limit of 45MHz on the commercial mobile radio
of a spectrum cap.
spectrum (CMRS) that a single entity could acquire in any
geographical area across the US. In 2001, the cap was
raised to 55MHz, and it was abolished in 2003. After the
elimination of the spectrum cap, the FCC used a cap of
70MHz in deciding mergers. After the auction in 700MHz
band, the spectrum cap in the US stands at 95MHz.

83 Enabling the next wave of telecom growth in India

5.6. Equipment manufacturing

Finland: Market openness, liberalization and innovation drive the telecom equipment industry109
Background • Prior to the 1990s, the Finnish economy was dominated by forest-related industries. However,
in the late 1990s, the economy shifted to ICT and consumer electronics, with electronics and
electrotechnics accounting for about 25% of the country’s exports. These changes were primarily
driven by higher education and the emergence of knowledge-based industries. Further, the
country’s ICT sector has benefitted from investment in R&D, which more than doubled between
1985 and 2005.
Strategic initiatives • First-mover advantage: in the 1970s, Finland’s state-owned post, telegraph and telephone (PTT)
operator developed the Nordic mobile telephony standard in collaboration with Sweden-, Norway-,
and Denmark based PTTs. In 1991, the first GSM network was launched in Finland, with Nordic
countries benefitting from the first-mover advantage in the mobile telecom industry worldwide.
• Deregulation and increased competition: in the late 1980s and early 1990s, Finland lowered the
entry barriers through the introduction of reforms. After the collapse of the Soviet Union in 1991,
the country redirected its trade to the West, and joined the European Union in 1993. From 1987
to 1997, Finland deregulated the telecom sector by the adoption of the Telecommunications Act
and a new Radio Act, and in 1991, networks were opened to free competition.
• Foreign direct investment: in 1993, Finland removed the restriction on foreign ownership
in Finnish firms and restrictions on capital inflows. The country witnessed more than fivefold
growth in FDI from 1990 to 2000, particularly in the ICT sector. An increase in FDI has resulted in
technology transfer and cooperation that has helped to fuel the telecom sector.
• Specialization in telecom: Finland’s ICT sector has developed specialization in the
manufacturing and export of telecom equipment, with telecom equipment manufacturing
accounting for 90% of the ICT manufacturing in 2003. It employed more than 80,000 people in
over 4,000 firms in 2000.
• Development of clusters: the development of the Finnish telecom industry is also attributed
to the emergence of an ICT cluster, which encourages cooperation among a wide range of
manufacturers and suppliers. The mobile telecom cluster, which is also known as Finland’s Wireless
Valley, includes a wide range of stakeholders, including mobile application developers, equipment
manufacturers, component manufacturers and electronics contract manufacturers, content
owners and content providers for mobile applications, mobile network operators, academic and
research institutions, consulting firms, public certification and standardization authorities and
financial service providers.
• Skilled workforce: Finland has a strong skilled workforce, primarily driven by a robust educational
system in which basic, secondary and tertiary education is free of charge. The country has
invested in a number of technical universities, which has facilitated the emergence of Finland in
the telecom sector by providing a large pool of engineers.

109 Caroline Lesser, “Market Openness, Trade Liberalisation and Innovation Capacity in the Finnish Telecom Equipment Industry,” OECD Publishing,
29 July 2008.

Enabling the next wave of telecom growth in India 84

 China: Emergence of a global manufacturer and innovator110
Background • China’s telecom sector has witnessed rapid growth in the last two decades, with the emergence of
Chinese firms that have successfully competed in the global marketplace, despite the presence of
multinationals.
• Over the years, Chinese manufacturers have evolved from producing cheap and low-quality
imitations to products that use high-end advanced technology.
• The emergence of a strong telecom sector in China has also been driven by a burgeoning domestic
market with the highest number of mobile subscribers in the world, government support to
domestic telecom enterprises and the presence of a well–qualified technical workforce.
Strategic initiatives S
► ince 1978, China has implemented numerous reforms that have boosted the country’s
manufacturing and trade. The key reforms undertaken by the country include development of a trade
policy, reduction in tariff barriers and development of an enabling environment to attract FDI.
• Export processing: in the late 1970s and 1980s, China established an export processing policy.
Under the policy, raw materials such as parts and components and other intermediate imported
goods do not have any duty imposed, as long as they are used to produce export goods. This
enabled the country’s domestic and foreign-owned firms to compete, worldwide.
• Tariff barriers: during the 1980s and early 1990s, the country reduced its tariff barriers
drastically. In the 1980s, some of its tariff rates were above 50%. The implementation of the
export processing regime facilitated the reduction of tariff rates. In 2001, the tariffs reached less
than 15%. Additionally, the US granted China the most favored nation status in 1980, and the
country joined the WTO in 2001.
• Foreign direct investment: in 1979, China implemented policies that favored the inflow of FDI,
along with technological expertise. This helped the country to produce products rapidly.
• Research and development: during the late 1990s, leading global telecom manufacturers
launched their R&D centers in China. These centers have helped global players to understand
the local market and helped in the overall development of the telecom sector. Furthermore,
R&D led to the emergence of Chinese manufacturers that spend a significant portion of their
revenues on R&D.

time limited. National roaming was permitted in rural

5.7. Telecom infrastructure
• Brazil is split into 11 licensing areas with 4 operators in
each licensing area. These operators are encouraged
to share both civil and electronic infrastructure,
particularly in rural areas that may be costly to
serve otherwise.
• Infrastructure sharing has been well accepted globally.
In the EU, individual national regulatory authorities
are required to notify the EU Commission of decisions
regarding infrastructure sharing. The awarding of 3G
licenses led to an increase in applications to share
infrastructure and in particular for new 3G operators
to be permitted to use national roaming to provide full
geographic coverage. Initially, the EU took a negative
view of the benefits versus costs of infrastructure
sharing and saw it as having a potential negative
impact on competition. As a result, although national
roaming was permitted for new entrants, it was often
areas for a longer period than for urban areas.
• Other European NRAs followed the Commission’s
approach and as such active infrastructure sharing was
limited. The operators challenged the Commission’s
decision. The European Court of First Instance ruled
in favor of the operators and stated that the EU had
overplayed the competition concerns. This has led
to greater opportunities for operators to engage in
infrastructure sharing.
• In Australia, operators have commercially
negotiated for 3G site and RAN sharing. An
administrative group has been established to own
and operate existing RAN and fund future network
rollout plans as agreed with operators.
• In Sweden, there are five operators, four of whom
have formed two separate consortiums of two
operators each. Each consortium has built a joint
network. The regulator permitted this level of sharing,

110 Behzad Kianian and Kei-Mu Yi, “China’s Emergence as a Manufacturing Juggernaut: Is It Overstated?” Federal Reserve Bank of Philadelphia,
2009.

85 Enabling the next wave of telecom growth in India

 but required each operator to maintain 30% of its
network separately.
• In Norway, a number of commercially negotiated and
regulated agreements exist between the two main
operators and the MVNOs. There are commercial
agreements between the main operators. The main
operator is obliged to provide national roaming
and MVNO access, publish tariffs and reference
offers, implement accounting separation and is
subject to price and accounting controls for national
roaming. All operators may share sites and masts.
Radio network controllers (RNC) may be shared
physically, but operators must retain logical control
over their networks and spectrum. All transmission
routes (i.e., optic fiber, cables, P-P radio lines) may
be shared. For core networks, the mobile switching
center (MSC) may not be shared. The Ministry of
Transport and Communications may, subject to an
individual consideration, allow fulfillment of the
coverage requirements through roaming in networks
based on other technologies than Universal Mobile
Telecommunications System (UMTS), provided such
networks can offer sufficient capacity and that the
arrangement is without substantial disadvantage
to subscribers.
5.8. Convergence
• In the US, the Federal Communications Commission
(FCC) is an independent agency that regulates
interstate and international communications by
radio, television, wire, satellite and cable and content.
However, cable TV services require approvals at the
municipal level. Telecom operators that provide IPTV
services on their broadband networks have demanded
amendments to the regulations to allow them to
provide national franchise and rollout of services. The
cable industry has opposed this demand, as the cable
industry underwent the time-consuming and expensive
process to secure city-by-city franchises over the last
three decades. Recently, the state of Texas passed
a bill deregulating the telecom markets. This has
made it possible for telephone companies to receive
a statewide franchise to provide video services that
compete with cable.
111 Ovum: Mobile regional and country forecast pack: 2010–15, Ovum website, http://www.ovumkc.com/, accessed 16 October 2010.
• In Canada, the Canadian Radio-television and
Telecommunications Commission (CRTC) is an independent
public authority to regulate and supervise all aspects of
the Canadian broadcasting system, as well as to regulate
telecom common carriers and service providers.
• In Canada in 2002, the regulatory functions of the
Broadcasting Standards Commission, Independent
Television Commission, Office of Telecommunications,
Radio Authority and Radio Communications Authority
were combined to form Ofcom. It is also the regulator of
the UK communications industries, with responsibilities
across television, radio, telecommunications and wireless
communications services.
• In July 2005, the Australian Broadcasting Authority and
the Australian Communications Authority merged to form
the Australian Communications and Media Authority.
• I► n July 2000, the Independent Communications Authority
of South Africa was established. It is the regulator of the
telecommunications and the broadcasting sectors, and
took over the functions of two previous regulators – the
South African Telecommunications Regulatory Authority
and the Independent Broadcasting Authority.
5.9. m-commerce
Globally, the rollout of 3G has provided the required impetus
to drive widespread adoption of m-commerce services. Mobile
networks in North America witnessed growth in data services
that were also driven by the introduction of smartphones.
After smartphones were released, networks’ packet data grew
nine times larger than voice services. In India, voice revenues
are expected to decline at a CAGR (2008–15) of 1.1% to reach
US$19.5 billion111 in 2015, but data revenues are expected
to increase at a CAGR of 16.7% during the same period.
m-commerce is very popular in countries where most of the
population is unbanked. Countries such as Sudan, Ghana, the
Philippines and South Africa have been the largest adopters
of this service. Latin American countries such as Uruguay,
Paraguay, Argentina, Brazil, Venezuela, and Mexico have also
implemented m-commerce successfully.
Enabling the next wave of telecom growth in India 86
 Multiple reforms in the Indian telecom sector have
coalesced to produce a remarkable decade of continued
success. Looking ahead, progressive policies will become
increasingly important to guide unparalleled growth and
transformation in the sector.

87 Enabling the next wave of telecom growth in India

 Conclusion
The telecom sector in India has witnessed a series of
fundamental structural and institutional reforms over the
past decade. The best feature of India’s regulatory regime
has been its open and transparent approach, with which
the regulatory authorities make industry information
public and accessible, and encourage a healthy level of
consultation with stakeholders. This approach has helped
the sector grow by leaps and bounds. The report is an
attempt to help understand the viewpoints of various
stakeholders and to arrive at reasonable and practical
recommendations to help overcome the challenges that
the sector faces and harness its opportunities.
The key recommendations for improving the existing
scenario focus on licensing framework, spectrum,
USOF, broadband, M&A, equipment manufacturing and
infrastructure sharing.
• A single license should cover all telecom services.
There should be uniform fee structure across all
telecom circles.
• Future policy should encourage identifying and
vacating spectrum bands for future use. Spectrum
allocation should be based on technology neutrality,
service flexibility, timely allotment, timely spectrum
reconciliation and enhanced transparency. Spectrum
sharing and trading should be allowed.
• Broadband infrastructure — OFC, high-capacity
microwave and satellite connectivity — must be
extended to rural, remote and inaccessible areas.
Content and applications in regional languages should
be created to promote rural broadband.
• The USOF should be utilized for the provision of public
telecom, information services, household telephones
and broadband connectivity in rural and remote
areas. It should be used for creating infrastructure
for the provision of mobile services and development
of telecommunication facilities, and inducting new
technological developments in rural and remote
areas. The distribution of funds should be through
transparent market-oriented allocation methodology.
DoT should also consider lowering the contribution to
1% of AGR toward the fund.
• Operators must be allowed to merge intra-circle while
being allowed to combine spectrum. The share of a
merged entity should not be greater than 30% in terms
of subscriber base or AGR.
• HMCP should be set up across the country, and
fiscal incentives should be provided to promote local
manufacturing. R&D initiatives should be encouraged.
• A National Telecom Critical Infrastructure Policy
on the lines of NTP 1999 should establish uniform
procedures for land acquisition, a uniform taxation
regime, and subsidies and other packages for creating
an environment conducive to boosting the construction
of national telecom infrastructure and ensuring the
increased participation of all the stakeholders.
The key recommendations for advancing the sector to
the next level of growth focus on financial inclusion,
m-commerce, convergence, security concerns and
consumer affordability.
Enabling the next wave of telecom growth in India 88
Glossary
AWS Advanced Wireless Services
A2P Application-to-person
ACMA Australian Communications and Media Authority
ACTO Association of Competitive Telecom Operators
ADC Access deficit charge
AGR Adjusted Gross Revenue
ARPU Average Revenue Per User
AUSPI Association of Unified Telecom Service Providers of India
BSCs Base Station Controllers
BTS Base Transceiver Stations
BWA Broadband Wireless Access
BWCI Broadband Wireless Consortium of India
CAGR Compound annual growth rate
CDB Cut-out Distance Band
CEWIT Center of Excellence in Wireless Technology
CLS Cable Landing Station
CMRS Commercial Mobile Radio Spectrum
CMSPs Cellular Mobile Service Providers
CMTS Cellular Mobile Telephone Service
CMTS Cable Modem Termination System
COAI Cellular Operators Association of India
CPE Customer Premises Equipment
CPP Calling party pays
CRBT Caller Ring Back Tones
CRTC Canadian Radio-television and Telecommunications Commission
CSC Common Services Centers
CSEA Commercial Spectrum Enhancement Act
CVD Countervailing Duty
DAS Distributed Antennae Sharing
DoT Department of Telecommunications
DSL Digital Subscriber Lines

89 Enabling the next wave of telecom growth in India

E&PSS Emergency & Public Safety Services
FCC Federal Communications Commission
FDI Foreign direct investment
FICCI Federation of Indian Chambers of Commerce and Industry
FY Financial Year
G2B Government-to-business
G2C Government-to-citizen
G2E Government-to-employee
G2G Government-to-government
GBT Ground-Based Towers
GMPCS Global Mobile Personal Communications Services
GoI Government of India
GST Goods and Services Tax
HMCP Hardware Manufacturing Cluster Parks
IAMAI Internet & Mobile Association of India
IBA Independent Broadcasting Authority IBA
ICASA Independent Communications Authority of South Africa
ICNIRP International Commission on Non Ionizing Radiation Protection
ICRIER Indian Council for Research on International Economic Relations
ICT Information and Communications Technology
IDI ICT Development Index
ILD International long distance
IMEI International Mobile Equipment Identity
IPF Infrastructure Provisioning Fee
IP-I Infrastructure Provider-I
IPLC International Private Leased Circuit
IP-VPN IP-based Virtual Private Network
ISPAI Internet Service Providers Association of India
IT Information Technology
ITeS IT-enabled Services Sectors
ITU International Telecommunication Union

90
KADO Korean Agency for Digital Opportunity and Promotion
kbps kilobit per second
KYC Know Your Customer
MARR Multi Access Radio Relay
MCD Municipal Corporation of Delhi
MMDS Multichannel Multipoint Distribution Service
MMS Multimedia Messaging Service
MNP Mobile number portability
MNREGA Mahatama Gandhi National Rural Employment Guarantee Act
MoD Ministry of Defense
MoU Minutes of usage
MPLS Multiprotocol Label Switching
MSCs Mobile Switching Centers
MTNL Mahanagar Telephone Nigam Limited
NCAER National Council of Applied Economic Research
NDMC New Delhi Municipal Council
NeGP National e-Governance Plan
NFAP National Frequency Allocation Plan
NLD National long distance
NRAs National Regulatory Authorities
NTCIP National Telecom Critical Infrastructure Policy
NTP National Telecom Policy
OFC Optic fiber communication
P2A Person-to-application
P2P Person-to-person
PAN Permanent Account Number
PCOs Public Call Offices
PMRTS Public Mobile Radio Trunked Services
POPs Point of Presence
PPP Private-public Partnership
PSU Public Sector Undertakings
PTT Posts, Telephone and Telegraph
RCP Rural Community Phones
RCV Recharge Coupon Voucher
RIOs Reference Interconnect Offer

91 Enabling the next wave of telecom growth in India

RKM Route Kilometer
RNC Radio Network Controllers
ROW Right of way
RPM Rate per minute
RTT Roof-top tower
SACFA Standing Advisory Committee on Radio Frequency Allocation
SATRA South African Telecommunications Regulatory Authority
SIM Subscriber Identity Module
SRF Spectrum Relocation Fund
TCOE Telecom Centers of Excellence
TDSAT Telecommunications Dispute Settlement and Appellate Tribunal
TEC Telecommunication Engineering Center
TEMA Telecom Equipment Manufacturers Association
TESEPC Telecom Equipment and Services Export Promotion Council
TRAI Telecom Regulatory Authority of India
UAS Unified Access Service
UID Unique identification number
UIDAI Unique Identification Authority of India
UKFAT UK Frequency Allocation Table
UMTS Universal Mobile Telecommunications System
USOF Universal Service Obligation Fund
VAS Value-added services
VoIP Voice over Internet Protocol
VPNs Virtual Private Network
VPTs Village Public Telephones
VSNL Videsh Sanchar Nigam Limited
WMO Wireless Monitoring Organization
WPC Wireless Planning & Coordination Wing
WTO World Trade Organization

92
Notes

93 Enabling the next wave of telecom growth in India

Enabling the next wave of telecom growth in India 94
Notes

95 Enabling the next wave of telecom growth in India

Enabling the next wave of telecom growth in India 96
 About Federation
of Indian Chambers
of Commerce and
Industry (FICCI)
FICCI, set up in 1927, is the largest and oldest apex
organization of Indian business. With a nationwide
membership of over 1,500 corporates and over 500
chambers of commerce, FICCI espouses Indian businesses
and speaks directly and indirectly for over 250,000
business units. FICCI maintains the lead as the proactive
business solutions provider through research, interactions
at the highest political level and global networking.

FICCI organizes a large number of exhibitions, conferences,

seminars and meets for promoting business.

97 Enabling the next wave of telecom growth in India

Ernst & Young’s Global
Telecommunications
Center
Telecommunications operators are facing the challenges
of growth, convergence, business transformation,
technological change and regulatory pressures in
increasingly difficult economic conditions. Operators choose
Ernst & Young because they value our industry-based
approach to addressing their assurance, tax, transaction and
advisory needs. They know that they have much to gain from
our clear understanding of the opportunities, complexities
and commercial realities of the telecommunications industry —
wherever in the world they’re operating.

What gives us this understanding is our Global

Telecommunications Center. Operating from Paris, Cologne,
Johannesburg, Riyadh, Delhi, Beijing and San Antonio, the
Center brings together people and ideas from across the
world, to help our clients address the challenges of today
— and tomorrow. Our clients benefit from our insights on
key trends and emerging issues. These may relate to the
economic downturn, next-generation services, infrastructure
sharing, outsourcing, revenue assurance, operational
efficiency, regulations, future growth markets or mergers and
acquisitions. We help our clients react to trends in a way that
improves the financial performance of their business.

Learn more about our approaches and services by visiting our

website: www.ey.com/telecommunications

Enabling the next wave of telecom growth in India 98

 Contacts
Global Telecommunications Center
Vincent de La Bachelerie
Global Telecommunications Leader
vincent.de.la.bachelerie@fr.ey.com

Jonathan Dharmapalan
Global Deputy Telecommunications Leader
jonathan.dharmapalan@ey.com

Marc Chaya
Global Telecommunications Markets Leader
marc.chaya@fr.ey.com

Adrian Baschnonga
Global Telecommunications Senior Analyst
abaschnonga@uk.ey.com

Steve Lo
Global Telecommunications Center — Beijing
steve.lo@cn.ey.com

Holger Forst
Global Telecommunications Center — Cologne
holger.forst@de.ey.com

Prashant Singhal
Global Telecommunications Center — Delhi
prashant.singhal@in.ey.com

Serge Thiemele
Global Telecommunications Center — Johannesburg
serge.thiemele@ci.ey.com

Wasim Khan
Global Telecommunications Center — Riyadh
wasim.khan@sa.ey.com

Mike Stoltz
Global Telecommunications Center — San Antonio
michael.stoltz@ey.com

99 Enabling the next wave of telecom growth in India

Enabling the next wave of telecom growth in India 100
Ernst & Young About Federation of Indian Chambers of
Commerce and Industry (FICCI)
Assurance | Tax | Transactions | Advisory

About Ernst & Young
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Global Limited, a UK company limited by guarantee,
does not provide services to clients. For more
information about our organization, please visit
www.ey.com
FICCI, set up in 1927, is the largest and oldest apex
organization of Indian business. With a nationwide
membership of over 1,500 corporates and over
500 chambers of commerce, FICCI espouses Indian
businesses and speaks directly and indirectly for over
250,000 business units. FICCI maintains the lead as
the proactive business solutions provider through
research, interactions at the highest political level
and global networking.
FICCI organizes a large number of exhibitions,
conferences, seminars and meets for promoting
business.

© 2011 EYGM Limited.

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