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The Telecommunications Industry in India -- Michael Porter's Five Forces Analysis
Submitted To: - Prof. AVIJAN DUTTA Date Of Submission:- 4th feb,2009
NAME Submitted By:Ashish Vatshayayan Rajesh chaudhary Anurag Yadav Dheeraj Kumar Ambarish Anand Sarangdhar
ROLL NO. 03 28 34 38 44 56
TELECOM INDUSTRY India continues to be one of the fastest growing telecom markets in the world. Reforms introduced by successive Indian governments over the last decade have dramatically changed the nature of telecommunications in the country. The sector ranks second in the world, with over 225.7 million telephone subscriptions by 2008-end. The fast track growth of the Indian telecom industry has made it a key contributor to India’s progress. India adopted a phased approach for reforming the telecom sector right from the beginning. Privatization was gradually introduced, first in value-added services, followed by cellular and basic services. An independent regulatory body, Telecom Regulatory Authority of India (TRAI), was established to deal with competition in a balanced manner. This gradual and thoughtful reform process in India has favored industry growth. Today, there are more than 225 million telecom subscribers in India. Every month, 6-7 million new subscribers are added. Upcoming services such as 3G and WiMax will help to further augment the growth rate. Furthermore, the Indian economy is slated to sustain its 7-9 per cent growth rate in the near future. This is supported by the political stability that the country is experiencing currently. India’s demographic outlook makes it one of the largest markets in the world. A conducive business environment is also created by a favorable regulatory regime. There exists enormous business potential for telecom companies on account of the country’s low teledensity, which is close to 19 per cent presently. The Indian telecom industry is growing at the fastest pace in the world and India is projected to be the second largest telecom market globally by 2010.
The Telecommunications Industry in India in Michael Porter's Five Forces Analysis :
It uses concepts developed in Industrial Organization economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the microenvironment, to contrast it with the more general term macro-environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace.
1.RIVALRY AMONG EXISTING COMPETITORS
Competition in Indian Telecom Industry Major Players There are three types of players in telecom services: • State owned companies (BSNL and MTNL). • Private Indian owned companies (Reliance Infocomm,TataTeleservices. • Foreign invested companies (Vodafone, Bharti Tele-Ventures, Idea Cellular, Spice Communications) .
On October 1, 2000 the Department of Telecom Operations, Government of India became a corporation and was renamed Bharat Sanchar Nigam Limited (BSNL). BSNL is now India’s leading telecommunications company and the largest public sector undertaking. It has a network of over 45 million lines covering 5000 towns with over 35 million telephone connections. The state-controlled BSNL operates basic, cellular (GSM and CDMA) mobile, Internet and long distance services throughout India (except Delhi and Mumbai). BSNL will be expanding the network in line with the Tenth Five-Year Plan (1992-97). The aim is to provide a telephone density of 13.6 per hundred by March 2008. BSNL, which became the third operator of GSM mobile services in most circles, is now planning to overtake Bharti to become the largest GSM operator in the country. BSNL is also the largest operator in the Internet market, with a share of 21 per cent of the entire subscriber base
Established in 1985, Bharti has been a pioneering force in the telecom sector with many firsts and innovations to its credit, ranging from being the first mobile service in Delhi, first private basic telephone service provider in the country, first Indian company to provide comprehensive telecom services outside India in Seychelles and first private sector service provider to launch National Long Distance Services in India. Bharti Tele-Ventures Limited was incorporated on July 7, 1995 for promoting investments in telecommunications services. Its subsidiaries operate telecom services across India. Bharti’s operations are broadly handled by two companies: the Mobility group, which handles the mobile services in 16 circles out of a total 23 circles across the country; and the Infotel group, which handles the NLD, ILD, fixed line, broadband, data, and satellite-based services. Together they have so far deployed around 23,000 km of optical fiber cables across the country, coupled with approximately 1,500 nodes, and presence in around 200 locations. The group has a total customer base of 6.45 million, of which 5.86 million are mobile and 588,000 fixed line customers, as of January 31, 2004. In mobile, Bharti ’s footprint extends across 15 circles. Bharti TeleVentures' strategic objective is “to capitalize on the growth opportunities the company believes are available in the Indian telecommunications market and consolidate its position to be the leading integrated telecommunications services provider in key markets in India, with a focus on providing mobile services”.
MTNL was set up on 1st April 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development needs of India’s key metros – Delhi, the political capital, and Mumbai, the business capital. In the past 17 years, the company has taken rapid strides to emerge as India’s leading and one of Asia’s largest telecom operating companies. The company has also been in the forefront of technology induction by converting 100% of its telephone exchange network into the state-of-the-art digital mode. The Govt. of India currently holds 56.25% stake in the company. In the year 2003-04, the company's focus would be not only consolidating the gains but also to focus on new areas of enterprise such as
joint ventures for projects outside India, entering into national long distance operation, widening the cellular and CDMA-based WLL customer base, setting up internet and allied services on an all India basis. MTNL has over 5 million subscribers and 329,374 mobile subscribers. While the market for fixed wireline phones is stagnating, MTNL faces intense competition from the private players—Bharti, Hutchison and Idea Cellular, Reliance Infocomm—in mobile services. MTNL recorded sales of Rs. 60.2 billion ($1.38 billion) in the year 2002-03, a decline of 5.8 per cent over the previous year’s annual turnover of Rs. 63.92 billion.
RELIANCE INFOCOMM :
Reliance is a $16 billion integrated oil exploration to refinery to power and textiles conglomerate. It is also an integrated telecom service provider with licenses for mobile, fixed, domestic long distance and international services. Reliance Infocomm offers a complete range of telecom services, covering mobile and fixed line telephony including broadband, national and international long distance services, data services and a wide range of value added services and applications. Reliance IndiaMobile, the first of Infocomm's initiatives was launched on December 28, 2002. This marked the beginning of Reliance's vision of ushering in a digital revolution in India by becoming a major catalyst in improving quality of life and changing the face of India. Reliance Infocomm plans to extend its efforts beyond the traditional value chain to develop and deploy telecom solutions for India's farmers, businesses, hospitals, government and public sector organizations. Until recently, Reliance was permitted to provide only “limited mobility” services through its basic services license. However, it has now acquired a unified access license for 18 circles that permits it to provide the full range of mobile services. It has rolled out its CDMA mobile network and enrolled more than 6 million subscribers in one year to become the country’s largest mobile operator. It now wants to increase its market share and has recently launched pre-paid services. Having captured the voice market, it intends to attack the broadband market.
TATA TELESERVICES :
Tata Teleservices is a part of the $12 billion Tata Group, which has 93 companies, over 200,000 employees and more than 2.3 million shareholders. Tata Teleservices provides basic (fixed line services), using CDMA technology in six circles: Maharashtra (including Mumbai), New Delhi, Andhra Pradesh, Tamil Nadu, Gujarat, and Karnataka. It has over 800,000 subscribers. It has now migrated to unified access licenses, by paying a Rs. 5.45 billion ($120 million) fee, which enables it to provide fully mobile services as well. The company is also expanding its footprint, and has paid Rs. 4.17 billion ($90 million) to DoT for 11 new licenses under the IUC (interconnect usage charges) regime. The new licenses, coupled with the six circles in which it already operates, virtually gives the CDMA mobile operator a national footprint that is almost on par with BSNL and Reliance Infocomm.. The circles include Bihar, Haryana, Himachal Pradesh, Kerala, Kolkata, Orissa, Punjab, Rajasthan, Uttar Pradesh (East) & West and West Bengal.
On April 1, 1986, the Videsh Sanchar Nigam Limited (VSNL) - a wholly Government owned corporation - was born as successor to OCS. The company operates a network of earth stations, switches, submarine cable systems, and value added service nodes to provide a range of basic and value added services and has a dedicated work force of about 2000 employees. VSNL's main gateway centers are located at Mumbai, New Delhi, Kolkata and Chennai. The international telecommunication circuits are derived via Intelsat and Inmarsat satellites and wide band submarine cable systems e.g. FLAG, SEA-ME-WE-2 and SEA-ME-WE-3. The company's ADRs are listed on the New York Stock Exchange and its shares are listed on major Stock Exchanges in India. The Indian Government owns approximately 26 per cent equity, M/s Pantone Finvest Limited as investing vehicle of Tata Group owns 45 per cent equity and the overseas holding (inclusive of FIIs, ADRs, Foreign Banks) is approximately 13 per cent and the rest is owned by Indian institutions and the public. The company provides international and Internet services as well as a host of value-added services. Its revenues have declined from Rs. 70.89 billion ($1.62 billion) in 2001-02 to Rs. 48.12 billion ($1.1 billion) in 2002-03, with voice revenues being the mainstay. To
reverse the falling revenue trend, VSNL has also started offering domestic long distance services and is launching broadband services. For this, the company is investing in Tata Teleservices and is likely to acquire Tata Broadband.
HUTCH (Vodafone) : Hutch’s presence in India dates back to late 1992, when they worked with local partners to establish a company licensed to provide mobile telecommunications services in Mumbai. Commercial operations began in November 1995. Between 2000 and March 2004, Hutch acquired further operator equity interests or operating licenses. With the completion of the acquisition of BPL Mobile Cellular Limited in January 2006, it now provides mobile services in 16 of the 23 defined license areas across the country. Hutch India has benefited from rapid and profitable growth in recent years. it had over 27.8 million customers by the end of June 2008.
Indian regional operator IDEA Cellular Ltd. has a new ownership structure and grand designs to become a national player, but in doing so is likely to become a thorn in the side of Reliance Communications Ltd. IDEA operates in eight telecom “circles,” or regions, in Western India, and has received additional GSM licenses to expand its network into three circles in Eastern India -- the first phase of a major expansion plan that it intends to fund through an IPO, according to parent company Aditya Birla Group
2.BARGAINING POWER OF CONSUMERS :
Recent Status : Indian Telecom industry is one of the fastest growing telecom markets in the world. In telecom industry, service providers are the main drivers; whereas equipment manufacturers are witnessing growth and decline in successive quarters as sales is dependent on order undertaken by the companies. Airtel, Reliance, Tata and Sterlite are some of the companies that are expected to spur the growth in 2008, as compared to AMJ07. According to Cygnus estimates, telecom industry was expected to grow by 25% in 2008 as compared to AMJ07, in terms of sales. EBDITA and PAT are expected to grow by 32% and 34% respectively in 2008 as cost expenses are being control by major companies like Airtel and Reliance. The major booster is the wireless mobile subscriber base; crossing over 261m in March 2008. Other services like Internet subscriber base has also provided significant impetus with its subscriber base reaching over 11m in March 2008. The total subscriber base of Wireline services stood at 39.42 million as on 31st March 2008. The incumbents BSNL and MTNL have 80.05% and 9.33% market share respectively in the subscriber base, while all the five private operators together have 10.62% share. Wireline subscriber base has been declining in the last few years. Subscriber base for some of the companies like Bharti, Tata (Tele & Communications), MTNL and Reliance increased marginally. On the other hand, BSNL, Shyam and Telelinks have lost marginal subscriber base in 3rd QUARTER OF 2008, as compared to the previous quarter.
MARKET SHARE OF WIRELESS OPERATORS TILL 2008
3.Bargaining Power of Suppliers :
As far as telecom industry is concerned, it is service based industry which is intangible, so in this case there are less suppliers or we can say the role of suppliers are almost negligible in the case of telecom industry. we are trying to analyze that minor role
1. Mobile hand set suppliers: - There can be many suppliers for handset,
some of them are Nokia, Sony Ericsson, Motorola, Siemens etc. Many big telecom giants have their own handset manufacturing (back ward integration) like Reliance Classic, Tata Indicom or they have collaboration with some known companies like Reliance communication have tie ups with Samsung and LG for their CDMA services.
2. Some other suppliers for this industry can be the Optical fibre
suppliers, Aluminum suppliers (aluminum is required for the tower) but their bargaining power is limited.
3. Other important parameters can be the software assistance where
suppliers can have the edge some of the main software solution provider are TCS, Infosys, Wipro, Satyam etc.Again one thing is noticeable that big giants like Reliance and Tata have their own units for software solution and companies like Vodafone, Spice are taking services from above stated companies.so here software providers have bargaining power because suppose Vodfone can’t go to Reliance info for their software solution so here suppliers can have edge over the companies.
4.THREAT TO NEW ENTRANTS The Indian telecom sector offers unprecedented opportunities for foreign companies in various areas, such as 3G, virtual private network, international long distance calls, value added services, etc.
The market is
witnessing M&A activities that are leading to consolidations in the industry. This trend has assisted companies in expanding their reach in the Indian telecom market to offer better services to customers. The Indian telecom industry has always allured foreign investors. In fact, the cumulative FDI inflow, from August 1991 to March 2007, in the telecommunication sector amounted to US$ 3,892.19 million. This makes telecommunication the third-largest sector to attract FDI in India in the post liberalisation era. In India large numbers of players are emerging in the market on the national level from its state level existence such as:
• • • • •
Aircel Virgin Spice Idea Unitech
5.SUBSTITUTE TO PRODUCT
Telecom sectors offers a wide range of services in India, such as wireline, CDMA mobile, GSM mobile, internet, broadband, carrier, MPLS-VPN, VSAT, VoIP, IN, etc. Internet telephone It is emerging as a best option in place of because it is cheaper and video as an added advantage.
INTERNET SEVICE PROVIDER BSNL MTNL SIFY BHARTI AIRTEL RELIANCE MARKET SHARE(%) 45.2 19 8.9 6.8 6.1
50 45 40 35 30 25 20 15 10 5 0 1 2 3 4 5 6 INTERNET SEVICE PROVIDER MARKET SHARE(%)
As we can see that use of internet in our country is on growing rate. As there are many tools which can be accessed through internet like video conferencing other important tool is talking through internet for eg. Google talk, rediff bol,yahoo messenger. Important thing is that internet is cheaper medium of communication and one can have many facilities if he/she is connected to the world through the internet. As we have seen govt has several plans to increase the speed of internet so that one can exploit the resources which are available.
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