2013 FINANCIAL ACCOUNTING

FINANCIAL ANALYSIS OF TELECOMMUNICATION INDUSTRY

IDEA, TATA COMMUNICATIONS, BHARATI AIRTEL FINAL PROJECT REPORT

SUBMITTED BY, GANESH R MAHAVIR PRASAD KUMAWAT PREETHI VENKATARAMAN RAJENDRA MOHAN TALELE S MADHUVANTHI SARAT BOSE
IIM BANGALORE | PGP 2013-15

Table of Contents
1. Telecommunication Industry Analysis .......................................................................................................... 2 Introduction ....................................................................................................................................................... 2 Revenue and other financials ............................................................................................................................. 2 Revenue ......................................................................................................................................................... 2 CAGR .............................................................................................................................................................. 2 2. References ..................................................................................................................................................... 6

1 Financial Accounting Telecommunications (Group 5)

1. Telecommunication Industry Analysis

Introduction
India's telecommunication network is the second largest in the world based on the total number of telephone users (both fixed and mobile phone) [1]. It has one of the lowest call tariffs in the world enabled by the mega telephone networks and hyper-competition among them. It has the world's third-largest Internet user-base with over 137 million as of June 2012. Major sectors of the Indian telecommunication industry are telephony, internet and television broadcasting. Indian telecom industry underwent a high pace of market liberalisation and growth since 1990s and now has become the world's most competitive and one of the fastest growing telecom markets. The Industry has grown over twenty times in just ten years, from under 37 million subscribers in the year 2001 to over 846 million subscribers in the year 2011. India has the world's second-largest mobile phone user base with over 929.37 million users as of May 2012.

Revenue and other financials

Revenue
The Total Revenue of the Telecom Service Sector went up from Rs. 1,71,719 crore in 2010-11 to Rs. 1,95,442 crore in 2011-12 indicating a growth of 13.82%[2].The corresponding figures of Revenue after adjustment of intra operator interconnection charges, come to Rs. 1,66,752 crore in 2010-11 and Rs. 1,79,914 crore in 2011-12, showing a growth of 7.89% over the previous year.

CAGR

2 Financial Accounting Telecommunications (Group 5)

Macro-Economic Situation
A GDP of 5.5% in FY 13, coupled with low growth, high fiscal and current account deficit, ever present high inflation and pessimistic attitude of investors added to the pre-existing slowdown. [3] Measures by the GoI to reduce subsidies and attract FDIs and strengthen the rupee did not change the business atmosphere largely. Sources of funding continued to be scarce and borrowing costs remained high during the year.

Telecom Industry Situation

The Indian telecom sector and subscriber base have witnessed tremendous growth over the past decade and shall witness further growth due to a growing subscriber base, mobile applications and technologically advanced end-user devices that will drive exponential growth in Internet usage. These factors are accompanied by the countervailing pressure of price erosion, especially for basic voice and connectivity services. This has been further worsened by competition from relatively new service providers. The industry also witnessed consolidation, especially among business-to-business (B2B) players.

Factors affecting the industry

The Indian telecom sector and subscriber base have witnessed tremendous growth over the past decade and shall witness further growth due to a growing subscriber base, mobile applications and technologically advanced end-user devices that will drive exponential growth in Internet usage. These factors are accompanied by the countervailing pressure of price erosion, especially for basic voice and connectivity services. This has been further worsened by competition from relatively new service providers. The industry also witnessed consolidation, especially among business-to-business (B2B) players.

Performance of Operators
Customer service is one of the factors that influences the revenue growth of the telecom industry.

Market Liberalization
Though quite late, India has also taken the privatization path in the telecommunications sector and the market is now mainly dominated by private companies with two state-run operators only.

3 Financial Accounting Telecommunications (Group 5)

Policy and Regulation Issues

A new Telecom Policy in India with the following agenda, aiming to boost transparency and revive growth in the Indian telecom industry has been introduced. The new policy is expected to help the telecom operators serve the customers better.

Develop a robust, secure, state-of-the-art telecom network with special focus on rural / remote. Make India a global hub for telecom equipment manufacture and a centre for converged services. Promote R&D, design in cutting edge ICTE technologies / products/services for meeting domestic/global needs. To attract investment, both domestic and foreign.

Risks & Concerns

Price Reductions: Prices for communication services are expected to go down with increase in competition, augmentation of capacity and introduction of disruptive technologies. Technology Risk: Continuous introduction of new communication services to stay in the competition Operating Risks: Infrastructure is vulnerable to damage, interruptions or failures Changing Economic Conditions: Downturns in the Indian, regional and global economies (especially, forex rate fluctuations) could have a material adverse effect on the companys business prospects.

Future of the industry

Innovation was the key factor for the revenues of the telecom industry in the western countries. Today, however, new wireless applications, low-cost manufacturing innovations, and handset design are some of the areas in which the Asian countries are out-investing the United States and are seen resulting bottom-line impacts to their economies. Technological innovations in 3G mobile technology have already helped in further market penetration and expansion. Also next generation technologies such as LTE (Long Term Evolution), Mobile WiMAX or 4G networks are expected to drive the wireless services in the future. Applications such as IPTV and Mobile TV will be the beneficiaries of such technological innovations. Investments in Broadband by the telecom companies are growing rapidly in India. The Department of Telecom in the Indian government has formulated the Broadband Policy 2004, which envisions the creation of a framework through various access technologies such as optical fiber, digital subscriber lines (DSL) on copper loop, cable television networks, satellite media, terrestrial wireless and future technologies

4 Financial Accounting Telecommunications (Group 5)

Competitive Structure

5 Financial Accounting Telecommunications (Group 5)

2. References
[1]

http://en.wikipedia.org/wiki/Communications_in_India

[2]

http://www.trai.gov.in/WriteReadData/Miscelleneus/Document/201301150318386780062Annual%20Report %20English%202012.pdf
[3]

http://www.bth.se/fou/cuppsats.nsf/all/5bffd72081787744c1257a2c00516208/$file/BTH2012Venkatram.pdf

6 Financial Accounting Telecommunications (Group 5)