Telecom Industry

Introduction to Indian Telecom Industry
• • • • • • • • • • • The Indian Telecom sector is third largest network in the world. The stated subscriber numbers already crossed 600 million as against the projected 500 million. Average growth rate of over 40% in respect of subscribers. Monthly additions of above 20.31 million phones. National tele density of 52.7%. The present growth rate for the telecom industry is pegged at 14%. The subscriber base registered a CAGR of 40.4 percent for 2002–03 to 2007– 08. Growth impetus from wireless segment with 84% wireless and 16% wired. Further access was provided by 54 lakh PCOs and 5 lakh VPTs in 2007. 9 million Internet and 2.5 million broadband subscribers (figures reported in 2007). More than a thousand cities have been provided with broadband connectivity out a total of five thousand cities

A Lucrative Option: In recent years, the Indian telecom industry has witnessed phenomenal growth. A conductive business environment, favourable demographic outlook and the political stability enjoyed by the country have contributed to the growth of the industry. India achieved the distinction of having the world's lowest call rates (2–3 US cents), the fastest sale of million mobile phones (1 week), the world's cheapest mobile handset (USD 19) and the world's most affordable colour phone (USD 31). Market Structure for Wireless Service (GSM): • Divided into 23 circles – 4 metros – 19 circles Further divided into A, B and C category based on economic parameters and revenue potential. Each circle has a licenses – Four operators per circle are allowed – Licenses are saleable

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GSM and CDMA market share

the minutes of usage is on a rise. USA 838 India China 461 303 Russia 88 India has the second highest minutes of usage per month. This offers huge growth opportunity to telecom companies. ARPU* in India – Mobile Services: .CDMA. with a monthly addition of more than 6 million wireless subscribers. Despite the decreasing ARPU*. which provides impetus to the mobile services growth in India. about 12 players are active in this segment. 27% GSM. Currently. The total number of wireless subscribers escalated to 261. 73% Mobile telecom services provide an unprecedented growth opportunity for companies: Mobile services have led to a spectacular growth in the Indian telecom industry.07 million at the end of March 2008.

enhancing affordability. Broadband services to drive Internet penetration in India: The emergence of private players and new technologies has provided a strong impetus to the growth of Internet and broadband services. about 6–7 million new users added per month in 2007 and 20.  On an average. BSNL and MTNL cater to more than two-thirds of Internet subscribers in India. is tapping a large market at the bottom of the pyramid by reducing tariffs.31 million currently.  The telecom market will experience high penetration of Internet services with the support from government policies and introduction of novel technologies in India. The quality and penetration of these services have undergone changes.82 million by adding 0.The declining ARPU implies that India Inc. The Internet subscriber base registered a CAGR of 60 percent for the period 1997–98 to 2007–08. 2008.  The large untapped potential in India’s rural markets–12 percent tele density in rural markets as compared to the national level of 52.  Liberal Foreign Investment Regime–FDI limit increased from 49 percent to 74 percent.72 million (23.  The total no.6 percent. second largest among the emerging economies after China. the rural telecom equipment market is also open to large investments. of Broadband Subscribers of these 13 Service Providers have increased from 3.35%) subscribers in the quarter ending March.     .1 million to 3. thereby. making India the world’s fastest growing wireless services market. India: An Ideal Destination for Investments in Telecom Sector: World’s largest democracy Independent judiciary Skilled and competitive labour force Third largest telecom network in the world.  Private players are catching up fast due to increased penetration of Internet and broadband services in India. with significant improvement in the telecom infrastructure.

The establishment of the Unified Access Licensing Regime (2003) eliminated the need for different licenses for different services. Initially. Emerging Trends in Telecom Market:  Major trends in the telecom sector is increasing M&A activity. This does not take into account national and international long-distance services and Internet access services. especially because rental for fixed-line services is low. Later. It helped in aligning convergent technologies and services. All telecom operators are bound to contribute 5 percent of their revenues to this fund. its scope was expanded to include mobile services also. In a move to bring down telecom tariffs drastically. This subsidises the infrastructure costs of the service provider enabling access at receiver’s end. The government promoting telecom manufacturing by providing tax sops and establishing telecom specific Special Economic Zones Important regulations and their impact on the Indian telecom industry: Unified Access Service License Regime (UASL): Unified licensing marked the end of the license regime in the Indian telecom industry. USO helps in building the telecommunication infrastructure in the rural areas. bringing it down from the current 31 percent. only basic service providers were under the purview of USO. Although it increases the cost burden for the telecom companies. This system was put in place to bridge the wide gap between urban and rural teledensity. Players are now allowed to offer both mobile and fixed-line services under a single license after paying an additional entry fee. Universal Service Obligation (USO): The USO policy was laid along with NTP ’99 to widen the reach of telephony services in rural India. Revision in the ADC regime is expected to be followed by further tariff reduction in telecom services. o Reliance Communications Limited has sold a five percent equity share capital of its subsidiary Reliance Telecom .08 billion. TRAI has phased out access deficit charges from this year. de-regulation of telecom policies and growing interest of international investors: • Recent Deals in Telecom Sector: o Vodafone purchased stake in Hutch from Hong Kong's Hutchison Telecom International for USD 11. Access Deficit Charges (ADC): ADC makes it mandatory for a service provider at the caller’s end to share a percent of the revenue earned with the service provider at the receiver’s end in long-distance telephony.

5 million. in the telecommunication sector amounted to USD 3. It is the third largest sector to attract FDI in India in the postliberalisation era. Europe and Asia. during the August 1991 to March 2007 period. o Airtel’s merger with Zain telecom to enter the African market and capture is 42 million customers for USD 10. o Telekom Malaysia acquired a 49 percent stake in Spice Communications for USD 179 million. • SWOT Analysis: Strengths • Huge wireless subscriber potential • Fastest growing mobile market in the world • Consumers are ready to pay for cutting edge services • Government proposes to hike FDI limit in Telecom to 74% • Unified license regime Weaknesses • Lowest call tariffs in the world • Market strongly regulated by Govrenment body – Governing both ISP and Telecom sectors • Too many authorities ruling the sector • Huge potential for low end and cheap handsets • Wide scale Consumer churn in Telecom and ISP • Wide spread VAS deployment is restricted due to language and literacy problems • Primarily a voice based market . the cumulative FDI inflow.7 billion. o Maxis Communications acquired a 74 percent stake in Aircel for USD 1.Infrastructure Limited to international investors across the US.  The Indian telecom industry has a 74 percent FDI limit in the telecom services segment. The deal was worth USD 337. In fact.892 million. The Indian telecom industry has always attracted foreign investors. • • The GoI has permitted 100 percent FDI in manufacturing of telecom equipment in India.08 billion.

Enterprise Telecom Services includes key services. value-added services and enterprise services. WiMAX is expected to accelerate economic growth and assist in providing better education. especially wireless services. it will lead to the increased use of telecom services. In such cases. CDMA and IP • Language independent services • Mobile Marketing concepts • Content influenced by local culture and Global success stories • M-Commerce • Unified messaging platforms • Foreign investment in form of equity or technology Threats • Low cost service providers – no possibility of breaking even in short term • Weak IPR protection • Software and digital content Piracy • Political instability • Regulatory interference Opportunities of Indian Telecom: • To reduce their network deployment costs. Internet. Thus. On account of the rapidly growing subscriber base. however. etc. Competition is likely to heat up in the VPN segment as DoT has relaxed the norms for private players. many service providers are considering infrastructure sharing offers the following advantages:  Improved service quality  Increased affordability for customers  Faster roll out of services in rural and remote areas  Significant reduction in initial set up costs  Increased environmental aesthetics  Lower operating costs for service providers Virtual Private Network is a private data network that provides connectivity within closed user groups via public telecommunication infrastructure. service providers find it difficult to manage their infrastructure and network management operations. dedicated telecom communication systems. Since this mode of communication provides network access in inaccessible locations at a speed of more than 4 Mbps. The VAS industry is currently focussing on the entertainment sector. Managed services is another segment that is attracting telecom companies. WiMAX has been one of the most significant developments in wireless communication in the recent past. there is scope for growth in other avenues as utility-based services. they completely or partially outsource their infrastructure or network management operations. such as location information and mobile transactions. • • • • • . IT infrastructure enabled unified communication services. such as the Indian film industry and cricket.Opportunities • To offer value added services on GSM. it is expected to be a major factor in driving telecom services in India. such as voice over Internet protocol (VoIP). Telecom service providers are increasingly targeting enterprises by providing dedicated services and is expected to witness major developments in near future. healthcare and entertainment services.

Internet services and other value-added services. By Ambika Khanna Arjun Trehan Arpita Gupta Chitra Chakrobarty Divjot Singh Mahendra Rathi Nitesh Saboo Nilanjan Maitra Nishant Rana Ramesh Ramanathan Rahul Dwivedi Ravish Tandon Nishita Saxena Shikha Gupta Sumit Chandoke . equipment. thereby. offering great market opportunities for telecom players. This segment will boost the demand for telecom services.• Rural telephony will require major investments.

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