S

e
p
t
e
m
b
e
r

2
0
0
5
CRISILs perspective on risk in the
telecommunications industry
Analytical Contact : John Joseph jjoseph@crisil.com
ln |hc |as| ||vc ,cars a|ono w||h rap|d orow|h |hc |c, r|s| |ac|ors |or
|hc p|a,crs |n |hc lnd|an |c|ccouuun|ca||ons |ndus|r, havc |rans|orucd
s|on|||can||, CklSll |c||cvcs |ha| |hc chanocs |n |hc |c|ccou |ndus|r,s
|undaucn|a|s havc |cd |o an |uprovcucn| |n |hc crcd|| r|s| pro|||c o|
|hc |ndus|r, as a who|c !h|s papcr ou|||ncs |hc chanocs |ha| havc
occurrcd and asscsscs |hc|r |upac| on |hc crcd|| pro|||c o| |hc p|a,crs
|n |hc |ndus|r, l| cau|ncs |hc rcou|a|or, and po||c, r|s|s coupc||||vc
prcssurcs and |ssucs rc|a||no |o |nvcs|ucn| prcssurcs and |und|no
rcqu|rcucn|s |accd |, |c|ccou |ndus|r, p|a,crs and conc|udcs |ha|
on |hc who|c |hc crcd|| r|s| pro|||cs o| p|a,crs |n |hc |ndus|r, w|||
con||nuc |o show an |uprov|no |rcnd
Regulatory and policy risks
l|s|or|ca||, rcou|a|or, and po||c, r|s|s havc p|a,cd a cruc|a| ro|c |n
|hc crcd|| r|s| o| |hc p|a,crs |n |hc lnd|an |c|ccou |ndus|r, Scvcra|
insight
S
e
p
t
e
m
b
e
r

2
0
0
5
|ns|anccs dcuons|ra|c |h|s |hc |n|roduc||on o| un||u||cd coupc||||on
|n |hc cc||u|ar and |as|c scrv|ccs |hc opcn|no up o| |n|crna||ona|
|ono d|s|ancc scrv|ccs |wo ,cars car||cr |han cpcc|cd and chanocs
|n |hc /cccss lc||c|| Charoc |/lC and ln|crconncc| lsaoc Charocs
|llC arc cascs |n po|n| ln |hc pas| rcou|a|or, ac||ons a||cc|cd |hc
|ono-|cru pro|||a|||||, o| |hc opcra|ors and rcsu||cd |n a hc|oh|cncd
pcrccp||on o| cvcn| r|s|s !h|s cons|ra|ncd |hc a|||||, o| |hc p|a,crs |o
acccss |hc cap||a| uar|c|s lowcvcr |hc rcou|a|or, sccnar|o |n |hc
coun|r, has chanocd draua||ca||, s|ncc 1999 w||h |hc |n|roduc||on
o| |hc |cw !c|ccou lo||c,
S|ncc |hcn a nuu|cr o| |ssucs havc |ccn rcso|vcd !hcsc |ssucs |nc|udc
sw||ch|no ovcr |o rcvcnuc shar|no s|rcau||n|no o| rcvcnuc shar|no
|n|roduc||on o| |hc |h|rd and |hc |our|h CSV opcra|or rcso|v|no o|
|ssucs rc|a|cd |o ||u||cd uo|||||, and |n|roduc||on o| |hc ln|vcrsa|
/cccss ||ccnsc !hcrc |s |ncrcascd c|ar||, |oda, on |hc d|rcc||on o|
rcou|a||on and po||c, !h|s has |owcrcd |hc r|s| on |hc |ndus|r, as a
who|c lowcvcr |hcrc con||nuc |o |c arcas |ha| s|||| rcua|n unrcso|vcd
!hcsc arc ||s|cd |c|ow
Carrier Access Code (CAC): ln lu|, 2002 |hc !c|ccou kcou|a|or,
/u|hor| |, o| l nd| a |!k/l d| rcc|cd acccss scrv| cc prov| dcrs |o
|up|cucn| Carr|cr Sc|cc||on w||h|n and 18 uon|hs |or doucs||c
and |n|crna||ona| |ono d|s|ancc ca||s rcspcc||vc|, |vcn a||cr |hc
passaoc o| |hrcc ,cars |hcrc has |ccn no |up|cucn|a||on o| C/C ln
|hc ncw sccnar|o howcvcr |hc r|s| o| C/C |o |hc rcvcnucs o| |hc
|n|cora|cd p|a,crs |s u|n|ua| !h|s |s |ccausc |n |hc a|scncc o|
s|anda|onc |a||ona| lono l|s|ancc ||ll p|a,crs |hc |nccn||vc |or
su|scr||crs |o sh||| carr|crs has d|u|n|shcd Souc acccss p|a,crs
a|rcad, havc o||cr|nos w||h no |ono d|s|ancc cos|s |or ca||s w||h|n
ccr|a|n nc|wor|s /| |hc cnd o| 200+-05 |rc|crs |o ||nanc|a| ,car |rou
/pr|| 1 |o Varch 31 |n|cora|cd p|a,crs accoun|cd |or 5 pcr ccn| o|
|hc |o|a| su|scr||crs |||cd and uo|||c Vorcovcr qua|||, o| scrv|cc
|s no| currcn||, a d|||crcn||a|or auono |hc var|ous |ll opcra|ors
lcncc |hc |upac| o| |up|cucn|a||on o| C/C |s nco||o|||c |n |crus
o| |oss o| rcvcnucs a||houoh souc |upac| |s cpcc|cd |n |crus o|
|ncrcascd uar|c||no cos|s as p|a,crs scc| |o u|n|u|sc churn o|
|ra|||c
Number portability: |uu|cr por|a|||||, oncc |n|roduccd wou|d |ncrcasc
|hc rc|cn||on cos| o| su|scr||crs !hc opcra|ors wou|d nccd |o
d|||crcn||a|c |hc|r scrv|cc o||cr|nos |o rc|a|n |hc|r cus|oucr |asc |ur|hcr
qua|||, o| scrv|cc wou|d |ccouc |ncrcas|no|, |upor|an| !hus |hc
opcr a| | no cos| s o| coupan| cs wou| d | ncr casc w| | hou| an,
corrcspond|no |cnc||| |o |hc |op||nc Coupan|cs |ha| arc no| |n a
pos|||on |o o||cr |hc |a|cs| scrv|ccs or uporadc |hc qua|||, o| |hc|r
nc|wor|s ua, cpcr|cncc |ncrcascd nc| churn
!hc a|ovc aspcc|s arc |ac|ors a|rcad, |dcn||||cd |, |hc rcou|a|or
|or |n|roduc||on howcvcr rcou|a|or, r|s| |rou un|orcsccn cvcn|s
con||nucs !hc oovcrnucn| |s wor||no on |hc |cw !c|ccou lo||c,
2005 wh|ch auono o|hcr |h|nos scc|s |o |n|roducc a 0nc lnd|a
Ca| | ka| c | or | oca| and doucs| | c | ono d| s| ancc | r a| | | c !hc
|n|roduc||on o| such a schcuc |n |hc a|scncc o| an |ncrcasc |n
| oca| ca| | r a| cs cou| d havc a dc| r | ucn| a| | upac| on | hc
pro|||a|||||, o| p|a,crs !h|s wou|d |c cspcc|a||, |ruc |or |hc non-
|n|cora|cd s|and-a|onc acccss p|a,crs |ur|hcr |hc oovcrnucn|
a|us |o ach|cvc 250 u||||on su|scr||crs |, 200 |rou |hc currcn|
| cvc| o| 100 u| | | | on su|scr| |crs !h| s ua, d| rcc| | , a||cc| | hc
|or|uncs o| |hc opcra|ors || |hc oovcrnucn| |r|cs |o |orcc down
su|scr|p||on cos|s |o ach|cvc |hc |aroc|cd ro||ou| c||hcr |hrouoh
d|rcc| |ar||| rcou|a||on or |, cu|||no |ar|||s |hrouoh lS|l and
V!|l !hc |uprov|no pro|||a|||||, o| |hc opcra|ors |, a||rac||no
rcou|a|or, scru||n, has hc|oh|cncd |h|s r|s| \||h uorc s|anda|onc
p|a,crs oo|no |or |n|cora|cd nc|wor|s |hc |n|roduc||on o| |hc
ln|vcrsa| l|ccns|no kco|uc w||h a s|cad, rcduc||on |n cn|r, |cc
cou| d | ncrcasc |hc r| s| o| coupc|| || on |or c| s|| no | n|cora|cd
opcra|ors !hc |n|roduc||on o| nc|wor| un|und||no and rcsc||crs
|houoh currcn|| , ru| cd ou| cou| d a| so | ncrcasc |hc | cvc| s o|
coupc||||on ovcr |hc |ono |cru
Competitive pressures
Coupc||||on |n |hc lnd|an |c|ccouuun|ca||ons |ndus|r, |s conccn|ra|cd
|n |hc uo|||c scoucn| whcrc |hcrc arc up |o s| opcra|ors |n souc
c|rc|cs lcsp||c |n|cnsc coupc||||on |hc rap|d orow|h o| |hc uar|c|
has a||owcd |hcsc p|a,crs |o cpand |hc|r su|scr||cr |ascs cvcn as
|hc, |osc uar|c| sharc !h|s has howcvcr couc a| |hc cpcnsc o|
avcraoc rca||sa||ons w||h |hc /klls s|cad||, dcc||n|no |o ks 391 |n
200+-05 |rou ks 1 319 |n 1999-00 !hc opcra||no pro|||a|||||, o|
|hcsc coupan|cs has |uprovcd duc |o |hc |cnc||| o| |ncrcascd sca|cs
and dcc||n|no rcou|a|or, cos|s lowcvcr |hc, s|||| |ra|| |hc h|oh
S
e
p
t
e
m
b
e
r

2
0
0
5
opcra||no uaro|ns o| souc o| |hc opcra|ors |n |hc /s|a lac|||c |||c
Ch|na Vo|||c as |||us|ra|cd |n |hc |a||c |c|ow
International Players Operating Income / Sales
(last 3 years average)
Ch|na Vo|||c |lono Kono l|d 52
Chunowa !c|ccou 553
K! Corp 3+
lCC\-lK! !c|cphonc l|u||cd 553
l! |cc|cou|ndo lra|aua 55
S|noaporc !c|ccouuun|ca||ons +15
!c|c|ou Va|a,s|a lcrhad +35
Indian Players Operating Income / Sales
(2004-05)
lS|l' 509
lhar|| !c|c-\cn|urcs l|u||cd 3+
V!|l 332
* .or 2003-04
Source: Standard & Poors, CRIS IN.AC, CRISIL
!hc pro|||a|||||, o| |hc uo|||c scrv|cc opcra|ors |s cpcc|cd |o |ncrcasc
|ur|hcr dcsp||c a s|cad, dcc||nc |n avcraoc rcvcnucs pcr un|| |/klls and
cpans|on |n|o l and C ca|coor, c|rc|cs as wc|| as rura| arcas !h|s
|uprovcucn| |s cpcc|cd |o |c dr|vcn |, a dcc||nc |n cap||a| cpcnd||urc
|capc pcr su|scr||cr con||nucd |cnc|||s |rou |hc |uprovcd sca|c o|
opcra||ons and an cpcc|cd dcc||nc |n rcou|a|or, charocs lowcvcr
coupc||||vc r|s|s con||nuc w||h pr|cc rcua|n|no a |c, dr|vcr o| su|scr||cr
orow|h Co|no |orward opcra|ors cou|d |und|c handsc|s a|ono w||h a|r||uc
as |s |hc prac||cc |n dcvc|opcd uar|c|s !h|s w||| |ncrcasc |hc crcd|| cposurcs
|or |hcsc coupan|cs !hc succcss o| |hc |und|cd o||cr|no wou|d dcpcnd on
|hc|r a|||||, |o |cvcraoc |hc sca|c |n procurcucn| wh||c ua|n|a|n|no adcqua|c
con|ro|s |o u|n|u|sc crcd|| |oss
|ur|hcr conso||da||on |s cpcc|cd p|a,crs w||h ||nanc|a| s|rcno|h w|||
|r, |o ach|cvc cconou|cs o| sca|c |hrouoh |hc |noroan|c rou|c Currcn||,
|hcrc arc c|cvcn uo|||c opcra|ors Conso||da||on |s cpcc|cd |o rcducc
|h|s nuu|cr |o around ||vc p|a,crs w||h poc|c|s dccp cnouoh |o sus|a|n
|n|cora|cd nc|wor|s and opcra||ons Coupc||||vc prcssurcs wou|d s||||
rcua|n h|oh s|ncc |hc nuu|cr o| opcra|ors pcr c|rc|c wou|d rcua|n
h|ohcr |han |ha| |n |hc o|hcr coun|r|cs |n |hc /s|a lac|||c rco|on
|ur|hcr wh||c |hc ||na| |ll ou|dc||ncs havc no| |ccn |ssucd cn|r, o|
s|rono |n|crna||ona| |c|ccou p|a,crs w||h dccp poc|c|s cou|d |ncrcasc
|hc coupc||||vc prcssurcs |n |hc |oca| uar|c|
Investment pressures and funding requirements
CklS l||/C has cs||ua|cd |ha| |hc |c|ccou scrv|ccs |ndus|r, w||| rcqu|rc
|nvcs|ucn|s o| a|ou| ks 1000 |||||on ovcr |hc nc| ||vc ,cars |o
ach|cvc a |o|a| su|scr||cr |asc o| 283 u||||on conncc||ons |, 2010
0| |h|s around ks 00-50 |||||on |s cpcc|cd |o |c |n uo|||c scrv|ccs
ks 150-15 |||||on |n ||cd w|rc|css ks 0-0 |||||on |n w|rc||nc and
|hc rcua|n|no |n o|hcr scrv|ccs C|vcn |hc |uprov|no pro|||a|||||, o|
|hc |ndus|r, a s|on|||can| propor||on o| |hc a|ovc |s cpcc|cd |o |c
ocncra|cd |hrouoh |n|crna| accrua|s \||h |ncrcascd conso||da||on
and h|ohcr v|s||||||, o| |hc scc|or |hc opcra|ors a|||||, |o |ap |hc
doucs||c and |n|crna||ona| cap||a| uar|c|s has |uprovcd cons|dcra||,
!hc p|a,crs havc a|so dcuons|ra|cd |hc|r a|||||, |o |ap vcndors |or
cap||a| |hrouoh s|ruc|urcs |ha| ||n| rcpa,ucn| |o |hc ro||ou| o| |hc
nc|wor| 0pcra|ors arc |ncrcas|no|, |oo||no a| |app|no |hc cqu||,
uar|c|s wh|ch wou|d |ncrcasc |hc|r ||nanc|a| ||c||||||, as wc|| as
rcducc |hc ||cd c|cucn| o| cap||a| scrv|c|no
!houoh |hc |nvcs|ucn| c||ua|c has |uprovcd s|on|||can||, |hc
opcra|ors orow|h p|ans arc cpcc|cd |o rcsu|| |n ncoa||vc |rcc cash
||ows ovcr |hc shor| |o ucd|uu |cru lcncc |n a sccnar|o o|
couu|||cd capc and |owcr |han cpcc|cd dcuand dcc||n|no /klls
and ||cd cap||a| charocs cou|d |upa|r |hc ||nanc|a| hca||h o| |hc
opcra|ors !h|s r|s| |s u|||oa|cd |o souc c|cn| |, |hc |uprov|no
cash accrua|s o| |hc p|a,crs |cnd|no cou|or| aoa|ns| |ncrcas|no
dc|| |cvc|s
!hc |aunch o| 3C scrv|ccs w||| rcqu|rc |aroc cpcnd||urcs !hc
ava||a|||||, and pr|c|no o| spcc|ruu |or 3C scrv|ccs arc ,c| unccr|a|n
and havc a d|rcc| |upac| on |hc |u|urc pro|||a|||||, o| |hcsc p|a,crs
!hc rcou|a|or has suoocs|cd an cn|r, |cc wa|vcr |o rcducc |hc cos| o|
scrv|cc \h||c onc o| |hc opcra|ors has suoocs|cd an cn|r, |cc |hc
V|n|s|r, o| ||nancc has suoocs|cd an auc||on rou|c /n, |cc s|ruc|urc
|ha| |up||cs a |aroc ||cd c|cucn| cou|d havc a s|on|||can| |upac| on
|hc crcd|| pro|||c o| |hc coupan|cs C|vcn |hc nccd |o prov|dc
d|||crcn||a|cd scrv|cc o||cr|nos |n an auc||on sccnar|o uo|||c opcra|ors
ua, ||d h|oh |o o||a|n 3C spcc|ruu and rcua|n coupc||||vc !h|s
cou|d havc a scvcrc |upac| on |hc|r crcd|| pro|||cs as |hc |uropcan
S
e
p
t
e
m
b
e
r

2
0
0
5
cpcr|cncc shows |ur|hcr |n |hc cvcn| o| s|ow o||-|a|c o| scrv|ccs |hc
opcra|or wou|d no| |c a||c |o rccovcr |hc ||cd cos|s |rou |hc pr|cc-
scns|||vc consuucrs /dd|||ona||, ro|||no ou| |hc 3C nc|wor| wou|d
a|so |nvo|vc s|on|||can| capc lowcvcr p|a,crs arc cpcc|cd |o ccrc|sc
d|scrc||on and undcr|a|c |ncrcucn|a| ro||ou| |o scrv|cc arcas |ha|
havc |hc rcqu|s||c dcuand and a||orda|||||,
Souc |n|cora|cd opcra|ors arc con|cup|a||no ro|||no ou| w|rc||nc-|ascd
|road|and scrv|ccs |n |hc|r rcspcc||vc c|rc|cs !o |ncrcasc |hc uass
appca| and ua|c |hc produc| succcss|u| |hc p|a,crs wou|d havc |o
|owcr |hc conncc||on cos|s |o |hc consuucr |hcrc|, c|cnd|no |hc
pa,|ac| pcr|od !houoh |hc |cnc||| o| sca|c cconou|cs wou|d con||nuc
|o app|, coupc||||on |rou |hc c|s||no |ncuu|cn| p|a,crs |hrouoh
lSl as wc|| as |rou |hc uo|||c opcra|ors |hrouoh 3C cou|d |cad |o
|owcr |han an||c|pa|cd rc|urns !hc r|s| |s coupoundcd |, |hc
rcqu|rcucn| |o ro||ou| capac|||cs |n an||c|pa||on o| w|rc||nc dcuand
Conclusion
!houoh |hc r|s|s |n |hc |c|ccouuun|ca||ons |ndus|r, rcua|n |hc,
havc rcduccd cons|dcra||, |rou car||cr |cvc|s lncrcascd c|ar||, on |hc
rcou|a|or, and coupc||||on |ron|s has cna||cd |hc opcra|ors |o p|an
|hc|r ro||ou|s uorc prudcn||, /dd|||ona||, |hc |uprov|no ||nanc|a|
hca||h o| |hc p|a,crs has a|so u|||oa|cd |hc |upac| o| rcs|dua| r|s|s
!hc a|||||, o| |hc p|a,crs |o acccss |hc ||nanc|a| uar|c|s |o |und |hc|r
|nvcs|ucn| rcqu|rcucn|s a| coupc||||vc ra|cs has a|so |uprovcd
s|on|||can||, lcncc o|vcn |hc prcscn| con||oura||on o| r|s| dr|vcrs
CklSll cpcc|s |hc lnd|an |c|ccouuun|ca||ons |ndus|r, as a who|c |o
con||nuc |o show an |uprov|no crcd|| pro|||c