INDIAN TELECOM SECTOR

AN INDUSTRY ANALYSIS.

Tanmay Jauhary

TELECOM SECTOR- INTRODUCTION Most vibrant sector with highest growth

rate – more than 60 lakh customers are added every month

Plethora of services Easier access/ availability Drastic reduction in tariff World class service

Major classes of Services

• Fixed Copper, Optical Fibre, Wireless

• Mobile GSM and CDMA based

• Narrow band Voice, Internet, Fax

• Broad band High speed Internet, Video

MOBILE TARIFFS IN INDIA ONE OF THE LOWEST

0.230.22

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0.170.16

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KEY POLICY INITIATIVES/MILESTONES

New Economic Policy (1991) Opening up of Telecom service sector

(Mobile –metros)National Telecom Policy 1994

Telecom, key for development Inadequacy of public resource to meet

demand Private sector to supplement Govt. Provide world class telecom service at

affordable cost

TECHNOLOGY TREND

Optical fiber based wireline networks

Wireless networks GSM,CDMA based mobile

Next Generation Networks: Voice , Data, Video convergence

Telecom networks increasingly software intensive

Issues to be addressed in the Indian Scenario

Unique Rural Scenario : low teledensity

Need for Spectrum re-farming & re-allocation

Lack of Content in Local Languages

Network Security

Mobile. 2699.270 M Fixed.1229.987 M Total. 3929.257 M Population 6563.69 M Teledensity. 60.02

220.743

837.195

1744.815

1090.504

35.997

Tel ephone connect ions in mil l ions-2008

Africa

America

Asia

Europe

Oceania

MARKET STRUCTURE Divided into 23 circles

4 metros 19 circles

Further divided into A, B and C category.

Division based on economic parameters and revenue potential

Each circle has a licenses, which are a saleable.

North Eastern States

METRO Circles

Gujarat

Rajasthan

MaharashtraOrissa

Andhra Pradesh

Karnataka

Tamil Nadu

Kerala

Madhya Pradesh

Uttar Pradesh E

Bihar

West Bengal

Punjab

Himachal Pradesh

Haryana

Jammu & Kashmir

Uttar Pradesh

W

CHENNAI

MUMBAI

DELHI

KOLKATA

C Circles

B Circles

A Circles

Source :COAI

CURRENT INDUSTRY STRUCTURE

FDI in telecom recently revised to 74%.

Government gets 15% of revenues from Unified Licensing

Ministry of Communication & Information Technology

Regulator

Licensor

Judiciary

Telecom Regulatory Authority of India

Telecom Dispute Settlement Appellate

Tribunal

Dept of Telecom Unified License Operators

Fixed Line Operators

GSM

900 &

1800

Wireless Operators

National Long Distance Operators

International Long Distance Operators

CDMA

1800Mhz

TELECOM REGULATORY AUTHORITY OF INDIA

•Setup in 1997•Protection of Consumer Interest•Nurture Conditions for Growth of Telecom in India•Major Activities

Reduced levies on Operators.Reduced upper limit in tariff (Local, STD &

ISD) and other Inter-operators tariffs.Directives on number of network access

service providers.Policy guidelines on new services like 3G,

Wi-MAX, Internet Telephony, Radio Paging, VSAT, etc.

Regular monitoring of Quality of Service parameters

MAJOR PLAYERS OF INDIAN TELECOM INDUSTRY The Top five companies, on the basis of ‘Market

Share’ as on 31st January, 2009 are:1. Bharti Airtel Ltd.2. Reliance Communications Ltd.3. Vodafone Essar Ltd.4. BSNL5. Idea Cellular + Spice

•Bottom five companies, on the basis of ‘Market Share’ as on 31st January, 2009 are:1. Aircel Cellular Ltd. + Dishnet2. Mahanagar Telephone Nigam Ltd. (MTNL)3. BPL Mobile Communications Ltd.4. HFCL Infotel Ltd.5. Shyam Telecom Ltd.

MARKET SHARE OF TELECOM COMPANIES AS ON JANUARY, 2009

PORTER FIVE FORCES MODEL

THREAT OF SUBSTITUTES- LOW

Some Substitutes:

VOIP (Skype, Messenger etc.)

Online Chat

Email

Satellite phones

None of the above a major threat in current scenario,

but a potential threat for near future.

THREAT OF NEW ENTRANTS- LOW

Declining Average Revenue Per User.

Infrastructure tenancy costs.

Brand pull exists to some extent for brands

like Airtel / Idea/ Vodafone.

Extremely high infrastructure setup costs

Spectrum License cost- Lotteries, auctions.

Incumbent Advantages: Established brand

image, Reliability of network

POWER OF SUPPLIER- LOW

Large number of suppliers.

Shared tower infrastructure.

Limited pool of skilled managers and engineers

especially those well versed in the latest

technologies.

Medium cost of switching since changing their

hardware would lead to additional cost in modifying

the architecture.

Overall influence on the industry - medium

BARGAINING POWER OF CUSTOMER- HIGH

Lack of differentiation among the service

provider

Cut throat competition

Customer is price sensitive

Low switching costs

Number portability to have negative impact

RIVALRY AMONG COMPETITORS- HIGH

High Exit Barriers

High Fixed Cost

6-7 players in each region

3 out of 4 BIG, present in each region

Very less time to gain advantage by an

innovation (Eg. Caller tunes, life time card)

Price wars

BHARTI AIRTEL- THE MARKET LEADER

Largest Telecom Player in India - ~80Mn, 22.6%

Strategic Alliance with other stakeholders in Bharti Airtel include Sony-Ericsson, Nokia - and Sing Tel

Pan India Presence Strong Financials

Outsourcing of Core Systems

Lack of emerging market investment opportunity

STRENGTHS WEAKNESS

SWOT

SWOT

• Bharti Infratel – Cutting Down cost in Rural area

• Match Box Strategy – Scale of Penetration

• Current Tele-Density – 30.6 is still low among developing countries

• Low Broadband Penetration, Rural Telephony

India centric – Major revenues from India

Falling ARPU Intense Competition

& Shortage of Bandwidth

OPPORTUNITIES THREATS

AIRTEL – STRATEGYMANTRA : Focus on Core Competencies and

Outsource the rest!

STRATEGY• Airtel partnered with leading players in

telecommunication players across the globe.• It has managed to work with the best of

domain specialists globally and emerge as a world class entity.

• Partnerships include operational contracts with vendors and strategic investors ranging from private equity investors to global telecom giants.

STRATEGIC PARTNERSHIPS/ SHAREHOLDERS – TECHNOLOGY AND CAPITAL Warburg Pincus – a celebrated PE investor

held a stake for a substantial period of time and was instrumental in providing Airtel support in its early stages.

Vodafone was a strategic investor in Airtel. Temasek – the Singapore based investor

holds a considerable stake in it. Was also affiliated with Singapore Telecom.

OUTSOURCING DEALS IN 2004 Ericsson was given the mandate to provide,

manage and maintain the equipment as well as provide quality assurance in Airtel

IBM was given the mandate to handle the back office requirements of Airtel’s presence in India

OPERATIONAL STRATEGIES.• Higher emphasis on ARPU/min – stark

contrast with other operators who concentrate on ARPU only.

• Aim to become a one stop shop for all telecommunication services under the Bharti umbrella.

• Exploring opportunities in international markets.

• Hived off tower infrastructure into a separate entity.