final telecom industry

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Introduction

Alliance Business School 2009-10 Page 1


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1.1 HISTORY OF TELECOMMUNICATION

INDUSTRY

Telecommunication is a term coming from Greek and meaning

communication at distance through signals of varied nature coming from

a transmitter to a receiver. In order to achieve effective communication,

the choice of a proper mean of transport for the signal has played (and

still plays) a fundamental role.

The history of telecommunication industry started with the first public

demonstration of Morses electric telegraph, Baltimore to Washington in

1844. In 1876 Alexander Graham Bell filed his patent application and the

first telephone patent was issued to him on 7th ofMarch.

In 1913 Kingsbury commitment telegraph was popular way of

communication. AT&T commits to dispose its telegraph stocks and agreed

to provide long distance connection to independence telephone system as

approved by the Interstate Commerce Commission.

In 1956 Final Judgment, the final judgment limited the Bell System to

Common Carrier Communications and Government projects butpreserving the long-standing relationships between the manufacturing,

researches and operating arms of the Bell System. In this judgment AT&T

retained bell laboratories and Western Electric Company. This final

judgment brought to a close the justice departments seven year-old

antitrust suit against AT&T and Western Electric which sought separation

of the Bell Systems Manufacturing from its operating and research

functions. AT&T was still controlling the telecommunication industry.

In 1982 Modified final judgement (MFJ) , AT&T was requested todivestiture its stock ownership in Western Electric; termination of

exclusive relationship between AT&T and Western Electric; divestiture by

Western Electric of its fifty percent interest in Bell Telephone Laboratories,

AT&T s telecommunication research and development facility, is a jointly

owned subsidiary in which AT&T and Western Electric each own 50% of

the stock; separation of telephone manufacturing from provision of

telephone service and the compulsory licensing of patents owned by

AT&T on a non-discriminatory basis.



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It was telecommunication act of 1996 that true competition was allowed.

The act of 1996 opened the market to all competitors. AT&T being the first

telecommunication company paved the road for the telecommunication

industry as well as set the policy and standards for others to follow. AT&T

would be the nation's largest provider of long-distance telephone serviceand cable TV.

1.2 HISTORY OF INDIAN TELECOMMUNICATIONS

YEAR

1851

First operational land lines were laid by the government near Calcutta

(seat

of British power)

1881 Telephone service introduced in India

1883

Merger with the postal

system

1923

Formation of Indian Radio Telegraph Company

(IRT)

1932

Merger of ETC and IRT into the Indian Radio and Cable

Communication

Company (IRCC)

1947

Nationalization of all foreign telecommunication companies

to form thePosts, Telephone and Telegraph (PTT), a

monopoly run by thegovernment's Ministry of

Communications

1980

Private sector was allowed in telecommunication equipment

manufacturing

1986 Conversion of DOT into two wholly government-ownedcompanies: theVidesh Sanchar Nigam Limited (VSNL) for international

telecommunicationsand Mahanagar Telephone Nigam Limited (MTNL) for service in

metropolitan areas.

1990

Telecom revolution in many other countries which resulted in better

quality of

services and lower tariffs and finally resulting in opening for the private

sectorservices and lower tariffs and finally resulting in opening for the

private sector1997 Telecom Regulatory Authority of India created.



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1999

Cellular Services are launched in India. New National

Telecom Policy isadopted

.

2000

DoT becomes a corporation,

BSNL2004 Broad Band policy

2006&2007 Years of dynamic growth for telecom

sector

Table 1.1: History of the Indian Telecom Industry

The telecom industry is one of the fastest growing industries in India. With

a growth rate of

45%, Indian telecom industry has the highest growth rate in the world.

The improvement in the standard of living and the development of

infrastructure and connectivity are some of the mains reasons for the

significant growth of the telecom industry. The Indian Telecommunications

network with 200 million connections is the fifth largest in the world and

the second largest among the emerging economies of Asia. Today, it is

the fastest growing market in the world and represents unique

opportunities for U.S. companies in the stagnant global scenario. The total

subscriber base is increasing day by day. The wireless technologies

currently in use are Global System for Mobile Communications (GSM) and

Code Division Multiple Access (CDMA).

1.3 OBJECTIVES OF THE STUDY

The main objectives of the research are:

To study the history and evolution of Telecom industry in India To analyze the current Indian Telecom Industry To study the policies and regulations and their impact on Indian

Telecom industry

To perform comparative industry analysis for large Indian Telecomcompanies on the basis of profitability and market share

To analyze the Global Telecom Industry To evaluate the future prospects of the Indian Telecom Industry

1.4 METHODOLOGY

The proposed methodology for the study of Telecom Industry is asfollows:

Data collection methods: The data that would be used inthe analysis will be only secondary data because of time and



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resource constraints. Data sources like journals, newspapers &magazines, conference papers, industry reports, electronicdatabases and internet will be used.

Analysis of data and Interpretation of findings: Bothquantitative and qualitative methods will be used-

i) Quantitative analysis of the data will be done bysummarizing the data using graphs, charts, tables andpercentages.

Techniques: To analyze the quantitative data, tool usedwould be :

RATIO Analysis: The key ratios of major large telecomcompanies would be used for the analysis.

TIME Series: The trends in the Telecom Industry would be

examined by studying the growth in the Indian Telecom industry.The comparative analysis of the major large telecom industrieswould be analyzed by studying their sales pattern andsubscribers.

i) Qualitative analysis of the data will be done by studyingthe industry, the factors affecting it, the competitiveness ofthe industry and the trends in the industry.

Techniques: To analyze the qualitative data, techniques

used are:

SWOT Analysis: Analysis of the strengths and weaknesses ofthe major large telecom companies in India would be examinedand the opportunities and threats posed to them.

PEST Analysis: The political, economic, social, technological

environment of the Indian Telecom Industry would be studiedand how these affect the companies in the industry.

PORTERs Five Force Analysis: This framework would enableto analyze the competitive intensity and attractiveness of the

Indian Telecom Industry. It will examine the micro-environmentof the major large telecom companies and how it affects thecompanies to serve their customers and make a profit.

1.5 SOURCES OF DATA

Database is a collection of data. It enables us to access the necessaryinformation required to examine and study a particular industry.



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Data has been collected from government and regulatory websites andfrom the websites of private and research companies and also fromjournals and magazines.



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Literature Review



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Literature Review

I. Kewalramani (February 2009), in his article Telecom Sector :Why the Phone Will Keep Ringing ? believes that the Telecom sector has great times

ahead mainly due to the new recommendations from Telecom Regulatory Authority

Of India, the trend and disruptive technologies that have begun to surface in

the telecom sector. Describes in brief about the Indian telecom scene and

also discusses how Indian telecom is positioning themselves well for

changing trends. Discusses how the arrival of 3G and broadband wireless

access (BWA) is expected to ring in revolution in the broadband accessspace. Also mentions the new technologies and services like Wi-Fi and Wi-

Max, Mobile phone advertising, Tracking Stock quotes and mutual

fund portfolios on mobile phones, Mobile messaging, Mobile/cell

phone gaming and 4G technology making its appearance on the scene

to be of benefit to the telecom industry. He also emphasises on tapping

the rural growth market as it is an important growth driver.

II. TRAI (June 2007), in its study paper on Financial Analysis ofTelecom Industry of China and India has done a comparative analysis on

the status of telecom service sector of India and China. The comparison of

performance indicators between two fastest growing telecom markets

help to draw strategies for new investment and expansion of telecom

networks, tariff and pricing of retail etc. The report starts with the

overview of the Chinese telecom industry and compares both the Indian

and Chinese Telecom Industry on factors such as Subscriber base, Average

Revenue Per User (ARPU), MOU, EBITDA, Capital Expenditure, Corporate

and Turn Over Tax, Employment etc and also summarized the importantperformance indicators of Indian and Chinese telecom sector.

III.TRAI (2006), in the Consultation Paper Issues Pertaining to NextGeneration Networks speaks about the benefits of using Next Generation

Networks (NGN) and the drivers behind migration from the current

networks to the NGN. It analyses the benefits of migrating to NGN, and

also about technical issues and complications which might arise while

trying to implement the NGNs and while migrating existing systems to thenew format. It educates the reader regarding how the advancements in



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Telecommunications are forcing the unification of networks & services.

This is setting up a stage for multiple access networks to interact with one

single core network which will be IP based. This is the future of all

telecommunication and in all practicality must be implemented at the

earliest, since this promises a number of significant benefits andopportunities for both the telecom service providers as well as the end-

users in terms of better service at lower rates.

Issues Pertaining to Next Generation Networks; TRAI (2006)

IV. TRAI (2010), in their Press Release Signing of Memorandum

between TRAI and Ministry of Internal Affairs and

Communications, Japan speaks about the Memorandum which has

been signed between the Telecom Regulatory Authority of India (TRAI)and the Ministry of Internal Affairs and Communications, Japan (MIC) on 6th

January, 2010. It goes on to say how the Memorandum will allow for

mutual sharing of information on best practices between TRAI and MIC.

MIC is the regulatory authority of the telecom sector in Japan, thus making

it a counterpart of the TRAI. The memorandum which has been signed

intends to improve cooperation in the fields of Technological

Developments and New Technologies, Regulatory Policies, Convergence of

Telecom and Broadcasting, Spectrum Issues, Green Telecom, Telecom for

development Strategy, and any other issues which may be mutually

agreed upon. This is an important development for the Telecom Sector in

India, and could mark the introduction of several new technologies and

processes which could improve the performance of the entire sector on a

whole.

Signing of Memorandum between TRAI and Ministry of Internal Affairs

and Communications, Japan, Press Release No. 01/ 2010, 6th January,

TRAI (2010)

V. Mani(2006), The growth performance of Indias

telecommunications services industry, 1991-2006. Can it lead to

the emergence of a domestic manufacturing hub? Speaks about the

potential India has in manufacturing the products pertaining to the

telecom industry. One of the facets of the telecom revolution has been the

phenomenal increase in the number of telephones in the country. This in

turn has a number of effects and one of more important effects is its

potential to create a major manufacturing hub in the country for the

manufacture of telecom equipments and indeed for downstream

industries such as semiconductor devices that are required for the

manufacture of these equipments. The telecom industry in India is thus



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slowly emerging as a fine example of the service sector acting as a fillip to

the growth of the manufacturing sector.

VI. Vrmani (2000) estimates the contribution of telecommunication (or

telecom) services to aggregate economic growth in India. Estimated

contribution is distinguished between public and private sectors to

highlight the impact of telecom privatization on economic growth.

Knowledge of policy determinants of demand of telecom services is shown

to be essential to enhance growth contribution of telecom services. Using

a recent sample survey data from Karnataka State in South India, price

and income determinants of demand for telecom services are estimated

by capacity of telephone exchanges Estimation results offer evidence for

significant negative own price elasticity and positive income elasticity of

demand for telecom services.

VII. Narinder (2004), in his article Enhancing Developmental

Opportunities by Promoting ICT Use: Vision for Rural India talks about the

foremost benefits of Information and Communication Technologies (ICTs)

in developing countries that can be helpful in improving governance

including public safety and eradication of illiteracy. The benefits of ICTs

have not reached the masses in India due to lack of ICT infrastructure,

particularly in rural areas, where two-third of the population of the country

lives. Even in cities and suburban areas, use of ICTs is not popular due to

lack of awareness to its use, computer illiteracy, and absence of practical

applications. India is the largest country in South Asia, with a population of

over one billion people and its telecom sector is presently experiencing

fast growth phases. However telephony penetration in villages is less than

two percent of the rural population and about 15 percent of the villages

are still without any telephony service. Universal access to ICTs in rural

areas has been planned and is being implemented through Public Tele

Info Centers having voice data and video, as majority of villagers in India

cannot afford a separate home connection. Illiteracy in rural areas is as

high as 40 percent and in some tribal belts hardly about 20 percent

people are literate. There are 35 million children in age group of 611

years, who are out of school and one out of four drops out during primary

classes. Education and training, therefore, must be given the top priority if

advantages of ICTs are to be harnessed. Indian economy is agriculture

based and employs maximum workforce. Improvement in agriculture

productivity can help in reducing rural poverty. Adoption of ICT in

agriculture will play an increasingly important role in crop production and

natural resource management. The other critical factor is technological

challenges for universal access to ICTs to bring down the network access

cost.

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VIII. Singh (2005), in his article The role of technology in the

emergence of the information society in India describes the role that

information and communication technologies are playing for Indian

society to educate them formally or informally which is ultimately helping

India to emerge as an information society. Though India has a hugepopulation, the illiteracy rate is also huge in this country. The paper has

taken an approach to find the historical situation and present the

prevailing scenario as well as the change that are taking place with the

application of ICT to the advantage of the society in different areas

including daily life. India is making all out efforts to be counted among the

developed nations of the world. The article also describes the

considerable attention India is taking for application of technology,

development of infrastructure and human resource for meeting national

needs. Basically India is building an information society. Technology has

helped society to cut across the traditional boundaries for getting

converted into an emerging information society. The study concludes that

The Indian software and services industry has significantly helped to boost

the Indian economy. In IT-enabled services too, India has been clearly

perceived to be the dominant hub. The Indian software sector is being

recognized as the single largest contributor to incremental market

capitalization in India but the sector is still small in terms of contribution

to GDP, especially when compared to other large sectors in the economy

like agriculture and manufacturing. Similarly, the telecommunication

sector has contributed a lot but still has a considerable way to go. The

paper also enforces that comparisons of Indias telecommunication

statistics with those of developed and other emerging economies show

that the country is still far behind its contemporaries.



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Global Scenario



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GLOBAL SCENARIO

3.1 INTRODUCTION

World telecom industry is an uprising industry, proceeding towards a goal

of achieving two third of the world's telecom connections. Over the past

few years information and communications technology has changed in a

dramatic manner and as a result of that world telecom industry is going to

be a booming industry. Substantial economic growth and mounting

population enable the rapid growth of this industry.

The world telecommunications market is expected to rise at an 11 percentcompound annual growth rate at the end of year 2010. The leading

telecom companies like AT&T, Vodafone, Verizon, SBC Communications,

Bell South, and Qwest Communications are trying to take the advantage

of this growth. These companies are working on telecommunication fields

like broadband technologies, EDGE(Enhanced Data rates for Global

Evolution) technologies, LAN-WAN inter networking, optical networking,

voice over Internet protocol, wireless data service etc.

Economical aspect of telecommunication industry: The growth of the

telecoms industry has been truly remarkable and today we live in worldwhere the number of mobile phones far outweighs the number of fixed

lines. Millions of people around the world also enjoy high-speed Internet

services with at least 30% of all Internet users now connected to fixed

broadband. It is expected that the milestone of 500 million fixed

broadband subscribers will be reached early in the next decade. On a

regional level, Western Europe still has the largest share of broadband

subscribers worldwide

Present market scenario of world telecom industry: Millions of users

worldwide now also connect to the Internet using mobile broadbandservices. As a result mobile data revenue is growing albeit slowly. This

slow growth will continue in the future until proper infrastructure based on

4G becomes available. In recent times traditional fixed-line operators have

had an uphill battle; facing external pressures such as deregulation, a

severe industry and economic downturn, declining prices and major

inroads by mobile services. As would be expected, markets with strong

competition have also seen a considerable drop in mobile call charges.

3.2 EVOLUTION IN GLOBAL TELECOM SECTOR



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Until the 1980s the world telecommunications systems had a simply

administrative structure. The United States telephone service was

supplied by a regulated monopoly, American Telephone and Telegraph

(AT&T). Telegraph service was provided mainly by the Western Union

Corporation. In almost all other countries both services were themonopolies of government agencies known as PTTs (for Post, Telephone,

and Telegraph). In the United States beginning in 1983, AT&T agreed in a

court settlement to divest itself of the local operating companies that

provided basic telephonic service. They remained regulated local

monopolies, grouped together into eight regional companies.

AT&T now offers long distance service in competition with half a dozen

major and many minor competitors while retaining ownership of a

subsidiary that produces telephonic equipment, computers and other

electronic devices. During the same period Great Britains nationaltelephone company was sold to private investors as was Japans NTT

telephone monopoly. For telegraphy and data transmission, Western

Union was joined by other major companies, while many multinational

firms formed their own telecommunications services that link offices

scattered throughout the world. New technology also brought continuing

changes in the providers of telecommunication. Private companies such

as Comsat in the United States were organized to provide satellite

communication links within the country.

The focus is also shifting away from broadband to what it can actually

achieve. Next Generation Telecommunications better describes this new

environment and is essential for the emerging digital economy. Important

services that depend on NGT include tele-health, e-education, e-business,

digital media, e-government and environmental applications such as

smart utility meters.

In order to meet this burgeoning consumer demand for NGT applications,

we are seeing increasing investment in All-IP Next Generation Networks

and fibre networks. A proper inventory of national infrastructure assets isrequired if we want to establish an efficient and economically viable

national broadband structure for these services. In the developing

markets, next generations telecoms will take the form of wireless NGNs

(i.e., LTE/Wi-MAX).

One of the drivers behind the industry changes are the declining revenues

experienced by the telecom in their traditional markets. Over the past 10

years or so, fixed-line operators have been affected by deregulation, a

severe industry downturn, declining prices and major inroads by mobile

services. In addition, people are drifting to other forms of communication,



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such as email, online chat, and mobile text messaging instead of the

traditional phone.

For the time being however, voice will remain the killer application for

mobile with some data services included as support services and niche

market services. 4G (i.e., Wi-MAX/LTE) is the real solution for mobile data

and by 2015 it is expected that the majority of mobile revenues will come

from data.



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3.2.1 Key Highlights of year 2009:

Penetration of mobile phones had reached around 60% worldwide

by mid-2009 (including multiple subscriptions). Over 3 trillion text messages will be sent during 2009.

In 2009 Finland continued to offer the cheapest mobile call charges

in Western Europe.

Consumers in the US use their mobile phones for longer per use

than in other parts of the world, averaging over 800 minutes each

month.

Mobile termination rates and roaming charges remain an important

source of revenue for operators.

Revenue from mobile data, including SMS, now contributes as muchas 25% to overall global mobile revenue.

Sales of smart phones are growing and in 2009 smart

phone sales will account for over 10% of the worldwide market.

Figure - 3.1



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Figure -3.2

3.3 GLOBAL PLAYERS

3.3.1 AT&T

AT&T consistently provided innovative, reliable, high quality

communication services and products. It offers services and products to

consumers in the United States and telecommunications services

worldwide. The Group operates in four segments: Wireless, which provides

both wireless voice and data communications services across the United

States and wire line which provides primarily landline voice and data

communication services, AT&T U-Verse television, high-speed broadbandand voice services. AT&T are leading worldwide providers of IP-based



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communications services to businesses and also have the nation's fastest

3G network and the largest international coverage of any U.S. wireless

carrier, the largest Wi-Fi network in the United States; and the largest

number of high speed Internet access subscribers in the United States,

Company making huge advances in the entertainment andcommunications industry.

Key facts of AT&T (2009-2010)

The nation's fastest 3G network serving 85.1 million customers and

offering voice coverage in more than 220 countries, data roaming in

more than 190 and 3G in 115 countries.

The U.S. wireless carrier for the new i-Phone 3GS, which launched in

June 2009 and revolutionized the industry.

The nation's largest provider of broadband more than 17.3 million

high speed Internet subscribers (as of 4Q09).

The nation's largest Wi-Fi provider, now offering access at more

than 125,000 hot spots spanning countries around the world.

One of the world's largest providers of IP-based communications

services for businesses, with an extensive portfolio of Virtual Private

Network (VPN), Voice over IP (VoIP) and other offerings all backed

by innovative security and customer support capabilities.

3.3.2 SPRINT NEXTEL

Sprint Nextel offers a comprehensive range of wireless and wire line

communications services bringing the freedom of mobility to

consumers, businesses and government users. Sprint Nextel is widely

recognized for developing, engineering and deploying innovative

technologies, including two wireless networks serving more than 48

million customers at the end of the fourth quarter of 2009 and the first

4G service from a national carrier in the United States; industry-leading

mobile data services; instant national and international push-to-talk

capabilities; and a global Tier 1 Internet backbone. The company's

customer-focused strategy has led to improved first call resolution and

customer care satisfaction scores.

Key facts of Sprint Nextel (2009-2010)

Achieved positive net post-paid subscriber growth for Sprint-

branded services, leading to best sequential and year-over-year

improvement in net post-paid subscriber results in Sprint Nextel

history

Free Cash Flow of $666 million in the fourth quarter and $2.8 billionfor 2009 highest annual Free Cash Flow in Sprint Nextel history.



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Eight consecutive quarters of improvement in Customer Care

Satisfaction and First Call Resolution

Invested more than $1.1 billion of additional funding in Clear wire;

extended 4G leadership into 27 markets

Completed acquisitions of Virgin Mobile USA, Inc. and iPCS, Inc. The company served 48.1 million customers at the end of the fourth quarter of

2009

3.3.3 Deutsche Telekom

Deutsche Telekom (DTAG) is a telecommunications company

headquartered in Bonn, Germany. It is the largest telecommunications

company in Germany and in the European Union.Deutsche Telekom is

represented in about 50 countries worldwide. As one of Europe's largest

telecommunications providers, the company is present in the most

important markets in Europe, Asia and America. The graphic which

automatically opened itself in a new browser window offers an overview of

Deutsche Telekom's shareholdings worldwide.

Key facts of Deutsche Telekom (2009-2010)

Lines in operation, telephone lines including IP-based lines,excluding internal use and public telecommunications and including

wholesale services and business customers.

Broadband lines in operation.

Figure- 3.3 TRENDS IN WORLD TELECOM INDUSTRY



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Source: Insight Research

3.4GLOBAL TRENDS

The industry is dominated by three major communication tools. These are:

Fixed-lines

Mobile

The Internet

The State of the market though has been changing. This has been mainlycharacterized by increasing competition, mainly due to the numerous

players in the telecom industry. The boom in the telecom industry can be

mainly attributed to increasing private sector participants. There also has

been an increased independent regulation by these companies.

ITUs latest statistics, published in the World in 2009: ICT facts

and figures, reveal rapid ICT growth in many world regions in everything

from mobile cellular subscriptions to fixed and mobile broadband, and

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from TV to computer penetration - with mobile technology acting as a key

driver.

The brand new comprehensive data, forecasts and analysis on the global

ICT market show that mobile growth is continuing unabated, with global

mobile subscriptions expected to reach 4.6 billion by the end of the year,and mobile broadband subscriptions to top 600 million in 2009, having

overtaken fixed broadband subscribers in 2008.

More than a quarter of the worlds population is online and using the

Internet, as of 2009. Ever-increasing numbers are opting for high-speed

Internet access, with fixed broadband subscriber numbers more than

tripling from 150 million in 2004 to an estimated 500 million by the end of

2009.

ITU estimates show that three quarters of households now own a

television set and over a quarter of people globally some 1.9bn now

have access to a computer at home. This demonstrates the huge market

potential in developing countries, where TV penetration is already high,

for converged devices, as the mobile, television and Internet worlds

collide.

Source: ITU World Telecommunication/ICT Indicators Database

Figure 3.4 The world in 2009: Facts and Figure



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3.4.1 Mobile and broadband growth continues

In particular, growth in the mobile and fixed broadband sectors has

continued and mobile subscriber penetration now sits at around 70% on a

global level. The use of mobile data and mobile broadband services has

also grown due to capped data packages, strong competition, smart

phones and increased 3G penetration

Table-3.1 worldwide telecom statistics at a glance 2010

telecom statistic forecasts

Population 6.9 billion

Fixed lines 1.4 billion

Mobile subscribers 5.1 billion

Mobile text messages sent 4.2 trillion

Internet users 1.6 billion

Fixed broadband subscribers 580 million

(Source: Budde Comm forecasts, 2010)

The financial crisis has led to global attention focusing on high-speed

broadband based on Fibre-to-the- Home and deployments are expected to

grow steadily for at least the next five years. This is due to a growing

recognition, particularly amongst government bodies, that broadband

does not only offer high-speed internet services; it is also important for

national infrastructure and will underpin a range of positive social and

economic developments. A trans-sector approach to the digital economy

is also required in order to advance developments in e-government, e-

health, e-education, social media, e-commerce and e-science.



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Table-3.2 worldwide broadband subscribers and annual change

2005 2010

Year

Approximate

broadband

subscribers (million)

Annual change

2005 221 36%

2006 286 29%

2007 344 20%

2008 410 19%

2009 485 19%

2010 (e) 580 20%

(Source: BuddeComm - Global - Broadband - Statistical Overview)

By the end of 2010 there will be well over 500 million fixed broadband

subscribers worldwide and broadband will account for around 35% of all

internet connections.

3.5 CONCLUSION

The vibrant global telecommunications industry has faced manychallenges over the last decade including regulatory and technology

changes, a severe industry downturn, consolidation, market saturation,

declining prices and major inroads by mobile services. Despite the

unsteady state of the global financial markets, the worldwide

telecommunications industry is expected to continue expanding over the

next five years as continuing growth of wireless services in emerging

markets offsets the spending slowdown in the advanced economies, says

a new market analysis report from The INSIGHT Research Corporation.

According to the new industry market study, overall telecommunicationsservices revenues are expected to grow at a compounded rate of nearly



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10.3 percent over the next few years, reaching $2.7 trillion by 2013.

Wireless makes the strongest showing while wire line follows a distant

second. Nearly all of the growth in both sectors is expected to occur in

broadband services, with wireless broadband service revenues expected

to grow at a compounded rate of more than 70 percent over the forecastperiod, while wire line broadband services grow at under 10 percent over

the same forecast horizon.

The success of the smart phone, especially the Apple i Phone, has finally

sparked consumer interest in using mobile broadband services. This has

resulted in an increase of traffic on existing mobile networks and created

a more pressing need to develop 4G technologies, such as LTE, as it can

deliver a fully IP-based infrastructure that will allow for mass use of these

applications over the network. LTE development took an important step in

late 2009 with Ericsson and TeliaSonera launching the worlds first andlargest commercial 4G LTE network in Stockholm.

There is no doubt that the next ten years will bring further exiting

developments to the increasingly vital telecommunications industry. The

foundations for change are already in motion and the continuing

deployment of high-speed broadband and developments relating to 4G

technology will provide the infrastructure to ignite the new innovations

and revolutions of the future.



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INDIAN

SCENARIOOF THE



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TELECOMINDUSTRY



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4.1 INTRODUCTION

The Telecom Sector in India has continuously shown extraordinary growth

during the last decade fuelled largely by unprecedented demand of

mobile telephony (Wireless Communications. Current growth of around 15

million connections per month, put India in line to achieve the target of

500 million lines by early 2009, much ahead of the targeted date in the

year 2010.

The number of telephone subscribers in India has now increased to 509.03Million at the end of Sep-09 from 464.82 Million in Jun-09, thereby

registering a growth rate of 9.51%. With this, the overall Tele-density in

India reached 43.50 as on 30th September 2009. The Department of

Telecommunications has been able to provide state of the art world-class

infrastructure at globally competitive tariffs and has reduced the digital

divide by extending connectivity to the unconnected areas.

India is now a major base for the telecom industry worldwide. Thus Indiantelecom sector has come a long way in achieving its dream of providing

affordable and effective communication facilities to Indian citizens. As a

result common man today has access to this most needed facility. The

reform measures coupled with the proactive policies of the Department of

Telecommunications (DOT) has helped provide extraordinary growth for

the sector.

(Note: The above figures have been updated as on 24th

March, 2010 withavailable data from the TRAI websites and the TRAI annual reports. Please

keep in mind that the annual report for 2010 is yet to be released and

hence there might be a slight difference between the reported figures and

the actual figures)



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4.2 Recent Events of significant consequence to the

Indian Telecom Industry

a. MVNO licensing bypassing possible Allowing for big players like

Virgin Mobile to enter into the Indian Market through backdoor entry

in the form of Franchising with Tata Teleservices.

b. Failure of Bharti Airtels Bid for South Africas MTN, left Indias

largest player in the Telecom industry looking for new avenues,

eventually leading to the bid for Zain.

c. Bharti Airtels Bid for Zain has gone through, they are preparing to

finance the deal through two SPVs (Special Purpose vehicles) one inSingapore and the other in Netherlands. The signing of the deal will

be finalized before the end of March 2010, in Netherlands.

d. BSNLs Dollar Tender for Telecommunications Hardware and

equipment estimated to be worth Rs. 30,000 crores has been put on

hold by the Pitroda led committee.

4.3 Events to watch out for in the Indian telecom Sector

i. 3G auctions (Scheduled for April 9th, 2010): The current bidders forthe 3G Spectrum are:

a. Bharti Airtel

b. Reliance Communications

c. Vodafone Essar

d. Tata Teleservices

e. Etisalat

f. Idea Cellular

g. Videocon

h. S Teli. Aircel Cellular

ii. Broadband Wireless Access (BWA) Auctions (Scheduled for April,

2010): The current bidders for the BWA Auctions are:

a. Tata Communications

b. Reliance Communications

c. Qualcomm

d. Augere

e. Tikona Digital Networks



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f. Vodafone Essar

iii. Commercial Launch of 3G services will be allowed from September

1st, 2010.

iv. Mobile Number Portability

v. New Policy for Value Added Services

vi. Market dynamics once the recently licensed new telecom operators

start rolling out

vii.Services.

viii.Increased thrust on telecom equipment manufacturing and exports.

ix. Reduction in Mobile Termination Charges as the cost per line has

substantially reduced due to technological advancement and

increase in traffic on the networks.

4.3.1 A Brief about the Spectrum Auctions (3G & BWA)

The Indian Government has huge hopes for the spectrum auctions, and it

comes at a time when the country is still recovering from a very adverse

fiscal deficit.

The government has fixed Rs 3,500 crore as the reserve price for pan-

India 3G spectrum and Rs 1,750 crore for Broadband Wireless Access

(BWA) services. What this means is that given the very limited number ofslots available for the auctions, the government is sure to garner at least

Rs. 20000 crore if not more from the auctions of the spectrum for both 3G

and BWA combined.

The auction for the 3G spectrum begins on April 9 which will be followed

by the auction for BWA.

The government will be selling spectrum to three players across the

nation with the exception of a few states where four slots will be on offer.

According to the Notice Inviting Applications only Punjab, Bihar, WestBengal, HP and J&K will have four private players offering high-speed

content download and broadband services (3G). For BWA, only two slots

are on the block.

The successful bidders would be allowed to offer 3G services on a

commercial basis from September 1, 2010. This suggests that the bidders

are already in a race to get their setups completed.

As per the schedule, the pre-qualification of bidders would take place on

March 30, mock auctions would be held on the April 5 and 6 followed byauction on April 9.



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The 3G mobile services will allow high-speed content download and

broadband services, while BWA operates on different technology platform

known as Wimax and is a leading technology for wireless broadband

services.

However, Qualcomm's plans to use the BWA spectrum for offering TD-LTE

the advanced version of 3G technology has not gone down too well

with the other wireless players.

4.4 The Market share of Major Providers in India

Table:.1 GSM & CDMA subscribers and Market share of different

companies

The service providers for the telecom sector in India are led by Bharti,

Reliance, Vodafone Essar, BSNL and IDEA Cellular. Other important

The Rural subscribers are still far behind the Urban subscriber base, hence

it shows that there are still a number of avenues for further growth in the

rural areas. Whereas in the urban areas the revenue per user has come

down to a level wherein further entries into the market would only cause

the revenues to go down even further to a point wherein the sustenanceof the industry would be difficult.



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4.5 Mobile Phone Manufacturers share in the Indian

Market

Fig. 4.1 Comparison of Market Share of Mobile Phone

Manufacturers in India and globally

The figures favour Nokia over the other manufacturers which suggest that

Nokia has greater market reach in India as compared to the others.

India being a volumes market will be led by those manufacturers which

continue to provide good quality handsets at the lowest reasonable price.

The Indian consumer is more discerning about price, features, and quality

of the phone over most other product aspects (a very difficult consumer to

please).



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4.6 TELECOM SUBSCRIBER BASE IN INDIA

Indian telecommunication Industry has one of the fastest growing telecom

markets in the world. The mobile sector has grown from around 10

million subscribers in 2002 to reach 150 million by early 2007

registering an average growth of over 90%.

The subscriber base currently stands at over 500 million, and it still boasts

of a huge growth rate per quarter.

The two major reasons that have fuelled this growth are low tariffs

coupled with falling handset prices.

The CDMA market has increased it market share upto 30% thanks toReliance Communication. This is a contradicting trend, since the CDMA

market has been declining globally.

The other reason that has tremendously helped the telecom Industry is

the regulatory changes and reforms that have been pushed for last 10

years by successive Indian governments.

The telecom reforms have allowed foreign telecommunication companies

to enter into the Indian market which unlike other markets is mostly a

volumes market, and even though the ARPU is amongst the lowestglobally, the overall returns are still lucrative. This coupled with the drop

in the norms and regulations which need to be met in order to enter into

the Indian market has encouraged a lot of international players into

entering.This is now leading to a price war which is further reducing the

tariff rates charged in India.

One segment of the market that has been puzzling is broadband Internet.

Despite the manner in which the countrys Internet market has been

booming, Indias move into high-speed broadband Internet access has

been distinctly slow. And, while there appears to be considerable

enthusiasm amongst the population for the Internet itself, this has not

been reflected in broadband subscription numbers. In 2006 India

witnessed a good surge in broadband users with the total subscriber

base in the country expanding by almost 200% to just over 2

million by years end. Despite this surge, broadband penetration in

India still remains around only 0.2%; broadband services still account

for only 25% of the total Internet subscriber base, still in itself

comparatively low. So, if 70% of total population is rural, the scope for

growth in this Industry is unprecedented



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The Ministry of Communications and Information Technology (MCIT) had

very aggressive plans to increase the pace of growth, targeting 250

million telephone subscribers by end-2007 and 500 million by 2010 (the

target of achieving 500 million subscriber base was reached in mid 2009

before the target of 2010). Most of the expansion in subscribers is set to

occur in rural India. Indias rural telephone density has been languishing

at around 1.9%. The subscriber addition rate has been strong in the last

12 months but the regulatory developments will increase competition and

thus curtail the long-term growth rates of individual companies. The

savings through the setting of tower companies will partly go towards the

higher capex and opex costs from more stringent spectrum allocation

norms for the incumbents.

The Telecommunications sector has been consistently adding more than 7

million subscribers for the last 6 months, a very healthy net addition rate

in fact. All the private operators GSM as well as the CDMA operators have

been very consistent in their performance. The sector provides very

strong revenue as well as earnings visibility over the next 12 months.

However the recent regulatory developments are seem to be negative for

the telecom companies as it will increase the number operators per circle

which will intensify competition.

4.7 GENERAL ENVIRONMENT IN THE TELECOM SECTOR

The year 2007-08 also witnessed a phenomenal growth in the subscriber

base for mobile services which includes subscribers of WLL (F), thus

building on the growth trend in subscriber base experienced since mid-

1990s. As per the data available on CTIA (International Association for the

wireless Telecommunications Industry) website, India has become second

largest wireless network in the world after China by overtaking USA.

4.7.1 Total Revenue generated by the sector

The revenue generated by the sector has shown certain degree of

fluctuations.

Fig. 4.2: Gross revenue over the years (data for period 08-09 is

incomplete)



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Unlike the subscriber base which has seen a constant increase, the total

revenues generated by the industry have been fluctuating, with a fall in

revenue noted even though the overall subscriber base has noted a

significant increase in size. This shows that the ARPU has been constantly

on the fall.

4.7.2 P/L generated by the sector

The Profit/Loss generated by the sector like the revenue has also been

fluctuating over time which shows that the average revenues have been

reducing at a faster rate than the decrease in the average costs per user.

Fig. 4.3: Profit/Loss from ordinary activities(figures in Crores)



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4.8 FUTURE ESTIMATES FOR THE SECTOR

1. Network expansion

a. 1 Billion connections by the year 2015

b. Provision of mobile coverage of 90% geographical area by

2010

2. Rural telephony

a. One phone per two rural households by 2010 (about 80 million

rural connections)

b. Reduce urban-rural digital divide from present 25:1 to 5:1 by

2010

3. Broadband

a. Broadband with minimum speed of 1 mbps

b. Broadband coverage for all Grampanchayats by the year 2010

4. Infrastructure Sharing

a. USO subsidy support scheme for shared wireless

infrastructure in rural areas with about 18,000 towers by 2010

b. Increase sharing in urban areas to 70% by 2010

5. Introduction of Spread of IPTV and Mobile TV

a. IPTV in 600 towns by 2010

6. Manufacturing

a. Making India a hub for telecom manufacturing by facilitating

more and more telecom specific SEZs

b. Quadrupling production in 2010

c. Achieving exports of 6 times from present level of 0.5 billion in

2010

7. Research & Development

a. Pre-eminence of India as a technology solution provider

b. Comprehensive security infrastructure for telecom network



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c. Tested infrastructure for enabling interoperability in Next

Generation Network

d. Doubling the telecom equipment R&D by 2010 from present

level of 15%

8. International Bandwidth

a. Facilitating availability of adequate international bandwidth at

competitive prices to drive ITES sector at faster growth

Rank in world in network size 2nd

Teledensity (per hundred

populations)

36.98

Telephone connection (In millions)

Fixed 37.96

Mobile 391.76

Total 429.72

Village Public Telephones 6.2 lakh

Licenses issued

Basic 2

CMTS 60

UAS 224

Infrastructure Provider I 177

ISP (Internet) 382

ISP with Telephony (Broadband) 125

National Long distance 24

International Long Distance 19

Table: 4.4 Indian Telecommunications at a glance

(As on 31stMarch 2009)



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4.9 CONCLUSION

Indian telecommunication Industry is one of the fastest growing telecom

markets in the world. The mobile sector has grown from around 10

million subscribers in 2002 to reach 525 million by the end of

2009. The two major reasons that have fuelled this growth are low tariffs

coupled with falling handset-prices.

However there are certain facts which are ignored regarding the market.

Mobile Operators in India are not making revenues that are anywhere

close to the amounts being made by operators in developed countries.The

revenue per month ranges anywhere from $7 per month to $10 per month

according to various studies and estimates. For firms operating in the USand Europe, the Average Revenue Per User stands at $100.

This makes India a volumes market. And because the ARPU figures are so

low, Indian Mobile Operators are looking at squeezing as much as they

can out of partners who can bring in the revenues (in many cases the VAS

providers). One also needs to keep in mind that Indian consumers have a

tendency to move towards free contextual content and thus VAS rates

that are too high might not work in a price sensitive market.

One often looks at the mobile market in India as something that can be

looked at as a benchmark for the World. However the large companies in

India are miniscule in comparison to the Big Companies in Chineasuch as

China Mobile (392 Million subscribers as opposed to Bhartis 62 Million,

RComs 45.5 Million, and BSNLs 40 Million odd) and China Unicom (168

Million subscribers). Vodafone and Spains Telefonica are the other 2 big

names that come to mind. So its quite clear that Indian Mobile Operators

today are looking at the Chinese models of scalability and also picking up

and modifying their operational model because in both markets,

consumer responses to pricing and ARPUs will be similar in the long run.

In the current situation, Indian Mobile Telecom operators will not have the

liberty to innovate fast enough, they will not have the opportunity to scale

high value services. The reasons for Indian firms enthusiasm for foreign

acquisitions are many. By acquiring international companies, Indian

companies get easy access to new markets, new products and the latest

technology. By buying domestic companies in other countries, they can

enter protected or heavily regulated overseas markets much more easily.

The strategy allows them to benefit from economies of size and scale, and

to increase their presence along the value-addition chain, such as by



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acquiring raw material suppliers or users of their products, thus improving

margins and efficiencies.

While on the topic of margins and efficiencies, it must be noted that Indian

Telecom Operators are very efficient when it comes to administrative,

sales and marketing and technical expenses as opposed to their western

counterparts. A Mint Study says the following. As a percentage of sales,

Selling, General and Administrative expenses account for 15% for Indian

companies (against 20% for Western operators). Other key costs are inter

connect charges (12% for Indian operators, against 15% to 20% for

Western companies), license fees (10%, 5-9%), personnel (7-8%, 10-15%)

and network (11-12%, 15-17%). This leaves Indian companies with a

handsome 36% to 40% as operating profit against 12% to 30% for

Western operators. As these numbers show, Indian mobile companies aresaving on sales and marketing. They also focus on prepaid customers,

which lower their customer support costs. They share infrastructure. Most

importantly, perhaps, they outsource whatever they possibly can.

All this takes a toll on the quality of service but there are some obvious

cost advantages if they are taken beyond National Boundaries, then

results can be fantastic in terms of higher profits and also greater

technological innovation + diversification of risk.

The DoT Guidelines with respect to M & As has ensured that the Indian

Market will be more or less competitive. While there is no doubt that the

market is growing at a frantic pace, the following need to be considered:

- Mergers of telecom licences will be allowed only within the same

service area.

- A telecom company can sell equity to another company only after

3 years from getting a license.

- Merged telecom companies should not command more than 40%

Market Share. (this used to be 67%)

- No M & A activity to be allowed if the number of operators in a

service area fall below 4.

- No investor with 10% stake in an existing telecom company will

be allowed to merge or acquire another telecom company.

The M & A guidelines ensure that the Indian Mobile Domain is not big

enough to be owned only by 2 or 3 majors. So possibly operators

expectations from the market have also been recessed. As addressed

above, there are multiple reasons as to why Telecom Operators are

looking to go abroad. beyond the Indian Market.



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Industry Structure &

Analysis



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5.1 Current Scenario

5.1.1 Telecom Subscription Data (as on 31st December

2009)

a) Total Telephone subscriber base reached 562.21 Million

b) Wireless subscription reached 525.15 Million

c) 19.10 Million new additions in wireless

d) Wireline subscription declined to 37.06,

e) Wireline subscription declined by 0.09 Million

f) Overall Tele-density reached 47.89

g) Broadband subscription was 7.83 million

The number of telephone subscribers in India increased to 562.21 Million

at the end of December-09 from 543.20Million in November-09, thereby

registering a growth rate of 3.50%. With this, the overall Tele-density in

India reaches 47.89.

5.1.2 Wireless Segment (GSM, CDMA & FWP)

Wireless subscriber base increased from 506.04 Million in November-09 to

525.15 Million at the end of December-09 at a monthly growth rate of

3.78%.

Wireless Tele-density stands at 44.73.

5.1.3 Wireline Segment

Wireline subscriber base declined from 37.16 Million in November-09 to

37.06 Million at the end of December-09. BSNL/MTNL, two PSU operators

hold 85.22% of the Wireline market share. However, they lost 0.12 Million

subscribers in the month of December-09. Overall Wireline teledensity

was 3.16.

5.1.4 Broadband ( 256 Kbps download)



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Total Broadband subscriber base has increased from 7.57 million in

November-09 to 7.83 million in December-09, there by showing a growth

of 3.56%.



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5.1.5 Service Provider wise net additions during the

month december-09 (in percentage)

Stel - 0.74%

Uninor - 6.32%

Vodafone - 14.63%

Loop - 0.28%

Idea - 8.93%

Sistema - 2.09%

Tata - 17.46%

Aircel - 8.74%

MTNL - 0.30%

BSNL - 10.89%

Bharti - 14.92%

Reliance - 14.70%

The Telecom Regulatory Authority of India issued the Telecommunication

Mobile Number Portability Regulations, 2009 (8 of 2009) dated 23rd

September, 2009 laying down the basic business process framework for

implementation of mobile number portability in the country.

Considering the present preparedness of various service providers and the

process involved, the Government has decided to extend the time forimplementation of these regulations from 31st December, 2009 to 31st

March, 2010, for all circles.



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5.2 Effect of recession on the Sector

People will not stop to communicate with each other due to global crises

rather it has been seen that it will increase much particularly with mobilecommunication. With cheap cell phones available in the Indian market and

cheaper call rates, the sector has become the necessity and primary need

of everyday life.

Although the global economy is passing through a phase of recession, its

impact has been comparatively less on telecom sector was said by A.

Raja, the Minister of Communications and IT, Government of India.

Telecom sector, according to industry estimates, year 2008 started with a

subscriber base of 228 million and will likely to end with a subscriber base

of 332 million a full century. The telecom industry expects to add at

least another 90 million subscribers in 2009 despite of recession. The

Indian telecommunications industry is one of the fastest growing in the

world and India is projected to become the second largest telecom market

globally by 2010.



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Analytical Framework



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6.1 SWOT ANALYSIS

A scan of the internal and external environment is an important part of thestrategic planning process.

The Environmental factors internal to the firm usually can be classified as

strengths (S) or weaknesses (W), and those external to the firm can be classified

as opportunities (O) or threats (T). Such an analysis of the strategic environment

is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the available

resources and capabilities to the competitive environment in which the

operations are conducted. As such, it is vital in strategy formulation and

selection.

The following framework describes how the Strengths, Weaknesses,

Opportunities and Threats fit into the environment.

SWOT Analysis Framework

Figure 6.1 Framework for a typical SWOT analysis



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6.1.1 Strengths

Here we will analyze the strengths of the telecom industry as a whole. The most

important factors are:

It is the biggest market for the Telecom Industry, second only to China.

It has the highest growth rate globally in terms of sheer numbers of

subscribers.

Technology is advanced and easy to implement: For telecom industry

the technology is really advanced and more and more investment is

done on technology to get world class infrastructure and knowhow toput in this field. The Telecom sector is going to add 3G spectrum as its

latest up-gradation.

Fastest Growing Mobile Market in the World.

Even though the ARPUs are low, there are a number of Consumers who

are willing to pay higher amounts for cutting edge services.

6.1.2 Weaknesses

The weaknesses of the Indian telecom sector are as follows.

Lowest Call Tariffs in the world

Market is very strongly regulated by Government Bodies, both ISPs and

the general Telecom Sector.

High Cost of Infrastructure: The infrastructure costs associated withentering into the Telecom Industry is extremely high.

Widescale customer churn in Telecom.

Primarily a voice based market.

Low ARPU



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6.1.3 Opportunities

Capability of extending the same model used in India, in countriesabroad: The same model which the Indian Telcos have been using in

India, can be used in markets across the world. The rest of the world has

mostly higher ARPUs, this suggests that the Indian revenue model will be

very successful globally in terms of price competitiveness.

FDI: The foreign direct investment in telecom has been hiked up from

49% to 74%. This move is positive for the sector, as it requires

investments of Rs 700 900 million over the next 5 years. FDI inflow by

2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and

Japan telecom are likely to enter India, as India is seen as fastest growing

telecom market in world. Huge Wireless subscriber base & Potential: India has a huge existing

subscriber base with over 500 million subscribers, and it still has not

exploited its full potential, with the penetration in the rural areas still

negligible as compared to the urban and sub urban areas.

Government has proposed to hike the FDI limit in the Telecom sector to

74%.

Unified License Scheme.

6.1.4 Threats

The threats to the industry are the following:

Government Policies Government may provide licenses to many foreign

operators, which may already have pose a threat for the existing players

in the industry.

Emerging Technologies: There are several technologies which can

compete and act as substitutes for the existing services which are being

provided by the Telecom Service Providers.

Some of the examples are follows:

VOIP (Skype, Messenger etc.)

Online Chat

Email

Since most of the firms in the Indian Telecom Sector are low-cost service

providers, the amount of time taken for breaking even for new entrants is

very long.



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Political Instability is a characteristic of India. This causes a lot of

fluctuations for the firms, with different parties supporting their own list of

firms.



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6.2 Porters 5 Forces

Porter has identified five competitive forces that shape every industry and

every market. These forces determine the intensity of competition andhence profitability and attractiveness of an industry. Based on the

information derived from the five forces analysis, management can decide

how to influence or to exploit particular characteristics of their industry

1. THREAT FROM NEW ENTRANTS: How easy or difficult is it for new

entrants to start competing.

2. THREAT OF SUBSTITUTES: How easy can a product or service be

substituted, especially made cheaper.

3. BARGAINING POWER OF BUYERS: How strong is the position of the

buyers? Can they work together in ordering large volumes?

4. BARGAINING POWER OF SUPPLIERS: How strong is the position of

the sellers? Do many potential suppliers exist or only a few potential

suppliers, monopoly?

5. RIVALRY AMONG THE EXISTING PLAYERS: Does a strong competition

between the existing players exist? Is one player very dominant or

are all equal in strength.

Figure 6.2 Porters Five Forces Framework



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6.2.1 Threat From New Entrants

Supply Side of Economies of Scale

Declining Average Revenue Per Unit(ARPU)

Infrastructure tenancy costs being very high

Other FC like BPO

Demand Side Benefits

Brand pull exists to some extent for brands like Airtel /idea/ Vodafone

Customer Switching Costs is low

Cost of new connection is low

Capital Requirement

Extremely high infrastructure setup costs

Incumbent Advantages

Established brand image

Reliability of network



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6.2.2 Bargaining Power of the Buyer

Is high

Lack of differentiation among the service provider Cut throat competition because of the existence of numerous

suppliers

Customer is price sensitive

Low switching costs

Number portability to have negative

Mobile number portability after getting approval will result in high

bargaining power for consumer, hence the overall bargaining power

is high

6.2.3 Rivalry between Existing competitors

Is high

High Exit Barriers

High Fixed Cost

6-7 players in each region

3 out of 4 BIG-Four present in each region

Very less time to gain advantage by an innovation (Eg. Caller tunes,

life time card)

Price wars

6.2.4 Bargaining Power of the Seller

Large number of suppliers.

Is low

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.



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6.2.5 Threat of Substitutes

Some Substitutes for telecommunication:

VOIP (Skype, Messenger etc.)

Online Chat

Email

Satellite phones

Price-Performance trade-off very high.

Issues of mobility and penetration with the substitutes.



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6.3 PEST Analysis of the Indian Telecom Sector

6.3.1 Political Scenario

Government Policies and Framework

Introduction:

As the sector is open for both private and public players there are huge

number of players in the market which requires a proper picturing of rules

and regulation. The government has created bodies like DOT, TRAI, DTS

which takes care of the rules and regulations. The first policy the National

Telcom Policy was announced in 1994. The Telecom Regulatory Authorityof India (TRAI) was setup in 1997 and the second National Telecom Policy

came into effect in mid 1999. In January 2001, the Telecom Disputes

Settlement and Appellate Tribunal (TDSAT) started functioning and a

policy was announced for additional licenses especially in the area of

basic and mobile services. In November 2003, the Unified Access (Basic &

Cellular) Service License (USAL) was introduced as a first step towards a

Unified License Regime Technology and allows provisioning any kind of

service.

National Telecom Policy 1994

Introduction:

1. The new economic policy adopted by the Government aims at

improving India's competitiveness in the global market and rapid

growth of exports. Another element of the new economic policy is

attracting foreign direct investment and stimulating domestic

investment. Telecommunication services of world class quality arenecessary for the success of this policy. It is, therefore, necessary to

give the highest priority to the development of telecom services in

the country.

Objectives:

2. The objectives of the New Telecom Policy will be as follows :

a. The focus of the Telecom Policy shall be telecommunication

for all and telecommunication within the reach of all. This

means ensuring the availability of telephone on demand as

early as possible.



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b. Another objective will be to achieve universal service covering

all villages as early as possible. What is meant by the

expression universal service is the provision of access to all

people for certain basic telecom services at affordable and

reasonable prices.c. The quality of telecom services should be of world standard.

Removal of consumer complaints, dispute resolution and

public interface will receive special attention. The objective

will also be to provide widest permissible range of services to

meet the customer's demand at reasonable prices.

d. Taking into account India's size and development, it is

necessary to ensure that India emerges as a major

manufacturing base and major exporter of telecom

equipment.

e. The defence and security interests of the country will be

protected.

Achievements:

As against the NTP 1994 target of provision of 1 PCO per 500 urban

population and coverage of all 6 lac villages, DoT has achieved an urban

PCO penetration of 1 PCO per 522 and has been able to providetelephone coverage to only 3.1 lac villages. As regards provision of total

telephone lines in the country, DoT has provided 8.73 million telephone

lines against the eighth plan target of 7.5 million lines.

NTP 1994 also recognized that the required resources for achieving

these targets would not be available only out of Government sources

and concluded that private investment and involvement of the private

sector was required to bridge the resource gap. The Government invited

private sector participation in a phased manner from the early nineties,

initially for value added services such as Paging Services and CellularMobile Telephone Services (CMTS) and thereafter for Fixed Telephone

Services (FTS). After a competitive bidding process, licenses were

awarded to 8 CMTS operators in the four metros, 14 CMTS operators in

18 state circles, 6 BTS operators in 6 state circles and to paging

operators in 27 cities and 18 state circles. VSAT services were liberalised

for providing data services to closed user groups. Licences were issued

to 14 operators in the private sector out of which only nine licencees are

operational. The Government has recently announced the policy for

Internet Service Provision (ISP) by private operators and has commenced

licensing of the same. The Government has also announced opening up



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of Global Mobile Personal Communications by Satellite (GMPCS) and has

issued one provisional license. Issue of licenses to other prospective

GMPCS operators is under consideration.

The Government recognises that the result of the privatisation has so far

not been entirely satisfactory. While there has been a rapid rollout ofcellular mobile networks in the metros and states with currently over 1

million subscribers, most of the projects today are facing problems. The

main reason, according to the cellular and basic operators, has been the

fact that the actual revenues realised by these projects have been far

short of the projections and the operators are unable to arrange

financing for their projects and therefore complete their projects. Basic

telecom services by private operators have only just commenced in a

limited way in two of the six circles where licenses were awarded. As a

result, some of the targets as envisaged in the objectives of the NTP1994 have remained unfulfilled. The private sector entry has been

slower than what was envisaged in the NTP 1994.

The government views the above developments with concern as it would

adversely affect the further development of the sector and recognises

the need to take a fresh look at the policy framework for this sector.

NEW TELECOM POLICY 1999

Need for a new telecom policy

In addition to some of the objectives of NTP 1994 not being fulfilled,

there have also been far reaching developments in the recent past in the

telecom, IT, consumer electronics and media industries world-wide.

Convergence of both markets and technologies is a reality that is forcing

realignment of the industry. At one level, telephone and broadcasting

industries are entering each others markets, while at another level,

technology is blurring the difference between different conduit systems

such as wire line and wireless. As in the case of most countries, separate

licences have been issued in our country for basic, cellular, ISP, satellite

and cable TV operators each with separate industry structure, terms ofentry and varying requirement to create infrastructure. However this

convergence now allows operators to use their facilities to deliver some

services reserved for other operators, necessitating a relook into the

existing policy framework. The new telecom policy framework is also

required to facilitate Indias vision of becoming an IT superpower and

develop a world class telecom infrastructure in the country.

Objectives



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Access to telecommunications is of utmost importance for

achievement of the country's social and economic goals.

Availability of affordable and effective communications for the

citizens is at the core of the vision and goal of the telecom policy.

Strive to provide a balance between the provision of universalservice to all uncovered areas, including the rural areas, and the

provision of high-level services capable of meeting the needs of

the countrys economy;

Encourage development of telecommunication facilities in remote,

hilly and tribal areas of the country;

Create a modern and efficient telecommunications infrastructure

taking into account the convergence of IT, media, telecom and

consumer electronics and thereby propel India into becoming an IT

superpower;

Convert PCOs, wherever justified, into Public Teleinfo centres

having multimedia capability like ISDN services, remote database

access, government and community information systems etc.

Transform in a time bound manner, the telecommunications

sector to a greater competitive environment in both urban and

rural areas providing equal opportunities and level playing field for

all players;

Strengthen research and development efforts in the country andprovide an impetus to build world-class manufacturing capabilities

Achieve efficiency and transparency in spectrum management

Protect the defence & security interests of the country

Enable Indian Telecom Companies to become truly global players.

Targets

Make available telephone on demand by the year 2002 and

sustain it thereafter so as to achieve a teledensity of 7 by the year

2005 and 15 by the year 2010.

Encourage development of telecom in rural areas making it more

affordable by suitable tariff structure and making rural

communication mandatory for all fixed service providers

Increase rural teledensity from the current level of 0.4 to 4

by the year 2010 and provide reliable transmission media in

all rural areas.

Achieve telecom coverage of all villages in the country and

provide reliable media to all exchanges by the year 2002.



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Provide Internet access to all district head quarters by the year

2000.

Provide high speed data and multimedia capability using

technologies including ISDN to all towns with a population greater

than 2 lakh by the year 2002.

Addendum to the New Telecom Policy 1999 (NTP-99)

Given the central aim of NTP-99 to ensure rapid expansion of

teledensity; given the unprecedented expansion of telecom services that

competition has brought about; given the steep reductions in tariffs that

competition has ensured; given the fact that advances in technologies

erase distinctions imposed by earlier licensing systems; given the fact

that even more rapid advances in technologies are imminent; given thesteep reduction in costs of providing telecom services; given the rapid

convergence of tariffs for wireless services; given the fact that the

provision of such services at the cheapest possible rates and by the most

reliable mode is the sine qua non for India to consolidate its position as a

leading hub of Communications systems, Information Technology, IT

enabled services, and of establishing itself as a leader in new disciplines

such as bioinformatics and biotechnology; given the recommendations of

TRAI in this regard; Government, in the public interest in general and

consumer interest in particular and for the proper conduct of telegraphs

and telecommunications services, has decided that there shall also be the

following categories of licences for telecommunication services:

i. Unified Licence for Telecommunication Services permitting Licensee

to provide all telecommunication/ telegraph services covering

various geographical areas using any technology;

ii. Licence for Unified Access (Basic and Cellular) Services permitting

Licensee to provide Basic and /or Cellular Services using any

technology in a defined service area.

The Telecom Regulatory Authority Of India Act, 1997

Powers & functions of the TRAI

a. Recommend the need and timing for introduction of new service

provider;

b. Recommend the terms and conditions of license to a serviceprovider;



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c. Ensure technical compatibility and effective inter-connection

between different service providers;

d. Regulate arrangement amongst service providers of sharing their

revenue derived from providing telecommunication services;

e. Ensure compliance of terms and conditions of license;

f. Recommend revocation of license for non-compliance of terms and

conditions of license;

g. Lay down and ensure the time period for providing local and long

distance circuits of telecommunication between different service

providers;

h. Facilitate competition and promote efficiency in the operation of

telecommunication services so as to facilitate growth in such

services;

i. Protect the interest of the consumers of telecommunication service;

j. Monitor the quality of service and conduct the periodical survey of

such provided by the service providers;

k. Inspect the equipment used in the network and recommend the

type of equipment to be used by the service providers;

l. Maintain register of interconnect agreements and of all such other

matters as may be provided in the regulations;

m. Keep register maintained under clause (l) open for inspection to any

member of public on payment of such fee and compliance of such

other requirements as may be provided in the regulations;

n. Settle disputes between service providers;

o. Render advice to the Central Government in the matters relating to

the development of telecommunication technology and any othermatter relatable to telecommunication industry in general;



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p. Levy fees and other charges at such rates and in respect of such

services as may be determined by regulations;

q. Ensure effective compliance of universal service obligations;

r. Perform such other functions including such administrative and

financial functions as may be entrusted to it by the Central

Government or as may be necessary to carry out the provisions of

this Act.

BROADBAND POLICY 2004

Preamble

Recognising the potential of ubiquitous Broadband service in growth of

GDP and enhancement in quality of life through societal applications

including tele-education, tele-medicine, e-governance, entertainment as

well as employment generation by way of high speed access to

information and web-based communication, Government have finalised a

policy to accelerate the growth of Broadband services.

Demand for Broadband is primarily conditioned and driven by

Internet and PC penetration. It is recognised that the current level of

Internet and Broadband access in the country is low as compared to many

Asian countries. Penetration of Broadband, Internet and Personal

Computer (PC) in the country was 0.02%, 0.4% and 0.8% respectively at

the end of December, 2003. Currently, high speed Internet access is

available at various speeds from 64 kilobits per second (kbps) onwards

and presently an always-on high speed Internet access at 128 kbps isconsidered as Broadband. There are no uniform standards for Broadband

connectivity and various countries follow various standards.

Government envision an accelerated growth in Internet penetration

and PC as the success of Broadband would largely be dependent on their

spread. It has been decided that following shall be the framework of the

policy.

FDI Policy

Under Basic and cellular, Unified Access Services, National/International Long Distance, V-

final telecom industry

Documents