indian telecommunications industry - akshat grover

8/8/2019 Indian Telecommunications Industry - Akshat Grover

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Indian Telecommunications Industry

Akshat Grover

Roll No. 07

Delhi School of Management


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Contents

` Advantage India

` Market overview

` Investments

`

Policy and Regulatory Framework

` Opportunities

Akshat Grover - Strategic Telecom Management2


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Contents

` Advantage India

` Market overview

` Investments

`


` Opportunities



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Advantage India



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Contents

` Advantage India

` Market overview

` Investments

`


` Opportunities



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Market Overview


`

The telecom sector in India has witnessed unparalleled growth by global standards in the lastdecade and continues to be one of Indias biggest success stories. This growth has been builton the wireless revolution.

` According to the Telecom Regulatory Authority of India (TRAI), the number of telephonesubscriber base in the country reached 653.92 million as on May 31, 2010, an increase of 2.49per cent from 638.05 million in April 2010. With this the overall tele-density (telephones per100 people) has touched 55.38. The wireless subscriber base has increased to 617.53 million

at the end of May 2010 from 601.22 million in April 2010, registering a growth of 2.71 percent.

` By 2012, the total telecom subscriber base is expected to reach approximately 700 million toinclude about 650 million wireless users and approximately 50 million fixed line users, drivenby a rise in the demand for communications from semi-urban and rural India.

` Revenues of the Indian telecom industry are projected to reach US$ 45 billion by 2012 ascompared to US$ 26 billion in 2008.

` The key players in the Indian telecom market are Bharat Sanchar Nigam Ltd (BSNL) andMahanagar Telephone Nigam Limited (MTNL), Bharti Airtel Limited, Reliance Communication,Vodafone, Idea Cellular,Aircel and Tata Teleservices.


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Market Segments


` The Indian telecom industry can be primarily divided intobasic, cellular and internet services. It also has smallersegments such as radio paging services, Very Small ApertureTerminals (VSATs), Public Mobile Radio Trunked Services(PMRTS) and Global Mobile Personal Communications bySatellite (GMPCS).


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Market Segments Wireline


` The subscriber base of wireline servicesstood at 36.76 million as on January 2010with a tele-density of 3.13.

` Public sector undertakings BSNL andMTNL have a major share of thewireline market covering about 85 per

cent.

` MTNL is present in Delhi and Mumbai,while BSNL covers the rest of thecountry.

`

Though private players such as TataTeleservices, Bharti Airtel and Reliancehave registered significant growth, BSNLstill dominates the segment in terms ofwireline subscriber base.


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Market Segments Wireless


`

The wireless segment includes GSM andCDMA services and is much larger thanthe wireline segment in India. The segmentis growing steadily because of theconvenience and utility that it offers.

` The subscriber base of wireless servicesstood at 545.05 million as of November

2009 with a tele-density of 46.37 percent.

` During 200809, the cellular marketrecorded 328.83 million GSM subscribersaccounting for 77 per cent of the marketand 98.46 million CDMA subscribersaccounting for the remaining 23 per cent.

` A major share of the wireless market isbeing held by private players such as BhartiAirtel Limited, Reliance Communication,Vodafone, Idea Cellular, Aircel and TataIndicom.


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Market Segments the Internet


` High growth in broadband penetration is expected to be the driverfor the next phase of growth in the telecom industry. While thebroadband connections are increasing rapidly, penetration in India isstill at 0.3 per cent against the global average of 6.1 per cent.

` As on January 31, 2010, the subscription base of broadband is

recorded at 8.03 million. Broadband subscribers are expected togrow to 30 million, while Internet subscribers are expected to growto 45 million by 2012.

` Key players in the segment are BSNL, MTNL, Bharti, TataCommunication, Reliance Communication, Sify Technologies, YOUTelecom, Data Infosys and Hathway Cables.

` The launch of 3G services is expected to drive data revenues. Indiasdata revolution is expected to be fuelled by 3G andWiMax.


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Market Segments the VSAT


` At present, there are 8 VSATservice providers in Indiaincluding BSNL, Bharti Airtel,Hughes Communications IndiaLtd and HCL Comnet Ltd.

` The number of VSAT subscribers

services grew by 6,108 to108,328 for the quarter endingJune 2009. The market for VSATservices registered a 5.98 percent growth in the quarterending June 2009.

` Hughes Communications IndiaLtd is the market leader, with amarket share of 29.4 per cent,followed by Bharti Airtel with25.9 per cent.


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Other Segments



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Key Trends


` The wireless segment inIndia is much larger thanthe wireline segment and isgrowing steadily due to theconvenience and utility thatit offers.

` Wireless services hold amajor market share of 93.4per cent as compared tothe wireline segment.

` The subscriber base ofwireline segment isdecreasing given its limitedusage.


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Key Trends (contd.)


` Rural markets will be the next keygrowth driver for the Indiantelecom sector given the growingpopulation and disposable incomeof rural India.

` The subscriber base in the ruralmarket has improved significantlyin 200809 with tele-densityrecorded at16.61per cent as ofJune 2009.

` By 2012, the rural subscriber

base is expected to account fornearly half of the total subscriberbase fuelling sector growth.


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Key Trends (contd.)


` Bharti Airtel has the largestmarket share in the GSMsegment. During 200809, outof the total subscriber base of328.83 million, private playersaccounted for approximately

84 per cent, while the publicsector operators (BSNL andMTNL) accounted for theremaining share (16 per cent).

` Reliance Communications

dominates the Indian CDMAmobile services segment witha subscriber base of 54.19million.


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Key Trends (contd.)


`

Despite a slow penetration rate, the Internetservices segment holds huge growth potentialin India.

` India is expected to feature among the top 10broadband markets by 2013.

`

The total number of Internet subscribers grewfrom 11.66 million in June 2008 to 14.05 millionin June 2009.

` BSNL is the biggest player in this market with7.6 million subscribers, followed by MTNL,BhartiAirtel, Reliance and SifyTechnologies.

` DSL (Digital Subscriber Line) is the mostpreferred technology used by the serviceproviders to provide broadband services andconstitutes 86.66 per cent of total broadbandsubscribers. Cable modem technology followswith 7.36 per cent connections.


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Key Trends (contd.)


` In India, the reduction in average revenue per user (ARPU) ismitigated by growth in the subscriber base, which contributes tohealthy revenue growth. In addition, declining tariffs arecompensated by high minutes of usage (MOU).


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Key Trends (contd.)


` The share of the private sector in total telephone connections has grownto 82.3 per cent in December 2009 as against 5 per cent in 1999.

` From only 54.6 million telephone subscribers in 2003, the numberincreased to 562 million as on October 31, 2009. This growth has beenentirely due to the wireless connections growing at a CAGR of 60 per centper annum since 2004.

` Operators are reducing operating costs and hiving off infrastructureelements such as towers into separate entities, thus inviting significantinvestments.

` Passive infrastructure sharing has benefitted the Indian mobile industry andits customers, reducing the cost burden of each operator and speeding therollout of mobile services.

` In recent years, initiatives such as network cost optimisation, outsourcing ofnon-core activities, as well as low-cost business models have been in focus.


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Key Trends (contd.)


` Every telecom service provider is looking beyond the basicvoice services by offering a composite bouquet of bundledofferings. For example, nearly all the leading operators,including incumbents, are in the testing phase to launchcommercial IPTV services. Indian operators are at a nascentstage in terms of offering quad-play using the existingnetwork infrastructure for data, voice, video and basiccommunication services.

` Consumers can get all these services from the same telecom

operator and enterprises can also access virtual privatenetworks (VPN), video-conferencing, enterprise solutions,mobility and fixed telephony from the same integratedtelecom service provider.


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Value-Added Services (VAS) Market


` Mobile value added services (VAS) include text or SMS, menu-based services, downloading of music or ring tones, mobile TV,videos and sophisticated m-commerce applications.

` As per an industry report, VAS that accounts for 10-12 percent of the telecom operator's revenue is expected to reach20 per cent growth by 2013.

` The report further predicted that after the introduction of 3G

services in India, the segment may garner US$ 5.98 billion inturnover by 2013.

` Currently, the segment stands at US$ 2.07 billion.


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Contents

` Advantage India

` Market overview

` Investments

` Policy and Regulatory Framework

` Opportunities



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Investments


`

Despite the global economic slowdown in 200809, the telecom sector isone of the highest FDI attracting sectors in India. At present 74 to100 percent FDI is permitted for various telecom services.

` The telecom market is witnessing several M&A activities. This trend hashelped companies expand their presence in the Indian telecom market tooffer better services to customers.


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Major Investments


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The booming domestic telecom market has been attracting huge amounts ofinvestment which is likely to accelerate with the entry of new players and launch ofnew services. According to the Department of Industrial Policy and Promotion(DIPP), the telecommunications sector which includes radio paging, mobile servicesand basic telephone services attracted foreign direct investment (FDI) worth US$2,554 million during 2009-10. The cumulative flow of FDI in the sector during April2000 and March 2010 is US$ 8,930.61 million.

` Further, the Indian telecom sector is expected to witness investment of around US$40 billion during the current fiscal, as per the Telecom Equipment and ServicesExport Promotion Council. With the development of 3G, expansion of the currentnetworks and widening of Broadband Wireless Access (BSA) network, theinvestment in the sector is likely to increase from the US$ 20 billion witnessed lastyear.

` As per an industry report the telecom industry witnessed merger and acquisition(M&A) deals worth US$ 22.73 billion during April-June 2010, which represented67.19 per cent of the total valuation of the deals across all the sectors during theperiod analysed.The sector had seen M&A deals of around US$ 439.4 million duringApril-June 2009.


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Major Investments (contd.)


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The biggest M&A deal in the sector was made by Anil Ambani'sReliance Communication Ltd that merged GTL infrastructure Ltd,its telecom tower business, for US$ 11 billion. Other major M&Adeals included acquiring of Kuwait-based Zain telecom's Africanbusiness for US$ 10.7 billion by Bharti Airtel and acquisition ofInfotel broadband for US$ 1032.26 million by Reliance Industries.

` Norway-based telecom operator Telenor has bought a further 7 percent in Unitech Wireless for a little over US$ 431.3 million. Telenornow has 67.25 per cent hold of the company. Telenor has nowcompleted its four-stage stake buy and has invested a total of US$1.32 billion in Unitech Wireless as agreed on with the latter last

year.

` The government has approved the foreign direct investment (FDI)proposal of the Federal Agency for State Property Management ofthe Russian Federation to buy 20 per cent stake in telecom serviceprovider Sistema-Shyam for US$ 660.1 million.


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Contents

` Advantage India

` Market overview

` Investments


` Opportunities



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` The Department of Telecommunications (DoT) governs theIndian telecom industry. The DoT, in coordination with theTelecom Commission, looks after licensing, policy formulation,frequency management, administrative monitoring, researchand development, equipment standardisation and validationalong with private investments.

` The Telecom Regulatory Authority of India (TRAI) wasestablished in1997 by the DoT to streamline policy reformsand safeguard consumer interests.

` The Telecom Disputes Settlement and Appellate Tribunal(TDSAT) was also established in the same year.


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Unified Access Licensing Regime (UALR)

` The establishment of the UALR (2003) eliminated the need for separate licences fordifferent services. This regime allowed players to offer both mobile and fixed-lineservices under a single licence after paying an additional entry fee. The regime does nottake into account the national and international long distance services and Internetaccess services.

`

Between February and March 2008, the DoT granted 120 new licences to provideunified access services to various companies, including Datacom Solutions Pvt Ltd, AskaProjects Ltd, SwanTelecom Pvt Ltd, LoopTelecom Pvt Ltd and S Tel Ltd.

Universal Service Obligations (USO)

` The USO policy was implemented along with the National Telephone Policy (NTP)in1999 to widen the reach of telephony services in rural India. All telecom operators arebound to contribute 5 per cent of their revenues to this fund. This system was put inplace to bridge the gap between urban and rural tele-density, which is currently at 31 percent. Initially, only basic service providers were under the purview of USO. Later, itsscope was expanded to include mobile services also. Although it increases the costburden for telecom companies, USO helps in building the telecommunicationinfrastructure in rural areas.


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Going Global


` In March 2010, Bharti Airtel bought the African operations ofKuwait-based Zain Telecom for US$ 10.7 billion, driving the Indianplayer into the league of top ten telecom players globally.

` The Reserve Bank has liberalised the investment norms for Indian

telecom companies by allowing them to invest in internationalsubmarine cable consortia through the automatic route.

` In April 2010, RBI issued a notification stating "As a measure offurther liberalisation, it has now been decided... to allow Indian

companies to participate in a consortium with other internationaloperators to construct and maintain submarine cable systems onco-ownership basis under the automatic route." The notificationfurther added, "Accordingly, banks may allow remittances by Indiancompanies for overseas direct investment."


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Contents

` Advantage India

` Market overview

` Investments


` Opportunities



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Opportunities


` By 2012, total telecom penetration in the largely untapped potential rural markets of India isexpected to reach to about 40 per cent as compared to the current tele-density of about16.61 per cent as of June 2009.

` WiMax has been one of the most significant developments in wireless communication in therecent past. WiMax is expected to attract about 8 to10 million subscribers and account forabout US$1 billion to US$1.5 billion by 2012 assuming that low cost devices and data cardsare available and services are affordable.

` Internet services Despite the low penetration of internet services in the Indian market, itis expected to grow in the next decade in terms of number of subscribers. India is expectedto feature among the top 10 broadband markets by 2013.

` Telecom equipment market The expansion of wireless networks and growth insubscriber base, both in urban and rural areas, has led to a boost in the sale of mobile

handsets across India.The mobile handsets sale grew by 7.9 per cent in 200809.

` Telecom infrastructure is being considered as a critical factor in Indias economicdevelopment. Telecom infrastructure includes towers and the fibre network; demand fortelecom towers is expected to continue to rise due to increasing penetration in rural areas,upcoming 3G service, expanding internet market and an increase in number of operators withpan-India operations.


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3G Services


` The Department of Telecom has taken the pioneering decision of launching of 3G services byBSNL and MTNL and initiation of process for auction of spectrum for 3G services to privateoperators. Allocation of spectrum for third-generation (3G) and broadband wireless access(BWA) services was done through a controlled simultaneous, ascending e-auction process.

` All the 71 blocks that were put up for auction across the 22 service areas in the countrywere sold, leaving no unsold lots. Auction for 3G spectrum ended on May 19, 2010 after 183rounds of intense bidding over a span of 34 days. The Government is expected to morph

revenue worth US$ 14.6 billion. All the available slots across 22 circles have been sold toseven different operators.

` A pan-India bid for third generation spectrum stood at US$ 3.6 billion. The Anil Ambani-ledReliance Communication bagged the highest number of 13 circles at a cost of US$ 1.9 billion,followed by Bharti Airtel in 12, Idea in 11 and Vodafone and the Tatas in nine circles each,according to the Department of Telecommunications.

` MTNL and BSNL will have to pay US$ 1.42 billion and US$ 2.2 billion respectively.

` It is expected that the Government of India would allot 3G spectrum on September 1, 2010to successful bidders. Letter of intent (LoI) has already been allotted to the 3G winners by theDepartment of Telecommunications (DoT), saidTelecom Secretary P J Thomas.


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Rural Telephony


` According to the Economic Survey 2009-10, rural tele-density has increased from 1.2 per centin March 2002 to 15.1 per cent in March 2009 and further to 21.2 per cent at the end ofDecember 2009.

` Rural telephone connections have gone up from 12.3 million in March 2004 to 123.5 million inMarch 2009 and further to 174.6 million in December 2009. The share of private sectorplayers in the total telephone connections has steadily increased from around 14 per cent in2005 to 31 per cent as on December 31, 2009. During 2008-09, the growth rate of rural

telephones was 61.5 per cent as against 36.7 per cent for urban telephones. The privatesector has contributed significantly to the growth of rural telephony by providing 81.5 percent of the rural phones as on December 31, 2009.

` It is proposed to achieve rural tele-density of 25 per cent by means of 200 million ruralconnections by the end of the Eleventh FiveYear Plan.

`

The government plans to connect all revenue villages in India either through landline, mobileor WLL by February 2011. We have already connected about 96 per cent of the revenuevillages. The remaining 25,000 villages will have connectivity by February 2011, stated MrSachin Pilot, Minister of State for Communications and IT. The government further proposesto provide broadband connectivity to all the panchayats in the country by 2012.


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Tele Medicine


` With increase in cellphone users to around 600 millionand introduction of 3G services soon in the country,

remote treatment and diagnosis of patients through

mobile phones would become a reality in the near future.

` In fact, a few telecom operators and value-added service

developers are planning to use mobile phones for

diagnostic and treatment support, remote disease

monitoring, health awareness and communication.


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The Road Ahead


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According to a report published by Gartner Inc in June 2009, the total mobileservices revenue in India is projected to grow at a compound annual growth rate(CAGR) of 12.5 per cent from 2009-2013 to exceed US$ 30 billion.

` The India mobile subscriber base is set to exceed 771 million connections by 2013,growing at a CAGR of 14.3 per cent in the same period from 452 million in 2009.This growth is poised to continue through the forecast period, and India is expected

to remain the world's second largest wireless market after China in terms ofmobile connections.

` "The Indian mobile industry has now moved out of its hyper growth mode, but itwill continue to grow at double-digit rates for next three years as operators focuson rural parts of the country," said Madhusudan Gupta, senior research analyst atGartner. "Growth will also be triggered by increased adoption of value-added

services, which are relevant to both rural and urban markets.

` Mobile market penetration is projected to increase from 38.7 per cent in 2009 to63.5 per cent in 2013, according to Gartner.


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References


` TRAI

` IBEF

` Ernst &Young

` Bloomberg


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Thank You

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indian telecommunications industry - akshat grover

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