1. The Analysis of the Indian Telecom Industry
Table of Contents.
1. History of The Indian Telecom Sector
2. Classification of Indian Telecom Sector
3. Government Policies and Initiatives over the Past
4. Statistics of Telecom Sector
5. Present FDI Policy
6. Budget 2011 impact on Telecom Sector
7. Recent Events in Telecom Sector
8. Future Prospects (Opportunities and Hindrances)
Going to the Past:
2. The telecom industry started in 1850 where the first experimental electric telegraph line was
started between Kolkata and Diamond Harbor. In 1882 Telephone Exchanges in Calcutta,
Bombay and Madras were opened.
Since then the telecom network was owned and managed by the government since it was a
strategic service.
Classification of Indian Telecom Sector
1: Fixed Line Telephony:
BSNL and MTNL account for 90% of the revenue. Private companies are available in 18 circles
and collectively account for 10% revenue.
Private Sector companies offer high end services like leased lines, ISDN, videoconferencing
because of which Average Revenue Per User (ARPU) is more for private players.
Now even the public sector companies have entered into high end services and are doing very
good.
Mahanagar Telephone Nigam Limited (MTNL) is one of the first in the world to deploy the
Asymmetric Digital Subscriber Line (ADSL2+) network. Internet Protocol Television (IPTV)
services have started in Delhi and Mumbai on MPEG-4
2: Mobile Telephony:
There are approx 15 private companies providing cellular services in 19 telecom circles
covering 1500 towns across the country.
The DoT has now allowed cellular companies to buy rivals within same operating circles
provided their combined market share does not exceed 67%. Previously the companies were
allowed to buy rivals only outside their circles.
- GSM (Global System for Mobile) Sector:
Private operators have 75 per cent subscribers whereas Public sector Operators (BSNL &
MTNL) have 25 % subscribers in the GSM segment.
- CDMA (Code Division Multiple Access) Sector:
CDMA technology was introduced in India as a limited mobility solution. The introduction of
CDMA services has created competition, lowered tariffs and offered many citizens access to
communication services for the first time.
3: Internet:
Internet Telephony has been officially allowed from 1st Apr 2002. The growing demands of
corporate for applications such as e-commerce, internet leased lines, ISDN, VPN etc. is the
3. driving force for the growth in internet services market. 40 million use the Internet via mobile
phones as of December 2010.
Internet telephony is permitted to 128 ISPs; only 32 of which actually provide the service.
New services like IP-TV and IP-Telephony are becoming popular with the demand likely to
increase in coming years. The scope of services under existing ISP license conditions is
unclear.
4: Telecom Equipments:
Growth in telecom equipment market resulted in increasing demands for telecom services.
The Government has already set up Telecom Equipment and Services Export Promotion Forum
and Telecom Testing and Security Certification Centre (TETC). A large number of companies
like Alcatel, Cisco have also shown interest in setting up their R&D centers in India. With above
initiatives India is expected to be a manufacturing hub for the telecom equipment.
Switching systems with a size of about Rs. 50 billion will remain a big market in coming future.
Policy Reforms.
Reforms in telecom sector began in 1980 with telecom manufacturing being opened for private
sector followed by National Telecom Policy (NTP) in 1994 and 1999.
Policy Reforms in 3 phases.
Phase1:
A telecom commission was set up to give focus to telecommunications policy formation.
In 1975, the Department of Telecom (DoT) was separated from Indian Post &
Telecommunication Accounts and Finance Service.
DoT was responsible for telecom services in entire country until 1985 when Mahanagar
Telephone Nigam Limited (MTNL) was carved out of DoT to run the telecom services
of Delhi and Mumbai.
In 1990s the telecom sector was opened up by the Government for private investment as a part
of Liberalization-Privatization-Globalization policy. Therefore, it became necessary to
separate the Government's policy wing from its operations wing. The Government of
India corporatized the operations wing of DoT on 1 October 2000 and named it as Bharat
Sanchar Nigam Limited (BSNL).
Phase 2:
4. It was during this period that the Narsimha Rao-led government introduced the National
Telecommunications Policy [NTP] in 1994 which brought changes in the following areas:
ownership, service and regulation of telecommunications infrastructure.
Foreign firms were eligible to 49% of the total stake. The multi-nationals were just involved in
technology transfer, and not policy making.
Phase 3:
NTP 1999 brought about 3rd generation reforms on this sector. FDI increased from 49% to 74%.
Internet telephony was launched in 2002 and broadband policy was launched in 2004.
Government Initiatives over the Past.
The Government has taken the following main initiatives for the growth of the Telecom Sector:
• All telecom services have been opened up for free competition for unprecedented growth.
• 217 (Information Technology Agreement) ITA-I items are at zero Customs Duty. Specified
capital goods and all inputs required to manufacture ITA-I, items are at zero Customs Duty
• Availability of low cost mobile handsets
• The International Long Distance Services (ILDS) opened with effect from April 2002. Calling
Party Pays (CPP) regime was implemented with effect from 1st May 2003.
• Guidelines for Unified Access Service License regime were issued in November 2003, 27
licenses out of 31 Basic Service Licenses were converted to Unified Access Service Licenses
• In April 2004, license fee for Unified Access Service Providers (UAS) was reduced by 2 per
cent
• License fee for infrastructure Provider-II reduced from 15 per cent to 6 per cent of the
Adjusted Gross Revenue and spectrum charges between 2 to 4 per cent in June 2004
• Entry fee for NLD licenses was reduced to Rs. 2.5 Crore from Rs. 100 Crore. Entry fee for
ILD reduced to Rs. 2.5 Crore from Rs. 25 Crore
• Lease line charges have been reduced to make the bandwidth available at competitive prices
to facilitate growth in IT enabled services
• One India plan i.e. single tariff of Re. 1/- per minute to anywhere in India was introduced from
1st March 2006 by the Public Sector Undertakings. This tariff was emulated by most of the
private service providers also. This scheme has led to death of distance in telecommunication
and is going to be instrumental in promoting National Integration further.
5. • The robust telecom network has also facilitated the expansion of BPO industry that is having
500,000 employees now and adding 400 employees per day.
• Annual license fee for National Long Distance (NLD), International Long Distance (ILD),
Infrastructure Provider-II, VSAT commercial and Internet Service Provider (ISP) with internet
telephony (restricted) licenses was reduced to 6 per cent of Adjusted Gross Revenue (AGR)
with effort from Jan 2006.
• The Government’s policy is neutral on use of technology by telecom service providers subject
to availability of scarce resources such as spectrum etc.
• License Fees 6-10 per cent of Adjusted Gross Revenue (AGR).
Statistics - Growth, Users, Wired v/s Wireless
The Indian Telecom industry is the world's fastest growing industry with 811.59 million mobile
phone subscribers as of March 2011.It is also the second largest telecommunication
network in the world in terms of number of wireless connections after China.
Indian telecom operators added a staggering 227.27 million wireless subscribers in the 12
months between Mar 2010 and Mar 2011.
The fixed line segment has seen a decline in the subscriber base. It has declined to 34.73m
subscribers in March 2011 from 36.96 m in March 2010. This decline is mainly due to
substitution of landlines with mobile phones.
Mobile teledensity increased by almost 18.4 percentage points from Mar 2010 and Mar 2011
(49.60% to 67.98%) while wired subscriber numbers fell by a modest 2.2 million. This frenetic
pace of monthly subscriber additions means that the Indian mobile subscriber base has
shown a year on year growth of 43.23%
As the fastest growing telecommunications industry in the world, it is projected that India will
have 1.159 billion mobile subscribers by 2013. Furthermore, projections by several leading
global consultancies indicate that the total number of subscribers in India will exceed the total
subscriber count in the China by 2013.The industry is expected to reach a size of
344,921 crore by 2012 at a growth rate of over 26 %, and generate employment
opportunities for about 10 million people during the same period.
A large population, low telephony penetration levels, government policies and regulations and a
rise in consumer spending power is the cause of this spurt in telecom industry.
6. Present FDI Policy for the Telecom sector:
• Foreign Direct Investment up to 74 per cent permitted, subject to licensing and security
requirements for the following:
- Internet Service (with gateways)
- Infrastructure Providers (Category II)
- Radio Paging Service
• FDI up to 100 per cent permitted in respect to the following telecom services:
- ISPs not providing gateways (Both for satellite and submarine cables)
- Infrastructure Providers providing dark fibre (IP Category I)
- Electronic Mail
- Voice Mail
The above is subject to the following conditions:
- FDI up to 100 per cent is allowed subject to the condition that such companies would
divest 26 per cent of their equity in favour of Indian public within 5 years, if these companies are
listed in other parts of the world.
- The above services would be subject to licensing and security requirements, wherever
required.
- Proposals for FDI beyond 49 per cent shall be considered by Foreign Investment
Promotion Board (FIPB) on a case-to-case basis.
• In the manufacturing sector 100 per cent FDI is permitted under the automatic route.
• In Basic, Cellular Mobile, paging and Value Added service, and Global Mobile Personal
Communications by Satellite, FDI is permitted up to 49 per cent (under automatic route) subject
to grant of license from Department of
Telecommunications.
Budget Impact on Telecom Sector
According to the general budget for 2011-12:
- The government has proposed to raise Rs 29,648.33 crore through recurring license
fees, and other usage charges from the telecom sector. The usage charges includes license
fees from the telecom operators, receipts on account of spectrum usage charges, auction of
third generation (3G), and Broadband Wireless Access (BWA) spectrum.
- The Minimum Alternate Tax (MAT) has been increased from 18% to 18.55. This will
7. adversely affect the telecom companies.
- The reduction in the surcharge on corporate tax from 7.5% to 5%.
- The budget targets rural broadband connectivity in 2 years to all 2.5 lakh panchayats.
Point of View of Industry:
● Key areas like clarity on deduction of upfront 3G spectrum fees, re-introduction of tax
holiday to new operators, resolving controversy around tax withholding on payments for
interconnectivity charges, use of passive infrastructure, clarity on taxability of inbound
roaming are not addressed.
● The license fees will put additional financial burden on the larger telecom service
providers
● The industry demanded an exemption of service tax on broadband which was not
considered.
Some Stand Alone Gyaan for Topics
Mobile Number Portability (MNP)
TRAI announced the rules and regulations to be followed for the Mobile Number Portability in
their draft release on 23 September 2009. Mobile Number Portability (MNP) allows users to
retain their numbers, while shifting to a different service provider provided they follow the
guidelines set by TRAI. Once a customer changes his/her service provider & retaining the same
mobile number they are expected to hold the mobile number with a given provider for at least 90
days, before they decide to move to another service provider. This restriction is set in place to
keep a check on exploitation of MNP services provided by the service providers
On 25 November 2010 said Mobile Number Portability (MNP) was finally launched in Haryana.
3g Technology
This technology has been intended for smart phones which can be used for high speed internet.
It can provide with speeds up to 2 Mbps.
Thus services like internet surfing, gaming, video conferencing are easily provided.
3g technology was implemented in Japan for the first time.
8. Major Players in Telecom Industry
There are three types of players in telecom services:
• State owned companies (BSNL and MTNL)
• Private Indian owned companies (Reliance Communications, Tata Teleservices,)
• Foreign invested companies (Vodafone-Essar, Bharti Tele-Ventures, Idea Cellular, BPL
Mobile etc.)
Service Provider No of CDMA subscribers in No of GSM subscribers in
Crores Crores
Reliance 2.7
Tata 1.07
Airtel 3.37
MTNL 0.25
BSNL 2.44
Vodafone 2.44
Idea 1.3
Spice 0.26
BPL 0.11
Aircel 0.48
Prospects (Hindrances and Opportunities):
● As far as the fixed line business goes, the low penetration levels in the country and the
increasing demand for data based services such as the Internet will act as major
catalysts in the growth of this segment. The PSUs will however continue to retain their
dominant position. This is on account of high capital investments required in setting up a
nationwide network. As a result, the private sector players will have to rely on key
business centers and pockets of high urbanization for their growth.
● Increasing choice and one of the lowest tariffs in the world have made the cellular
services in India an attractive proposition for the average consumer.
● During FY10, the Government completed the auction of 3G as well as the Broadband
Wireless Access (BWA) spectrum auctions. The final price for a pan India 3G spectrum
stood at a whopping '16,751 crores. As a result, there was no single operator with a pan
India license. The maximum circles that an operator got 3G spectrum was for 13 circles.
For BWA, the final auction price for a pan India license was '12,848 crores. There
emerged a new competitor in this field with Reliance backed Infotel being the only
9. operator to win a pan India BWA license.
The main driver out here would be the ability to get real time information on the move.
● During the year the Telecom Regulatory Authority of India (TRAI) also proposed new
guidelines for charging spectrum fee and for mergers and acquisitions in the sector. On
the face of it these guidelines appear to be more detrimental for the sector rather than
helpful. If applied, these guidelines would increase the financial burden for the GSM
operators by making them pay higher spectrum charges as well as humongous fee for
holding higher quantities of spectrum. The guidelines also pose hurdles for mergers and
acquisition activities.
● MNP would definitely lead to an increase in churn in the sector with each operator vying
for subscriber’s attention to their own networks.
Hence the operators would have to maintain Quality of Service (QoS) to retain their
customers.
● Investors can look to capture the gains of the Indian telecom boom and diversify their
operations outside developed economies that are marked by saturated telecom markets
and lower GDP growth rates.
● Infrastructure equipment cost is down to a fraction of what prevailed just a few years
ago. Operators can plan better expansion plan now.
● Operators can look at options like Interactive gaming, Mobile TV, M-Commerce and
other MVAS to generate revenue and arrest falling ARPUs.
● Internet users base fast reaching near the English speaking population base. Local
language and content required for further growth.
● Increased viability for the operators to expand to semi-urban and rural markets and
hence accelerate the growth further.
● Mobile advertising is another source of revenue which is expected to grow to $56.6
million in 2011.
Career Prospects:
10. ● With the setting up of new service bases, expansion of coverage areas, network
installations maintenance etc. the telecom industry is going for high scale requirements.
● There is high demand for software engineers, mobile analysts, hardware engineers etc.
for different work in telecom sector.
● There are ample opportunities for marketing people whose services are required to
capture the ever increasing consumer base.
In this report we try to provide some information of the Indian Telecom Sector in June, 2011, based
on secondary research. The boom phase for Indian telecom market continues to thrive on the
availability of cheaper telecom services alongside an aggressive marketing strategy by the service
providers. The growth phase is panning out across India and is not just limited to urban India. While
the customer satisfaction has increased substantially in 2010 and 2011, as per a survey done by
TRAI, the profitability of the sector has decreased substantially in 2011.
While the market continues to be led by Bharti Airtel, in terms of market share by revenue, it is
closely followed by Vodafone and the relative younger player, Idea Cellular. BSNL is continuing to
witness a sharp decline in its subscriber base, with probably the highest ever telecom churn in the
industry.
11. One of the major causes while the telecom operators
have seen such a mixed bag of fortune is due to the introduction of the Mobile number portability
(MNP). Due to the introduction of this service via regulation, customers will be able carry their
mobile number across service providers in India. The biggest affected service providers had been
Reliance and BSNL, while Airtel has been the leading gainer from this exercise.
