tel
Content
ndia's teledensity has improved from under 4% in March 2001 to around 53% by the end of March 2010. Cellular telephony has emerged as the fastest growing segment in the Indian telecom industry. The mobile subscriber base (GSM and CDMA combined) has grown from under 2 m at the end of FY00 to touch 584 m at the end of March 2010 (average annual growth of nearly 76% during this ten year period). Tariff reduction and decline in handset costs has helped the segment to gain in scale. The cellular segment is playing an important role in the industry by making itself available in the rural and semi urban areas where teledensity is the lowest.
y
The fixed line segment has actually seen a decline in the subscriber base. It has declined to 36.96 m subscribers in March 2010 from 37.96 m in March 2009. The decline was mainly due to substitution of landlines with mobile phones. As far as broadband connections (>=256 kbps) are concerned, India currently has a subscriber base of 8.8 m. It has grown at an average annual growth rate of 40% since 2008. The auction for broadband wireless license and spectrum has concluded recently. The government is expected to allocate spectrum before the end of this year. This will further boost the broadband penetration in the country. Intense competition has resulted in prompt service to the subscribers.
y
Key Points Supply
Demand
Given the low tariff environment and relatively low rural and semi urban penetration levels, demand will continue to remain higher in the foreseeable future across all the segments. High capital investments, well-established players who have a nationwide network, license fee, continuously evolving technology and lowest tariffs in the world. Improved competitive scenario and commoditisation of telecom services has led to reduced bargaining power for services providers. A wide variety of choices available to customers both in fixed as well as mobile telephony has resulted in increased bargaining power for the customers. Competition has intensified with the entry of new cellular players in circles. Reduced tariffs have hurt all operators.
Barriers to entry
Bargaining power of suppliers Bargaining power of customers
Competition
Financial Year '10 y FY10 saw the continuance of strong growth for the Indian telecom market, which witnessed a 45% YoY increase in its subscriber base during the 12-month period. At the end of March 2010, the country's total telecom subscriber base (fixed plus mobile) stood at about 621 m. The tele-density level stood at about 53% by the end of the fiscal.
y Growth remained robust in the GSM mobile space. GSM added 87 m
subscribers during the year. After a strong 50% YoY increase in subscriptions during FY09, the GSM industry recorded another good performance during FY10, growing subscriber base by 22% YoY to about 479 m.
y During FY10, India's mobile subscriber base grew by 49% YoY, from 392 m to
584 m, while the fixed subscriber base declined by about 3%, from 37.9 m to about 36.9 m. TOP
Prospects y 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 urbanisation for their growth.
y 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. The segment's subscriber base has grown by over 49% YoY in FY10. As per Pricewaterhouse Coopers, India's mobile subscriber base is expected to exceed 1 bn by 2014 and will be driven by additions in the rural areas. India's rural teledensity for mobile subscribers currently stands at 32.7%.
y 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 operator to win a pan India BWA license.
y 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, which are essential for reducing the overheated competition in the sector which currently has about 15 operators.
y During the current fiscal, a lot of focus will be given to new policy initiatives in the
industry. The telecom regulator TRAI has set October 31st as the date for implementing mobile number portability (MNP) which allows subscribers to switch networks without changing the number. This would definitely lead to an increase in churn in the sector with each operator vying for subscriber attention to their own networks. In addition to this, the government is supposed to allocate 3G spectrum later during the year. Therefore, by the end of this fiscal, the operators would start rolling out 3G services in some circles at least.
Budget 2010-11: Telecom
The Indian telecom industry has continued with its strong subscriber additions during the current year. At the end of January 2010, the total subscriber base stood at nearly 582 m, of which wireless subscribers contributed to nearly 94%. During March 2009, this figure had stood at about 429 m. The key reason for such a growth in subscriber base has been the affordability factor. With many new entrants launching services in India, competition has reached unprecedented levels. The new entrants have resorted to offer very attractive schemes in attempt to grab their share of the overall market. While companies all across have been able to add subscribers to their base, the benefits of the same have not really been reflected in their financial performances. This is on the back of a sharp decline in tariffs. Budget Measures
y The allocation for National Rural Employment Guarantee Scheme (NREGS) has been marginally increased to Rs 401 bn for
FY11 as compared to Rs 391 bn last year.
y Full exemption of the countervailing duty (CVD) of 4% on accessories, parts and components imported for the manufacture of
mobile phones has been extended for the full year. Plus, this exemption has been extended towards battery chargers and hands-free headphones as well.
y Excise duty exemption on parts, components and accessories of mobile handsets including cellular phones has been
extended to battery chargers and hands-free headphones as well.
y Mobile phones imported in pre-packaged form and intended for retail sale are being provided an outright exemption from
additional duty of customs of 4%.
y Increase in the rate of Minimum Alternate Tax (MAT) from 15% to 18% of book profits. y Surcharge on domestic companies reduced to 7.5% from 10%.
Budget Impact
y Increase in allocation for the NREGS will help in targeting more customers in the rural areas. y Lower CVD on accessories, parts and components will help in keeping the cost of handsets low. y Imported mobile phones would become cheaper leading to increased affordability in urban and semi-urban regions as well. y The increased MAT rate would impact the bottomline of telecom operators.
Company Impact
y Considering many new players have launched mobile services in India, the incumbents are looking at targeting smaller town
and villages for maintain their leadership position in terms of revenues and subscriber growth. Companies such as Bharti Airtel, Reliance Communication and Idea Cellular, which are present across India with a good distribution network, would be the key beneficiaries.
y With the government aiming at improving the amount of disposable income in the hands of the people, it would help the telcos. y Telecom companies would be able to enjoy the benefits of low cost handsets as it would help in keeping the strong pace of
subscriber additions buoyant. This would hold strong for rural markets.
y Increase in MAT to impact profits of Bharti Airtel and Reliance Communications.
To find : Market share of major player www.indiatelecom.org www.trai.gov.in www.telecommindia.com www.telecomindiaonline.com www.dot.gov.in
Overview Of Telecom Industry
Indian Telecom sector, like any other industrial sector in the country, has gone through many phases of growth and diversification. Starting from telegraphic and telephonic systems in the 19th century, the field of telephonic communication has now expanded to make use of advanced technologies like GSM, CDMA, and WLL to the great 3G Technology in mobile phones. Day by day, both the Public Players and the Private Players are putting in their resources and efforts to improve the telecommunication technology so as to give the maximum to their customers.
Fixed-line Telephony
y y
Public Players Subscribers Private Players Subscribers
Mobile Telephony
y y
Public Players Subscribers Private Players Subscribers
Internet Investment
The Indian telecom sector can be broadly classified into Fixed Line Telephonyand mobile telephony. The major players of the telecom sector are experiencing a fierce competition in both the segments. The major players like BSNL, MTNL, VSNL in the fixed line and Airtel, Hutch, Idea, Tata, Reliance in the mobile segment are coming up with new tariffs and discount schemes to gain the competitive advantage. The Public Players and the Private Players share the fixed line and the mobile segments. Currently the Public Players have more than 60% of the market share.
Market
shares
of
public
and
Private
Players
Both fixed line and mobile segments serve the basic needs of local calls, long distance calls and the international calls, with the provision of broadband services in the fixed line segment and GPRS in the mobile arena. Traditional telephones have been replaced by the codeless and the wireless instruments. Mobile phone providers have also come up with GPRS-enabled multimedia messaging, Internet surfing, and mobile-commerce. The much-awaited 3G mobile technology is soon going to enter the Indian telecom market. The GSM, CDMA, WLL service providers are all upgrading themselves to provide 3G mobile services.
Along with improvement in telecom services, there is also an improvement in manufacturing. In the beginning, there were only the Siemens handsets in India but now a whole series of new handsets, such as Nokia's latest N-series, Sony Ericsson's W-series, Motorola's PDA phones, etc. have come up. Touch screen and advanced technological handsets are gaining popularity. Radio services have also been incorporated in the mobile handsets, along with other applications like high storage memory, multimedia applications, multimedia games, MP3 Players, video generators, Camera's, etc. The value added services provided by the mobile service operators contribute more than 10% of the total revenue.
The leading cellular service providers have the following number of subscribers:
Service Provider Reliance Tata Airtel MTNL BSNL Hutch Idea Spice BPL Aircel
No. of CDMA Subscribers 2.75 crores 1.07 crores
No. of GSM Subscribers 38.76 lakhs
3.37 crores 24.98 lakhs 2.44 crores 2.44 crores 1.3 crores 25.56 lakhs 10.62 lakhs 48 lakhs
Bharti Airtel has the largest customer base with 31% market share, followed by Hutch and BSNL with each holding 22% market share. The 2007 budget has brought further relief to the customers with the reduction in the tariffs, both local and long distance, and with slashing down the roaming rentals. This is likely to lead to even more people going for cellular services and more and more use of the value added services. However, landline telephony is likely to remain popular, too, in the foreseeable future. MTNL, the largest landline service provider, has recently taken some bold initiatives to retain its market share and, if possible, expand it.
y
The fixed line segment has actually seen a decline in the subscriber base. It has declined to 36.96 m subscribers in March 2010 from 37.96 m in March 2009. The decline was mainly due to substitution of landlines with mobile phones. As far as broadband connections (>=256 kbps) are concerned, India currently has a subscriber base of 8.8 m. It has grown at an average annual growth rate of 40% since 2008. The auction for broadband wireless license and spectrum has concluded recently. The government is expected to allocate spectrum before the end of this year. This will further boost the broadband penetration in the country. Intense competition has resulted in prompt service to the subscribers.
y
Key Points Supply
Demand
Given the low tariff environment and relatively low rural and semi urban penetration levels, demand will continue to remain higher in the foreseeable future across all the segments. High capital investments, well-established players who have a nationwide network, license fee, continuously evolving technology and lowest tariffs in the world. Improved competitive scenario and commoditisation of telecom services has led to reduced bargaining power for services providers. A wide variety of choices available to customers both in fixed as well as mobile telephony has resulted in increased bargaining power for the customers. Competition has intensified with the entry of new cellular players in circles. Reduced tariffs have hurt all operators.
Barriers to entry
Bargaining power of suppliers Bargaining power of customers
Competition
Financial Year '10 y FY10 saw the continuance of strong growth for the Indian telecom market, which witnessed a 45% YoY increase in its subscriber base during the 12-month period. At the end of March 2010, the country's total telecom subscriber base (fixed plus mobile) stood at about 621 m. The tele-density level stood at about 53% by the end of the fiscal.
y Growth remained robust in the GSM mobile space. GSM added 87 m
subscribers during the year. After a strong 50% YoY increase in subscriptions during FY09, the GSM industry recorded another good performance during FY10, growing subscriber base by 22% YoY to about 479 m.
y During FY10, India's mobile subscriber base grew by 49% YoY, from 392 m to
584 m, while the fixed subscriber base declined by about 3%, from 37.9 m to about 36.9 m. TOP
Prospects y 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 urbanisation for their growth.
y 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. The segment's subscriber base has grown by over 49% YoY in FY10. As per Pricewaterhouse Coopers, India's mobile subscriber base is expected to exceed 1 bn by 2014 and will be driven by additions in the rural areas. India's rural teledensity for mobile subscribers currently stands at 32.7%.
y 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 operator to win a pan India BWA license.
y 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, which are essential for reducing the overheated competition in the sector which currently has about 15 operators.
y During the current fiscal, a lot of focus will be given to new policy initiatives in the
industry. The telecom regulator TRAI has set October 31st as the date for implementing mobile number portability (MNP) which allows subscribers to switch networks without changing the number. This would definitely lead to an increase in churn in the sector with each operator vying for subscriber attention to their own networks. In addition to this, the government is supposed to allocate 3G spectrum later during the year. Therefore, by the end of this fiscal, the operators would start rolling out 3G services in some circles at least.
Budget 2010-11: Telecom
The Indian telecom industry has continued with its strong subscriber additions during the current year. At the end of January 2010, the total subscriber base stood at nearly 582 m, of which wireless subscribers contributed to nearly 94%. During March 2009, this figure had stood at about 429 m. The key reason for such a growth in subscriber base has been the affordability factor. With many new entrants launching services in India, competition has reached unprecedented levels. The new entrants have resorted to offer very attractive schemes in attempt to grab their share of the overall market. While companies all across have been able to add subscribers to their base, the benefits of the same have not really been reflected in their financial performances. This is on the back of a sharp decline in tariffs. Budget Measures
y The allocation for National Rural Employment Guarantee Scheme (NREGS) has been marginally increased to Rs 401 bn for
FY11 as compared to Rs 391 bn last year.
y Full exemption of the countervailing duty (CVD) of 4% on accessories, parts and components imported for the manufacture of
mobile phones has been extended for the full year. Plus, this exemption has been extended towards battery chargers and hands-free headphones as well.
y Excise duty exemption on parts, components and accessories of mobile handsets including cellular phones has been
extended to battery chargers and hands-free headphones as well.
y Mobile phones imported in pre-packaged form and intended for retail sale are being provided an outright exemption from
additional duty of customs of 4%.
y Increase in the rate of Minimum Alternate Tax (MAT) from 15% to 18% of book profits. y Surcharge on domestic companies reduced to 7.5% from 10%.
Budget Impact
y Increase in allocation for the NREGS will help in targeting more customers in the rural areas. y Lower CVD on accessories, parts and components will help in keeping the cost of handsets low. y Imported mobile phones would become cheaper leading to increased affordability in urban and semi-urban regions as well. y The increased MAT rate would impact the bottomline of telecom operators.
Company Impact
y Considering many new players have launched mobile services in India, the incumbents are looking at targeting smaller town
and villages for maintain their leadership position in terms of revenues and subscriber growth. Companies such as Bharti Airtel, Reliance Communication and Idea Cellular, which are present across India with a good distribution network, would be the key beneficiaries.
y With the government aiming at improving the amount of disposable income in the hands of the people, it would help the telcos. y Telecom companies would be able to enjoy the benefits of low cost handsets as it would help in keeping the strong pace of
subscriber additions buoyant. This would hold strong for rural markets.
y Increase in MAT to impact profits of Bharti Airtel and Reliance Communications.
To find : Market share of major player www.indiatelecom.org www.trai.gov.in www.telecommindia.com www.telecomindiaonline.com www.dot.gov.in
Overview Of Telecom Industry
Indian Telecom sector, like any other industrial sector in the country, has gone through many phases of growth and diversification. Starting from telegraphic and telephonic systems in the 19th century, the field of telephonic communication has now expanded to make use of advanced technologies like GSM, CDMA, and WLL to the great 3G Technology in mobile phones. Day by day, both the Public Players and the Private Players are putting in their resources and efforts to improve the telecommunication technology so as to give the maximum to their customers.
Fixed-line Telephony
y y
Public Players Subscribers Private Players Subscribers
Mobile Telephony
y y
Public Players Subscribers Private Players Subscribers
Internet Investment
The Indian telecom sector can be broadly classified into Fixed Line Telephonyand mobile telephony. The major players of the telecom sector are experiencing a fierce competition in both the segments. The major players like BSNL, MTNL, VSNL in the fixed line and Airtel, Hutch, Idea, Tata, Reliance in the mobile segment are coming up with new tariffs and discount schemes to gain the competitive advantage. The Public Players and the Private Players share the fixed line and the mobile segments. Currently the Public Players have more than 60% of the market share.
Market
shares
of
public
and
Private
Players
Both fixed line and mobile segments serve the basic needs of local calls, long distance calls and the international calls, with the provision of broadband services in the fixed line segment and GPRS in the mobile arena. Traditional telephones have been replaced by the codeless and the wireless instruments. Mobile phone providers have also come up with GPRS-enabled multimedia messaging, Internet surfing, and mobile-commerce. The much-awaited 3G mobile technology is soon going to enter the Indian telecom market. The GSM, CDMA, WLL service providers are all upgrading themselves to provide 3G mobile services.
Along with improvement in telecom services, there is also an improvement in manufacturing. In the beginning, there were only the Siemens handsets in India but now a whole series of new handsets, such as Nokia's latest N-series, Sony Ericsson's W-series, Motorola's PDA phones, etc. have come up. Touch screen and advanced technological handsets are gaining popularity. Radio services have also been incorporated in the mobile handsets, along with other applications like high storage memory, multimedia applications, multimedia games, MP3 Players, video generators, Camera's, etc. The value added services provided by the mobile service operators contribute more than 10% of the total revenue.
The leading cellular service providers have the following number of subscribers:
Service Provider Reliance Tata Airtel MTNL BSNL Hutch Idea Spice BPL Aircel
No. of CDMA Subscribers 2.75 crores 1.07 crores
No. of GSM Subscribers 38.76 lakhs
3.37 crores 24.98 lakhs 2.44 crores 2.44 crores 1.3 crores 25.56 lakhs 10.62 lakhs 48 lakhs
Bharti Airtel has the largest customer base with 31% market share, followed by Hutch and BSNL with each holding 22% market share. The 2007 budget has brought further relief to the customers with the reduction in the tariffs, both local and long distance, and with slashing down the roaming rentals. This is likely to lead to even more people going for cellular services and more and more use of the value added services. However, landline telephony is likely to remain popular, too, in the foreseeable future. MTNL, the largest landline service provider, has recently taken some bold initiatives to retain its market share and, if possible, expand it.
