Indian Telecom Industry

Introduction India is the worlds second-largest telecommunications market, with 898 million subscribers as on March 2013. The sector's revenue grew by 13.4 per cent to reach US$ 64.1 billion in FY12. Telecom infrastructure in India is expected to increase at a compound annual growth rate (CAGR) of 20 per cent during 2008-15 to reach 571,000 towers in 2015. Internet traffic in India is expected to reach to 2.5 exabytes per month in 2017 from 393 petabytes per month in 2012, as per a Cisco study. In addition, the wireless connectivity in India is expected to grow at about 40 per cent traffic by 2017, up from 38 per cent in 2012. India has immense opportunities for telecom operators and is one of the best markets for telecom business. Right now, we feel the Indian market is ripe for M&A stories, highlighted Mr Dmitry Shukov, CEO, Sistema Shyam Teleservices (SSTL). Key Statistics India has recorded 55.48 crore mobile users as per Juxts study titled, India Mobile Landscape (IML) 2013. More than 29.8 crore, about 54 per cent, of these device owners are in rural areas as compared to 25.6 crore in cities and towns," added Mr Mrutyunjay, Co-founder, Juxt. The telecommunications industry attracted foreign direct investments (FDI) worth US$ 12,866 million during April 2000 to June 2013, an increase of 7 per cent to the total FDI inflows, according to data published by Department of Industrial Policy and Promotion (DIPP). Moreover, the cumulative revenue of telecom service providers was recorded at Rs 54,284 crore (US$ 8.32 billion) in the January-March 2013 quarter, as per Telecom Regulatory Authority of India (TRAI) data. Market Dynamics The Indian mobile phone market is highly competitive with more than 150 device manufacturers trying to attract the consumers with their schemes and offers. Most of these producers focus their efforts on the low-cost feature phone market, which constitutes over 91 per cent of overall mobile phone sales, offering a huge scope for growth. India added 1.49 million GSM subscribers in July 2013, taking the total GSM user base in India to 672.63 million. Moreover, in June 2013 the GSM telecom operators added 2.33 million new subscribers, to take the user base to 271.6 million at the end of the month, according to the data released by Cellular Operators Association of India (COAI) The GSM incumbentsBharti Airtel, Vodafone and Idea Cellularhave jointly crossed 70 per cent in revenue market share and had a 99.6 per cent share of the incremental revenues during the June 2013 quarter, as per the latest figures released by TRAI. The mobile value-added services (MVAS) market is expected to reach US$ 9.5 billion in 2015, from US$ 4.9 billion in 2012, as per a joint research report by Wipro Technologies and the Internet and Mobile Association of India (IAMAI). A total of 9.4 million smartphones were shipped into the country, registering a growth of 167.3 per cent on an annual basis. India also witnessed 73.5 million mobile handset shipments for the January-April 2013 period. Key Developments & Investments

Viom Networks Ltd has won a contract to provide Wi-Fi and other Internet-related services at the Chennai International Airport. The deal is expected to be in the range of Rs 20 Rs 30 crore (US$ 3.06- US$ 4.59 million) Tata Consultancy Services (TCS) has been selected to deploy a new rating and billing system for Macau's telecom service provider, CTM. The solution will allow CTM's customers to receive faster response to enquiries and enable them to better manage their services and bills, according to the company's press statement Aegis, the global outsourcing and technology services firm under Essar Group, has won a human resource outsourcing contract from Saudi Telecom Co, further extending its existing relation with the company. The deal is estimated to be in the range of US$ 50- US$ 60 million Videocon Mobile Services plans to invest Rs 800 crore (US$ 122.61 million) in Gujarat for opening over 500 towers and 150 exclusive outlets in 2013-14 Reliance Communications (RCom) and Tata Teleservices Ltd (TTSL) have joined hands under a 2G intracircle roaming arrangement. Under the agreement, RCom will use 5,000 towers of TTSL across 14 GSM circles while the latter will gain access to an equal number of towers in RCom's CDMA network to improve its reach Bharti Airtel has raised its stake to 51 per cent in four entities of Qualcomm's wireless broadband business in India. In addition, the firm plans to launch an international fibre-optic cable link to boost internet speeds in Bangladesh

Government Initiatives The telecom tower provider industry has been granted the 'infrastructure' status, a move that will make tower providers eligible for viability gap funding, higher limit on external commercial borrowings (ECBs), lower import duties and exemptions on excise duty on telecom infrastructure equipment. The Government of India's decision to allow 100 per cent foreign direct investment (FDI) in telecommunication sector will enable foreign telecommunication companies to buy out their Indian partners. At present, India permits up to 74 per cent FDI in the sector - 49 per cent through the automatic route and the rest after Foreign Investment Promotion Board (FIPB) approval.

The Government intends to make India a teleport hub, enabling it to become an up-linking/down-linking centre. The initiative is expected to facilitate foreign investments, better technology and sustainable employment opportunities in the country. The Government has recently given its nod to 74 per cent of FDI in DTH, IPTV, and mobile TV Reliance Jio Infocomm (RJIL) has received an approval from the Department of Telecommunications (DoT) to test the messaging feature on the fourth-generation long-term evolution (4G LTE) platform The new guidelines issued by the DoT according to which foreign entities can participate in the upcoming 2G auctions directly and obtain a licence. The initiative is expected to make the upcoming auctions more attractive to certain foreign players such as Telenor, which wanted to bid directly without an Indian partner in the auctions. There will be a lock-in period of three years

Road Ahead On back of ongoing investments into infrastructure, the country is projected to witness high penetration of internet, broadband, and mobile subscribers in the near future. Various policy initiatives by the Indian government have led to a complete transformation of the industry in the last decade. It has achieved a phenomenal growth during the last few years and is poised to grow further. The current scenario in Indian market has also given impetus to the information and communication technology (ICT) exports and in turn it forms the most significant component of the internet's impact on the countrys GDP.

Nevertheless the private consumption and investment from private and public sector have greater potential to grow in the future, as per a report by McKinsey and Co. Exchange Rate Used: INR 1 = US$ 0.01533 as on September 8, 2013