TELECOMMUNICATION

A Brief Analysis

KHETE PRATHAMESH PRAMOD

HEMANT KOTHARI
JAYA CHOUDHURY
MANAN VERMA
MANGROLIYA ANKUR
VITHTHALBHAI
MANIK RAJPUT
MONDAL SHOUBHIK

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Table of Content

Serial
No.

Topics

Introduction

Telecommunication Sector

Current Telecom Sector in India

Degree of Product Differentiation

Competition

Challenges and Recommendation

References

Competition
To see the competition in the telecom sector, Porters five forces analysis is done: -

Threat of New
Entrants

Threat of Sustitute
Products or
Services

Customer
Rivalry
Bargaining Power
of Buyers

Bargaining Power
of Suppliers

Fig 1.7 Porters Five Forces Analysis

Buyer Power Analysis

Buyers in Telecom industry generally land in two categories:
1. Individual and
2. Enterprise Customers like IT companies, Banks etc.
Product differentiation
Airtel, Relience,Idea and all other companies have similar prices for similar products and less
likely for any one to maintain product differentiation and hence buyers have the option to
switch over.
Competition between buyer
The individual buyers dont have any competition among themselves but enterprise
customers like IT or banks do have. Enterprise customers generate major part of the revenues
for any telecom companies like Relience, Airtel or Idea which means higher buyer power.
But this is not significant for the one who deals with individual customers.
Size and concentration of buyers relative to products
1. The total subscribers, including wireless and wire-line, in India reached
938.34 million in May 2014, with the monthly addition of 2.54
million subscribers. Big size and low concentration of consumption per
individual gives lower leverage to buyer power.

2. Enterprise customers Big size and big concentration of consumption accrues

high buyer power.
3. Together we can say its moderate buyer power in terms of size and
concentration.
Buyers switching cost
1. Low switching cost. Low new connection cost. With Mobile Number
Portability, switching has become more easier. TRAI(Telecom Regulatory
Authority Of India) expected that the subscriber has to pay not more than Rs.
200. Some of the operators have estimated the charges can be as low as Rs. 20.
2. December,2013
109.37million
3. January, 2014
111.94million
Meaning Low switching cost and high buyer power.
Buyers information
1. Buyers information regarding the availability of other options has become high
2. Increased social networking, high advertisements through TV, hoardings, banners and
word of mouth, buyers are well informed about the substitute products with better
offerings urban as well as rural areas.
Means high buyer power
Suppliers Power Analysis
Suppliers for the Telecom Operators
1. There is a price war happening between the different mobile operators, so even
the suppliers are chosen carefully so that they do not drag down the
profitability of the company. So the suppliers have less bargaining power in
this industry.
a. Mobile Tower Companies
b. SIM cards
c. Mobile phone handsets

List of Mobile Operator and their Tower Services:

Operator

Tower Service

Bharti

BIL/ITL

Reliance

RITL

Vodafone

ITL

BSNL

MTNL, BSNL and Others

Idea

ITL

Tata

Viom

Less Bargaining power because of more number of suppliers.

Sim Card Manufacturers
1. Sim card for the mobile operators are mostly produced in India and some are
imported.
2. The mobile operators dont always procure the sim card from a single supplier to
avoid any delays.
The Bargaining power of suppliers is less.

Threat of Substitutes
Buyer Propensity to Substitute
1. Internet subscriber base increasing in India by 18.06% , compared to 10.60%
for GSM/CDMA services.
2. Representations from the industry and from within the DoT to open up Net
telephony.
3. Dot also contemplating allowing operators without a unified access license,
which includes broadband and Internet companies such as Google and Skype
to offer telephony services for international calling and PC-to-PC domestic
calls.
Relative Prices
1. Internet Telephony eating into the revenue of GSM/CDMA telephony.
2. Flat/ fixed rate revenues from internet services - cannibalization of revenues from
GSM/CDMA services.
3. Performance of Substitute
1. Voice quality is an issue with internet telephony.
2. Internet voice services also currently limited due to regulatory road blocks.
Threat Of Entry
Capital Requirements
1. Cost of maintaining one tower (active + passive) is estimated at Rs. 60,00065,000 per month.
2. If tower is rented then monthly rent of Rs. 40,000-45,000 for active network.
3. The monthly outflow of a TSP would be close to Rs. 80,000-85,000 per tower
per month.

4. Bharti has invested close to Rs. 230 billion to create the cellular infrastructure
with 45,000 towers across the country.
Access To Optical Fibre Network
1. The largest optical fibre has been built by the incumbent operator BSNL who is also
the long distance operator.
2. The private sector players such as Bharti and Reliance have also constructed optical
fibre cable network connecting mainly cities and towns but their presence is very
limited in the rural areas.
3. It is fairly difficult and cost- ineffective for new entrants to lay down optical fibre
connecting remote places as well.
Government And Legal Barriers
1. Private operators will have to enter into an arrangement with fixed-service
providers within a circle for traffic between long-distance and short-distance
charging centres.
2. Seven years time frame set for rollout of network, spread over four phases.
Any shortfall in network coverage would result in encashment and forfeiture
of bank guarantee of that phase.
3. Private operators allowed to set up landing facilities that access submarine
cables and use excess bandwidth available.
4. 100% Foreign Direct Investment (FDI) is allowed through automatic route for
manufacturing of telecom equipments.

Challenges & Suggestions

Telecom businesses in India are going through an evolution phase from Third Generation
mobile networks (3G) to Fourth generation (4G), but at the same time it is experiencing one
of the most difficult times in their history as the revenues are dwindling. This is common with
almost all the communication service providers (CSP) across the India as well as globe. The
challenges faced by an operator range from how to service the most basic communication
needs to how to deliver complex services all in a highly competitive market driven by
regulatory challenges and issues.
While the 2016 Budget is a promising effort to steer the sector, the country's digital
transformation agenda will require catalytic efforts and for strengthening the business
climate.

Financial Challenges: The Indian telecom industry is currently facing a challenging

financial environment. The sectors total debt was higher than the Gross Revenues. In
addition, multiple taxes and levies have added to the woes of operators. These taxes account
for about 30% of the revenues. The financial issues are further worsened by spectrum related
issues such as very high pricing, unavailability of optimum quantum of spectrum and lack of
a spectrum roadmap are factors that continue to affect the sector adversely.
The debt equity ratio for the sector is given below:
Debt - Equity Ratio
Public Sector

Private Sector

2
1.6
Debt- Equity Ratio

1.38

1.2

0.98
0.8 0.69

Total
1.81

1.74

1.25

1.26

0.26

0.29

0.93

0.4

0.17

0 0.11

Fig. 1.8 Debt- Equity Ratio

On the direct tax front, the Finance

Minister has sought to clear the ambiguity around the tax treatment of payments made
by the Telcos towards spectrum fees. A proposal has been made to provide for
amortization of the fee payment over the period of life of spectrum. This
announcement may not be welcome by telecom companies since it results in
ambiguity and litigation risk in respect of spectrum fee paid for prior years, whereby
the operators have largely taken the position that spectrum is an intangible asset liable
for tax depreciation. As can be seen from the graph the spectrum per operator is very
less in India.
Glo bal aver age o f s pec tr um (in MHz ) per o per ato r
69

65
50

49
39
28
18

Fig. 1.9 Global Average of Spectrum per Operator

Recommendation: Spectrum trading and

sharing should be allowed at the earliest to encourage its efficient use.

1. Governments surveillance based challenges: Laws/regulations, which provide

government access to user data without following robust procedural safeguards can create
an environment of uncertainty for businesses as well as citizens.
Recommendation: Guidelines and mandates need to be established to undertake any
surveillance activity and it should be preferably carried out under the watchful eye of an
independent judicial authority.
2. Weak Ecosystem for local manufacturing: In spite of Indias handset market growing at
a robust rate, almost 83% of the demand is met via imports, while domestic production
and manufacturing continues to lag.
Recommendation: This trend is expected to change after the Make in India campaign
pick up and local sourcing and manufacturing rises.
Mo bile ha nds e t unit im po rt e d a nd e x po rt e d ( m illio n)
Import

Export
259
225
188

50 55

70 68

90 80

130
105

130
85

73
14
0

3.

Fig. 1.10 Mobile Handset Unit Imported and Exported

Digitization

is

changing

the

competitive boundaries of the

telecom industry: Historical revenues such as voice, SMS, roaming and interconnect are
dropping even though the number of subscribers have increased year on year. This is
because people spend a mere 16% of their time on phone calls and the other 84% on
activities like browsing the web, communicating by email, using social apps, watching
videos or TV, gaming, etc. These applications are being delivered in an over-the-top
(OTT) model.
The major disruptions are brought in by new consumer touchpoints created by devices
based on Internet of Things. A range of technologies, including those embedded in
watches, apparel, and glasses, are vying to occupy the interface with telecom customers.
Recommendation: CSPs (Communication Service Providers) will have to venture into
non-traditional services like M2M, Media/Entertainment, Health, and Cloud Computing
in strategic alliances with diverse industries. Small & Medium Business (SMB),
Government & Public Sector etc. are the promising area for CSPs to generate revenue.
The key is to capitalize on the existing customer base and use that as a propeller to offer
them a variety of services.
In order to achieve this, CSPs will have to overcome challenges that come in the form of

complex partner ecosystem, delivery inexperience across multiple industries, lack of

domain knowledge etc. To overcome CAPEX challenges in the setting up of new
services, operators will have to arrive at the right engagement model like Joint Go to
Market (jGTM) / revenue sharing with the right alliance with solution providers.
4. Data Security for cloud based services: Customers are concerned that transmitting and
storing data over a public internet, as opposed to storing it entirely within an exclusive
corporate network, is likely to increase data vulnerability and expose it to unauthorized
users. As the cloud aggregates data and services of multiple users on the same platform, it
becomes an easy target for cyber-attacks.
Recommendation: The Government should identify best practices suchas ISO 27001 and
SAS 70 for the audit process and upgrade its encryptions standards of a cloud-based
service provider to provide assurance to its customers.
5. Sustaining margin and improving operations: Improving customer experience has
gained importance as a distinctive means of securing and enhancing lifetime value. The
bottom-line is that operators cannot afford to give them low or equal service levels,
holding IT and implementation issues responsible.
Major growth will be driven by the rural Indian subscriber base, where current
penetration is 30% and ARPU is just INR 160. Service providers will face the dual
challenge of serving them cost-effectively and giving relevant services that will be
adopted and used.
6. Challenges in 4G Business: Sunil Mittal, Bharti Enterprises Chairman, has described
Mukesh Ambanis telecom venture Reliance Jio as formidable competition. Reliance
Jio will offer low-priced devices in order to win customers, forcing big players like Airtel
and Vodafone to respond in kind, leading to a Price-War. It will reshape the Indian
telecom industry by lowering the number of major operators from ten to five.
Recommendations: Reliance Jios delayed launch has given some time to other players
to better equipped for future competition. So other players should focus on developing
stratefy and capturing market share.
Response Strategies of Service Providers
There have been sporadic price cuts on data plans by major telcos to drive data usage and
volume. Interestingly, Anil Ambani-led RCom has already kicked off the consolidation
phase with its merger with smaller operator Sistem Shyam Teleservices (SSTL). RCom is
also in talks with Aircel for a possible 50:50 wireless joint venture. Mittal said that Airtel
is putting $9 billion into network improvements and new spectrum over the next three
years, adding to the $23 billion the company has invested since it launched in 1995. The
investment will be an answer to Reliance Industries Limited (RIL), which is spending

more than $16 billion on Jios 4G network. Mittal also told the publication that Airtel
invested more than $4bn last year in anticipation of the arrival of Reliance Jio 4G
business.

References
Websites: http://www.ibef.com
http://www.trai.gov.in
http://www.itu.int
http://www.airtel.in
http://www.bsnl.co.in
http://www.marketrealist.com
http://www.slideshare.net
http://www.mckinsey.com
http://www.ukessays.com
http://www.ey.com
Reports: Indian Telecomm Sector by S P Jain Institute of Global Management
Five trends to watch in Indian Telecom in 2016 by PwC
ICT Facts & Figures by ICT