Blue Diamond Project

Indian Telecom Industry

Group 10

Tribhuvan Kumar 10EX-056

Udai Singh 10EX-057

Vishveshwar Pise 10EX-058

Vivek Bhola 10EX-059

Writankar Kundu 10EX-060

Contents
Executive Summary............................................................................................................................................. 3
Indian Telecommunication Industry – A Snapshot ............................................................................................. 4
Telecom Regulatory Authority of India (TRAI) .................................................................................................... 6
Mobile Services ................................................................................................................................................... 8
Business Policy Analysis & its Implications ......................................................................................................... 9
Technology and Strategic Aspects: ................................................................................................................... 12
Porter’s Diamond Analysis ............................................................................................................................ 15
Major Mobile Services Providers in India ..................................................................................................... 16
Regulatory Framework ................................................................................................................................. 17
Key Trends in Indian Telecom sector ............................................................................................................ 18
FDI in Indian Telecom Sector ........................................................................................................................ 19
Porter's 5 Forces Analysis ............................................................................................................................. 19
India’s Competitive Advantage ..................................................................................................................... 21
Stable Economic Outlook .............................................................................................................................. 22
Large Market Potential ................................................................................................................................. 22
Large Talent Pool........................................................................................................................................... 23
Low Labour Cost............................................................................................................................................ 23
India –an ideal destination for investments ................................................................................................. 24
Opportunities for AVG group in India ........................................................................................................... 25
Shifting Focus on Rural Telephones .............................................................................................................. 25
Potential for Further Growth ........................................................................................................................ 26
Forecast of Indian Telecommunication Industry .......................................................................................... 28
Recommendation.......................................................................................................................................... 29
Life cycle position.................................................................................................................................... 29
Business cycle .......................................................................................................................................... 29
Demand Analysis........................................................................................................................................... 30
- Real and Nominal Growth & Supply/Demand Analysis ........................................................................ 30
Supply Analysis.............................................................................................................................................. 31
–Degree of Concentration ......................................................................................................................... 31
Ease of entry ................................................................................................................................................. 31
Industry capacity ........................................................................................................................................... 31
Profitability ................................................................................................................................................... 32
The Road Ahead ............................................................................................................................................ 32
Executive Summary

The fast track growth of the Indian telecom industry has made it a key contributor to India’s
progress. India adopted a phased approach for reforming the telecom sector right from the
beginning. Privatization was gradually introduced, first in value-added services, followed by cellular
and basic services. An independent regulatory body, Telecom Regulatory Authority of India (TRAI),
was established to deal with competition in a balanced manner. This gradual and thoughtful reform
process in India has favored industry growth.

Today, there are more than 225 million telecom subscribers in India. Every month, 6-7 million new
subscribers are added. Upcoming services such as 3G and WiMax will help to further augment the
growth rate.

Furthermore, the Indian economy is slated to sustain its 7-9 per cent growth rate in the near future.
This is supported by the political stability that the country is experiencing currently. India’s
demographic outlook makes it one of the largest markets in the world. Conducive business
environment is also created by a favourable regulatory regime.

There exists enormous business potential for telecom companies on account of the country’s low
teledensity which is close to 19 per cent presently. The Indian telecom industry is growing at the
fastest pace in the world and India is projected to be the second largest telecom market globally by
2011.
Indian Telecommunication Industry – A Snapshot

India has one of the biggest telecom markets in the world. It has more GSM subscribers than fixed-
line subscribers.

•Total telecom subscribers –752 million (Feb 2011)

•Teledensity –52.27 per cent

•Annual growth rate of telecom subscribers (June 2008–June 2009) –42.68 per cent

•Average Revenue per User (ARPU) for GSM (as on 30 June 2009) –US$ 3.801

•Telecom equipment market (2008–09) –US$ 24.99 billion

•Handset market (2008-09) –US$ 5.82 billion

•Expected mobile subscriber base (2013) –About 1152 million.

The Indian telecom industry generated revenues of approximately US$ 32 billion in 2007–08 with a
growth rate of 60 per cent over 2006–07.

•It witnessed a compound annual growth rate (CAGR) of approximately 29 per cent from 2002–03
to 2007–08.

•The CAGR of approximately 20 per cent between 2007–08 and 2009–10 and expected to stabilize
at 16 percent in future.
Telecom Regulatory Authority of India (TRAI)

Mission
To ensure that the interests of consumers are protected and at the same time to nurture
conditions for growth of telecommunications, broadcasting and cable services in a manner and
at a pace which will
Enable India to play a leading role in the emerging global information society.

Role of TRAI

One of the main objectives of TRAI is to provide a fair and transparent policy environment which
promotes a level playing field and facilitates fair competition. In pursuance of above objective
TRAI has issued from time to time a large number of regulations, orders and directives to deal with
issues coming before it and provided the required direction to the evolution of Indian
Telecom market from a Government owned monopoly to a multi operator multi service open
competitive market. The directions, orders and regulations issued cover a wide range of subjects
including tariff, interconnection and quality of service as well as governance of the Authority.
The functions of TRAI can be divided as: Recommendatory function and Mandatory Function.
Recommendatory Functions
• Need and timing for introduction of new service provider

• Terms and conditions of license to a service provider

• Revocation of license for non-compliance of terms and conditions of license

• Measures to facilitate competition and promote efficiency in the operation to facilitate

growth in industry

• Technological improvement in services by service providers

• Inspection of type of equipment used by service provider

• Measures for Technological development

• Efficient Management of available spectrum

Mandatory Functions
• Ensure compliance of terms and conditions of license

• Fix the terms and conditions of their inter connectivity between service providers

• Ensure Technical compatibility and effective inter-connection between different

service providers

• Regulate arrangements for sharing of revenues amongst service providers

• Lay-down the standards of Quos to be provided by service provider, ensure this by

periodical survey

• Lay-down and ensure time period for providing local and long-distance
circuits of telecommunication between different service providers

• Maintain inter-connect agreement register

• Ensure compliance of USO(universal service obligation)

Other functions
• Levy fees and other charges as determined by regulations

• Perform administrative functions as entrusted to it by Central government or as per TRAI act

• Notify in Official Gazette the service rates and message rates within and outside India

Snapshot of TRAI
functions
Mobile Services
Mobile services have led the spectacular growth of the Indian telecom industry. Currently, 12
players are active in this segment. The total number of wireless subscribers escalated to 752 million
by the end of Feb 2011, with the monthly addition of more than 6 million wireless subscribers.
GSM continues to dominate this segment by a large margin as compared to CDMA, which has a
share of only 23 per cent.
India is one of the few countries in the world to have more GSM subscribers than fixed line
subscribers.
All the operators predominantly provide voice services, value added and data services such as SMS,
mobile internet service, email, chatting, conferencing, GPRS service, etc.
Services such as video conferencing and Closed User Group (CUG) facility are also gaining
momentum.
The commoditization of voice services has been a major magnet for service providers, compelling
them to intensify their focus on data services. Revenues from value added services are growing at
30-40 per cent annually. These trends have paved the way for 3G services in India. Indian players
have constantly reduced tariffs, which in turn has led to a constant reduction in the Average Revenue
per User (ARPU). However, though the ARPU is declining gradually, it remains well supported by
the increase in subscriber base. The ARPU for GSM service in India is much higher than that for
CDMA service.
Notwithstanding a low ARPU, mobile usage is on the increase. India currently stands at number two
in the world in terms of the Minutes of Usage (Moue). The declining ARPU implies that India Inc. is
tapping the huge market at the bottom of the pyramid by reducing tariffs, thereby enhancing
affordability.
Business Policy Analysis & its Implications
The National Telecom Policy

1. The new economic policy adopted by the Government aims at improving India's
competitiveness in the global market and rapid growth of exports. Another element of the
new economic policy is attracting foreign direct investment and stimulating domestic
investment. Telecommunication services of world class quality are necessary for the success
of this policy. It is, therefore, necessary to give the highest priority to the development of
telecom services in the country.

Objectives:

2. The objectives of the New Telecom Policy will be as follows :

a. The focus of the Telecom Policy shall be telecommunication for all and
telecommunication within the reach of all. This means ensuring the availability of
telephone on demand as early as possible.
b. Another objective will be to achieve universal service covering all villages as early as
possible. What is meant by the expression universal service is the provision of access
to all people for certain basic telecom services at affordable and reasonable prices.
c. The quality of telecom services should be of world standard. Removal of consumer
complaints, dispute resolution and public interface will receive special attention. The
objective will also be to provide widest permissible range of services to meet the
customer's demand at reasonable prices.
d. Taking into account India's size and development, it is necessary to ensure that India
emerges as a major manufacturing base and major exporter of telecom equipment.
e. The defence and security interests of the country will be protected.

Present Status:

3. The present telephone density in India is about 0.8 per hundred persons as against the world
average of 10 per hundred persons. It is also lower than that of many developing countries of
Asia like China (1.7), Pakistan (2), Malaysia (13) etc. There are about 8 million lines with a
waiting list of about 2.5 million. Nearly 1.4 laky villages, out of a total of 5, 76,490 villages
in the country, are covered by telephone services. There are more than 1 laky public call
offices in the urban areas.
Revised Targets:

4. In view of the recent growth of the economy and the reassessed demand, it is necessary to
revise the VIII Plan targets as follows:
a. Telephone should be available on demand by 1997.
b. All villages should be covered by 1997.
c. In the urban areas a PCO should be provided for every 500 persons by 1997.
d. All value-added services available internationally should be introduced in India to
raise the telecom services in India to international standard well within the VIII Plan
period, preferably by 1996.

Resources for the Revised Targets:

5. The rapid acceleration of Telecom services visualised above would require supplementing
the resources allocated to this sector in the VIII plan. The total demand (working connections
+ waiting list) showed a rise of nearly 50% from 7.03 million on 1.4.1992 to 10.5 million on
1.4.1994 over a three year period. If the demand grows at the same rate for the next three
years, it would touch about 15.8 million by 1.4.1997. The actual rate of growth is likely to be
higher as the economy is expected to grow at a faster pace. Achieving the target of giving
telephone on demand by 1997 would thus imply releasing about 10 million connections
during the VIII Plan as against the existing target of 7.5 million. Release of 2.5 million
additional lines alone would require extra resources to the tune of Rs. 11,750 cores at a unit
cost of Rs. 47,000 per line at 1993-94 prices. To this must be added the requirement on
account of additional rural connections of Rs. 4,000 cores.
6. Even with the comparatively modest targets of the VIII Plan, as originally fixed, there is a
resource gap of Rs. 7,500 cores. The additional resources required to achieve the revised
targets would be well over Rs. 23,000 cores. Clearly this is beyond the capacity of
Government funding and internal generation of resources. Private investment and association
of the private sector would be needed in a big way to bridge the resource gap. Private
initiative would be used to complement the Departmental efforts to raise additional resources
both through increased international generation and adopting innovative means like leasing,
deferred payments, BOT, BLT, BTO etc.
Hardware:

7. With the objective of meeting the telecom needs of the country the sector of manufacture of
telecom equipment has been progressively re-licensed. Substantial capacity has already been
created for the manufacture of the necessary hardware within the country. The capacity for
manufacture of switching equipment, for example, exceeded 1.7 million lines/year in 1993
and is projected to exceed 3 million line/year by 1997. The capacity for manufacture of
telephone instruments at 8.4 million units per year is far in excess of the existing or the
projected demand. Manufacturing capacities for wireless terminal equipment, Multi Access
Radio Relay (MARR) for rural communication, optical fibre cables, underground cables etc.
have also been established to take care of the requirements of the VIII Plan. With the
revision of the targets demand would firm up and there would be an incentive to expand the
capacities to meet the extra requirement.

Value Added Services:

8. In order to achieve standards comparable to the international facilities, the sub-sector of

value-added services was opened up to private investment in July 1992 for the following
services :
a. Electronic Mail
b. Voice Mail
c. Data Services
d. Audio Text Services
e. Video Text Services
f. Video Conferencing
g. Radio Paging
h. Cellular Mobile Telephone

9. In respect of the first six of these services companies registered in India are permitted to
operate under license on non-exclusive basis. This policy would be continued. In view of the
constraints on the number of companies that can be allowed to operate in the area of Radio
Paging and Cellular Mobile Telephone Service, however, a policy of selection is being
followed in grant of licenses through a system of tendering. This policy will also be
continued and the following criteria will be applied for selection :
a. Track record of the company;
 b. Compatibility of the technology;
c. Usefulness of the technology being offered for future development;
d. Protection of national security interests;
e. Ability to give the best quality of service to the consumer at the most competitive
cost; and
f. Attractiveness of the commercial terms to the Department of Telecommunications.

Basic Services:

10. With a view to supplement the effort of the Department of Telecommunications in providing
telecommunication services to the people, companies registered in India will be allowed to
participate in the expansion of the telecommunication network in the area of basic telephone
services also. These companies will be required to maintain a balance in their coverage
between urban and rural areas. Their conditions of operation will include agreed tariff and
revenue sharing arrangements. Other terms applicable to such companies will be similar to
those indicated above for value-added services.

Pilot Projects:

11. Pilot projects will be encouraged directly by the Government in order to access new
technologies, new systems in both basic as well as value-added services.

Technology and Strategic Aspects:

12. Telecommunication is a vital infrastructure. It is also technology intensive. It is, therefore,
necessary that the administration of the policy in the telecom sector is such that the inflow of
technology is made easy and India does not lag behind in getting the full advantage of the
emerging new technologies. An equally important aspect is the strategic aspect of telecom,
which affects the national and public interests. It is, therefore, necessary to encourage
indigenous technology, set up a suitable funding mechanism for indigenous R&D so that the
Indian Technology can meet the national demand and also compete globally.
Implementation:

13. In order to implement the above policy, suitable arrangements will have to be made (a)
protect and promote the interests of the consumers and (b) ensure fair competition.

The government plans to formulate a comprehensive ‘National Telecom Policy 2011’

including the recognition of Telecom as infrastructure and as an essential service, encouraging
Green Telecom, steps to accelerate migration from IPv4 to IPv6 at the earliest, release of IPv6
standards by Telecom Engineering Centre for implementation in the country, etc., as per a press
release by the Ministry of Communications & Information Technology.

Further, the government plans to take concrete steps towards finalization of ‘National Broadband
Plan’ including strategy for implementation and initiation of steps for roll out of optical fiber.

The government has taken many proactive initiatives to facilitate the rapid growth of the Indian
telecom industry.

• In the area of telecom equipment manufacturing and provision of IT-enabled services, 100
per cent FDI is permitted
• No cap on the number of access providers in any service area. In 2008, 122 new Unified
Access Service (UAS) licenses were granted to 17 companies in 22 services areas of the
country
• Revised subscriber based criteria for allocation of Global System of Mobile Communication
(GSM) and Code Division Multiple Access (CDMA) spectra were issued in January 2008
• To provide infrastructure support for mobile services a scheme has been launched to provide
support for setting up and managing 7,436 infrastructure sites spread over 500 districts in 27
states. As on December 31, 2009, about 6,956 towers had been set up under the scheme

According to the Consolidated Foreign Direct Investment (FDI) Policy document, the FDI limit in
telecom services is 74 per cent subject to the following conditions:

• This is applicable in case of Basic, Cellular, Unified Access Services, National/ International
Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile
Personal Communications Services (GMPCS) and other value added Services
• Both direct and indirect foreign investment in the licensee company shall be counted for the
purpose of FDI ceiling. Foreign Investment shall include investment by Foreign Institutional
Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible Bonds
(FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and
convertible preference shares held by foreign entity. In any case, the 'Indian' shareholding
will not be less than 26 per cent
• FDI up to 49 per cent is on the automatic route and beyond that on the government route.
FDI in the licensee company/Indian promoters/investment companies including their holding
companies shall require approval of the Foreign Investment Promotion Board (FIPB) if it has
a bearing on the overall ceiling of 74 per cent. While approving the investment proposals,
FIPB shall take note that investment is not coming from countries of concern and/or
unfriendly entities
• The investment approval by FIPB shall envisage the conditionality that the Company would
adhere to license Agreement
• FDI shall be subject to laws of India and not the laws of the foreign country/countries
Porter’s Diamond Analysis

An analysis of the Indian telecom industry under the Porter’s Diamond Model reveals that India offers a
competitive advantage for firms operating in the country.
Major Mobile Services Providers in India
Bharti Airtel
Bharti Airtel, a part of Bharti Enterprise, is India’s first and largest private service provider with a
nation-wide
operational presence. While it was founded in 1995 as Bharti Televenture Ltd. (BTVL), in April
2006, the company changed its name to Bharti Airtel.
Today, it is one of the fastest growing telecom companies in the world with more than 40 million
subscribers. The company has structured its business in three segments – mobile services, broadband
and telephone services, and enterprise services.
Business Strategies
Business Alliances In order to improve cost and quality, the company outsources non-core activities
through business alliances.
These alliances provide access to new technologies and allow the company to adopt the best
practices of enhancing customer experience. In fact, Airtel has established alliances with Sing Tel,
Ericsson, Nokia, Siemens, Nortel, Corning, IBM, Hinduja TMT, TeleTech and MphasiS.
Unified Brand Strategy
Bharti has decided to use Airtel as the single brand name across all its categories such as cellular,
fixed and internet services. The company believes that an integrated approach such as One Airtel
will help it in better addressing customer needs through bundled service offerings. This initiative is
slated to increase Airtel’s ROI.
Bharat Sanchar Nigam Ltd.
BSNL, a state-owned service provider in India, is the seventh-largest telecommunication company
in the world. It offers a wide range of services in India, such as wireline, CDMA mobile, GSM
mobile, internet, broadband, carrier, MPLS-VPN, VSAT, VoIP, IN, etc.
BSNL is the largest operator in basic services in India with its cellular services helping it to establish
its presence as the largest operator in rural areas.
Business Strategies
Rural Penetration
BSNL is playing a leadership role in developing the telecom infrastructure in rural areas. It has been
successful in increasing its cellular subscriber base by pioneering its services in the rural terrain. Its
services cover the whole of India, except Delhi and Mumbai, which are covered by MTNL, the other
state-owned player.
Low Cost Strategy
BSNL is a low-cost service provider of many services. This strategy has helped BSNL in penetrating
the market.
Reliance Communications
Reliance Communications, previously known as Reliance Infocom, brought about a digital
revolution in the Indian telecom industry by providing India’s vast population with affordable means
of information and communication.
Reliance Infocom, with the aim of making mobile calls cheaper than postcards, built a 60,000-
kilometre-long fiber optic backbone, crisscrossing the entire country.
Reliance currently offers its services in 340 towns with its eight circle footprints; it also initiated
mobile data services through its R-world mobile portal. This portal leverages the data capability of
the CDMA 1X network.

Regulatory Framework
Key Trends in Indian Telecom sector
Mergers and Acquisitions
FDI in Indian Telecom Sector

Porter's 5 Forces Analysis

1. Threat of New Entrants. It comes as no surprise that in the capital-intensive telecom

industry the biggest barrier to entry is access to finance. To cover high fixed costs, serious
contenders typically require a lot of cash. When capital markets are generous, the threat of
competitive entrants escalates. When financing opportunities are less readily available, the
pace of entry slows. Meanwhile, ownership of a telecom license can represent a huge barrier
to entry. In addition, it is important to remember that solid operating skills and management
experience is fairly scarce, making entry even more difficult.

2. Power of Suppliers. At first glance, it might look like telecom equipment suppliers have
considerable bargaining power over telecom operators. Indeed, without high-tech broadband
switching equipment, fiber-optic cables, mobile handsets and billing software, telecom
operators would not be able to do the job of transmitting voice and data from place to place.
But there are actually a number of large equipment makers around. There are enough
 vendors, arguably, to dilute bargaining power. The limited pool of talented managers and
engineers, especially those well versed in the latest technologies, places companies in a weak
position in terms of hiring and salaries.

3. Power of Buyers. With increased choice of telecom products and services, the bargaining
power of buyers is rising. Let's face it; telephone and data services do not vary much,
regardless of which companies are selling them. For the most part, basic services are treated
as a commodity. This translates into customers seeking low prices from companies that offer
reliable service. At the same time, buyer power can vary somewhat between market
segments. While switching costs are relatively low for residential telecom customers, they
can get higher for larger business customers, especially those that rely more on customized
products and services.

4. Availability of Substitutes. Products and services from non-traditional telecom industries

pose serious substitution threats. Cable TV and satellite operators now compete for buyers.
The cable guys, with their own direct lines into homes, offer broadband internet services, and
satellite links can substitute for high-speed business networking needs. Railways and energy
utility companies are laying miles of high-capacity telecom network alongside their own
track and pipeline assets. Just as worrying for telecom operators is the internet: it is
becoming a viable vehicle for cut-rate voice calls. Delivered by ISPs - not telecom operators
- "internet telephony" could take a big bite out of telecom companies' core voice revenues.

5. Competitive Rivalry. Competition is "cut throat". The wave of industry deregulation

together with the receptive capital markets of the late 1990s paved the way for a rush of new
entrants. New technology is prompting a raft of substitute services. Nearly everybody
already pays for phone services, so all competitors now must lure customers with lower
prices and more exciting services. This tends to drive industry profitability down. In addition
to low profits, the telecom industry suffers from high exit barriers, mainly due to its
specialized equipment. Networks and billing systems cannot really be used for much else,
and their swift obsolescence makes liquidation pretty difficult.
India’s Competitive Advantage
An analysis of the Indian telecom industry under the Porter’s Diamond Model reveals that India
offers a competitive advantage for firms operating in the country. India is the fastest growing free
market democracy in the world. It has a mature and dynamic private sector, which accounts for
75 per cent of India’s GDP, and a market with enormous potential due to its large size and
diversity. It is also expected to achieve the highest growth rate among the BRIC countries (Brazil,
Russia, India and China). India offers significant business opportunities to the services, as well as
the manufacturing sectors. This is because India offers benefits such as cost advantage in product
development and back-office processing and the large-scale availability of skilled English-
speaking professionals. The middle class population is also a s i g n i f i c a n t m a r k e t f o r
a n y b u s i n e s s entity. AT Kearney ranked India as the second-most attractive democracy in
its FDI confidence index. The success of MNCs is a proof that India is an attractive investment
destination. India’s huge domestic market and buoyant economic growth have always attracted
foreign investors.

Some of the key advantages of investing in India are outlined below.

Stable Economic Outlook

A decade of reforms has opened the country to greater competition and spurred industries to
become more efficient. India is currently the fourth-largest economy on PPP basis and is well
positioned on a continuously increasing growth curve. India’s emergence as a leading destination
for foreign investment is a result of positive indicators such as a stable 6 per cent annual growth,

rising foreign exchange reserves of over US$ 266.18 billion(July 24th 2009) and Foreign Direct
Investment (FDI) of US$ 15 billion. Goldman Sachs had earlier predicted that India will become
the third-largest economy in the world. However, it has now revised its previous estimates and
claims that by 2050, India will even surpass the US and become the second-largest economy
after China. The country’s economic growth has become more attractive due to the rising share of
the services sector in the GDP.

Large Market Potential

Around 30-40 million people in India join the middle class every year. The country’s upper
middle class spends 6 percent of its earnings on telecom services. India is one of the largest
consumer markets in the world. Due to rapid economic growth and rise in disposable income,
the spending power of consumers is increasing rapidly. It has been forecasted that 15 years down
the line, Indians will be approximately four times richer than they are today. As per this forecast,
Indians will purchase five times more cars and consume three times more crude oil than they do
today.
 According to the 2001 census, about 54 per cent of the country’s total population was below 25
years of age. By 2013, another 200 million people will be joining the league, representing an
exponential growth in the ‘consuming class’. India will become a large consumer of world
resources - be it natural or man- made, thereby offering numerous opportunities to marketers
around the globe. Approximately 33 per cent of India’s population will be residing in urban areas
by 2026, as against 28 per cent in 2001.

Large Talent Pool

The working age population is expected to rise by 83 per cent by 2026. India has over 380
universities and about 1,500 research institutes, which churn out approximately 200,000
engineers, 300,000 post graduates, 2,100,000 other graduates and around 9,000 PhDs. This
large base of skilled manpower offers unparalleled advantages to the companies operating in
India. As a result, many multinational companies have either established operation hubs in India
to leverage this sizeable talent pool, or they have outsourced their work to a third party in India.
The numerous BPOs and KPOs flourishing in India are a direct consequence of companies
choosing the latter option.

Low Labour Cost

CII estimates that manufactured product outsourcing accounted for US$ 10 billion in 2007.
The value will escalate to US$ 50 billion by 2015. India has one of the lowest labour costs
among the developing countries, which is the foremost factor for attracting multinational giants in
every sector. The Ministry of Commerce, Government of India, has estimated that off shoring
operations to India can provide a cost benefit of up to 40 to 60 per cent, as compared to
developed countries. The country has also emerged as a major R&D hub with more than hundred
Fortune 500 companies based in India. An apt example is Nokia, which has set up its
manufacturing operations in India considering the long term sustainable demand for mobile
telephony. The company believes that this initiative will help the company in reducing
time to market and respond better to customer requirements. It has pumped in US$ 150
million into its Chennai facility.
India –an ideal destination for investments

•World’s largest democracy

•Independent judiciary

•Third-largest telecom network in the world, second-largest among the emerging economies after
China

•On an average, approximately 8 million users are added per month, making India the world’s
fastest growing telecom market.

•Liberal Foreign Investment Regime: FDI limit increased from 49 per cent to 74 per cent; the rural
telecom equipment market also opens to large investments

•Among countries offering the highest rates of return on investment

•The large untapped potential in India’s rural markets revealed by 9.21 per cent teledensity in rural
markets as compared to the national level of 28 per cent in 2008.

•The government is promoting telecom manufacturing by providing tax sops and establishing
telecom-specific Special Economic Zones

•Fully repatriable dividend income and capital invested in telecom equipment manufacturing
Opportunities for AVG group in India

The explosive growth of the telecom industry in India is being followed by the urge to move towards
better technology and the next level of service delivery. While the last 5 years have been transformational for
Indian telecom industry, the next few years look even more exciting. BWA will overcome the key hindrance
of ROW in India, while 3G has the potential to make the mobile phone, a ubiquitous device for accessing the
internet. The new opportunities opened through new services such as 3G mobile, VAS, Wi-MAX, M-
Commerce, Mobile banking and Broadband wireless services will put emphasis on deeper penetration into
urban and rural areas.

Shifting Focus on Rural Telephones

With introduction of mobile services in rural areas, the rural subscribers are also increasing. The measures
undertaken by USOF to increase rural connectivity are given in Box 2.

● Rural Telephone connections have gone up from 12.3 million in March 2004 to 200.77 million in March,
2010 and further to 259.83 million in December, 2010.

● Their share in the total telephones has constantly increased from 16.03% in 2004 to 33% as on 31st
December 2010.
● Mobile connections have also contributed substantially to total rural telephone connections.

● In 2010-11, the growth rate of rural telephone is 29.41% as against the growth of 25.43% of urban
telephones. The private sector has also contributed to the growth of rural telephones as it provided about 85%
of rural telephones as on 31st December 2010.

Potential for Further Growth

Indian telecom market has still a huge untapped potential to grow further. With a large population yet to have
access to telecommunication and tele-density still being 66.17% and rural tele-density at 31.22%, there is
significant growth opportunity for the sector, especially in rural areas and 3G and BWA yet to make
significant inroads. The rural market is expected to drive the next round of growth for the voice based services
while data services will create the much needed churn with in maturing urban markets. The focus of the
shareholder is now shifting to these untapped rural areas for voice based services and urban areas for the data
based services which will provide engine for the second phase of the growth in Indian Telecom. Rural
teledensity target has been upgraded to 40% by 2014. There is a talk about one billion telephones in the
country by 2015.
Broadband
It is necessary to increase the broadband connectivity for the knowledge-based society to grow quickly and
for reaping the consequent economic benefits. The auction of 3G/BWA Spectrum has been successfully
conducted. Newer Access technologies like BWA and 3G can significantly transform the character of
internet/broadband scenario in India. Several policies have been announced and implemented to promote
broadband in the country (Box 3).

Department of Telecommunications

● As a result of these measures, the broadband subscribers grew from 0.18 million in 2005 to 8.8 million as
on 31st March 2010 and 10.92 million, at the end of the December, 2010.

● Broadband connectivity has been provided in 4044 cities, 5431 block headquarters, 613 district
headquarters covering about 1,06,559 villages.
● Broadband coverage will get fillip with the setting up of 100,000 Common Service Centers (CSCs)
covering all the villages in the country. As on November 2010, 86521 CSCs have been covered. They will
provide internet access and benefit of e-governance to the common citizen.
● India faces technological as well as commercial challenges in penetration of broadband.
● The low PC penetration and affordability issue due to high cost are the main causes. In order to overcome
affordability issue, the Government of India has unveiled a prototype tablet computer that would sell for an
affordable INR 1500/-. The tablet would also come with a solar power option that could make it more feasible
for rural areas.
● The wireless broadband is likely to be the preferred route that many operators adopt in delivering broadband
services to the masses of the country. Wireless technologies have capabilities to provide widespread
broadband access and could drive inclusive growth by way of mobile banking, tele-education, E-governance,
tele medicine etc.
USOF for boosting rural Broadband

● Scheme to provide 888832 wireline broadband connections to individual and Government institutions by
2014.
● As on 30th November 2010, 232852 broadband connections and 670 kiosks provided.
● Institutional users such as Gram Panchayats Higher Secondary School and Public Health Centers will be
provided Broadband.
● Subsidy proposed for the wireless broadband active infrastructure such as BTS which would provide
broadband coverage to about 5 lakh villages.
● Initiative taken to strengthen OFC network in rural areas to provide sufficient back-haul capacity to
integrate voice and data traffic.

Forecast of Indian Telecommunication Industry

Recommendation
Life cycle position

The Telecom Industry in India is in its growth stage. Telecom is one area in India where significant
improvements have happened. Now the private operators also are providing services which are giving rise to
more choice.
The Telecom sector in India is experiencing a stage of Mature Growth. The growth in sales is still above
normal. Due to rapid growth of sales and profit margins, new players are getting attracted to the Industry
giving rise to more and more competitors. This is leading to an increase in the level of supply and lower
prices. Profit Margins will start declining over time.

Business cycle

Telecom is one area in India where significant improvements have happened. Even in the current scenario,
where most of the industries are suffering due to global economic recession, telecom is one sector which is
still going strong.
The total subscriber base in the country now stands at 752 million, nearly 50% more than that a year ago.
Demand Analysis
- Real and Nominal Growth & Supply/Demand Analysis
Indian telecom continues to register a significant growth in the current fiscal year. This has been due to the
impact of economic reforms and pro-active policies of the government. Today, Indian telecom network with
about 364 million connections in October 2008 is the third largest in the world .Indian telecom has achieved
another milestone as it has become the second largest wireless network in the world by surpassing USA.
With the current pace, where about nine million telephones are being added every month, the target of 500
million connections by 2010 is well within our reach.
The total number of telephones has increased from 76.53 million on March 31, 2004 to 363.95 million on
October 31 2008. While 94.63 million telephones were added during the twelve months of 2007-08, about
more than nine million subscribers are being added every month during the current fiscal year. Tele- density
has also increased from 12.7 per cent in March 2006 to 31.50 per cent in October 2008. Rural teledensity
increased to 13.4 per cent in October 2008 with 109.05 million rural telephone connections. Urban teledensity
on the other hand has been 74.61 per cent in October 2008.
The growth of wireless services has been phenomenal, with wireless subscribers growing at a compound
annual growth rate (CAGR) of 87.7 per cent per annum since 2003. The share of private sector in total
telephone connections is now 77.44 per cent as per the latest statistics available for October 2008 as against a
meager 5% in 1999.
Rural telephones have gone up from 12.3 million in March 2004 to 109.05 million in October 2008 with a
teledensity of 13.04%. The target of 100 million rural telephones by 2010 has been achieved well in advance.
It is also envisaged that internet and broad-band subscribers will increase to 40 million and 20 million,
respectively, by 2010. As per the latest available statistics for September 2008, about 5.7% villages have
broadband coverage and the number of rural broadband connections is 1.55 lakh.
Foreign direct investment (FDI) is one of the important sources to meet the huge funds that are required for
rapid network expansion. The FDI policy provides an investor-friendly environment for the growth of the
telecom sector. The policy of the Government of India is to strive to maximize the developmental impact and
spin-offs of FDI. At present, 74% to 100% FDI is permitted for various telecom services. The total FDI
equity inflows in telecom sector have been 1261 million USD during 2007-08.
The government is now looking forward to achieve the target of 600 million telephone subscribers by the end
of Eleventh Plan and to achieve rural teledensity of 25% by means of 200 million rural connections at the end
of 11th Plan. It is also envisaged that internet and broad-band subscribers will increase to 40 million and 20
million, respectively, by 2010.
Supply Analysis
–Degree of Concentration
Today, the telecommunications industry is a vast one with a large number of private players who are
constantly bringing down the cost to consumers thereby making services more affordable and helping
improve life in general and business in particular. On the Indian business scene are successful government
owned institutions like MTNL and BSNL on the one hand, and even more successful and aggressive players
like the Tata’s and Reliance on the other. Competition has just begun and is heating up every day with either
lowering of tariffs or introduction of newer and improved services to keep a larger share of the market.
Reliance, for instance, has been one of the recent, more aggressive players in the telecom business when it
introduced a wireless phone in the market for as low as Rs. 500.

Ease of entry
Friction does exist between existing players and the newer entrants, as also between the providers of
services based on different technologies (CDMA Vs Cellular). The same needs to be resolved with
government intervention through the regulator in order to further improve the services. The telecom sector
today is not a small one and covers various services and many players within each service. One of the most
vibrant developments in telecommunications has been Cellular telephony – a technology that gives us
the power to communicate anytime and anywhere. This segment, a part of the broader telecommunications
industry, has today spawned an entire industry in mobile telecommunication. Mobile phones today are an
integral part of growth, success and economic efficiency of businesses. The government in India has today
recognized, providing world-class telecommunications infrastructure as the key to rapid economic and social
development of the country.

Industry capacity
Conservative estimates put a tag of a 3% increase in the growth of GDP for every 1% rise in the tele-density
in the nation. Accordingly, this sector has received a great thrust from the government for investments and
development.
Profitability
Increased FDI Flows
The Telecom sector is one of the largest attractor of Foreign Direct Investment in the country, accounting for
almost a fifth of FDI approvals since 1991.
Heavy investment in Infrastructure
The cellular industry is responsible for the single largest chunk of investment by any individual industry.
The industry has already invested over Rs. 20,000 crores and is expected to invest even more in the years to
come.
Revenue Generation for the Government of India
The cellular telephony sector is poised for big growth going forward provided the government controls the
sector and its players in a healthy manner. Basic and Cellular telephony form the back bone of
communications in the country though the internet too has played a pivotal role.
Employment Generation

As the number of licensees goes up and they start their operations with 77 networks on air, the employment
opportunities in this sector will be huge.

The Road Ahead

According to a report published by Gartner Inc in June 2009, the total mobile services 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 of mobile connections.

The Indian mobile industry has now moved out of its hyper growth mode, but it will continue to grow at
double-digit rates for next three years as operators focus on rural parts of the country. 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 to 63.5 per cent in 2013,
according to Gartner.

The much-awaited mobile number portability was launched on November 25, 2010 in Haryana and will be
available to more than 700 million subscribers from January 20, 2011 across the country.