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Telecom Industry
Executive Summary
The rapid growth in Indian telecom industry has been contributing to Indias GDP at large. Telecom industry in India started to set up in a phased approach. Privatisation was gradually introduced, first in value-added services, followed by cellular and basic services. Telecom Regulatory Authority of India (TRAI), was established to regulate and deal with competition (the service providers). This gradual and thoughtful reform process in India has favoured industry growth. Upcoming services such as 3G and WiMax will help to further augment the growth rate. The Indian telecommunications industry is one of the fastest growing in the world and India is projected to become the second largest telecom market globally by 2010. This is evident from the facts of Telecom Industry for example, India added 113.26 million new customers in 2008, the largest globally. The countrys cellular base witnessed close to 50 per cent growth in 2008, with an average 9.5 million customers added every month. This would translate into 612 million mobile subscribers, accounting for a tele-density of around 51 per cent by 2012. It is projected that the industry will generate revenues worth US$ 43 billion in 2009-10. In this report we have tried to capture most of the areas of Telecom Industry. Major highlights of the report are History of Telecom Industry, Current Industry Analysis, Role of TRAI, Spectrum allocation, FDI Regulation, Competitive advantages, Outsourcing in Telecom, Emerging Technologies, Latest Innovation, and Growth Trends, Mergers and Acquisitions.
Telecom Industry
Table of Contents
Executive Summary............................................................................................................................. .......... 2 1 Indian Telecom Industry ....................................................................................................................... 6 1.1 History ......................................................................................................................................... .. 6 1.2 Quick Facts .................................................................................................................................... 6 1.3 Telecom services ........................................................................................................................... 6 1.4 Industry Sectors ............................................................................................................................ 7 1.5 Growth Avenues ........................................................................................................................... 8 1.6 Industry Revenue (2002-2010) ................................................................................................... 10 1.7 Subscriber Growth ...................................................................................................................... 11 1.8 Major Players .............................................................................................................................. 11 1.8.1 Wireless Service Providers (Market share) ......................................................................... 12 1.8.2 Handset Manufacturers (Market share) ............................................................................. 12 1.9 Major Investments ...................................................................................................................... 13 1.10 Rural Telephony .......................................................................................................................... 13 1.11 Exploring the rural telecom opportunity .................................................................................... 13 1.12 Policy Initiatives .......................................................................................................................... 14 2 Telecom Regulatory Authority of India (TRAI) .................................................................................... 15 2.1 Mission ........................................................................................................................................ 15 2.2 Role of TRAI................................................................................................................................. 15 2.3 Recommendatory Functions ....................................................................................................... 15 2.4 Mandatory Functions
.................................................................................................................. 15 2.5 Other functions ........................................................................................................................... 16 3 Spectrum Auctions in India Vis--vis Worldwide ................................................................................ 17 3.1 Spectrum Auction Scenario in India ............................................................................................ 17 3.2 Gaps in Indian Spectrum Auction Licensing Scenario ................................................................. 18 3.3 3G Spectrum allocation policy in India in 2009........................................................................... 19 3.4 Comparison-Spectrum Allocation Policy in UK ........................................................................... 20 4 Indias Competitive Advantage ........................................................................................................... 21 4.1 Stable Economic Outlook ............................................................................................................ 21 4.2 Large Market Potential ............................................................................................................... 22 4.3 Large Talent Pool ........................................................................................................................ 22 3
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4.4 Low Labour Cost.......................................................................................................................... 23 5 The Road Ahead .................................................................................................................................. 25 5.1 Gradual Progression in Telecom Sector ...................................................................................... 25 5.2 Acquiring New Subscribers through expansion in Rural India .................................................... 26 5.3 Selling More to Existing Subscribers ........................................................................................... 26 5.4 Government Initiatives ............................................................................................................... 26 5.5 The reasons for the increasing importance of MVAS can be classified as:................................. 26 5.6 Defining VAS................................................................................................................................ 27 5.6.1 Basic definition of a VAS ..................................................................................................... 27 5.6.2 Definition as per TRAI ......................................................................................................... 28 5.7 Mobile VAS in rural market......................................................................................................... 28 5.8 Access devices for MVAS ............................................................................................................ 29 5.8.1 GPRS Handsets .................................................................................................................... 29 5.8.2 3G Handsets ........................................................................................................................ 30 6 Key trends in telecom industry ........................................................................................................... 31 6.1 Mobile Number portability (MNP).............................................................................................. 31 6.1.1 The Inhibitors ...................................................................................................................... 31 6.1.2 MNP Implementation globally ............................................................................................ 32 6.2 Wimax v/s 3G .............................................................................................................................. 33 6.3 Mobile Virtual Network Operator (MVNO) ................................................................................ 34 6.4 IPTV ......................................................................................................................................... .... 35 7 Industry Updates...............................................................................................................................
.. 37 7.1 Consolidation in Industry. ........................................................................................................... 37 7.1.1 Idea Cellulars Acquisition of Spice Telecom....................................................................... 37 7.1.2 Vodafones entry into India ................................................................................................ 37 7.1.3 Telenor-Unitech Deal .......................................................................................................... 38 7.1.4 TTSL DoCoMo Deal. .......................................................................................................... 38 7.1.5 Bharti-MTN deal (in talks). .................................................................................................. 38 7.2 FDI Investments in the Telecom Sector in India: ........................................................................ 40 7.3 Outsourcing by Telecom Service Providers in India.................................................................... 41 7.3.1 Hutchitson Essar (now Vodafone) and Nokia Deal: ............................................................ 41 7.3.2 Bharti Airtels IT Outsourcing to IBM: ................................................................................. 41 4
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7.3.3 Bhartis Outsourcing to Alcatel-Lucent: .............................................................................. 42 7.3.4 Bharti Outsourcing Deal with Nokia & Ericsson .................................................................. 42 8 Future Technology Trends .................................................................................................................. 43 8.1 IP Multimedia Subsystem (IMS) .................................................................................................. 43 8.2 High Speed Downlink Packet Access (HSDPA) ............................................................................ 44 8.3 4G or Fourth Generation Networks ............................................................................................ 44 9 Conclusion........................................................................................................................... ................ 46 10 References ...................................................................................................................................... 47 Appendix A ............................................................................................................................................ ...... 48
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2000+ 2007-2009
Telecommunication sector in India is primarily subdivided into two segments, which are Fixed Service Provider (FSPs) and Cellular Services. Telecom industry in India constitutes some essential telecom services like telephone, radio, television and Internet. Telecom industry in India is specifically emphasizing on latest technologies like GSM (Global System for Mobile Communications), CDMA (Code Division Multiple Access), PMRTS (Public Mobile Radio Trunking Services), Fixed Line and WLL(Wireless
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Local Loop ). India has a prospering market specifically in GSM mobile service and the number of subscribers is growing very fast.
Intern et PMRT S VSAT s Radio Paging GMPC S Basic Services Mobile Services
Teleco m
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Managed services is another segment that is attracting telecom companies. On account of the rapidly growing subscriber base, service providers find it difficult to manage their infrastructure and network management operations. In such cases, they completely or partially outsource their infrastructure or network management operations. To reduce their network deployment costs, many service providers are considering infrastructure sharing offers the following advantages: Improved service quality Increased affordability for customers Faster roll out of services in rural and remote areas Significant reduction in initial set up costs Increased environmental aesthetics Lower operating costs for service providers
Enterprise Telecom Services includes key services, such as voice over Internet protocol (VoIP), dedicated telecom communication systems; IT infrastructure enabled unified communication services, etc. Telecom service providers are increasingly targeting enterprises by providing dedicated services and is expected to witness major developments in near future. 8
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Virtual Private Network is a private data network that provides connectivity within closed user groups via public telecommunication infrastructure. Competition is likely to heat up in the VPN segment as DoT has relaxed the norms for private players. 3G The Indian government plans to auction the spectrum for 3G services by inviting bids from domestic as well as foreign players, and creating a competitive environment that offers better services to consumers. Therefore, the 3G spectrum is among the major investment opportunities and growth drivers of the telecom industry. The immense potential for 3G is reflected by the 3040 percent annual growth in Value- Added Services.
Cell phone manufacturers are striving to develop USD 100 priced 3G handsets for the Indian market. India expects to replicate its 2G growth in 3G services. WiMAX has been one of the most significant developments in wireless communication in the recent past. Since this mode of communication provides network access in inaccessible locations at a speed of more than 4 Mbps, it is expected to be a major factor in driving telecom services in India, especially wireless services. Thus, it will lead to the increased use of telecom services, Internet, value-added services and enterprise services. WiMAX is expected to accelerate economic growth and assist in providing better education, healthcare and entertainment services. It is estimated that India will have 13 million WiMAX subscribers by 2012. Aircel is the pioneer in WiMAX technology in India.
The state-owned player, BSNL, aims to connect 74,000 villages through WiMAX. Bharti, Reliance and VSNL have acquired licenses in the 3.3GHz range to utilise the opportunities offered by this domain.
Value Added Services:The VAS industry was worth USD 632 million in 2006 07. The industry is estimated to grow by 60 percent in 200708 and become an USD 1,011 million opportunity.
The VAS industry is currently focussing on the entertainment sector, such as the Indian film industry and cricket; however, there is scope for growth in other avenues as utility-based services, such as location information and mobile transactions. Rural Telephony: As the government targets to increase rural teledensity from the current 2 percent
to 25 percent by 2012, rural telephony will require major investments. This segment will boost the demand for telecom services, equipment, Internet services and other value-added services; thereby, offering great market opportunities for telecom players.
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Revenue(US$ billion)
Revenue(US$ billion) 43 32 2 0
10
11
1 5
10
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Source: www.trai.gov.in
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1.8.1
Source: www.coai.com
1.8.2
India's telecom equipment manufacturing sector is set to become one of the largest globally by 2010. Mobile phone production is estimated to grow at a CAGR of 28.3%, totaling 107 million handsets by 2010. Nokia Leads the market with whopping 60% share. Korean giant Samsung currently at number there is looking forward increase its market share to 20% through aggressive marketing.
Handset Market
5% 15% 6% 7 % 8% 60 %
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13
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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.
Need and timing for introduction of new service provider Terms and conditions of licence 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
Fix the terms and conditions of their inter connectivity between service providers Ensure Technical compatibility and effective inter-connection between
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Regulate arrangements for sharing of revenues amongst service providers Lay-down the standards of QoS to be provided by service provider,ensure this by periodical survey Lay-down and ensure time period for providing local and longdistance circuits of telecommunication between different service providers Maintain inter-connect agreement register Ensure compliance of USO(universal service obligation)
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
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Source: www.telenor.com
In India, telecom licences or C depending upon their revenue potential. were auctioned for basic and The circles were mostly co-terminus cellular services from with the DoTs administrative boundaries and 1991 by the Department the states. of Telecom (DoT), the Potential service providers were required incumbent government to seek foreign partners, as it was felt that policy maker, regulator no Indian company and service provider. had the requisite financial strength and For service technical know provision, the entire country how. For all licenses, bidding was a twowas divided into roughly 20 stage process, circles, categorized as A, B, the first being a pre-qualification based on the evaluation of financial net worth (linked to the category of circle and service bid for) and experience in service provision and the second stage involved 17
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evaluation of bids. The bids were single stage, with the award going to the highest bidder drawn from those that satisfied the pre-qualification conditions. For cellular licences, Global System for Mobile Communications (GSM) was the chosen technology and for basic services, a combination of fiber optic and wireless in the local loop (WLL) was selected. For cellular services, there were separate licenses for the four major metros of Kolkata (Calcutta), Chennai (Madras), Mumbai (Bombay) and New Delhi. The licenses for the circles containing the metros excluded these cities. For metro licenses, the financial bids were to be evaluated on the rental to be charged to the customer for the first 3 years.(The airtime tariffs were fixed by DoT.) The licensee fee was a flat amount for the first 3 years and then was linked to the number of subscribers, subject to a minimum amount. Subsequent to the bid opening, the rentals were fixed at Rs. 1561 based on the amounts specified by the winners, even though some winning bids had zero out in metros, and bidders were evaluated on an annual license fee for the duration of the license, converted to its net present value at a specified discount rate. The second highest bidder had to match the highest bid in order to obtain the license. Despite these initiatives, service roll out continued to be slow. The government then set up a group on telecom (GOT), that consisted of top-level bureaucrats, industrialists and professionals to evolve a future policy framework for the sector. This was presumably effected outside the DoT as the government felt that the DoT might not be able to conceive a radically different roadmap or might thwart the involvement of the private sector or produce a regulatory framework crafted in the DoTs vested interest. The GOT drafted the National Telecom Policy in 1999,2 (NTP 99) which presented a roadmap for resolving the impasse. All existing license holders could migrate to a new regime that involved a one time payment as entry fee and an annual revenue share with the government, provided that all operators withdrew their court cases against the government on a variety of issues such as delays in clearances. The entry fee was based on a percentage of the total amount of the original bid. This change greatly facilitated private sector participation and several operators subsequently commenced services. As a part of the package,the operators also agreed to allow the government to increase the number of players in their service areas.
on the number of circles or delays in clearances after the bids were opened showed a lack of adequate preparation in the auction design process. The establishment of TRAI and NTP 99 brought about major changes to the licensing process and converting the licence fee to a revenue sharing regime signaling the governments changing perspective and willingness to bear a part of the market risk. Subsequently, an interconnect framework has been put in place (although problems persist) and service provision has accelerated. 18
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In the conducive business environment, India Inc. awaits the rollout of 3G services. The Indian government plans to auction the spectrum for 3G services by inviting bids from domestic, as well as foreign players and creating a competitive environment that offers better services to consumers. Therefore, the 3G spectrum is among the major investment opportunities and growth drivers of the telecom industry. The immense potential for 3G is reflected by the 30-40 per cent annual growth in value added services The global revenue for 3G is 60 per cent higher than that of other services Cellphone manufacturers are striving to develop US$ 100-priced 3G handsets for the Indian market India expects to replicate its 2G growth in 3G services. The Indian market is well poised to leverage the 3G service offerings in content categories such as sports, games and music. In the present context, 3G technology is extremely relevant for India. It offers voice capacity that is four to five times higher than that of 2G services. Therefore, it is an ideal platform for low-cost cellular services It can fulfil the need of fast developing mobile penetration in rural areas It can meet the demand for high-speed data and content rich services in the urban landscape It can play a vital role in augmenting the competitiveness of the countrys large BPO segment It can be a way forward to achieve the Governments broadband objectives. In addition, it will be a good solution for education, telemedicine, etc. Even if 2 per cent of the 180 million cellular subscribers adopt 3G technology as soon as it is launched, it is likely to create an initial subscriber base of 3.6 million. The market is slated to capture more than 11.3 per cent of all mobile subscribers by 2010, i.e., 21.3 million people. Therefore, it would not be incorrect to assume that 3G is poised to create the next mobile revolution in India. In the race towards lowering the entry barrier for 3G services, companies plan to offer bundled service packages with subsidised handsets.With regard to its business potential, many national players have already completed 3G trials. BSNL has charted out a plan for launching 3G services in 250 cities. Private players, such as Bharti, Reliance and Idea, are also ready to offer this service in 10-20 major Indian cities. However, Airtel and MTNL are very keen on leveraging their first mover advantage in this field. In June 2009 the DoT (Department of Telecom) in India has announced the radio spectrum that will be made available when 3G licenses are eventually auctioned off.It could be the case that just 4 Operators are given radio spectrum around Delhi - given that two incumbents (BSNL and MTNL) already have some licenses in each zone, then that would be just the possibility of two new Operators coming to play. In other areas, there is apparently going to be more provision for
private players - meaning up to 11 Operators could enter business. The greater availability of spectrum in these other zones is due to the Defence Ministry giving up some of its Spectrum. 19
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There is still much to-ing and fro-ing to be done though over the 3G licenses themselves - currently there are disputes over how many Operators can exist per zone, and whether the relevant spectrum is sold in tranches, or in one go. Hopefully something will be resolved soon, as India is beginning to really lag behind in 3G technologies, particularly as many other countries are already at HSPA (3.5G) level, and going to HSPA+ (3.75G) soon.
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more attractive due to the rising share of the services sector in the GDP.
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Around 30-40 million people in India join the middle class every year. The countrys 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 countrys 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 Indias population will be residing in urban areas by 2026, as against 28 per cent in 2001.
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.
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- Intensive competition in the country has made it possible for service providers to offer the services with lowers fare in the world, profitability, - Many new handset have been launched.
India has a large middle class of 300 million, Growing affordability and lifetime free schemes have care a market at the bottom of the pyramid. Low teledensity (~18%) offers huge future potential.
Chanc e
Factor Conditions
Demand conditions
- Presence of skilled labour pool. - Rapidly developing robust telecom infrastructure. - Increasing disposable income of consumers. - Increasing demand due to changing lifestyles and growing attraction for mobiles with new features.
Government
- Competent handset manufacturers have produced the lowest priced handsets for the Indian market. - Handset players are setting up manufacturing bases in India for better
operation management. Many telecom and equipment and software companies are based in India.
-The government extends full support to industry through reform processes. - Policies are in place to safeguard the
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The recent TRAI recommendation permitting PC-to-phone calls where ISPs can offer cheaper STD calls and even free local calls. This would result in further reduction of voice tariffs. This would lead to increased focus on MVAS by mobile operators.
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Acquiring customers have always been a great challenge for companies. Given the current level of saturation in Metros and Urban Market and cut throat competition among operators , increasing subscriber base in urban market would be all the more challenging. Therefore a lot of operators with adequate support from Government are eyeing the rural market for future growth. Big operators like Airtel have claimed that soon mobile connections and recharge vouchers etc will be available at all such places from where people buy match boxes. This certainly explains the future penetration of these services in remotest of villages.
5.5 The reasons for the increasing importance of MVAS can be classified as:
Decrease in ARPU despite increase in MOU: Though the subscriber base is growing at a rapid pace and has positively impacted industry revenues, operator margins also have shrunk owing to competition and lower Average Revenue per User (ARPU) as the major growth is coming from bottom of the pyramid. As ARPU declines and voice gets commoditized, the challenge is to develop alternative revenue streams and retain customers by creating a basis for differentiation in high-
churn markets. Need for differentiation: There is a greater need among the telecom operators to differentiate themselves from each other. Number of Licensees: With increasing number of licensees (98 UASL, and 37 cellular licenses) in the telecom space the average numbers of operators in many circles have increased to 5-6 operators offering more choices to the consumer. Thus the competition among the operators has increased tremendously. Therefore it is very important for them to differentiate themselves from the others. Now that voice has got commoditized these operators are using MVAS for their
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differentiation and marketing these services heavily for creating awareness among the consumers. Decreasing Call Rates: In order to attract consumers with relatively low purchasing powers primarily from Semi Urban and Rural India the operators have drastically reduced the call rates making it affordable to even the lower segment of society. The tariff in India is one of the lowest at Rs.1 per minute as compared to the tariff in developed nations like USA and UK where the call rates are Rs.13 and Rs7-8 respectively. 3G bidders who are non operators: The arrival of new technologies will give rise to greater competition as many non operators are also bidding for the 3G licenses. Department of Telecom has planned to allow five 3G operators in each circle depending on the availability of spectrum.Therefore there would be a greater need to differentiate one self in order to attract new customers and retain the existing ones. Saturation in Metro and Urban Market: The metro/urban areas offer high level of penetration and have significant mobile subscribers. In such a highly saturated market with the entry of MVNOs the competition will get fierce. Therefore capitalizing on value added services will give operators opportunity to increase ARPU by providing premium services. Increasing need and demand from consumers: In addition to the above supply side reasons the pull effect from consumers asking for more than just basic telephony is also a key driver for MVAS services. Today most of the consumers are seeking more from their communication device apart from just mobility and desire to stay connected. As we have seen, Telecommunication has moved beyond providing just basic voice calls. The mobile phone has evolved from a mere communication device to an access mode with an ability to tap a plethora of information and services available in the ecosystem. This is the reason why it is now being referred to as the fourth screen, after Cinema halls, Television and PC.
5.6.1
Value Added Service (VAS) in telecommunication industry refers to non-core services, the core or basic services being standard voice calls and fax transmission including bearer services. The value added services are characterized as under: Not a form of core or basic service but adds value in total service offering. Stands alone in terms of profitability and also stimulates incremental demand for core or basic services Can sometimes be provided as stand alone. Do not cannibalize core or basic service. 27
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Can be add-on to core or basic service and as such can be sold at premium price. May provide operational synergy with core or basic services. A value added service may demonstrate one or more of these characteristics and not necessarily all of them. In some cases, the value added service becomes so closely integrated with the basic offering that neither the user nor the provider acknowledge or realize the difference. A classic example is of P2P SMS. Some of the operators do not consider P2P SMS as part of their VAS revenue.
5.6.2
In the Unified Access Service License (UASL), VAS is defined as followsValue Added Services are enhanced services which add value to the basic teleservices and bearer services for which separate licence are issued The Government of India issues licenses for the following Value Added Services: Public mobile trunking service Voice mail service Closed users group domestic 64 kbps data network via INSAT satellites system Videotex service GMPCS Internet Audiotex Unified messaging service
investment but also blockage of the already scarce spectrum. Marketing the content in rural market is going to be all the more challenging. This would require right packaging and pricing of MVAS. Providing cheap access mode to end consumer would be another key booster to rural MVAS. Current voice MVAS charges are expensive from a rural consumer perspective
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therefore that also would need to be addressed for e.g. the sachet model could prove to be successful here. MVAS is going to address two main needs of rural consumers- connectivity and entertainment mode. Connectivity will provide Information VAS on Agriculture necessary for the farmers livelihood e.g. mandi rates, weather, etc. Health, finance, job opportunities etc are potential areas. Mobile also has the potential to evolve as a key entertainment mode considering lack of other entertainment options in rural areas. The industry has witnessed some type of content being downloaded more in small towns of UP and Bihar rather than in metros like Delhi and Mumbai. Therefore by leveraging on these two aspects MVAS can be a success in rural area.
This clearly indicates that the consumer today engage more in text based services than the web based applications. Therefore for MVAS to grow to its full potential the handset manufacturers will have to look at ways to manufacture GPRS enabled phones which are affordable and user friendly. Moreover they would also need to increase its awareness and educate the consumers on how to use GPRS.
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5.8.2
3G Handsets
The market for 3G in the country is expected to be huge with over 65 million wireless subscribers, who use their handsets to access data services on the Web. These subscribers are currently using mobile handsets which are internet-enabled and are potential broadband subscribers with the deployment of advanced wireless technologies such as 3G. According to Indian Cellular Association (ICA) about 5% of mobile users already have handsets that can work on 3G spectrum. In addition, out of all those possessing the 3G enabled handsets the number of people who would use 3G services would be determined by the quality of content available. Unlike most other countries, we are looking at 3G services not only as premium services but also as an extension of 2G. Since our broadband penetration is abysmal, 3G would provide a much required boost to it. Given that mobile phones are much cheaper as compared to PCs, the demand for broadband on mobile is expected to be much greater. More importantly, 3G will solve problems more in rural India. Therefore the shift towards 3G would depend on affordability of handsets along with the quality of content available.
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6.1.1
The Inhibitors
Huge Costs: One of the most common barriers in MNP implementation, within any country, has been the implementation cost. Service Providers have been constantly bargaining for time, based on the cost factor, from their respective governments. Referring to the recent example of the US, where each of the large carriers would need to spend $5060 million to institute the service and an equivalent sum to maintain it. The FCC on this plea gave wireless carriers in the US another year, i.e., till November 2003, for resolving implementation issues. The experience of developed countries exhibits that local number portability for fixed wireline was introduced within two to three years of introduction of competition to incumbent state telcos. The cost estimate for the implementation of WNP in developed nations like the US can be very helpful for the other countries, who wish to think on the lines of number portability. To
add on increased marketing costs are to be realized as the carriers look to lock up their current base before number portability is implemented, and then aggressively pursue the customers of other carriers thereafter.
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Customer Retention/Increased Competition: Every subscriber in a race to retain its customer would like to offer its customers best services so as to save them from porting. Its like a blessing in disguise for the customers, as they would get better service irrespective of the carrier, albeit with the same number. Infrastructure Upgrade: To support WNP, a company has to upgrade both its hardware and software capabilities, which will amount to some cost. Softwares need to be upgraded to provide proper routing of calls. The carriers need to upgrade their networks to handle portability requests. The provider, which has its portability compatible would be expected to attract maximum customers and will emerge the winner. Cost Recovery and Bill Reconciliation/Query Processing: When a customer plans to shift, the old service provider (OSP) has to perform a query to identify if there are any billing amounts pending, which they need to recover before the subscriber moves to the new service provider (NSP).
The failure in most markets where MNP was implemented is attributed to factors like half-hearted implementation, issues related to contract, lack of consumer awareness, overboard of paperwork, technical difficulties and poor customer service. 32
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The neighboring country Pakistan, the first country in Southeast Asia to introduce MNP in March 2007, experienced less than 1% portability. One of the reasons for such poor response is the pitiable customer service and time consuming process during porting the number. Pakistan has over 90 mn cellular subscribers with approximately 95% of them pre-paid. According to experts, disaster recovery and business continuity are also critical elements for MNP providers and hence, it is essential to have a backup center connected over secured redundant leased lines. This center should also be located on a different seismic area. There is no doubt that if implemented successfully, MNP can be a big boon for Indian cellular subscribers. However, considering the overall market dynamics and past experiences, the approach of the government and gaps in implemetation planning, its success can be strictly questioned in the long run. The regulators therefore need to build their fundamentals. To make MNP utilitarian for consumers, the government needs to have a clear roadmap, strategic policies and should define strict guidelines and timelines for the service providers.
applications, the first mobile WiMax network was introduced in Italy this July. Another reason for the industry pinning its hopes on WiMax is its ability to increase the broadband penetration. WiMax makes huge sense for companies as it enables them to provide cheaper mobile internet and broadband services, in turn, increasing the internet penetration. However, this will adversely impact services like GPRS and e-mail on mobile as
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users might move over to WiMax-enabled devices for data, even though they might stick with 3G or 2G spectrum for voice. The Telecom Regulatory Authority of India has set a target of 20 million broadband connections by 2010 from the current 4.3 million. The industry expects WiMax to bridge the gap. According to a consultant of Ernst & Young service providers would mainly use the technology for gaining traction with the customers, as providing the last mile over the conventional digital subscriber lines would be time- consuming and costly.
3G Spectrum Price To be auctioned WiMax DoT has recommende d 25% of reserve price of 3G spectrum Simultaneous Evolving technolog y Result Advantage WiMax
Neutral Advantage 3G
Equipment/Standard Evolved over the years New technology Advantage 3G Data download 15 Mbps 70 Mbps Advantage WiMax speeds (fixed) 15 Mbps 20 MBPS Advantage WiMax Data download speeds (mobile)
Operators will have to use 3G spectrum to revive voice services that are being choked by a dearth of 2G spectrum, Patel added. The WiMax customer premise equipment (CPE) is priced at Rs 5,000-10,000, while the CPEs for 3G would be cost Rs 10,000 and above. The industry will know the winner in the next six months, when the spectrum allocation is complete.
MVNOs are emerging in fast pace in European markets and beginning in USA also. Slowly MVNO phenomenon catching up in Asia and other parts of the world also. An example for MVNO is Virgin Mobile. Virgin Mobile plc is a mobile phone service provider operating in the UK, Australia and Canada, and the US. The company was the world's first Mobile Virtual Network 34
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Operator, launched in the UK in 1999. It does not maintain its own network, and instead has contracts to use the existing network(s) of other providers. In the UK, Virgin Mobile uses the TMobile network. In the US, the Sprint network is the carrier. In Australia, Virgin Mobile operates on the Optus network. In Canada, it uses the Bell Mobility network. These networks use different technology (GSM in the UK and Australia and CDMA in the US and Canada). Usually MVNO's do not have their own infrastructure, some providers are actually deploying their own Mobile Switching Centers (MSC) and even Service Control Points (SCP) in some cases. Some MVNO's deploy their own mobile Intelligent Network (IN) infrastructure in order to facilitate the means to offer value-added services. In this way, MNVO's can treat incumbent infrastructure such as radio equipment as a commodity, while the MVNO offers its own advanced and differentiated services based on exploitation of their own IN infrastructure. The goal of offering value-added services is to differentiate versus the incumbent mobile operator, allowing for customer acquisition and preventing the MVNO from needing to compete on the basis of price alone. MVNO's have full control over the SIM card, branding, marketing, billing, and customer care operations. While sometimes offering operational support systems (OSS) and business support systems (BSS) to support the MVNO, the incumbent mobile operators most keep their own OSS/BSS processes and procedures separate and distinct from those of the MVNO. In the future a cell phone user may be able to subscribe to a network operator plus multiple MVNOs for specific data services over the same phone. One MVNO could provide sports news, another weather and traffic and still another could provide instant messaging capabilities. In this way, each MVNO and the network operator could focus on their own niche markets and form customized detailed services that would expand their customer reach and brand.
Regulation of MVNOs So far MVNOs have not been regulated in any country. The ITU has received several requests to study the issue, specifically to provide input on whether government intervention is necessary to allow MVNOs to offer services and applications at a lower price to consumers. This would help to ensure a more efficient use of the spectrum but some incumbent providers argue that the market is already competitive and intervention is not necessary.
6.4 IPTV
IPTV (Internet Protocol Television) delivers television programming to households via a broadband connection using Internet protocols. It requires a subscription and IPTV set-top box, and offers key advantages over existing TV cable and satellite technologies. IPTV is typically bundled with other services like Video on Demand (VOD), voice over IP (VOIP) or digital phone, and Web access, collectively referred to as Triple Play.
Because IPTV arrives over telephone lines, telephone companies are in a prime position to offer IPTV services initially, but it is expected that other carriers will offer the technology in the future. IPTV 35
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promises more efficient streaming than present technologies, and therefore theoretically reduced prices to operators and subscribers alike. However, it also adds many advantages that may play into market pricing. One of the advantages of IPTV is the ability for digital video recorders (DVRs) to record multiple broadcasts at once. According to Alcatel, one leading provider, it will also be easier to find favorite programs by using "custom view guides." IPTV even allows for picture-in-picture viewing without the need for multiple tuners. You can watch one show, while using picture-in-picture to channel surf! IPTV viewers will have full control over functionality such as rewind, fast-forward, pause, and so on. Using a cell phone or PDA, a subscriber might even utilize remote programming for IPTV. For example, if a dinner function runs longer than expected, you don't have to miss your favorite program. Just call home and remotely set the IPTV box to record it. However, the real advantage of IPTV is that it uses Internet protocols to provide two-way communication for interactive television. One application might be in game shows in which the studio audience is asked to participate by helping a contestant choose between answers. IPTV opens the door to real-time participation from people watching at home. Another application would be the ability to turn on multiple angles of an event, such as a touchdown, and watch it from dual angles simultaneously using picture-in-picture viewing. One can also receive Web service notifications while watching IPTV for things such as incoming email and instant messages. If you IPTV is packaged with digital phone, Caller ID might pop up on screen as your telephone rings. IPTV is already growing in the international market, with providers in many countries including Japan, Hong Kong, Italy, France, Spain, Ireland, and the United Kingdom. In the United States SBC, reportedly purchased a software delivery system for IPTV services from Microsoft in 2004 for $400 million dollars. Alcatel is working with Microsoft to develop a "global solution" for IPTV services, and Verizon has also made a deal with Microsoft for IPTV software.
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Industry Updates
7.1.1
There were three transactions as part of this acquisition; acquisition of shares of Spice, a non-compete fee and a capital infusion of about Rs 7300 crores received from TM International Bhd (TMI). With respect to shares, Idea acquired 40.8% stake of Spice Communications at Rs 77.30 a share for Rs 2,716 crore. There was a share swap in which Spice shareholders got 49 Idea shares for every 100 Spice shares held. An additional Rs 544 crore was paid to the promoters of Spice group as 'noncompete fee'. The deal was strategically important for Idea Cellular as it was looking forward to transfer itself into a pan-India telecom service provider. The spectrum auctioned by GoI is a scarce resource nowadays and cost a premium. Also theres restriction by TRAI with respect to number of operators per telecom circle. So it makes sense to acquire a small telecom operator. Small players like Spice Telecom operating at only a few circles(Karnataka and Punjab) will find difficult to compete with the nationwide players in the long run. So it was a win-win deal for both companies.
7.1.2
Vodafone is the largest mobile telecommunications network company in the world. The deal gave them access to one of the fastest growing mobile markets in the world.
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7.1.3
Telenor-Unitech Deal
Norwegian Telecom major Telenor is in the process of acquiring controlling stake of 67.25% in Unitech wireless via equity infusion. The enterprise valuation of Unitech Wirelsss is about Rs 10,900 crore. As per the deal, Telenor will infuse cash in four stages and at each phase, by increasing its stake in Unitech Wireless. In the first phase, they got 33.5% ownership in Unitech Wireless. In the second phase they completed the acquisition for a 49 per cent stake in Unitech Wireless by paying Rs 1,130 crore for a further 15.5 per cent stake in the company. The acquisition is expected to be completed by end of this quarter.
7.1.4
Japanese carrier NTT DoCoMo acquired26 per cent stake in Tata Teleservices (TTSL). The Tata DoCoMo-branded GSM service has already started in Southern India and gradually will be expanded nationwide. DoCoMos international expansion plans have not always proven successful, with the firm historically preferring to take small stakes in firms and then try to influence their strategy. It has been less prepared to take majority stakes and impose its will, as other leading carriers have chosen to do. The difficulties faced by the firm in spreading its domestically successful i-mode service internationally typify the obstacles it has faced overseas. With Tata, DoCoMo had said participating proactively in TTSLs management by providing human resources and technical assistance to help realise improved network quality and the possible introduction of leading-edge, value-added services.
7.1.5
Recently Bharti Airtel has re-started its audacious merger bid with MTN that could create a $61-billion transnational telecom goliath with combined revenues of $20 billion and over 200 million subscribers across Africa, Asia and Middle East, will be among the world's 10 biggest telecom companies. The deal could be win-win for both parties. Bharti is under pressure in its home country due to severe competition and looking forward to spread its risk across geographies. Meanwhile, the African telecom operator is also encountering some of the problems that its counterpart in India is confronting. MTN may have higher ARPUs (in the range of $12-20), but they are also falling fast. 7.1.5.1Strategic benefits to both players
Synergies would be sought from a number of areas, including procurement, operational best practice, R&D and international network sharing. The two companies will not overlap in each others business operations: Bharti Airtel will be the primary vehicle for Bharti and MTN to pursue further expansion in Africa and the Middle East.
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With both Bharti and MTN operating in high-growth geographies, it would be imperative for them to incrementally expand into untapped areas. Collaborating with each other would seem the logical way ahead. The most important, and visible fallout of the deal, if it materializes, will be the advantage of economies of scale for the new entity. In recent times, companies are more amenable to mergers and acquisitions. Of late, companies are finding it tough to obtain easy funds for expansion, which calls for more collaboration if corporate intend to expand. Bharti would not be involved only in MTNs day-to-day activities, but it would also have a say while making bigger strategic decisions, such as those pertaining to investments in other geographies or sourcing of equipment. The high subscriber base and financial muscle will give Bharti-MTN the desired edge while dealing with vendors. Once the merger happens, the economies of scale of the complete outfit (Bharti-MTN) would be taken into account. For instance, even if the company places an order worth just $1 million, the vendor would not hesitate to lap it up, as there could be orders worth a billion dollars in other projects. This would offset whatever concerns there may be with respect to the small population size in countries where MTN operates. 7.1.5.2Takeaways for Bharti The biggest takeaway for Bharti is in the form of access to new geographies with high growth potential. Without a partner, Bharti would have to embark on a Greenfield project, which would be time-consuming and capital intensive. Besides, without local knowledge (with respect to the market and government regulations), Bharti could be on a sticky wicket. The Indian telco does not have the expertise in running multi- country operations. MTN has operations in 21 countries across Africa and the Middle East and is one of the largest emerging market mobile operators globally. While Africa has one-third of the worlds population, its telephonic density is just 30 per cent. This offers plenty of room for expansion. The fact that 95 percent of Africa is prepaid, which ensures all cash operations, fits perfectly into Bhartis plans. The options for Bharti were to go either the Greenfield way or with an experienced partner. MTNs strong foothold in some growing markets such as South Africa, Botswana, Iran and Nigeria ensures that when the growth in India starts to slow down, Bharti would be ready to take off in other geographies. Besides, there is a lot of potential in Africa as three-fourths of the continent is still untapped.
Africa is quite like rural India and from that perspective; Bharti could learn how to roll out infrastructure in rural India.
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In addition, MTN is strong in the value-added services (VAS) and mobile commerce space. So, as and when mobile commerce picks up in India (after RBIs approval), Bharti would be able to tap this market through MTNs expertise. MTN has a vast experience in running multi-country operations and overcoming regulatory hurdles. By working with MTN, life for Bharti will get a lot of easier.
7.1.5.3 Major Challenges for the merger
One of the major challenges would be the integration of the company on the ground. It is tough for intercontinental companies to merge seamlessly because of cultural divide. Alcatel-Lucent for instance is still trying to adjust to cultural divide. Although Nokia-Siemens has bridged this divide faster, it was because both the companies were European. The Black Empowerment Act could pose a challenge, as it is meant to safeguard the rights of the black population. As per this Act, blacks are ensured a minimum shareholding management seats and voting rights. The countrys strong trade union, Congress of South African Trade Unions (COSATU), which has influence over President Jacob Zuma, had almost wrecked the VodafoneVodacom deal.
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With stable macroeconomic impetus and numerous other advantages, India has the potential to become the electronics manufacturing hub of the world. Excited by the record-breaking industry growth, investors have outlaid US$ 1.5 billion in the past two and a half years in the Indian telecom sector. India will receive an additional US$ 2 billion investment in the next one year. With the world now recognising Indias manufacturing potential, the Indian telecom handset manufacturing market is likely touch US$ 7 billion by 2010. An example is Nokia. The company has already produced 25 million handsets in its Chennai facility. It will pump in an additional US$ 150 million to this set up. The company exports around 20 per cent of its volume to South-east Asia, the Middle East and Africa. Local manufacturing allows companies to avoid 4 per cent countervailing duties on imported handsets, thereby further reducing the cost.
7.3.1
A case in point is Nokia which is managing the network for Hutchison Essar Limited in 19 circles in India. Having successfully capitalised on the business potential of managed service, Nokia is already earning 30 per cent of its total revenue from this segment. The company has also shifted its first Global Network Solutions Centre (GNSC) to India. The company manages 39 cellular networks in 30 countries. Its Indian centre will act as a global hub for other Nokia operation centres. Advantages of Managed Service Smooth management of technological complexity Opportunity to strengthen core competency Reduction in financial outlay Touching base with new processes and technologies
7.3.2
Another dimension of managed service is telecom, communication and network management solutions for enterprises. Bharti Televentures and IBM, together offer telecom and IT solutions in India. The solutions and services portfolio comprises of the remote
monitoring of servers, security operations and network operations,providing data centre services (including server hosting,server management and storage management), IT help desk services and end-to-end connectivity and fulfilling all telecom and communication requirements.This information technology outsourcing deal with infotech major IBM is estimated to be in the range of $700-750 million for a ten-year period.
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The deal involved outsourcing of BTVL's hardware, software and IT service requirements to IBM.The agreement specifies that payments made to IBM India will be linked to the percentage of revenue generation by BTVL and pre-defined service level agreements. The percentage-linked revenue payment is modelled to decrease with BTVL's increase in revenue.The deal includes all customer-facing IT applications like billing, customer relationship management and data warehousing. In addition, Internet, e-mail and online collaborations are included in it.On the infrastructure front, IBM will consolidate BTVL's data centre, IT helpdesk and enhance its disaster recovery centre capabilities, he said.
7.3.3
Telecom major Bharti Airtel has a $500-million deal to Alcatel-Lucent for outsourcing the management and servicing of its broadband and fixed line network for five years.The deal involves the creation of a joint venture with Alcatel-Lucent holding 76 per cent of the equity, and Bharti having the remainder 24 percent.The joint venture will help accelerate performance as Bharti migrates to the next generation networks for the broadband and telephone customers.
7.3.4
Bharti Airtel awarded a $400m contract to Nokia for expanding its managed GSM networks in eight circles. This also marks Bhartis third major deal with Nokia in the last two years. Bharti would have 100% ownership of the networks supplied by Nokia, with the actual payment being linked to utilisation of capacity and fulfillment of agreed quality of service parameters. This comes close on the heels of Bhartis recent signing of a $1bn three-year service contract with Ericsson towards design, planning, supply, installation, commissioning and upgrading of its network in 15 telecom circles. This emphasises Bhartis policy towards outsourcing all operational activities, including customer services to global majors. This has enabled Bharti to focus on its core areas: product innovation, value added services, marketing, branding and pricing. It has enabled Bharti to concentrate on customers, finances and regulation. As per the three-year contract, Nokia will provide managed services and expand Airtels GSM/GPRS/EDGE networks in eight circles of Mumbai, Maharashtra & Goa, Gujarat, Bihar, Orissa, Kolkata, West Bengal and Madhya Pradesh.
The network monitoring operations will be carried out from Nokias state-of-theart Global Network Services Center in Chennai. The deal also envisages Nokia to deploy its WAP solution across Bhartis national network to enhance its mobile packet core network capabilities. This will make usage of data services easy, thereby increasing the consumption of content on the Bharti network.
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Effectively, IMS provides a unified architecture that supports a wide range of IPbased services over both packet- and circuit-switched networks, employing a range of different wireless and fixed access
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technologies. A user could, for example, pay for and download a video clip to a chosen mobile or fixed device and subsequently use some of this material to create a multimedia message for delivery to friends on many different networks. A single IMS presence-and-availability engine could track a user's presence and availability across mobile, fixed, and broadband networks, or a user could maintain a single integrated contact list for all types of communications. A key point of IMS is that it is intended as an open-systems architecture: Services are created and delivered by a wide range of highly distributed systems (real-time and non-real-time, possibly owned by different parties) cooperating with each other. It is a different approach to the more traditional telco architecture of a set of specific network elements implemented as a single telcocontrolled infrastructure.
network (enterprise, fixed) services will come about through the high session data rate. It will require an always-on connection and a revenue model based on a fixed monthly fee. The impact on network capacity is expected to be 44
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significant. Machine-to-machine transmission will involve two basic equipment types: sensors (which measure parameters) and tags (which are generally read/write equipment). It is expected that users will require high data rates, similar to those on fixed networks, for data and streaming applications. Mobile terminal usage (laptops, Personal digital assistants, handhelds) is expected to grow rapidly as they become more user friendly. Fluid high quality video and network reactivity are important user requirements. Key infrastructure design requirements include: fast response, high session rate, high capacity, low user charges, rapid return on investment for operators, investment that is in line with the growth in demand, and simple autonomous terminals. The infrastructure will be much more distributed than in current deployments, facilitating the introduction of a new source of local traffic: machine-to-machine.
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9 Conclusion
The Indian Telecom Service provider industry is gearing for a revolution. The customer is driving this revolution and will see more unique and sophisticated offerings coming his way. The 3G which will pave the way for 3.5G, 3.75G and the next big thing-4G and the VAS services will keep the customer asking for more. The rural areas which have remained untapped will see an insurgence of services. Also the easing of the regulations by TRAI ,the ease of spectrum licensing, the FDI influx will make the telecom space in India a must watch in the coming years.
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10 References
[1] IBEF report 2007-08 : Telecommunication - MARKET & OPPORTUNITIES. [2] Cellular Statistics Cellular Operator Association of India [3] IAMAI & eTechnology Group@IMRB: MOBILE VALUE ADDED SERVICES IN INDIAA Report. [4] Telenor Entering India: Investment Update [5] Voice and Data(May 2009): Mobile Number Portability - Poaching with Portability. [6] Business India : Telecom Takeover, Bharti-MTN deal [7] Moneycontrol.com: Idea Spice deal [8] Business Standard: Vodafone Hutch deal [9] IntoMobile: Indias 3G License Plans Updated. [10]World Bank Report: Spectrum auctions in India: lessons from experience
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Appendix A
SNAPSH OT (Data As on 31st March 2009) Telecom Subscribers (Wireless +Wireline) Total Subscribers 429.72 Million % Growth During Quarter 11.68% Urban Subscribers 309.43 Million (72%) Rural Subscribers 120.29 Millions (28%) Overall Teledensity 36.98 % Urban Teledensity 88.66 % Rural Teledensity 14.8 % Wireline Subscribers Total Wireline Subscribers 37.96 Million % Growth During Quarter 0.15% 27.38 Million Urban Wireline (72.13%) Subscriber 10.58 Millions (27.87%) Rural Wireline Subscribers Village Public Telephones (VPT) Public Call Office (PCO) Wireless Subscribers Total Wireless Subscribers % Growth During Quarter Urban Wireless Subscribers Rural Wireless Subscribers GSM Subscribers CDMA Subscribers Internet & Broadband Subscribers Total Internet Subscribers (including Broadband) % Growth During Quarter Broadband Subscribers Wireless Data Subscriber 5.61 Million 6.20 Million 391.76 Million 12.93% 282.05 Million(72%) 109.71 Million (28%) 297.26 Million (75.88%) 94.50 Million (24.12%)
Source www.trai.gov.in
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