Introduction to Telecommunication Industry
Indian Telecom Industry
The Indian Telecommunications has more than with 225 million telecom subscribers.
Today, it is the fastest growing market in the world and represents unique
opportunities for U.S. companies in the stagnant global scenario. Every month, 6-7 million
new subscribers are added.
In the last 3 years, two out of every three new telephone subscribers were wireless
subscribers. Consequently, wireless now accounts for 54.6% of the total telephone
subscriber base, as compared to only 40% in 2003. The wireless technologies currently in
use are Global System for Mobile Communications (GSM) and Code Division Multiple
Access (CDMA). There are primarily 9 GSM and 5 CDMA operators providing mobile
services in 19 telecom circles and 4 metro cities, covering 2000 towns across the country.
* Total telecom subscribers: 225.21 million (June 2007)
* Teledensity : 19.86 per cent (June 2007)
* Addition of new mobile subscribers per month (June 2007) : 7.34 million
* Annual growth rate of telecom subscribers (2006-07) :46.82 per cent
* One of the fastest growing cellular telephony markets in the world
* Average Revenue Per User (ARPU) for GSM :~ US$ 6.6 per month
* More GSM subscribers than fixed line subscribers
* Telecom equipment market (2006-07) :US$ 17,100 million
* Handset market (2006-07) : US$ 4,750 million
* Expected to reach a mobile subscriber base of about 500 million by 2010 (i.e., more than
one phone for every household)
The Indian telecom market generated revenues of approximately US$ 20 billion in
2006-07. The market witnessed a growth rate of 33 per cent over the last year and recorded
a CAGR of 22 per cent for the period 2002-03 to 2006-07. This growth has resulted in
doubling the revenues of the telecom segment in the past three years. Further, it is
expected that the industry will generate revenues worth US$ 43 billion by 2009-10.
History of Telecom in India
While telecom liberalization is usually associated with the post-1991 era, the seeds of
reform were actually planted in the 1980s. At that time, Rajiv Gandhi and carved the
Department of Telecommunications (DOT) out of the Department of Posts and Telegraph.
For a time he also even considered corporatizing the DOT, before succumbing to union
pressure. In a compromise, Gandhi created two DOT-owned corporations: Mahanagar
Telephone Nigam Limited (MTNL), to serve Delhi and Bombay, and Videsh Sanchar
Nigam Limited (VSNL), to operate international telecom services. He also introduced
private capital into the manufacturing of telecommunications equipment, which had
previously been a DOT monopoly. Another, perhaps even more significant, problem with
Indias initial attempts to introduce competition was the lack of regulatory clarity. Private
operators complained that the licensor * the DOT * was also the incumbent operator. The
many stringent conditions attached to licenses were thus seen by many as the DOTs
attempt to limit competition. It was in response to such concerns that the government in
1997 set up the Telecom Regulatory Authority of India (TRAI), the nations first
independent telecom regulator. The corporatization of the DOT and the creation of a new
state-owned telecom company, Bharat Sanchar Nigam Ltd (BSNL), in 2000;
* The opening up of Indias internal long-distance market in 2000, and the subsequent drop
in long-distance rates as part of TRAIs tariff rebalancing exercise;
* The termination of VSNLs monopoly over international traffic in 2002, and the partial
privatization of the company that same year, with the Tata group assuming a 25% stake
and management control;
* The gradual easing of the original duopoly licensing policy, allowing a greater number of
operators in each circle;
* The legalization, in 2002, of IP telephony (a move that many believe was held up due to
lobbying by VSNL, which feared the consequences on its international monopoly);
* The introduction in 2003 of a Calling Party Pays (CPP) system for cell phones, despite
considerable opposition (including litigation) by fixed operators;
* And, more generally, the commencement of more stringent interconnection regulation by
TRAI, which has moved from an interoperator negotiations-based approach (often used by
the stronger operator to negotiate ad infinitum) to a more rules-based approach.
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.
There exists enormous business potential for telecom companies on account of the
countrys 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 2010.
The Indian telecom industry can be divided into basic, mobile and Internet services. There
are also some smaller segments such as radio paging services, Very Small Aperture
Terminals (VSATs), Public Mobile Radio Trunked Services (PMRTS) and Global Mobile
Personal Communications by Satellite (GMPCS).
Industry Analysis
Growth Avenues
The Indian telecom sector offers unprecedented opportunities for foreign companies in
various areas, such as 3G, virtual private network, international long distance calls, value
added services, etc.
There exists enormous business potential for telecom companies on account of the
countrys 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 2010.
The Indian telecom sector offers unprecedented opportunities for foreign companies in
various areas, such as 3G, virtual private network, international long distance calls, value
added services, etc.
Major Players
There are three types of players in telecom services:
* State owned companies (BSNL and MTNL)
* Private Indian owned companies (Reliance Infocomm, Tata Teleservices,)
* Foreign invested companies (Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea
Cellular, BPL Mobile, Spice Communications)
Market size and Growth Rate
* The Total telecom subscribers in India were 225.21 million as of June 2007.
* The Teledensity in India was 19.86 per cent as of June 2007.
* 7.34 million mobile subscribers are added per month as of June 2007
* Annual growth rate of telecom subscribers (2006-07) is 46.82 per cent
* The Indian telecom market generated revenues of approximately US$ 20 billion in
2006-07.
Circles and License Areas Policy
Telecom subscriber base and Teledensity
The Indian telecom sector is witnessing an impressive growth rate that will enable it to
scale the second position in the global telecommunication market by 2010. In tandem with
this, the growing market is creating ample opportunities for every player in the market.
The telecom subscriber base is expanding dramatically and the soaring industry revenues
are a clear proof of this. The additions in subscriber base in 2007 registered a growth of
approximately 47 per cent over the previous year. The CAGR witnessed by the subscriber
base for the period 2002-03 to 2006-07 stood at 40.4 per cent. The burgeoning subscriber
base has also played its part in increasing the teledensity in the country. Teledensity in
India is still low as compared to some other markets, which is an indication of the
extensive scope of business opportunity and growth. In 2006-07, India had a teledensity of
18.31 per cent, as compared to the previous years figure of 12.80 per cent, signifying a
growth of 43 per cent. From 2002-03 to 2006-07, the telecom subscriber base and
teledensity in India registered a CAGR at 40.4 per cent and 37.6 per cent, respectively.
The Indian telecom industry witnessed a CAGR of approximately 22 per cent from
2002-03 to 2006-07. The CAGR from 2006-07 to 2009-10 is expected to stabilise at 21 per
cent.
The Indian telecom market generated revenues of approximately US$ 20 billion in
2006-07. The market witnessed a growth rate of 33 per cent over the last year and recorded
a CAGR of 22 per cent for the period 2002-03 to 2006-07. This growth has resulted in
doubling the revenues of the telecom segment in the past three years. Further, it is
expected that the industry will generate revenues worth US$ 43 billion by 2009-10. The
Indian telecom industry can be divided into basic, mobile and Internet services. There are
also some smaller segments such as radio paging services, Very Small Aperture Terminals
(VSATs), Public Mobile Radio Trunked Services (PMRTS) and Global Mobile Personal
Communications by Satellite (GMPCS).
Market SWOT
Problems
India has also suffered from its fair share of regulatory hiccups. Many operators (mobile
players in particular) still complain about the difficulties of gaining access to the
incumbents (BSNL) network, and the governments insistence on capping FDI in the
telecom sector to 49% (a move made in the name of national security) limits capital
availability and thus network rollout. In addition, ISPs, who were allowed into the market
under a liberal licensing regime in 1998, continue to hemorrhage money, and have been
pleading with the government for various forms of relief, including the provision of
unmetered phone numbers for Internet access. Despite initially impressive results, the
growth of Internet in the country has recently stalled, with only 8 million users. Broadband
penetration, too, remains tiny.
Constraints
* Slow pace of the reform process.
* It would be difficult to make in-roads into the semi-rural and rural areas because of the
lack of infrastructure. The service providers have to incur a huge initial fixed cost to make
inroads into this market. Achieving break-even under these circumstances may prove to be
