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Industry Analysis Report on

TELECOM INDUSTRY IN INDIA

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DECLARATION

I, XYZ, pursuing M.B.A IV Semester at School of Management Studies, XYZ University, hereby declare that the Industry Analysis Report entitled Telecom Industry in India submitted by me in partial fulfillment for award of Master of Business Administration is an original work.

Place : Date:

XYZ

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SCHOOL OF MANAGEMENT STUDIES

CERTIFICATE This is to certify that XYZ is student of XYZ and the Industry Analysis Report titled

“Telecom Industry in India” done by him is

original work and is not submitted to any other university other than XYZ.

Place : Director Date:

XYZ

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CERTIFICATE This is to certify that Mr XYZ is a part-time student of XYZ, and the Industry Analysis Report submitted by him titled “Telecom Industry in India� is his original work and is not submitted to any other university other than XYZ. This project has been carried out under my guidance.

Place : Date:

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ACKNOWLEDGEMENT

I would like to express my gratitude to Dr. XYZ for providing me invaluable support in writing this report. The shortcomings or limitations of the report or errors continued therein remain my responsibility.

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Contents

Sl.No. I II III IV V VI VII VIII

Chapter Title Introduction to Telecom Industry After Liberalization Developments in Indian Telecom Reforms and Performance Competition Policy Revenue, Sectoral Growth and Employment Benefit SWOT Analysis Findings and Recommendations Conclusion Bibliography

Page No. 07-11 12-19 20-26 27-33 34-51 52-53 54-56 57

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Chapter 窶的 Introduction to Telecom Industry Telecom in the real sense means transfer of information between two distant points in space. Indian Telecommunication industry, Telecom service providers in the country added 18.18 million new subscribers in August this year, taking the overall number of mobile users in the country to 670.60 million, the Telecom Regulatory Authority of India (TRAI) said. The wireless subscriber base increased from 652.42 million in July 2010 to 670.60 million by the end of August, 2010- a growth of 2.79 per cent. The growth rate is in line with research firm Gartner's 2008 forecast that India's wireless subscriber base is set to exceed 737 million connections by 2012 growing at a CAGR of 21 per cent in the same period. The total number of telephone subscribers, including the mobile and the landline, increased to 706.37 million by August-end from 688.38 million in July. With this, the overall teledensity (telephones per 100 people) in India reached 59.63 per cent. However, TRAI said that the wire line subscriber base declined to 35.77 million in August, 2010, from 35.96 million at July-end. Telecom Industry is the third largest telecommunication network in the world and the second largest in terms of number of wireless connections. For the past decade or so, telecommunication activities have gained momentum in India. Efforts have been made from both governmental and non-governmental platforms to enhance the infrastructure.

Composition of Telephone subscribers

Rural w ireless 27.1%

Urban w ireline 5.9%

Rural Wireline 2.2%

Urban Wireless 64.8%

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The two major reasons that have fuelled this growth are low tariffs coupled with falling handset prices. The other reason that has tremendously helped the telecom Industry is the regulatory changes and reforms that have been pushed for last 10 years by successive Indian governments. According to Telecom Regulatory Authority of India (TRAI) the rate of market expansion would increase with further regulatory and structural reforms. Even though the fixed line market share has been dropping consistently, the overall (fixed and mobile) subscribers have risen to more than 200 million by first quarter of 2007. The telecom reforms have allowed the foreign telecommunication companies to enter Indian market which has still got huge potential. International telecom companies like Vodafone have made entry into Indian market in a big way. Currently the Indian Telecommunication market is valued at around $100 billion (Rupees 400,000 crore). Two telecom players dominate this market – Bharti Airtel with 27% market share and Reliance Communication with 20% along with other players like BSNL (Bharat Sanchar Nigam Limited) and AT&T. One segment of the market that has been puzzling is broadband Internet. Despite the manner in which the countries Internet market has been booming, India’s move into high-speed broadband Internet access has been distinctly slow. And, while there appears to be considerable enthusiasm amongst the population for the Internet itself, this has not been reflected in broadband subscription numbers. In 2006 India witnessed a good surge in broadband users with the total subscriber base in the country expanding by almost 200% to just over 2 million by years end. Despite this surge, broadband penetration in India still remains around only 0.2%. Broadband services still account for only 25% of the total Internet subscriber base, still in itself comparatively low. The Ministry of Communications and Information Technology (MCIT) is has very aggressive plans to increase the pace of growth, targeting 500 million by 2010. Most of the expansion in subscribers is set to occur in rural India. India’s rural telephone density has been languishing at around 1.9%.So, if 70% of total population is rural, the scope for growth in this Industry is unprecedented. Vodafone led the growth in the wireless category by adding 2.30 million users to take its subscriber base to 113.77 million users followed by state-run operator BSNL, which added 2.25 million users in August, taking its total user base to 76.03 million. 8


India's top telecom operator Airtel added 2.03 million users, taking its subscriber base to 141.25 million, while Idea Cellular added 1.98 million and Aircel 1.61. Reliance Communications added 2 million new subscribers, while Tata Teleservices added 2.09 million and state-run firm, Mahanagar Telephone Nigam added 27,594 new users in August. As the Indian wireless subscriber base grows at a blistering pace having 670.60 million subscribers by end August, it is not so with the broadband subscriber base, which although increased by 3.17 per cent from 9.77 million in July to 10.08 million in August 2010.

Developments in Telecom Industry The postal and telecom sectors had a slow and uneasy start in India. In 1850, the first experimental electric telegraph Line was started between Kolkata and Diamond Harbor. In 1851, it was opened for the British East India Company. The Posts and Telegraphs department occupied a small corner of the Public Works Department, at that time. Construction of 4,000 miles (6,400 km) of telegraph lines connecting Kolkata (Calcutta) and Peshawar in the north via Agra, Mumbai (Bombay) through Sindwa Ghats, and Chennai in the south, as well as Ootacamund and Bangalore was started in November 1853. Dr. William O'Shaughnessy, who pioneered telegraph and telephone in India, belonged to the Public Works Department. He tried his level best for the development of telecom through out this period. A separate department was opened in 1854 when telegraph facilities were opened to the public. In 1880, two telephone companies namely The Oriental Telephone Company Ltd. and The Anglo-Indian Telephone Company Ltd. approached the Government of India to establish telephone exchanges in India. The permission was refused on the grounds that the establishment of telephones was a Government monopoly and that the Government itself would undertake the work. By 1881, the Government changed its earlier decision and a license was granted to the Oriental Telephone Company Limited of England for opening telephone exchanges at Kolkata, Mumbai, Chennai (Madras) and Ahmedabad. January 28, 1882, is a Red Letter Day in the history of telephone in India. On this day Major E. Baring, Member of the Governor General of India's Council declared open the Telephone 9


Exchange in Kolkata, Chennai and Mumbai. The exchange at Kolkata named "Central Exchange" was opened at third floor of the building at 7, Council House Street. The Central Telephone Exchange had 93 number of subscribers. Bombay also witnessed the opening of Telephone Exchange in 1882.

Further developments 

1902 - First wireless telegraph station established between Saugor Islands and Sandheads.

1907 - First Central Battery of telephones introduced in Kanpur.

1913-1914 - First Automatic Exchange installed in Shimla.

July 23, 1927 - Radio-telegraph system between the UK and India, with beam stations at Khadki and Daund, inaugurated by Lord Irwin by exchanging greetings with the King of England.

1933 - Radiotelephone system inaugurated between the UK and India.

1953 - 12 channel carrier system introduced.

1960 - First subscriber trunk dialing route commissioned between Kanpur and Lucknow.

1975 - First PCM system commissioned between Mumbai City and Andheri telephone exchanges.

1976 - First digital microwave junction introduced.

1979 - First optical fibre system for local junction commissioned at Pune.

1980 - First satellite earth station for domestic communications established at Secunderabad, A.P.

1983 - First analog Stored Program Control exchange for trunk lines commissioned at Mumbai. 10


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1984 - C-DOT established for indigenous development and production of digital exchanges.

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1985 - First mobile telephone service started on non-commercial basis in Delhi.

While all the major cities and towns in the country were linked with telephones during the British period, the total number of telephones in 1948 was only around 80,000. Even after independence, growth was extremely slow. The telephone was a status symbol rather than being an instrument of utility. The number of telephones grew leisurely to 980,000 in 1971, 2.15 million in 1981 and 5.07 million in 1991, the year economic reforms were initiated in the country. While certain innovative steps were taken from time to time, as for example introduction of the telex service in Mumbai in 1953 and commissioning of the first [subscriber trunk dialing] route between Delhi and Kanpur in 1960, the first waves of change were set going by Sam Pitroda in the eighties. He brought in a whiff of fresh air. The real transformation in scenario came with the announcement of the National Telecom Policy in 1994.

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Chapter-II After Liberalization Developments in Indian Telecom The Indian government was composed of many factions (parties) which had different ideologies. Some of them were willing to throw open the market to foreign players (the centrists) and others wanted the government to regulate infrastructure and restrict the involvement of foreign players. Due to this political background it was very difficult to bring about liberalization in telecommunications. When a bill was in parliament a majority vote had to be passed, and such a majority was difficult to obtain, given to the number of parties having different ideologies. Liberalization started in 1981 when Prime Minister Indira Gandhi signed contracts with Alcatel CIT of France to merge with the state owned Telecom Company (ITI), in an effort to set up 5,000,000 lines per year. But soon the policy was let down because of political opposition. She invited Sam Pitroda a US based NRI to set up a Center for Development of Telematics(C-DOT), however the plan failed due to political reasons. During this period, after the assassination of Indira Gandhi, under the leadership of Rajiv Gandhi, many public sector organizations were set up like the Department of Telecommunications (DoT) , VSNL and MTNL. Many technological developments took place in this regime but still foreign players were not allowed to participate in the telecommunications business. The demand for telephones was ever increasing. It was during this period that the P.N Rao led government introduced the national telecommunications policy [NTP] in 1994 which brought changes in the following areas: ownership, service and regulation of telecommunications infrastructure. They were also successful in establishing joint ventures between state owned telecom companies and international players. But still complete ownership of facilities was restricted only to the government owned organizations. Foreign firms were eligible to 49% of the total stake. The multi-nationals were just involved in technology transfer, and not policy making. During this period, the World Bank and ITU had advised the Indian Government to liberalize long distance services in order to release the monopoly of the state owned DoT and VSNL; and to enable competition in the long 12


distance carrier business which would help reduce tariff's and better the economy of the country. The Rao run government instead liberalized the local services, taking the opposite political parties into confidence and assuring foreign involvement in the long distance business after 5 years. The country was divided into 20 telecommunication circles for basic telephony and 18 circles for mobile services. These circles were divided into category A, B and C depending on the value of the revenue in each circle. The government threw open the bids to one private company per circle along with government owned DoT per circle. For cellular service two service providers were allowed per circle and a 15 years license was given to each provider. During all these improvements, the government did face oppositions from ITI, DoT, MTNL, VSNL and other labor unions, but they managed to keep away from all the hurdles. After 1995 the government set up TRAI (Telecom Regulatory Authority of India) which reduced the interference of Government in deciding tariffs and policy making. The DoT opposed this. The political powers changed in 1999 and the new government under the leadership of Atal Bihari Vajpayee was more pro-reforms and introduced better liberalization policies. They split DoT in two- one policy maker and the other service provider (DTS) which was later renamed as BSNL. The proposal of raising the stake of foreign investors from 49% to 74% was rejected by the opposite political party and leftist thinkers. Domestic business groups wanted the government to privatize VSNL. Finally in April 2002, the government decided to cut its stake of 53% to 26% in VSNL and to throw it open for sale to private enterprises. TATA finally took 25% stake in VSNL. This was a gateway to many foreign investors to get entry into the Indian Telecom Markets. After March 2000, the government became more liberal in making policies and issuing licenses to private operators. The government further reduced license fees for cellular service providers and increased the allowable stake to 74% for foreign companies. Because of all these factors, the service fees finally reduced and the call costs were cut greatly enabling every common middle class family in India to afford a cell phone.

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Growth of Mobile Technology India has become one of the fastest-growing mobile markets in the world. The mobile services were commercially launched in August 1995 in India. In the initial 5–6 years the average monthly subscribers additions were around 0.05 to 0.1 million only and the total mobile subscribers base in December 2002 stood at 10.5 millions. However, after the number of proactive initiatives taken by regulator and licensor, the monthly mobile subscriber additions increased to around 2 million per month in the year 2003-04 and 2004-05.

Although mobile telephones followed the New Telecom Policy 1994, growth

was tardy in the early years because of the high price of hand sets as well as the high tariff structure of mobile telephones. The New Telecom Policy in 1999, the industry heralded several pro consumer initiatives. Mobile subscriber additions started picking up. The number of mobile phones added throughout the country in 2003 was 16 million, followed by 22 million in 2004, 32 million in 2005 and 65 million in 2006. As of January 2009, total mobile phone subscribers numbered 362 million, having added 15 million that month alone. India ranks second in mobile phone usage to China, with 650 million users as of January 2009. India has opted for the use of both the GSM (global system for mobile communications) and CDMA (code-division multiple access) technologies in the mobile sector. In addition to landline and mobile phones, some of the companies also provide the WLL service. The mobile tariffs in India have also become lowest in the world. A new mobile connection can be activated with a monthly commitment of US$0.15 only. In 2005 alone 32 million handsets were sold in India. The data reveals the real potential for growth of the Indian mobile market. In March 2008 the total GSM and CDMA mobile subscriber base in the country was 375 million, which represented a nearly 50% growth when compared with previous year.

In April 2008 the Indian Department of Telecom

(DoT) has directed all mobile phone service users to disconnect the usage of unbranded Chinese mobile phones that do not have International Mobile Equipment Identity (IMEI) numbers, because they pose a serious security risk to the country. Mobile network operators therefore planned to suspend the usage of around 30 million mobile phones (about 8 % of all mobiles in the country) by April 30.

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Telephone On landlines, intra circle calls are considered local calls while inter circle are considered long distance calls. Currently Government is working to integrate the whole country in one telecom circle. For long distance calls, you dial the area code prefixed with a zero (e.g. For calling Delhi, you would dial 011-XXXX XXXX). For international calls, you would dial "00" and the country code+area code+number. The country code for India is 91. Until recently, only the PSU's BSNL and MTNL were allowed to provide Basic Phone Service through copper wires in India. MTNL is operating in Delhi and Mumbai only and all other parts are covered by BSNL. However private operators have now entered the fray, although their focus is largely on the cellular business which is growing rapidly. Telephony Subscribers (Wireless and Landline): 511 million (Mar 2010) Cell phones: 471.7 million (Mar 2010) Land Lines: 37.3 million (Mar 2010) Yearly Cell phone Addition: 113.26 million (2007) Monthly Cell phone Addition: 14.98 million (Mar 2010) Teledensity: 43.5% (Sep 2009) Projected teledensity: 686 million, 46% of population by the end of the year 2010.

Wireless Telephones The Mobile telecommunications system in India is the second largest in the world and it was thrown open to private players in the 1990s. The country is divided into multiple zones, called circles (roughly along state boundaries). Government and several private players run local and long distance telephone services. Competition has caused prices to drop and calls across India are one of the cheapest in the world. The rates are supposed to go down further with new measures to be taken by the Information Ministry. The mobile service has seen phenomenal growth since 2000. In September 2004, the number of mobile phone connections has crossed fixed-line connections. India primarily follows the GSM mobile system, in the 900 MHz band. Recent operators also operate in the 1800 MHz band. The dominant players are Airtel, Reliance Infocomm, Vodafone, Idea cellular and

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BSNL/MTNL. There are many smaller players, with operations in only a few states. International roaming agreements exist between most operators and many foreign carriers. The breakup of wireless subscriber base in India as of June 2010 is given below

Operator

Subscriber base

Bharti Airtel

100 million

Vodafone Essar

74,080,707

BSNL

53,598,591

Idea Cellular

41,243,253

Aircel

20,685,711

MTNL

4,568,269

BPL

2,256,862

Spice Telecom

4,235,023

Reliance Communications

77,223,264

HFCL Infotel

382,602

Sistema Shyam

936,189

Tata Teleservices All India

36,486,763 415,246,442

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Landlines Landline service in India is primarily run by BSNL/MTNL and Reliance Infocomm though there are several other private players too, such as Touchtel and Tata Teleservices. Landlines are facing stiff competition from mobile telephones. The competition has forced the landline services to become more efficient. The landline network quality has improved and landline connections are now usually available on demand, even in high density urban areas.

Internet The total subscriber base for internet in India is 13.54 million.

The number of broadband

connections in India have seen a continuous growth since the beginning of 2006. At the end of August 2008, total broadband connections in the country have reached 4.73 million. BSNL, Sify, MTNL, STPI, Airtel, Netcom, Reliance Communications and Hathway are some of the major ISPs in India. TRAI has defined broadband as 256 kbit/s or higher. However, many ISPs advertise their service as broadband but don't offer the suggested speeds. Broadband in India is more expensive as compared to Western Europe/United Kingdom and United States.

After economic liberalization in 1992, many private ISPs

have entered the market, many with their own local loop and gateway infrastructures. The telecom services market is regulated by TRAI. ADSL providers include: 

Tata Communications Ltd. (VSNL)

MTNL/BSNL

Bharti Telecom (Airtel, Bharti Televentures)

Reliance Infocomm

Because of the increase in ISPs and the quality of service Qos, It became cheaper to call India from around the world. Many Indians today, studying or living all around the world, are using calling cards to India to speak with their families back home. It used to be much more expensive prior to year 2002. 17


Broadband The current definition of Broadband in India is speeds of 256 kbit/s. TRAI on Jun 2010 has recommended raising this limit to 2 Mbps. As of September 2010, India has 7.21 million broadband users. In the fixed line arena, BSNL and MTNL are the incumbents in their respective areas of operation and continue to enjoy the dominant service provider status in the domain of fixed line services. For example BSNL controls 79% of fixed line share in the country. On the other hand, in the mobile telephony space, Airtel controls 21.4% subscriber base followed by Reliance with 20.3%, BSNL with 18.6%, Vodafone with 14.7% subscriber base (as per June 2005 data). Airtel and BSNL have launched 8 Mbit/s & Reliance Communication offers 10 Mb/s broadband internet services in selected areas recently. For home users, the maximum speed for unlimited downloads is 2 Mbit/s, available for USD 60 (roughly , without taxes) per month. Internet Service Providers (ISPs) & Hosts: 86,571 (2008) Broadcasting Radio broadcast stations: AM 153, FM 91, shortwave 68 (1998) Radios: 116 million (1997) Television terrestrial broadcast stations: 562 (of which 82 stations have 1 kW or greater power and 480 stations have less than 1 kW of power) (1997) Televisions: 110 million (2006) In India, only the government owned Doordarshan (Door = Distant = Tele, Darshan = Vision) is allowed to broadcast terrestrial television signals. It initially had one major National channel (DD National) and a Metro channel in some of the larger cities (also known as DD Metro).

Satellite/Cable television took off during the first Gulf War with

CNN. There are no regulations against ownership of satellite dish antennas, or operation of cable television systems, which led to an explosion of viewer ship and channels, led by the Star TV group and Zee TV. Initially restricted to music and entertainment channels, viewer ship grew, giving rise to several channels in regional languages and many in the national

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language, Hindi. The main news channels available were CNN and BBC World. In the late 1990s, many current affairs and news channels sprouted, becoming immensely popular because of the alternative viewpoint they offered compared to Doordarshan. Some of the notable ones are Aaj Tak (means Till Today, run by the India Today group) and Star News, initially run by the NDTV group and their lead anchor, Prannoy Roy (NDTV now has its own channels, NDTV 24x7, NDTV Profit, NDTV India and NDTV Imagine).New Delhi Television.

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Chapter-III Reforms and Performance India, like many other countries of the world, have adopted a gradual approach to telecom sector reform through selective privatization and managed competition in different segments of the telecom market. To begin with, India introduced private competition in value-added services in 1992 followed by opening up of cellular and basic services for local area to private competition. The Telecom Regulatory Authority of India (TRAI) was constituted in 1997 as an independent regulator in this sector. Competition was also introduced in national long distance (NLD) and international long distance (ILD) telephony at the start of the current decade. The current policy stance affecting telecom sector in India is presented in the Appendix. Two state-owned public sector incumbents with a large existing subscriber base dominate the fixed line service. As on December 31, 2001, the two Public Sector Enterprises (PSEs), BSNL and MTNLi owned 34.73 million Direct Exchange Lines (DELs) against 0.45 million privately owned DELs. These two PSEs were allowed belated entry into the cellular segment in the beginning of the present decade. Consequently, their cellular subscriber base is tiny compared to the private operators. Out of 7.3 million cellular subscribers in the country in June 2002, they had only 0.2 million subscribers. Government divested 25 per cent strategic stake of Videsh Sanchar Nigam Limited (VSNL), a public sector monopoly incumbent in ILD telephony to Tata Group in the private sector out of 52.97 per cent equity held by the government. This was followed by opening up of ILD business to private players from April 1, 2002, terminating VSNL monopoly two years ahead of schedule, VSNL, 16th Annual Report, 2001-2002, p.5. Till 1986 telecommunication was a public utility owned by the Government of India. Mahan agar Telephone Nigam Limited (MTNL) was created in 1986 as a PSE to take out telecommunication services from the Government entirely in the cities of Delhi and Mumbai. It was in the same year that VSNL was created in the ILD segment. Bharat Sanchar Nigam Limited (BSNL) was formed as a PSE on October 1, 2000 as a telecom service provider in all other places. Both these incumbents inherited the entire pre-existing subscriber base with the Government. 20


Despite asymmetry in initial market endowments between public sector incumbents and private operators, the act of opening up of the market unleashed dynamism that was hitherto latent in the sector. This is evident from a number of performance indicators. In terms of overall size of main telephone lines in operation, India ranked 14 th in the world in 1995. The rank improved to 7th position in 2001 (Table 1). Table 1 Top 14 countries in the world in terms of number of main telephone lines in operation Country

USA Japan Germany China France UK Russia Italy Korea, Rep. Canada Spain Brazil Turkey India

No. of lines in Ranks (1995)

No. of lines in Ranks (2009)

1995

2009

(‘000) 159,735.2 62,292.0 42,000.0 40,705.7 32,400 29,411.4 25,018.9 24,845.0 18,600.0 17,567.0 15,095.4 13,263.0 13,215.7 11,978.0

(‘000) 190,000.0 76,000.0 52,280.0 179,034.0 34,032.9 34,710.0 35,700.0 27,303.0 22,724.7 20,319.3 17,427.0 37,430.8 18,900.9 34,732.1

1 2 3 4 5 6 7 8 9 10 11 12 13 14

1 3 4 2 9 8 6 10 11 12 14 5 13 7

Source: World Telecommunication Development Report 2009, ITU

Network expansion in India was accompanied by an increase in productivity of telecom staff measured in terms of ratio of number of main telephone lines in operation to total number of full time telecom staff (Table 2).

One way of looking at the welfare gains to

subscribers is to watch the trend in prices for telecom services, whether such prices came down in the competitive regime. What consumer ultimately pays includes rental as well as telecom tariffs.

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Because of complications involved in summarizing differential rates applicable to peak and non-peak hours, a convenient proxy for the change in telecom prices could be constructed in terms of observed trend in revenue earned from telephone services at constant prices expressed as a ratio of number of main telephone lines in operation. Table 2 shows a significant decline in this ratio since 1995 in Indian fixed line segment. It may be noted that the National Telecom Policy was announced in May 1994. Steps were intensified to introduce private competition in the basic and cellular services thereafter. The beginning of the declining trend in per line revenue at constant prices coincided with the period, which witnessed emergence of competitive pressure in the sector.

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Table 2 Trend in productivity and price

Year

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (till Mar 10)

Number of main telephone lines Telephone service revenue in operation per full-time at constant prices (CPI: telecom staff 2009=100) per main telephone line in operation (Rs. ‘000) 15.58 9.13 17.65 10.25 20.32 11.04 23.38 10.17 28.45 9.23 33.90 6.12 41.89 5.62 50.93 4.92 62.97 4.24 70.02 4.24 78.01 4.24 80.21 4.52 81.02 4.78 82.04 5.78 85.04 6.21 86.04 6.24 87.08 6.24 88.08 6.24 88.08 6.25 89.07 6.89

(Source: Computed from the data published in the Year book of Statistics: Telecommunications Source: Computed from the data published in the Year book of Statistics: Telecommunication Services, 1991-2009, ITU)

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Table 3 below shows the long run trend in supply and demand of DELs (Direct Exchange Lines). The number of DELs in operation (i.e., main line in operation) has been taken as supply whereas demand has been computed by adding the number of subscribers in the waiting list to the number of DELs in operation. However, it needs to be kept in mind that the number in the waiting list, in certain cases, is unlikely to reflect potential demand for telecom services in the economy. The market potential may be much more than what is revealed through waiting list because the number in the waiting list reveals demand registered in those areas where telecommunication facilities are available and reasonable expectations exist for demand to be fulfilled. In the areas where telecom infrastructure is not adequate, demand may not get registered at all and remain suppressed. Table 3 Direct Exchange Lines (DEL) : Supply and demand (Millions) Year ending

Direct

Exchange Waiting List

Demand

As on March 31st of Lines each year 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2008 2009 2010 (till Mar 10)

(DELs) 2.15 2.47 2.90 3.49 4.17 5.07 6.80 9.80 14.54 21.59 32.44 42.44 53.23

0.45 0.66 0.84 1.12 1.42 1.96 2.85 2.15 2.89 1.98 2.92 3.92 4.20

2.6 3.13 3.74 4.61 5.59 7.03 9.65 11.95 17.43 23.57 35.36 45.36 57.39

(Source: Indian Telecommunication Statistics 2008, Ministry of Communications, Government of India. )

Table 4 below indicates tele-density for the countries included in Table 1 as measured in terms of number of main lines per 100 inhabitants. Table 4: Number of main telephone lines per 100 inhabitants

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Country USA Japan Germany China France UK Russia Italy Korea, Rep. Canada Spain Brazil Turkey India

1995 60.73 49.61 51.33 3.30 56.01 50.18 16.91 43.33 41.24 59.85 38.50 8.51 21.44 1.29

2009 66.45 59.69 63.48 13.81 57.35 57.78 24.33 47.06 47.60 65.51 43.11 21.69 28.52 3.38

(Source: World Telecommunication Development Report 2009, ITU)

Above table indicates that despite phenomenal achievement in terms of network expansion, the size of the population is responsible for India’s low tele-densityii. A comparison between Table 1 and Table 4 reveals that countries with smaller network sizes than India are having much higher tele-densities. However, in terms of total tele-density, i.e., the sum of fixed-lines and mobile subscribers per 100 inhabitants, India’s comparative ranking in the world improved from 160 in 1990 to 145 in 2000, an improvement by 15 positions iii. Nevertheless, closing the digital divide in terms of tele-density remains a daunting task. It is estimated that in order to attain the network size of USA in 2001 India has to expand its number of operational telephone lines at a compound annual growth rate (CAGR) of 23.44 per cent between 2002 and 2020. The corresponding growth rates to reach China and Japan’s levels are 23.06 per cent and 17.63 per cent respectively. Even that is not going to mean much in terms of tele-densities in comparison to most of the countries cited in Table 4. Assuming no change in India’s size of population (i.e., assuming population size to remain at 2001 level of 1.03 billion), India’s tele-density will be 18.48 lines per 100 people even if India’s network size reaches the level of USA. Considering the fact that India’s DEL grew at a CAGR of 19.4 per cent during 1995-2000, significant effort would be needed to step up growth rate above 23 per cent.

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Understanding telecom growth prospect would require understanding of the sources of growth --- what accounts for cross-country differences in growth experiences. Countries do differ among themselves in respect of their economic structure, sectoral policies and technological changes. Assuming these three to be key drivers of growth it can be said that ‘Vision 2020’ of Indian telecom sector will be shaped in an important way by the evolving economic structure, sectoral reforms including competition policy and technology trend.

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Chapter-IV Competition Policy Countries often differed in pattern of sequencing and the speed of liberalization. Competition has been controlled within limit by state policy through licensing of limited number of market players in certain segments granting thereby a period of exclusivity to the operators. Heterogeneity of routes to sectoral reforms, as seen from the examples of some of the Asian countries, classified into different combination of policies and approaches to telecom reform, are presented below: 1. Competition in the fixed line segment with state owned incumbents: China, India and Korea. 2. Privatization of state owned incumbents but deferred competition through exclusivity granted to private investors: Hong Kong, Indonesia, Malaysia, Pakistan and Singapore. 3. Simultaneous introduction of privatization and competition: Japan and Sri Lanka. 4. Opening up of local market to competition first: Hong Kong, India and Singapore. 5. Opening up of competition in the international services first: Korea, Malaysia and the Philippines. 6. Introduction of second domestic long distance carrier first: China 7. The sector ministry exercises regulatory functions: China, Indonesia, Japan, Korea, Malaysia, Taiwan and Thailand. 8. Separate regulator with the responsibility for interconnection lying with the dominant operator while regulator is responsible for arbitration of disputes: Hong Kong, Pakistan and Philippines. In most countries, restricting the number of licensees or imposing geographic limitations has limited competition. In India, for instance, competition in cellular telephony was allowed in a duopoly mode. This was gradually increased to licensing of four operators in each of the four metros and thirteen circles. Basic service in India is still limited to one private operator competing with state owned incumbents in the circles. Though private 27


sector has been licensed and they are laying infrastructure, metros are still in the grip of public sector monopoly and it will take a while before private competition takes place. Differences in modes of privatization have been observed in other countries. In Thailand, private entry was allowed through Build Operate and Transfer (BOT) mode while the network was controlled by the state. In Vietnam, network was publicly managed with foreign operators participating in provision of training, equipment and supervision through Business Cooperation Contracts (BCCs). China did not allow private entry in the telecom sector and limited competition between state-owned entities of the ministries. Many countries in Asia restricted foreign equity participation. For example, China, India, Indonesia, Korea, Malaysia, the Philippines and Thailand limited foreign equity below fifty per cent. It is interesting to note that competing technological standards have also limited competitions. Countries are divided in their technical options for mobile networks. While Europe predominantly opted for Global System for Mobile communications (GSM) technology and USA for Code Division Multiple Access (CDMA), within Asia, China, India, Indonesia and Malaysia have opted for GSM in cellular mobile network, whereas Hong Kong, Korea, the Philippines, Singapore and Thailand have opted for CDMAiv. However, several countries are now opting for more than one standards. For example, in USA, ‘Companies like AT&T and Cingular are increasingly moving to GSM’ v. ‘China is going with some CDMA as well.’vi India is using CDMA in Wireless in Local Loop (WLL). Multiple technological standards fragment market rendering base stations purchased from one company unworkable with switches bought from another company potentially limiting the scope of exploitation of economies of scale that could accrue in a multi-vendor environmentvii. The way multiple technological standards may confuse regulatory stance leading to market failures can be seen from the recent experiences of several vendors while trying to launch 3G in Europe. European Union has mandated a single technological standard called ‘Wideband CDMA’ (W-CDMA) for 3G coverage. Some of the companies that sought to

28


launch 3G services in September 2002 (deadline stipulated in the licenses for the launch of services) faced the difficulties that networks and handsets of different vendors could not work with each other. ‘CDMA2000’, another standard for 3G, which is working successfully in Asia and USA could not be adopted in Europe because European operators did not have freedom to use ‘CDMA2000’ as per their licensing restrictionsviii. Which competition policies worked better than others? Literature cites certain developmental experiences to draw conclusions from ‘before and after’ and ‘with or without’ evaluations. The purpose here is to cite these references. In the absence of more detailed information, examination of the validity of such conclusions is not intended here. Competition with privatization World over, there is an observable trend of growing number of state owned telecom incumbents being privatized. In 2000, from among the member countries of the ITU, those with fully or partially privatized incumbents outnumbered countries with fully state-owned operators. It has been observed that ‘countries with a privately owned incumbent operator account for 85 per cent of the world market by revenue. Those with fully state-owned operators, in mobile as well as fixed lines, account for just two per cent.’ It has been suggested that privatization with competition works better than privatization without competition. For example, Chile started privatization in 1988 but did not limit competition through grant of exclusivity period or licensing obligations. Argentina, on the other hand, privatized in 1990, but granted seven-year exclusivity period, which was subsequently extended by three years. Moreover, Argentina imposed licensing obligation in terms of stipulated growth rate of 6.5 per cent. In the decade following privatization, Chile far exceeded Argentina in terms of network growth. Moreover, starting with half of the tele-density, Chile surpassed Argentina in ten years’ time. The issue of granting a ‘period of shared exclusivity’ versus ‘allowing more extensive market entry’ has been discussed in the literature. Experience of UK has been cited in this

29


context. Telecom expansion was reportedly much more rapid in the United Kingdom (i) after the expiry of exclusivity period from 1982-90, that was granted to Mercury, the second operator and (ii) after cable TV operators were permitted to offer tele-services. Therefore, it was concluded that open competition was better than duopoly. Both USA and Canada lost in terms of their mobile tele-density-rankings in the world in the 90s. Two reasons which have been cited for this are: (i) persistence with regional duopoly for too long, and (ii) slow transition from analog to digital systems. Notwithstanding the merits of the above conclusions whatsoever, it can be argued that privatisation of existing state-owned incumbent operator is not the only way to promote private investment. Opening up of new services not preoccupied by state monopoly can attract private investors, provided regulatory policies do not inhibit growth of private markets in such areas. Growth of private mobile operators in India is a case in point. However, it is necessary for the regulatory authority to ensure that state incumbent does not inhibit growth of competition ix. Operationalisation of these ideas is not without hazards. A conflict of common occurrence relates to interconnection issues. Interconnection between state-owned fixed line incumbent network and private mobile network has been a bone of contention in many countries. ‘…incumbent telecommunication operator, which often holds a monopoly…can set the price, typically at a high multiple of the actual cost’. Independent regulator Sound regulation is a pre-requisite to healthy competition. Therefore, issue of competition cannot be divorced from the issue of regulation. The autonomy that a regulator enjoys from government control has often been given primacy over many other factors in determining a regulator’s ability to discharge regulatory role in an impartial manner. In reality, however, it is difficult to perceive independent regulation as synonymous with impartial regulation. There are examples of effective regulation under regulatory functions being performed by the government departments. Similarly, there are instances of ‘independent regulators that have been captured by market players’.

30


What about non-sector specific regulation? New Zealand experimented with non-sector specific regulation relying on Competition Commission of the country. This led to protracted litigations and disputes on interconnection and network access issues slowing down the progress of the sector. Finally, New Zealand enacted ‘Telecommunication Act’ in December 2000 and created a Telecommunication Commission within the Competition Commissionx. In India, TRAI Act was amended in January 2000, to remove some of the shortcomings observed earlier. The legislation aimed at, inter alia, protection of interests of service providers and consumers of telecom sector. With this amendment, recommendatory functions were separated from enforcement functions. A separate Telecom Disputes Settlement and Appellate Tribunal (TDSAT) were set up with both original and appellate jurisdiction. It became mandatory for the central government to seek prior recommendations of the TRAI before introduction of new services. TRAI’s power to issue directions was restricted to only its enforcement functions. Direct appeal to the Supreme Court of India against an order of TRAI was provided for. Thus, neutrality of Indian telecom regulatory regime was ensured through reliance on multiple agencies for conflict resolution. TRAI had a proven record of maintaining neutrality. It had challenged several decisions of the Government of Indiaxi. In tune with the international development and evolution of technology, The Communication Convergence Bill 2001 was introduced in the Parliament and is under consideration of the Standing Committee of Parliament on Telecom and IT. ‘The Bill aims at promoting, facilitating and developing, in an orderly manner, the carriage and content of communications (including broadcasting, telecommunications and multimedia), to facilitate development of a national infrastructure for an information based society, and to enable access thereto. It also seeks to provide a choice of services to the people with a view to promoting plurality of news, views and information’ xii. Thus, regulatory regime in 2020 will be overarching, based on convergence, which apart from paving the way to a fullgrown information society will enhance growth and productivity of telecommunications and IT through exploitation of economies of scope and coverage.

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Competition without privatization Interestingly, there are other models of competition without privatization. China Telecom, one of the world’s major Public Telecommunication Operators (PTOs) is still fully stateowned. Both China and Vietnam followed similar policies of competition without privatization. Competition has been allowed between ministries of the governments. Participation of foreign investors has been allowed through joint ventures. Both these countries have been very high achievers in terms of progress of telecom sector. ‘The key underlying factor is the will of the state to invest in, and prioritize, telecommunication development’. There have been instances of repeated market failures arising out of impudent investment decisions of the private operators. In Norway, license to provide 3G mobile services purchased for US$ 22 million was returned unused. Investment worth several billion dollars were sunk and lost in the Iridium Global Mobile Personal Communications by Satellite (GMPCS) network project. Global Crossing went bankrupt with debts over US$ 12 billion for a project of construction of 160,000 km fiber optic network. One view is that too many competitors deciding ‘to build enormous networks for which there was little demand’ were responsible for such crashes. Market failures of such magnitudes create backlash in the industry and can potentially risk a global crisis. Such failures, if not avoided, would prove too costly in terms of lost investment in a country like India. A calibrated approach through managed competition holds assurances for the investors of a reasonable time period for consolidation and therefore, seems to be a wiser strategy to follow. Despite differences in competition regimes across the countries, the global trend is towards growing privatization and competition. India, with her commitment to reforms is already a part of this process. From the perspective of business organization, as the global experience suggests, this process is likely to undergo an alternate cycle of differentiation and convergence. Convergent nature of technology may, by itself dictate mergers and acquisitions between companies in certain cases. Network operators and service providers will have to merge with content developers to add value to their services. This is likely to create temporary oligopoly in the market till competition intensifies with the emergence of more firms offering multiple services. India in 2020 will see competition among big firms offering innovative value-added services to capture market through

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creation of new digital needs and priorities. Regulatory environment will mature to allow maximum flexibility and freedoms to encourage innovation and expansion, consistent with this process of evolution.

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Chapter-V Revenue, Growth and Employment Benefit The contribution of Indian telecom sector to the growth of India's economy is immense. It is directly contributing more than 1.5 per cent GDP of the country, and has a multiplier effect on growth because of connecting the people and business around it. The total revenue in the telecom service sector was Rs. 86,720 core in 2008-09 as against Rs. 71, 674 core in 2007-2008, registering a growth of 21%. The total investment in the telecom services sector reached Rs. 200,660 core in 2008-09, up from Rs. 178,831 core in the previous fiscal.

Telecommunication is the lifeline of the rapidly growing Information

Technology industry. Internet subscriber base has risen to 6.94 million in 2008- 2009. Out of this 1.35 million were broadband connections. More than a billion people use the internet globally.

Under the Bharat Nirman Programmed, the Government of India will

ensure that 66,822 revenue villages in the country, which have not yet been provided with a Village Public Telephone (VPT), will be connected. However doubts have been raised about what it would mean for the poor in the country. It is difficult to ascertain fully the employment potential of the telecom sector but the enormity of the opportunities can be gauged from the fact that there were 3.7 million Public Call Offices in December 2008 up from 2.3 million in December 2007. The value added services (VAS) market within the mobile industry in India has the potential to grow from $500 million in 2006 to a whopping $10 billion by 2010. Employment benefit of ICT occurs across wide range of skill spectrum. Apart from growth of employment and income at firm level due to ICT induced productivity growth in a large number of industries, a whole range of ICT enabled activities and services has started booming. Some such examples include operations like data entry, preparation and maintenance of database, revenue accounting, preparation of payroll, processing of insurance claims, human resource services, call center operations, running of customer support centers, medical transcription, content development and animation, web site services, software development, hardware repair and maintenance, systems engineering,

34


systems design and integration etc. The process of job creation and productivity growth is expected to bring about market expansion supporting growth of domestic hardware and software industries broadening the base of ICT development. This, in turn, will induce R&D spontaneity enabling India to transit from the status of an importer of sub-assemblies of IT and telecom hardware to a higher state of development endowed with strong domestic manufacturing base of sophisticated hardware and software products booming from indigenous ideas, innovation and comparative advantage. A modern telecommunication infrastructure will accelerate this process through provision of high-speed communication links. In the global IT market India will be a major player at the higher end of value chain based on perfect synergy between the domestic and overseas market. As in the past, state will play an important role in this development both as a proactive policy maker and also by taking a position in the market. Major policy trust of the government to promote IT was through provision of Technology Park, fiscal incentives, simplification of administrative rules and procedures, promotion of institutional finance including venture capital and liberalization of foreign equity participation. In the area of software, policies to encourage global presence included market support, overseas campaign for export promotion, quality certification, information security management and R&D support. Indian IT companies have been allowed to issue ADR/GDR linked stock options to employees under favourable tax treatment. Approval mechanism has been simplified under automatic route permitting overseas business acquisition through ADR/GDR route. The IT Action Plan on Hardware envisaged extending Export Oriented Unit (EOU) status to hardware manufacturing units and deemed export status to telecom manufacturers. Traditionally, state has been the most important source of demand for IT industryxiii in India. The trend continues even today and government spending on IT is a key driver of domestic demand for IT products. One reason is that the government has significant market presence in many goods and services. The other reason is that the government is consciously promoting the use of IT in activities within its domain of activities. To undertake development of IT as a thrust area a separate ‘Ministry of Information Technology’ was formed in October 1999. Recently, Ministry of

35


Communications and Ministry of IT have been merged to form a single ‘Ministry of Communications & IT’. Apart from encouraging use of IT in research and scientific areas, the government has also taken major initiative to computerize work of various ministries and departments. Ministries and departments have come up with their websites with all the relevant details. Though computerization of many more areas within the government are under implementation, significant results have already been achieved in computerization of railway reservation, allocation of Permanent Account Number (PAN) for income tax payers, processing of passport application, conduct of public examination, custom clearance, Regional Transport Offices, schemes under implementation by the NGOs, vigilance information, VSAT based money orders under the Department of Post, Supreme Court, land records, Parliament questions, debates and deliberations. Different ministries have been advised to earmark 2 to 3 percent of the budget on IT.

Next Generation At the uppermost end of the convergent technology spectrum have already emerged Third Generation (3G) mobile devices with the capability of access to mobile data and voice. More than US$ 100 billion have been spent by the industry since 2000 to acquire 3G license and spectrum. However, a full-grown market is yet to develop to assure investors’ return. Technical and commercial consolidation is expected to take quite some time. By 2020, one would expect 3G to be within reach of wider section of Indian population.

The

pace at which 3G is going to proliferate in India will depend upon, inter alia, the market demand for higher bandwidth data. There is a view that perhaps the present demand for high speed data (greater than 64 kbps) can be met cost effectively with General Packet Radio Service (GPRS). While pent up demand for emerging data-needs can be met by using 2G systems like Short Message Service (SMS), GPRS etc., the drive for 3G in Indian market can come from ‘corporate roaming traffic via international visitors.

Substantial

work needs to be done in developing 3G relevant contents so as to expand its market. Initiative has already been launched in these areas. For example, Sonera (formerly Telecom Finland) has already launched information portal for mobile phones including Internet localisation services. Future work in this area will be in the form of adding more value to

36


the new services.

Advanced plans are necessary to develop vibrant industries for 3G

applications. This may call for investments. A synchronized growth of user industry and 3G technologies would ensure that pay-off period in investment is minimized. Developing knowledge based industry to provide mobile applications would reduce uncertainties regarding return from private investment in 3G technologies. As a preparatory groundwork to usher in 3G, it is essential to demarcate areas where massive harmonization efforts would be needed. This would entail upgrading hardware and software for high bandwidth multimedia services. Harmonization would also be needed between the two emerging varieties of CDMA, i.e., wideband CDMA that also supports fixed network and CDMA – 2000. Since it is likely that both these solutions would ultimately support fixed and mobile applications, a marriage of the two would prevent technological fragmentation of the market.

There is need to develop deeper understanding

of the evolution of new end-users in the market for the mobile multimedia services. Multimedia service providers will emerge as important shareholders in the network value chain. Countries should envision new partners, new entities, and new stakeholders in the business models. Multimedia portals will be important components of such business models. There is need for further work to match regulatory perspectives emerging as a part of the convergence regime with the requirements of 3G. Another important area of work will involve further thought over efficient billing model ---- a transition from time dependent billing model to content dependent billing. The revenue model in the telecommunications sector is going to change significantly in times to come. In many cases PTOs have started offering free Internet to augment revenue from telephone lines. In the Philippines, a global leader in SMS use in mobile handsets, revenue from SMS contributed a growing share of mobile revenue. SMS proved to be much cheaper than voice call

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The Vision of Telecommunications in 2020 The vision of telecommunications in 2020 is a vision of information society built on an edifice where IT and telecommunications merge. Rapid technological convergence has already implied a symbiotic overlap between the development strategies of IT and telecommunications. Part of today’s IT is ‘telecom writ large’, it flourishes on the telecomnetwork and in turn permits modern day telecommunications to use sophisticated ITsoftware. Hardware is a common platform for both IT and telecom. There is a legacy vision derived from export-success of India’s software that has given rise to optimism regarding India’s growing pre-eminence in global IT canvas. Such a vision builds on a much larger vision of all round development of IT that pervades wide crosssection of Indian economy and society. Deeper analysis shows that there is need for a comprehensive IT development strategy to ensure India’s durable presence in the global software market. As discussion in the subsequent paragraphs will show, ‘enclave’ type development of software with exclusive focus on export can not bring about desired benefits if such a strategy ignores the linkages between export and the domestic market. Vision 2020, therefore, is a much larger vision. First, it is to be appreciated that foreign exchange contribution of software export net of import of hardware is roughly fifty per cent. Net foreign exchange contribution will increase if India is able to develop a strong base of hardware. Second, scrutiny of the structure of India’s software export vis-à-vis the emerging dynamics of the global market reveals that India has marginal presence in the fastest growing segment of the global IT market consisting of software packages and software products. India’s close competitors, on the other hand, have achieved greater success through diversification of exports with software packages. There is, therefore, need for India to climb value chain with more innovative software products in the international market. This is possible when India is able to broad-base the development of IT with a strong and large domestic market supporting innovation and its diffusion along with the growth of component manufacturing base. Appropriate synergy between the domestic and 38


export market will be key to enduring success of Indian IT sector in overseas market and development of state-of-the art telecom infrastructure is a prerequisite to both. Finally, development of human resources through IT education, training and skill development is fundamental to the whole process. Two important indicators of IT penetration in Indian market are Internet use and availability of Personal Computers (PCs). There has been significant expansion in both during the last decade (Table 6). Table 6 Growth in availability of Personal Computers and estimated number of Internet users Year 1992 1993 1994 1995 1996 1997 1998 1999 2000

Estimated number of Internet users

Availability

1,000 2,000 10,000 250,000 450,000 700,000 1,400,000 2,800,000 5,00,0000

Computers 410,000 560,000 800,000 1,200,000 1,500,000 2,000,000 2,700,000 3,300,000 4,600,000

of

Personal

Note: Data for 1991 on Internet users is not available. The series start from 1992 because data on both is available from this year.

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Despite impressive growth in the number of Internet users and availability of PCs, India remains on the wrong side of the divide (Table 7). Number of users of Internet is still a negligible fraction of India’s total population.

Per capita availability of PC is also very

low. Table 7 Internet penetration and PC availability, 2005 Countries

falling

different

in Internet users per 10,000 PCs per 100 inhabitants

income inhabitants

categories Low income countries

62.21

0.59

Of which India Lower

middle

68.16 income 264.94

0.58 2.45

countries Upper middle

income 992.66

8.24

countries High income countries

3992.87

37.31

Source: ITU, World Telecommunication Development Report 2005

Internet kiosks, telekiosks, telecottages and cybercafes have emerged in important roles in expanding community access to ICT popularizing IT among the masses and promoting domestic market. However, their expansion crucially hinges on the growth of telecommunications infrastructure. In India, a spectrum of technologies has been unleashed to connect remote villages, which includes Wireless in Local Loop (WLL), wireless cum wired technology developed by C-DOT, radio systems, switching systems of different capacities integrated with underground cables, Correct and medium capacity satellite systems. Besides, a number of small-scale ICT initiatives are already at work in different parts of the country (Box 1). It is envisaged that with the growth of telecom infrastructure such examples would multiply and create an information society in not so distant a future. The Government of India promoted center for the Development of Telematics (C-DOT) in

40


1984 to develop indigenous digital switches. C-DOT also designed ‘Rural Automatic Exchange’ (RAX) and manufactured small meters, which became popular with the PCOs.

Growth Prospects: Telecom in India Indian telecom industry has set an example by penetrating the market to an extent of around 43% in a span of 10 years when analysts and experts were extremely skeptical about India as a market. The growth has not been restricted only to the higher section of the society, now it is driven primarily by the rural market as well and the acceptance has been in-creasing considerably over the years. On an average approximately 8 million users are added per month to the kitty thereby making India the world‘s fastest growing telecom market and thus happens to be the country offering highest ROI for the telecom companies. To support the growing telecom market, the government is supporting telecom manufacturing by providing tax sops as well as setting up Special economic zones The future for the Indian Telecom industry looks bright with fierce com-petition making way for consolidation. The growth will be majorly driven by rural sector which is currently attracting good investment not only from the players but also from the government. The biggest challenge will be to keep in touch with the rural customers as setting up customer touch points requires investment with not much tangible returns as the number of subscribers is still pretty low. As of now the penetration in rural areas is around 10% as opposed to around 30% in urban landscape. The industry currently is nicely poised with great new policy changes and new players entering the market to make it more fruitful for the consumers.

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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 significant market for any business 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.

Key trends in telecom industry 3G spectrum 3G spectrum will be the next growth wave in the industry and also the source of additional revenues for the companies. Foreign players such as AT&T and NTT Do Como have show great interest for the same. The spectrum allotment is a major investment opportunity and is estimated to attract an investment of around US$8-10 billion during 2008-11. The state owned incumbent BSNL has successfully launched its 3G service under the proposed ‘India-Golden 50’ scheme but could not create that much of buzz though for not being aggressive in marketing the same. WiMax on the other hand promises seamless connectivity with speed of more than 4 Mbps in tough terrains also. With the growing number of smart phones entering the market coupled with buzz created by the social networking websites, one can surely expect a substantial amount of people using their mobile phones for the internet. The telecom ministry is planning to auction few slots in WiMax in near future. VAS on the other hand is the constant source of revenue and a 42


means to en-gage subscribers. The expected revenue from VAS will be around US$ 4.0 billion by 2015. The con-current developments like M-Commerce, focus on localization, availability of content in vernacular languages, availability of mobile TV are few out of many growth drivers for the VAS industry. With the customer data at their disposal, telecom companies are generating knowledge and information by churning out this data to serve their customers better.

Mobile Number portability (MNP) One of the most frequent definitions that prevail in the telecom circles for number portability is: "Number portability is a circuit-switch telecommunications network feature that enables end users to retain their telephone numbers when changing service providers, service types, and or locations." Why mobile number portability (MNP)? When fully implemented nationwide by both wire line and wireless providers, portability will remove one of the most significant deterrents to changing service, providing unprecedented convenience

for

consumers

and

encouraging

unrestrained

competition

in

the

telecommunications industry. In short, this is the best method to increase the efficiency of the service provider by increasing the competition, thereby ensuring better services in all respects. From the subscribers’ perspective, this is a deceptively simple and very welcome change, because they can change wireless service providers without worrying about notifying friends, family and business contacts that their wireless number is changing. In addition, being able to ‘port’ a number from one provider to another eliminates the hassle and expenses of changing business cards, stationery, invoices and other materials for businesses. From the wireless carrier’s perspective the change is anything, but simple. Virtually all of wireless carriers’ systems are affected. Especially any system that relies on mobile identity numbers (MINs) or mobile directory numbers (MDNs) will be affected. Examples of critical systems and processes that would be affected are: billing, customer service, order activation, call delivery, roamer registration and support, short messages service center, directory assistance, caller ID, calling name presentation, switches, maintenance and CSC systems, home location registers (HLRs), and visiting location registers (VLRs).

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Mobile Virtual Network Operator (MVNO) Mobile Virtual Network Operator (MVNO) is a GSM phenomenon where an operator or company which does not own a licensed spectrum and generally with out own networking infrastructure. Instead MVNOs resell wireless services under their brand name, using regular telecom operator's network with which they have a business arrangements. Usually they they buy minutes of use from the licensed telecom operator and then resell minutes of usage to their customers of MVNO. Currently MVNOs are emerging in fast pace in European markets and beginning in USA also. Slowly MVNO phenomenon is catching up in Asia and other parts of the world also.

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.

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Subscriber numbers in (mn) held by Various Telecom Companies

Source TRAI: 30 25

Bharti Airtel

20

BSNL

vodafone Idea

15

Reliance

10

Aircel

5

Tata

0

Others Market share Sep'09

Market share Dec'09

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Major Market players in Tele Communication

Operator

Market

share Market

Aug''05 Bharti Airtel 19.06 Vodafone 21.81 Vodafonecomm 17.03 Idea Cellular 10.45

share

June''10 22.49 16.96 16.01 8.49

25 20 15

Bharti Airtel vodafone

10

Reliance infocomm

5

Idea Cellular

0 Market share Aug''05

Market share June''10

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Findings and analysis Age Group Graph

As we can see from the above graph, the people who are in the age group of 21-28 years are the ones who are the maximum users of mobile phones. This segment is the one which gives maximum business to the mobile operators. This segment constitutes the young executives and other office going people. They are 65% of the total people who were interviewed. The next age group are the

people who are 28-35 years old. They are 20% of the total. They are those who are at home or have small business units etc. And the next age group is the youngest generation who are 15-21 years old. They are school and college going students and carry mobile phones to flaunt. They are 15% of the total interviewed people.

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Occupation Graph

OCCUPATION 10%

15%

20%

55% STUDENTS

EXECUTIVES

HOUSEHOLDS

OTHERS

As the above graph shows that 55% of the total people interviewed are working. So, these people are the ones who are the maximum users of mobile phones. They are the young executives, managers, Tele - callers etc. who require mobile for their official purposes. The next category is the households, who are either housewife, small units which operate from their homes etc. They are 20% of the whole. The next segment is the students. They are 15% of the whole. And 10% of the whole is categories who are the professionals.

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Type Of Card Graph

Cash cards seemed quite popular among the people interviewed. 85% of the total mobile users were having cash card connections. This means that the cash cards should be easily and readily available in the local markets. Airtel should make sure that Magic is available in each and every nook and corner of the market. 15% of the people were having sim connections which are the regular bill.

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Monthly expense graph People on an average spend RS 500 per month as their mobile phone expense. 64% people Monthly Expense

24%

12%

Rs 600 Rs 450 Rs 200

64%

spend this amount. 24% people spend RS 300 per month as their monthly mobile expense. And the remaining 12% had an expense more than RS 1000, they could the ones having sim connections or having cash cards and having a lot of business calls on their mobiles.

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Awareness About WLL Graph

WLL seemed to be a new word for many of the people. 45% of the people were not at all aware of such a technology. So, in order to get the answer for this question they were first explained the concept. Only, 55% people knew what WLL is all about.

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Chapter VI Swot Analysis Strengths  More Number of rural population (still growing) use cell phones .  Easy to make them buy.  Strong network has been building and increasing day by day.  Young population interested at downloading mobile applications, games, videos, music, themes and more of various such brands.  People are open and flexible to new schemes and offers.

Weaknesses  Limited reach of media, TV and print limited to regional.  Long-term profit.  Some Village are too far, so Logistics services may not be able to provide on time.  Poor Broadband connectivity.  Recharge coupons are available only in Towns, still a limitation in rural geographies or distant place.  Connectivity problem in some of the regions.  Doesn’t Shift to Post paid in the course of longer duration.

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Opportunities  There is wide scope for outdoors branding ( It is Visible like any other business shops for the awareness purpose.  Services and scope getting localized and customized to the customer'  Rural members are getting educative this indicates there interest towards entertainment aspects is increasing, where Nokia Life tools is solution for it through (MBO).  To diversify from the current activity to Multi Brand Outlets activities Tele Networking  Surrounding villages with populations.  Women as a potential target group  Mobile Governance

Threats  Lack of outgoing calls/messages  Mobile activity may be idealized (because of lack of constant Income to make it use)  Rural members are getting educative..  Awareness and knowledge is increasing, this means Competition is increasing.  Customer is highly price sensitive  Changing attitude towards mobile as and when the income increases.

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Chapter VII Findings

 From the study it is found that there are many influencing factors like ads, family& friends (word of mouth), retailer play an important role in selecting the service provider.  From the study it is found that advertisement media plays a important role in selecting the service provider. Customers rely on advertisements in knowing about the information regarding various operators.  From the study it is found that customers exhibit different reasons which influence the customers to switch the operator. The reasons vary from customer to customer.  From the study it is found that there is a relationship between loyalty of the customer and the occupation.  The usage rate varies from customer to customer. There is a direct relationship between usage rate and to the occupation.  The monthly investment of the customers on their phone is depends on their occupation and income level.  From the study it is found that people irrespective of their satisfaction exhibited switching. There are many reasons for this. These reasons vary from customer to customer. The reasons are as follows low switching cost, fancy number, change in usage pattern, variety seeking. Some of the respondents replied that they switched voluntarily their operator.  The selection of new service provider depended on their experience with the previous service provider.  The future plans of the customers regarding their service provider depend upon their experience with their present service provider and their needs.  From the factor analysis it is found that among all the factors better offers from competitors is the most influencing factor in switching decision, frequent network position in second place.

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 Among the various influencing factors in selecting service provider the primary preference is given for word of mouth advertisement followed by advertisements.  Most of the respondents with the view that T.V ads play important role in knowing about the service provider than any other media.  Better offers from competitors, better service from competitor, frequent network disruptions, network congestion on special occasions and long wait time for customer service are the prominent factors influencing the customers to switch. Due to competitive pressures, the mobile operators in India, at one point of time reduced the call tariffs; this has led the customers to switch their operator. Core service failures such as low network coverage, frequent net work disruptions, network congestion on special occasions and inconvenience are forcing the customers to switch to another operator who is perceived as better. Inconvenience caused by the operator like long wait times for customer service is definitely a cause of concern.  From the study it has been found that respondents are neutral towards some of the factors like unknowledgeable call centre executives, high service charges, unsolicited calls, messages, MMS which influence the customers to switch their operator.  From the study it has been found that usage rate plays an important role in switching process. Heavy users of calls like business men are found to be more interested in exploring the alternatives to minimize the overall cost.  Respondents irrespective of their satisfaction exhibited switching. Among the reasons for switching voluntary switching and low switching cost are given prominent preference.  From the study it is proved that there is a there is a relationship between consumer brand switching and their occupation &income.

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Recommendations

 Indian mobile operators have to invest in expanding network coverage and providing technically superior quality services to retain customers.  Mobile operators need to enhance the quality of service at all touch points to ensure loyalty.  Service providers need to build relationship with the customers to understand their changing needs and design appropriate strategies to meet the changing needs.  CRM plans can be implemented to identify the specific requirements of the customers.  Customized plans can be delivered to enhance customer satisfaction and loyalty.  Loyalty program for existing, high volume users are another way to keep the customers.  Mobile operators in India should lay equal emphasis on retaining customers and finding new customers.  There is an imminent need to concentrate on customer loyalty as mobile number portability is round the corner.

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Chapter VIII Conclusion Telecom industry has been growing by leaps and bounds and from strength to strength. Revenues also have been growing. The size of employment also has been growing. This industry has been contributing to 7% of GDP on an average year after year. Apart from providing employment and generation of revenue to the country this sector is also one of the key areas which has unbound field to grow and the explored market to be tapped. Still a lot of effort is required to reach the hinterlands and the remote areas which are still untouched with the telecom revolution and such areas have the hidden potential to take the telecom industry to another greater height of success in terms of employment and revenue generation. Also keeping in mind the India’s mammoth population and the area covered till today one can easily imagine the potential hidden in this field for the industry players as well various channel partners and employment seekers.

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Bibiliography

 www.google.com  www.scribd.com

 www.wikipedia.com  www.dollero.com  www.marketingteacher.com  www.emerald.library.com  www.trai.gov.in  www.ibef.org  www.wisegeek.com  www.opparers.com  www.trai.gov.in

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i ii

It may be noted that tele-density being an average, does not throw light on the distribution of telephones across various income categories. If distribution is skewed, tele-density may not be an appropriate indicator of tele-accessibility of the poor. iii ITU, World Telecommunication Development Report 2002, Geneva, 2002, p.56. iv Ibid., p.6. India has opted for CDMA in WLL. v Interview with Ian Goetz, published in tele.net, Vol. No.3, issue no. 4, April 2002, p.32. vi Ibid., op.cit., p.31. vii Ibid., p.31. viii 3G telecoms: Let Europe’s operators free, The Economist, September 28th – October 4th 2002, p.15. ix Dasgupta, et.al. find econometric evidence to support that ‘difference in competition policies have much greater impact on Internet intensity than differences in income’. Here competition is measured in terms of World Bank’s rating index, which captures to what extent state inhibits a competitive private sector. The results suggest positive impact of competition. The study also finds favourable impact of competition on mobile penet See, Dasgupta, S., Somik Lall and David Wheeler, Policy Reform, Economic Growth and the Digital Divide: An Econometric Analysis, Working Paper No. 2567, World Bank, March, 28, 2001. x Ibid., p.50. xi See for such instances, Sanctity of Contract and Rule of Law in Indian Power, Telecom and Infrastructure Sectors, Conference document presented by Independent Power Producers Association of India, 12-13 September, 2001, New Delhi, pp. 175-177. xii Government of India, Ministry of Communications & Information Technology, Department of Telecommunications, Annual Report, 2001-2002. xiii Evans, Peter B., ‘Indian Informatics in the 1980s: The Changing Character of State Involvement’, World Development, Vol.20, No.1, January 1992, p.2.


Industry Analysis Report on TELECOM INDUSTRY IN INDIA