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“TELECOM SECTOR IN INDIA - CHALLENGES AND OPPORTUNITIES” External Guide Mr. Sanjiv Jain Director of Galaxy Rent –A-Tel Pvt Ltd.

Submitted To Sumanta Sharma Submitted By: Prashant Agarwal FW/2004-06/PGP Marketing & H.R.

IIPM, New Delhi Thesis ID: DEL/MKT/FW06703

Date: October 2006


ACKNOWLEDGEMENT It is well-established fact that behind every achievement lies an unfathomable sea of gratitude to those who have extended their support and without whom the project would never have come into existence, without their help the present work would never have assumed its forms and completion.


TABLE OF CONTENTS

Topics

SYNOPSIS Chapter –1 INTRODUCTION OBJECTIVE Chapter –2 RESEARCH METHODOLOGY Chapter –3 CCRITICAL REVIEW OF LITERATURE Chapter –4 DATA ANALYSIS AND PRESENTATION RECOMMENDED MARKETING STRATEGIES Chapter –5 CONCLUSION RECOMMENDATIONS REFERENCES ANNEXURE

Page


LETTER FOR APPROVAL Dear Prashant, I have received your synopsis as well as the confirmation that Mr.Sanjiv Jain would guide you through the thesis.This letter is a formal approval to the topic proposed by you “Telecom sector in India - Challenges and Opportunities.” Please go ahead with the thesis. Make it a comprehensive thesis by using empirical data as the basis of the research. Remember to register your topic at the Library (B27) either by going there or by forwarding my mail to anuj.kumar@iipm.edu and send me the id number for my records. Furthermore, you are required to send me a total of at least 6 thesis guidance response sheets (I will be mailing the format once I receive your id number) before the coalescence of the thesis. Regards, Sumanta Sharma Associate Dean (Department of Projects) The Indian Institute of Planning & Management Satbari Campus New Delhi – 110074 Phone: 011 26655080 Dear Prashant pls note down ur thesis id no-DEL/MKT/FW06703,and mail back to sumanta sir for his reference. Anuj Kumar (Librarian)


SYNOPSIS

Details of the Student: Name: Prashant Agarwal Batch: FW/2004-06/PGP Specialization: Marketing & H.R. Phone No: 9891073410, 9818666438 Email: prashant_agarwal82@rediffmail.com

Desired Area of Research: Telecom Sector.

Title of the thesis: “Telecom sector in India - Challenges and Opportunities Problem Definition /Hypothesis: •

Internet services of VSNL and MTNL..

ISP policy.

The telecom sector suffers from poor technical performance.

Widespread equipment outage, low productivity, chronic unmet demand, and rampant corruption.

Organization Identity for the Study: Airtel, Hutch, Idea, Tata Indi-Com, Reliance and MTNL.

Literature relating to the Problem: The secondary data will be collected from news paper, journals, telecom & business magazines and internet.


The primary data will be collected from structured questionnaires which are required to be filled up by the persons who are facilitating the services of this industry.

Objective of Thesis: To understand what are the opportunities and scope of telecom sector. Moreover what they are doing in order to serve their customers, clients as well as future prospects in better and in most effective manner, which in turn help them in increasing their market share, and profitability by providing value for money & desired quality of service to their customers. Moreover projection of customer’s need well in advance and using proper medium to communicate & educate their customers to make maximum use of available services and offers.. Studying how telecom sector is generating revenue by providing various value added service such as GPRS, Caller tunes, ring tones, wallpapers, and other value added services. To study and review the various marketing strategies of various players present in the telecom industry. Also to compare and contrast the profiles of companies and market segment captured by them.

Scope of your thesis work: The reason for selecting the topic is that I am working in the telecom sector & moreover this sector is one of the fastest growing sectors of service industry in India. This sector is growing very fast as compared to the other sectors, & at the same time lot of opportunities, and expectation came from the customers to provide excellent service in less cost.

Threats: Increasing competition and decreased profit margins due to drastic reduction in the call rates.

Information Source: I will collect primary and secondary data for the thesis. I will collect primary data by visiting various reputed organizations like Airtel, Hutch, Reliance, etc.

Research Methodology: Qualitative Research Design.


Primary Sources: •

Questionnaires.

In-depth Interviews of cellular service providers.

Secondary Sources: •

News papers.

Journals.

Articles.

Telecom & business magazines.

Internet.

Details of the External Guide: Name of the concerned person: Mr. Sanjiv Jain Qualification: Post Graduate Diploma in Marketing & Brand management. Designation: Director of Galaxy Rent –A-Tel Pvt Ltd.


CHAPTER-1 INTRODUCTION TO THE INDIAN TELECOM SECTOR 1.1 History The British government introduced telecommunications services in India in 1851 near Calcutta by as a means of providing defense, law and order, general administration, and revenue collection. Since that time, telecommunications has played a critical role in shaping India’s march toward progress, and the importance it holds for the future of India cannot be overstated. Telecommunications in India were introduced only 5 years after Alexander Graham Bell invented telephones in 1881; British firms introduced POTS (plain old telephone services) into the colony. By the time India was independent in 1947, the country had 321 switching centers (telephone exchanges) in urban areas and a tele-density of 0.25 phones per thousand people. During the state-led planned economic policies till the mid 1980’s, the government controlled all aspects of the telecommunications sector through the ministry of Posts and Telegraph as a natural monopoly.. After the Public Accounts Committee

of

the

Lok

Sabha

recommended

a

complete

overhaul

of

telecommunications, “which was working in a most unsatisfactory manner in 1985, a long sought re-organization was undertaken in 1986 to split the public postal and telecom operations into separate departments. Until 1985 India's telecom sector was a typical PTT model. The Ministry of Posts and Telegraphs and its department controlled the posts and telecom services and infrastructure. The sector was mainly governed by the Indian Telegraph Act of 1885. In

1985 postal services were separated from telecom, and the Ministry of

Communications and its Department of Telecommunications (DOT) were assigned powers including manufacturing equipment, policymaking, providing services and creating infrastructure.. The government did not give priority to the development of this sector. The national five-year Plans show that until 1985, the government's investment in the telecom sector was less than three per cent; it was only from 1992


onwards that government spending increased to 11.9 per cent and more. It was only in the early eighties, with technological advancements and international developments, that the government took initiatives to move from the closedeconomy ideology towards more market-oriented reforms. The

information

technology policy focused on the export of software and computers. To achieve this goal, tariffs were lowered on imported goods and direct access to imported equipment and technologies was allowed. However, in the case of telecommunications, the government's approach was halfhearted. The government was reluctant to break the dominance of DOT or let go of its own powers. In 1984, overcoming resistance from DOT, the government was successful in allowing private investment in the manufacture of customer premise equipment. The government franchised public call offices and also set up two new companies. Mahanagar Telephone Nigam Limited (MTNL), a mostly government owned company which offered basic services in Delhi and Bombay, and Videsh Sanchar Nigam Limited (VSNL), which offered international long-distance services. Although these initiatives proved to be positive, they could not bridge the overwhelming

demand

for

infrastructure

and

services.

Advancement

technologies, international agencies such as the World Bank and trade

of

blocks

(OECD), drew attention of the Indian government to the urgent need to develop the telecom sector, as a means of overall economic development. The government responded by constituting independent telecom reconstruction committees (for instance, Artherya committee) for taking advice. 1.2 Recent Developments India's 21.59 million-line telephone network is one of the largest in the world and the 3rd largest among emerging economies (after China and Republic of Korea). Given the low telephone penetration rate - 2.2 per 100 people of population, which is much below the global average, India offers vast scope for growth. It is therefore not surprising that India has one of the fastest growing telecommunication systems


in the world with system size (total connections) growing at an average of more than 20 percent over the last 4 years. The Indian economy is currently undergoing a structural shift. The production of merchandise such as agriculture and manufactured products are contributing a smaller share of economic output, while contribution of the service sector is growing. The service sector in India today accounts for more than 48% of economic activity and is likely to grow at the rate of 8% per annum. A majority of service workers are engaged in the creation, processing and distribution of information. The telecom sector therefore assumes major importance as an enabling infrastructure. Accordingly, it is vital for the country that there be a comprehensive and forward looking telecommunications policy which creates a suitable framework for development of this service industry. The availability of infrastructure for electronically transferring and accessing information is perceived as critical for hastening the realization of economic, social and cultural benefits as well as for conferring competitive advantage. The telecom sector in India has witnessed rapid changes in the last five years. There have been far reaching developments in Information Technology (IT), consumer electronics and media industries across the globe. Convergence of both markets and technologies is a reality that is forcing realignment of the industry. At one level, telephone and broadcasting industries are entering each other's markets, while at another level, technology is blurring the difference between different conduit systems such as wireline and wireless. As in the case of most countries, separate licenses have been issued in India for Basic, Cellular, Internet Service Providers, satellite and cable TV operators, each with a distinct industry structure, terms of entry, and varying requirement to create infrastructure. However, this convergence that now allows operators to use their facilities to deliver some services reserved for other operators, necessitated a re-look into the existing policy framework. For the country to grow and create a place for itself in the international arena, it was felt that the infrastructure needs to be built and maintained, wherein the role of


telecom was indisputably very crucial. The government in this direction announced the National Telecom Policy in 1994 (NTP 94). This provided for opening up the telecom sector to competition in Basic Services as well as Value Added Services like Cellular Mobile Services, Radio Paging, VSAT Services etc. It also set target for provision of telephone on demand and opening up of long distance telephony. This was followed by a New Telecom Policy declaration in March 1999 (NTP 99), to remove some of the bottlenecks and move the liberalization process forward. In Y2K, India has a population of over a billion, but only 27 million telephones. This translates into a tele -density of 2.7 phones per 100 people. By 2005, the government according to its National Telecom Policy 1999 (NTP99) wants to increase this tele density to 7 and double it to 15 by 2010. Currently just over 50 per cent or 374,695 villages out of a total 600,000 villages are connected to the world by the telephone. The government wants to connect the rest by 2002 and increase rural tele -density eight-fold by 2010, from the current 0.5 to 4 phones per 100 people. To this end, the Indian government has given up its state monopoly and introduced competition to spur the

growth rate of telecom in all areas. Foreign companies have also been encouraged to invest in the telecom sector and ownership guidelines have been liberalized. While the ownership has been restricted to 49 per cent in the telecom services like basic telephony, cellular, paging and Internet service providers (though companies like Orange, the cellular operator in Mumbai have been able to get around this restriction with ease: foreign companies are allowed to own up to 74 per cent in communication satellite companies and wholly own manufacturing operations. The initiatives form part of the economic liberalization policies followed by the government since 1991 when a chronic shortage of capital, a ballooning fiscal deficit and a precarious position of external reserves led to the start of India’s economic reforms. The expectation was that new influx of private capital along with gains of efficiency from competition would help accelerate economic growth. But results so far, at best have been mixed. After the initial euphoria of liberalization, the Indian economy slipped into recession by 1995. Annual GDP growth rates fell as the government, by and large, withdrew as an investor in the economy while the private sector failed to step into


fill the investment gap. It has only managed to recover since 1998 on the back of strong agricultural growth and a pick up in industrial demand subsequently.

1.3 Existing Structure of Telecom Sector Telecommunications was not perceived as one of the key infrastructures for rapid economic development during the formative years of the Indian economy. The low levels of investment in this sector have affected the quality, quantity and range of services provided. In 1998, Indian Telephone density per 100 persons was 2.2 while the world average was 14.26. For the provision of basic services, the entire country is divided into 21 telecom circles, excluding Delhi and Mumbai. Department of Telecom Service (DTS) provides basic services in the 21 telecom circles, while Mahanagar Telephone Nigam Limited (MTNL) serves Delhi and Mumbai. Six private licenses have been issued for the provision of basic services, out of which only three have commenced services at present. Private participation in the cellular mobile market, on the other hand, has been comparatively more successful. Eight cellular licenses, two in each of the metros were awarded in October 1994. Subsequently bidding resulted in the award of licenses in 18 Circles. As many as 137 licenses (of which 93 licenses were actually operational by December 98) have been issued for providing radio paging services for which bids were invited in two stages, first for 27 large cities (which had a population of over one million) and in the second round for 19 Telecom Circles. The number of licensees selected for each area range from two to four. 1.4 Indian Cellular Market Overview Indian cellular market is poised to grow at CAGR (compounded annual growth rate) 46 percent for next five years, the best in Asia-Pacific region and subscriber base will touch 44 million by 2006. Cellular Telephony will be frontrunner in the growth of Indian telecom sector, which will be amongst those countries witnessing fastest growth till 2006. Telecom services worldwide would witness growth of over 5 percent in 2003.


Gartner predicted. Gartner said the growth rate would be even ahead of China in percentage terms. The subscriber base currently pegged at 8 million will grow to 44 million by 2006. There will be entry of new players, which will not only lower the price points but will also help broaden the market with innovative product offerings and solutions. Basic services will continue to play a key role in increasing tele density. Revenues from fixed telecommunication services will grow at a CAGR of 15 percent in the next 5 years from current $ 6.9 billion to $ 14 billion. Cellular Operators Association of India (COAI) The Cellular Operators Association of India (COAI) was instituted in 1995 as a registered, non-profit, non-governmental society dedicated to the advancement of communication - in particular of modern communication through Cellular Mobile Telephone Services. It seeks to establish and sustain a world-class cellular infrastructure and deliver the benefits of affordable mobile communication services to the people of India. Indian cellular subscriber base has jumped 9-fold in four years. But they are still way behind in terms of minutes of usage. Average market figures suggest that while the number of cellular subscribers has increased 1817 percent between April '98-02, the minutes of usage for post-paid cell users has risen by around 331 percent and that of pre-paid has increased 220 percent. These are substantiated by Telecom regulatory Authority of India (TRAI) figures, which suggest the growth of minutes of usage for post-paid cellular users has gone up from 119 minutes per month per subscriber (MMS) in April '98 to 394 MMS in April '02. A rise of about 331 percent. According to Cellular Operators Association of India (COAI), the total number of cellular subscribers has grown from 9, 13,869 in April '98 to 81, 70,575 in August '02, a whopping 900 percent rise. If current trend is any indication, penetration numbers may portray wireless telephony as a pygmy compared to wireline (or fixed line) telephony, but looking at incremental figures one

gets the real picture of what's going on in the local

telephone market. India is fast going wireless. Wireless telephony, mobile and limited mobility, is snatching a rapidly increasing share of incremental telephone connections in India. And the financial year ending March '03 may well be a


watershed for wireless telephony. According to market sources, numbers indicate that in '02-03, wireless may garner over 50% share of new connections. So far, wireline has been much ahead of wireless in both new connections and, of course, penetration. In the year gone by, year ending March '02, wireless got just about 34% of new connections. Wireless penetration was just 15% of total phone connections in India. A year before that, as on end-March '01, wireless penetration was just under 10%. The industry is considered as having the highest potential for investment in India. The growth in demand for telecom services in India is not limited to basic telephone services. India has witnessed rapid growth in cellular, radio paging, value-added services, internet and global mobile communication by satellite (GMPCS) services. This is expected to soar in the next few years. Recognizing that the telecom sector is one of the prime movers of the economy, the Government's regulatory and policy initiatives have also been directed towards establishing a world class telecommunications infrastructure in India.


CHAPTER-2 LIBERALIZATION OF THE TELECOM SECTOR 2.1 Introduction Like many other sectors, the telecom sector too continued to enjoy government monopoly so long as the basic telephone services were under the control of the government. It was the National Telecom Policy of 1994 that paved the way for private-sector participation and funding to achieve the aim of universal coverage of telephone services at affordable prices. Since then, a number of private companies have been given the license to provide various value-added services in the country. The TRAI (Telecom Regulatory Authority of India) was established to act as an independent regulatory body to protect and promote the interests of consumers and to ensure fair competition. The government also accorded the status of an infrastructure sector to the telecom industry, making it eligible for all fiscal benefits that are enjoyed by other infrastructure sectors. There are two major governmentcontrolled companies in the telecom business, namely MTNL (Mahanagar Telephone Nigam Limited) and VSNL (Videsh Sanchar Nigam Ltd). The MTNL provides basic telecom services in Mumbai and Delhi. Services in the rest of country are provided by the DoT/DTS Department of Telecommunications / Department of Telecom Services). The VSNL enjoys sole control over international telephony as all incoming and outgoing international calls are routed through its gateways. The VSNL also provides such value-added services as gateway packet data transmission, electronic data interchange, online data search, Internet, Inmarsat (International Maritime Satellite) mobile services, satellite uplinking, private leased channels, and video conferencing. Because of its hold over international telephony, the tariff for incoming and outgoing calls has remained high in the absence of any competition. Contrary to these, international call rates are declining globally with rising tariff volumes, increased capacities, and improved transmission technology. The telecom sector is witnessing a breakdown of most of the monopolies in favor of marketcontrolled players, as huge investments are needed to construct a backbone access


network. The VSNL, according to an earlier plan, was to remain insulated from competition until 2004. The government’s decision to allow many foreign or domestic companies would only result in lowering the international call rates due to increased competition in the satellite gateways business. It is difficult to envisage the impact of the government’s decision on consumers in the short run. But what would interest the common man would be improved services in basic telephony by the introduction of competition, which ensures the fulfilment of universal service obligation to one and all. After the 1991 Economic Policy made a shift from a closed economic model to a market-oriented model, private sector was invited to participate in reforming India's telecom sector. However, the government took a half-hearted approach in overhauling the legal and regulatory regime. Competition was allowed in cellular and basic services. The Ministry of Communications and the incumbent Department of Telecommunications

(DOT) issued licenses to their competitors. Lack of

transparency in issuing licenses and unrealistic license fees derailed the reform process and led to wasteful litigation. The courts did not support the regulator and virtually made its role redundant.

After the elections in 1999, the telecom sector

was the key sector in which major decisions were made. The DOT's service arm was corporatized and the government decided to privatize its international longdistance carrier, Videsh Sanchar Nigam Ltd. (VSNL), before 2002. It decided to introduce more competition in cellular, basic and domestic long-distance services. 2.2 Private Sector Participation in Mobile Telecommunication In 1992, competition was allowed in cellular mobile services. However, the government failed to overhaul the legal and regulatory regime to suit the competition process, and the antique 1885 Act was left in place to govern the new competitive era. The Ministry of Communications and the DOT became responsible for issuing and regulating licenses to new entrants in Delhi, Mumbai, Chennai and Calcutta. Two private operators were allowed to compete in these four major cities. Although the liberalization process had a rough start, it was clear that the Indian


market was huge and therefore had great potential to draw private investment. The DOT, in May 1993, asked the leading Indian financial institution, Industrial Credit and Investment Corporation of India (ICICI) to prepare a report on the development of regulatory institution and to recommend terms and conditions for the private sector entry in basic services. “ In an emerging economy, great amounts of discretion lie with managers of the government, which, in India, lies with

the sector

the Ministry of

Communications [in practice, coextensive with the DOT]. If such discretion is unlimited or unrestrained and vests in a single person or office at any time, it is unlikely to command the level of comfort which is mandatory for attracting substantial

private investment. The discretion should be so hedged that the

decision-making process becomes tolerably predictable and

reliable. and

transparent. The investor would rather go by the written law. than be guided by platitudes and pronouncements of

the decision-maker. Thus, until the law is

formally changed. the value of the investment opportunity will be dismissed.” Subsequent to the announcement of the policies, auctions were held for cellular licenses in 20 states in December 1994 and for basic services in January 1995 .The first round of the basic service (wire line) auction attracted 80 bids for 40 licenses from 16 companies. In 7 of the circles (Delhi, Haryana, Karnataka) Maharashtra, Orissa, Rajasthan, and Uttar Pradesh West), the bids followed some level of rationality. In circles where an unknown Indian company Himachal Futuristic communications Ltd (HFCL) was the highest bidder, they realized that they were subject to the well known “winner’s curse”. The total license fee for which HFCL bid was much higher than any of the bids of the second placed bidders, and virtually more than all the other bids put together. Thus, the government was forced to call for a second round of bidding because HFCL backed out of following through on the bids; also, many circles received either one bid or no bids. In January 1996, the DOT initiated a fresh rounding of bidding for thirteen circles in the basic sector. Caution among the players and the lack of credibility about the outcome of auction led to only six bids. Further, because the more lucrative (grade A) circles had been


awarded in the first round, the only circles left for bidding were the less lucrative circles, and those in which HFCL reneged where the government specified a minimum bid which was considered too high by the bidders. In seven circles the earlier bids were too low or there were no takers. For six circles certain successful bidders were eliminated by a subsequent change in DOT’s policy of limiting licenses to three circles for each bidder. Finally, bidders for 13 circles were selected with eight circles drawing no takers. In the telecom sector, the total foreign direct investment was 43.13 billion rupees in the period 1993 to June 2000 or less than a billion US dollars. The reticence of the private sector, especially foreign companies, to invest large amounts of capital into infrastructure sectors like telecom can largely be traced to failings of government and regulatory policy. But moving from a control mindset to a regulatory one has not been easy for the Indian government. 2.3 Critical View of the Liberalization Efforts A large part of problems in liberalizing India’s economy have arisen from the state’s inability – even unwillingness - to give up control of the sectors it has liberalized. Thus while more independent regulators have been set up in the last four years than the number of general elections India has had, most regulators are independent only in name. The role of a regulator is to advise the ministry on policy, solve disputes among service providers and ensure that the rules and regulations governing business are followed. It is also the agency to intervene in case market failures take place and protect consumer interests. The crux of the problem has been that the state and its associated agencies like the bureaucracy, long used to exercising control, have been unable to build a regulatory structure that provides credible commitment against the exercise of arbitrary discretion by the state and changes in regulatory environment. The Indian government has devised various methods to keep control over a particular sector, even after an independent regulator has been appointed. Legislation governing these new institutions has been often poorly worded, ambiguously framed and open to legal challenge by the state entities. The telecom


sector has been in a mess till February 2000 because of inherent conflicts between the Telecom Regulatory Authority Act, which was passed to create the independent regulator for the sector, and the Indian Telegraph Act of 1885, which provides the legal framework for the telecommunications sector. In some sectors like capital market, decisions of independent regulators are appealed to a government ministry. In the telecom sector, the state, that is, the Department of Telecommunications, DoT, refused to submit to the jurisdiction of the regulator till the judicial authority was removed from the regulator with the appointment of a separate disputes and appellate tribunal. It did so by litigating against every decision made by the regulator in the civil courts. The “independent regulators� are routinely staffed with bureaucrats. None of the existing regulators are headed by anyone other than former bureaucrats and judges, who help perpetuate the mind-set of control over regulation. Besides, in areas like telecom and the Internet, keeping up with technology changes is imperative, but there are few signs of technical experts or private sector executives among the regulators. Many of the problems of the telecom sector have arisen because of the multitude of roles played by the state. These conflicts have been highlighted in the context of the sector switching from a regime of government control to competitive and regulated one. The telecom sector, in particular, has suffered from confused government policy and ineffective regulation, not least because state-owned companies and departments remain the largest players in this sector. These companies have not responded well to the threat of competition and therefore policies have been seemingly framed or changed to further the interests of the state. Though an independent regulator has been created, the institution has already had a complete makeover because many of regulator’s decisions went against the wishes of the state players. Indeed, at the end of a decade of reforms, the state remains the largest player in the telecom industry and its role is only increasing as state-owned companies enter new businesses like cellular telephony, Internet access and broadband data networks. While many of the problems associated with the telecom policy have been resolved with the NTP 99, several questions about the role of the state-owned service provider cum policy


maker remain. These uncertainties and lack of a strong regulatory infrastructure mean that the spread of private telecom services has been limited only to the more populous urban clusters in the country. Moreover, government policy has segmented the telecom sector into a series of different services like basic, cellular, ISP, paging, Internet and radio-trunking. This goes against the grain of the sector where convergence of voice data images and video technologies is forcing regulators in other parts of the world to take a holistic view.

2.4 Competition in Services After having a consultation process for allowing competition in basic, cellular and long-distance service TRAI had recommended unlimited competition in basic and domestic long-distance service. However, taking into consideration spectrum limitations, it recommended a fourth cellular player be introduced in the 21 circles. On August 15, 2000, the government accepted TRAI's recommendations for opening unlimited competition in domestic long-distance services. So far, apart from the government's BSNL and VSNL companies, two private companies who received a green signal from the government are Bharati Group and Reliance Industries limited. These companies are dominant players in the basic, cellular and Internet and are extensively deploying fiber optic infrastructure in various states. 2.5 The Role of the Private Sector Many foreign telecommunications companies participated in the bidding for the right to offer basic (wire line) telephony in India. The main attraction was the then widely used number of 250 million “middle class� potential customers, and the waiting list of more than 3 million. Companies that bid included multinational like AT&T, US West, Bell Atlantic, Nynex (at that time a separate company), NTT, and Bell Canada, and small ones like Bezeq of Israel, and Shinawatra of Thailand. Their Indian partners included the Tatas, the Birlas, RPG, Reliance, BPL, Essar, Shyam Telecom and Himachal Futuristic Communications Limited (HFCL). However,


disillusioned by the government’s terrible handling of the telecom services deregulation, several international telecom giants had by 1999, pulled out of India. While Bell Canada and Swisscom have withdrawn from India for good, US companies like AT&T and US West have frozen fresh investments blaming “unfriendly telecom policies�, particularly high license fee outflows and the lack of a powerful regulator. Moreover, many south East Asian telecom operators also pulled out after 1996 in the aftermath of the South East Asian currency crisis, which reduced their ability to invest in other countries. It is difficult to say who is to blame for the auctions fiasco, where firms bid huge amounts and then realized that these fees did not match with their predictions of demand and usage. The DoT itself gave indications as to the size of the market, especially in regard to basic telephones, because it alone had knowledge of how demand grew and how much it would be in the light of its experience of over 100 years. Nevertheless, the Indian firms participating in the auction had no prior telecom experience, while the foreign partners knew the business, but little about Indian market conditions or the usage patterns of consumers. For the government of India, despite the problems of the auctions and the unrealistic high bids, the cellular licenses raised over $7 billion. However, this method of licensing though a single sealed bid auction without any information of the selection criteria has led to many problems in the cellular sector. There is little doubt that the bidders overestimated revenues and demand patterns. However, the high license fees, which formed 50 per cent of the total rollout cost for a cellular operator, led to high tariffs for the consumers. This in turn impacted demand for these services. Moreover, the license fees had to be paid up front every year. That is, it did not matter whether the new operators had a network, subscribers, traffic or revenues, but they had to pay an up front fixed fee to the government every year. Given the high sunken cost of initial investment, the lower than expected subscriber base and the high license fees, cellular operators in India, with the exception of those in Mumbai and New Delhi markets have been posting losses from the outset. In 1999, the cellular telephone industry was posting losses worth $92 million every month. Industry experts say that


overestimation of market size and usage was the main culprit with companies, which had projected 300 minutes of usage, could get subscribers to barely talk for 100 minutes in a month. Besides, average revenue per user was only $23 compared to projections, which had ranged between $41 and $58 per month. As a result by July 1999 cellular companies and the six basic services license holders owed almost $900 million in license fees to the government and many had decided to exit the business completely. One main problem of the telecom sector’s licensing policy that was pointed out was that the licensor was the incumbent operator. By contrast, when the electricity generating business was also thrown open to the private sector, operators were not required to pay a license fee; some received guaranteed prices and fixed quantities which the incumbent state electricity company would have to buy. Moreover, the state electricity boards did not license the new producers of power. In the telecom sector, the incumbent DoT, which was deprived of its lines of business in the value added services, was entrusted to license rivals to itself, even for basic telephone services.


CHAPTER-3 REGULATORY FRAMEWORK 3.1 Introduction It becomes immensely important to understand the regulatory framework in which the telecom sector is entitled to operate. Although the pace of reform, now, have gained momentum, the regulatory framework to deal with the increased level of telecommunicationization of the Indian economy should not be found wanting to deal with any such situation. It also becomes important from the point of view of this study that this particular aspect should be mentioned in brief, since it provides the basis for comment on the state of the present day realities in the telecom sector. Following are the major governing laws for the telecom sector: (a) The Indian Telegraph Act 1885. (b) The Indian Wireless Telegraphy Act 1933. (c) The Telegraph Wires (Unlawful possession) Act 1950. (d) The Telecom Regulatory Authority of India Act 1997. (e) The Cable Television Networks (Regulation) Act 1995. The Regulatory framework consists of two bodies viz., Telecom Regulatory Authority of India (TRAI) and Telecom Dispute Settlement and Appellants Tribunal (TDSAT). The role of TRAI is to make recommendations, either suo motu or on a request from the licensor, on the following matters, namely:i. Need and timing for introduction of new service provider; ii. Terms and conditions of license to a service provider; iii. Revocation of license for non-compliance of terms and conditions of license: iv. Measures to facilitate competition and promote efficiency in the operation of telecommunication services so as to facilitate growth in such services. v. Technological improvements in the services provided by the service providers.


vi. Type of equipment to be used by the service providers after inspection of equipment used in the network. vii. Measures for the development of telecommunication technology and any other matter relatable to telecommunication industry in general; viii. Efficient management of available spectrum; The role of the tribunal (TDSAT) shall be as follows: a. Adjudicate any dispute b. Between a licensor and a licensee; c. Between two or more service providers; d. Between a service provider and a group of consumers: e. Hear and dispose of appeal against any direction, decision or order of the f. Authority under this Act. 3.2 The Telecom Regulatory Authority of India Act, 1997 (TRAI Act) The enactment of the TRAI Act was also a long delayed legislative process. In the view of an independent consultant who participated in the drafting exercise, Mahesh Uppal: to suggest, even indirectly, that the government had, at that time [of drafting the TRAI Act], a clear idea of what it was that it wanted the TRAI to achieve, is stretching credibility. India's telecom regime was schizophrenic during the period of drafting and redrafting of the TRAI Act and indeed much of the period before that. At virtually every stage of the process, there were controversies. The creation of the new independent regulatory agency was a significant episode, perhaps ultimately a defining one. TRAI was not given responsibility to issue and revoke licenses, but only to recommend them. It had responsibility to fix tariffs and resolve disputes. The DOT surrendered its regulatory role in principle, though it still retained policymaking, licensing, and operative powers within the same organizational boundaries


3.3 Overhauling Legal and Regulatory Framework 3.3(a) Amendments to the TRAI Act of 1997 Soon after the GTCR was formed and the sub-groups were created, they sprang into action to overhaul the legal and regulatory regime and to expedite the implementation of the 1999 policy. On the recommendations of the sub-group headed by Information and Broadcasting Minister Arun Jailey to amend the TRAI Act of 1997, the parliament amended the Act in March 2000. TRAI's regulatory role was split from dispute settlement. The new TRAI, with two full time members and two part time, is responsible for recommending

the

introduction

of

new

service

providers,

technological

improvements, quality standards, and fixing the terms and conditions of licenses. It is mandatory for the government to seek TRAI's recommendations, although it will not necessarily accept them. The newly constituted Telecom Dispute Settlement and Appellate Tribunal (TDSAT) is empowered by a chairperson to have a one or two member bench to adjudicate disputes between a licensor and a licensee, service providers and between a service provider and a group of consumers. Decisions of the Tribunal can be challenged only in the Supreme Court 3.4

Main Functions Entrusted to Telecom Regulatory Authority of India  To ensure technical compatibility and effective interconnection between different operators and service providers  Regulate the revenue sharing arrangement between different service providers  To lay down and ensure time frames for making available local and long – distance DoT circuits between service providers  To protect consumer interests through monitoring of service quality standards  To ensure compliance of license conditions, universal service obligations and the stated  Overall pricing policy by all operators and service providers


 To levy fees and other charges and to make regulations in that behalf  To settle disputes between service providers  To fix tariff for telecom service and ensure price regulation  To render advice to the government in the national context on technology options, service, provision and other allied matters concerned with telecom  Any other matter referred to it by the government TRAI is to exercise recommendatory functions on the need and timing for introduction of new service provider and the terms and conditions of license to a service provider. In the exercise of its powers and the performance of its functions, TRAI shall be bound by directions on questions of policy given by the Government. TRAI is vested with judicial authority and powers. Appeals against its decisions will lie with the High Court. 3.5 General Principles for Regulators According to Noll, all regulatory processes are inherently conflictual and participants in the regulatory process will seek to influence the process to their own advantage in any way that is available to them. Submitting information that supports a favorable decision is one way of exercising influence. Another is to seek intervention by political allies. There are primarily two problems for regulators in developing countries. One is the problem of regulatory capture where the regulator allows the regulated firms to charge high prices, earn high profits and provide low quality service. The other is expropriation. This can arise from two reasons: user groups may either be well organized in the regulatory process and cause service to be provided below cost or an election may cause political pressure to be placed on regulators to favour users against suppliers. Noll suggest that the solution to both capture and expropriation is the same. This is to construct a regulatory agency that it unlikely to be influenced by any particular interests. First, the personnel of regulatory agencies should be heterogeneous and stable and short-term changes in the political control of government should not cause dramatic swings in the composition of the agency.


Moreover, the careers of regulators should be secure and remunerative enough so that regulators are not constantly seeking other employment. The British and Japanese systems have professionals who are the regulatory authorities but policy authority rests with cabinet of ministers, and seek to achieve independence by giving more authority to civil servants. Second, the regulator can be given independent authority to generate information and even resources to represent interests that otherwise are not organized to participate in its processes. Third, the regulator should be subject to openness requirements so that the agency conducts all business in public, refrains from secret contacts with interested parties and not only gives indications of decisions it is likely to make but the reasoning behind that decision. “Openness forces regulators to reveal informational basis for their decision and is therefore useful for revealing whether the agency’s decision is biased and unsupported by facts.” Fourth, the decisions of the regulator can be subject to review by another body that is freer of representation biases, especially biases affecting participation in the agency’s processes, at the instigation of anyone who is dissatisfied with a decision. Levy and Spiller suggested that the most common reviewing body is a general-purpose court that itself is politically independent and diverse in composition. 3.6 The Telecom Policy 1994 The 1994 policy totally dismissed privatization of incumbent companies and made it clear that the much- needed private foreign investment will supplement DOT's efforts in spreading basic telephony. The policy was unrealistic as it failed to clearly define how universal access and service goals were to be achieved. On one hand, it admitted that India had 0.8 per cent of teledensity; on the other, it stated that the telephone would be provided on demand by 1997. It allowed competition in basic services by way of duopoly in each state (called circles) and allowed foreign companies to partner with Indian counterparts to compete with DOT in 20 circles. However, implementation of the policy was left in the hands of the incumbent DOT. In August 1995, the first eight cellular licensees in four metropolitan cities began commercial services. In late 1995, the DOT and the Ministry issued about three dozen licenses to cellular operators in all other provinces of India.


The controversy and delay in awarding basic service licenses led only six companies to take licenses in offering services in only few states. For the remaining states there was no company ready to match the unrealistic reserve- price, which the ministry and DOT had fixed. Moreover, the companies who had taken licenses later failed to fulfill their license conditions as their business plans were flawed. They also had serious claims against the government and its agencies, especially DOT, for not giving timely clearances in order for them to start their commercial operations on time. Both cellular and basic service operators had committed to unrealistic license fees and were struggling to survive in the Indian market. They owed almost $873 million to the government towards their outstanding license fees. By 1999, only two basic service operators were able to offer services in two provinces and they had few subscribers; the cellular operators had signed only one million subscribers. Therefore, to a certain extent, these companies, in going along with government's ineptitude to some extent were responsible for delaying needed reforms. The National Telecom Policy, which was in the works since 1990 was finally announced in May 1994. The National Telecom Policy of 1994, only envisaged a supplementary role for the private sector to the DoT’s national efforts. However, the NTP 1994 did take liberalization forward by introducing competition in basic services and throwing the sector open to private sector firms. NTP 94 spelt out five basic objectives of which two objectives of availability of telephone on demand and universal service (connecting all villages) were targeted to be realized by 1997. Both of these objectives have remained unrealized. In regard to quality of service, matching "world standard" and providing "widest possible range of services" "at reasonable prices" were stated aims. Two other objectives were to make the country a major manufacturing base and exporter of telecom equipment and to ensure the country's defense and security needs. (The powers of licensing and

spectrum

management were retained by the Government on the ground that both need to be strictly monitored in order to protect the strategic interests and security of the country). There were serious gaps in the policy document as regards provision of a suitable environment for entry of private service provider and on the issue of regulation. The 1994 policy was designed with the approach that services should continue to be provided largely by a strong incumbent that faced little competition..


In addition, while major targets were specified in NTP 94, an accurate assessment of the underlying resource requirements was not done. For example, to realize the enunciated objectives, an estimated Rs. 230 billion of additional resources were required. A need for private sector contribution to the effort was clearly recognized, but various implementation problems including incomplete reforms, mitigated the efforts to achieve the targets. Meanwhile, convergence arising due to changes in technology and the overall market structure for service provision had changed and there was a need to provide fresh directions through another policy. 3.7 National Telecommunication Policy 1999 Faced with a situation where investments in the sector were at a standstill and private companies were no longer interested unless the rules of the game were changed and the role of the referee made clearer, the government embarked on a series of policy changes aimed at solving the problems of the sector. The government decided to implement a new National Telecom Policy in 1999, which apart from setting the ambitious targets for universal coverage and tele - densities, also allowed the private sector operators in the telecommunication service providers to shift from a license fee regime to a revenue sharing one. 3.7(a) Primary Objectives Of The NTP’99:  Provision of universal service to all uncovered areas, including rural areas  Create a modern telecom infrastructure taking into account the convergence of IT, media, telecom  Transform telecom sector to a competitive environment providing equal opportunities and level playing field for all players In the best traditions of Indian planning, NTP’99 also set several landmarks and targets to be achieved in the next ten years.  Telephone on demand by the year 2002  Tele-density of 7 by 2005 and 15 by 2010  Telecom coverage of all villages by 2002 5  Increase rural tele -density from 0.5 to 4 by 20105


 Internet access to all district head quarters by October 20005  Internet access to all villages by 20025 (As per the available information, all the above targets have not been fully achieved, except telephone on demand in metros, but considerable progress has been made in other areas) As per the revenue sharing regime, companies would have to pay 15 per cent of their total revenues to the government. However, this is not the long-term share, as TRAI has recommended that the percentage of revenue share to be paid by operators should be 17 per cent of the adjusted gross revenue. The only caveat, which companies accepted gladly, was that in order to qualify for the new revenue sharing arrangement, all the entrants would have to withdraw their cases against the government in the court. All the twenty-nine firms, including 22 cellular operators decided to move to the new arrangement. However, even in the course of the new telecom policy, the state-owned incumbents managed to further consolidate their position and even extend it into other sectors. The government has managed to place two government players – erstwhile DTS and now converted into a corporate entity called Bharat Sanchar Nigam Limited (BSNL) and MTNL - as the third cellular entrant in all the 24 markets. The decision of the incumbents to venture into a new area may be because of the strong growth the market enjoyed during 1999, when the cellular subscriber base grew by about 58 percent to 1.8 million subscribers.85 By June 2000 it had crossed the two million mark. Moreover, while DTS will have to pay the revenue share of 15 per cent like other cellular operators, it is likely that DTS will get the money back to fund its “developmental activities” of increasing rural penetration of telecom services. NTP ’99 also introduced one of the most progressive and liberal Internet Service Provider Policies, where licenses for a token fee of Rs 1 have been granted to 340 ISPs. Of these 70 ISPs have become operational. Moreover, the government has allowed 100 ISPs to set up international gateways to the Internet, by-passing the international gateway of VSNL, the monopoly international long distance provider. To meet these teledensity targets, an estimated capital expenditure of Rs. 4,000 billion for installing about 130 million lines will be required. Recognizing the role of private


investment, NTP 99 envisages multiple operators in the market for various services. Another major change has been a shift from the existing license fee system to one based on one time entry fee combined with revenue share payments. 3.7(b) Notable Advances Marked By The NTP 99 1.

Speeding up competition in long distance, including usage of existing backbone network of public and private entities in Rail transport, Power and Energy sectors for data (immediately) and for domestic long distance voice communication.

2.

The Fixed Service Providers (FSP) shall be freely permitted to establish 'last mile' linkages to provide fixed services and carry long distance traffic within their service area without seeking an additional licence.

3.

Transforming in a time bound manner, the telecommunications sector to a greater competitive environment in both urban and rural areas providing equal opportunities and level playing field for all players.

4.

Strengthening research and development efforts in the country and provide an impetus to build world-class manufacturing capabilities.

5.

Achieving efficiency and transparency in spectrum management.

6.

Interconnect between private service providers in same Circle and between services provider and VSNL along with introduction of competition in Domestic Long Distance.

7.

Undertaking to review interconnectivity between private service providers of different service areas, in consultation with TRAI.

8.

Permission for 'resale' of domestic telephony.

9.

Clarity regarding number of licenses that each operator may be granted.

10.

Emphasis on certain other issues including Standardisation, Human Resource

NTP 99 proposes that the long-term policy will be to have uniform 20-year licenses for both Basic and Cellular Mobile services. Extensions of license periods initially by five years and subsequent ten-year extensions are also envisaged. These


provisions need to be used in a transparent manner, which again brings up the issue of government divesting itself of the licensing powers in favour of the regulatory Authority. Internet Telephony has not been permitted under NTP 99 3.8 Assessment of Regulatory Reform Regulatory reform in Indian telecom can be seen as a two-step process. One, the establishment of an independent regulator and, two, the regulatory Authority implementing reform on the basis of its policy initiatives. A crucial concomitant of this process is the separation of the incumbent service provider from the policy maker. Since its establishment, the telecom regulator in India has taken a number of initiatives pertaining to tariffs, interconnection charge and revenue sharing, and has provided its recommendations on license conditions/license fee for certain service segments. The regulator has also addressed a number of disputes under Section 14 of the Act. An important feature of the TRAI Act 1999 is that the Authority has to ensure transparency while exercising its powers and discharging its functions. Hence, the TRAI has adopted a procedure of consultations, under which it prepares consultation papers on the issues under consideration, seeks comments from the general public and experts in the area, and provides an Explanatory Memorandum along with its Tariff Orders, interconnection charge or revenue sharing Regulation, and its recommendations. Such an exercise is being performed for the first time by policy makers in India. TRAI has also been vested with powers to frame regulations necessary for its functioning, including for the levy of fees and charges for services. The TRAI Act provides for a separate fund ('Telecom Regulatory Authority of India General Fund'), which will be credited with all grants, fees and charges received by TRAI, and funds from other approved sources. Provision has also been made for Central Government grants towards meeting the expenses of the regulatory Authority. As mentioned above, there is now a perception among the Government that the powers of the regulator need to be increased. An overall perspective that would be important in this regard is to emphasize a system which makes it possible to quickly implement reform. Certain other features derived from the experience of regulatory reform across countries would be of use. Instead, they will focus more on promoting


multiple outlets for voice telephony and ensuring that a reliable and universal virtual public network is maintained across a crazy quilt of interconnected technologies and applications. Overall, this will likely mean decreased reliance on individual licensing of particular services and facilities and increased reliance on general rules. It will also involve greater coordination among authorities in different industry sectors. Telecommunications regulation will be less concerned with licensing and pricing and more concerned and continuous efforts to adapt standards of reliability and interoperability to unrelenting technology changes, as well as with frequency allocation and assignment, dispute resolution and consumer protection. A lot more of the telecommunication industry will probably end up being regulated by the market.�


CHAPTER - 4 INDIAN CELLULAR MARKET 4.1 Country Profile India is the 7th largest country in the world and the second largest in Asia with a land mass of 3.29 million square Km, and a population of over 900 million. The second largest populous country, India is the home of 16 per cent of world's population and accounts for 2.42 per cent of the total world area. One of the most striking features of the Indian economy is the sheer size of the consumer market. Private consumption expenditure grew at 13 per cent per annum (at current prices) through the 1980s and was estimated at Rs. 3,418 billion (US $ 110 billion) in 199091. The overall growth of 13 per cent is composed of widely differing growth rates in the various sectors. Expenditure on transport and communication is increasing by as high as 21 per cent per annum. This reflects a perceptible shift in consumer spending from primary products to manufactured goods and services, which is also borne out by the increasing share of manufactured goods and services in the country's GDP. The spectacular increase in consumer spending has been accompanied by increasing sophistication. 4.2 Some Facts About the Indian Telecom Market  India has 1000 million people & 180 million households  40 million fixed line telephones, 10 million mobile and four million Internet connections  Target for Growth: 100 million lines by 2005 and 200 million lines by 2010  Major public confidence as ost of long distance calls in India reduces from Rs 30 ($0.60) to Rs 9 ($0.18) per minute  International Call charges reduce by 40%  VoIP opened up for International calls


4.3 Telecommunications Network India operates one of the largest telecom networks in Asia comprising over 21,718 telephone exchanges, 14.62 million telephone lines, an extensive local and long distance transmission network with 132,022 route kms of terrestrial microwave radio relay, coaxial cables and about 36,632 Km of optical fibre systems. The voice and non-voice telecom services include data transmission, facsimile, mobile radio, radio paging and leased line services to cater to a variety of needs, both residential and business. A dedicated packet switched Public Data Network with international access for Computer Communication services is also available. Tenders have been invited for operation of Radio Paging Services. 95 licences have been issued for operation of services in 27 cities. Services have commenced in all the 27 cities with over 186,000 subscribers. Rest of the country has been divided in 19 circles and licences are to be issued. The country has been divided into 18 telecom circles and 4 metro cities for operation of Cellular Mobile Service. Despite the sustained high growth of telecom services in the last five years, the telephone to population ratio in India has just reached 1.3 per hundred people. India's telecoms sector is carved into 22 circles or zones, classified as "metro" and "A", "B" and "C" circles, based on subscriber potential, market lucrativeness and the state of already present infrastructure. The number of cellular subscribers in India grew at a scorching pace touching 10.48 million by 2002-end with the monthly addition from November to December 2002 rising to 7, 50,000. The all-India figures were up from 9.7 million in November 2002 to 10.4 million in December, a rise of 7.7 percent. This is a 92 percent increase over the previous year's subscriber base of 5.4 million, according to the figures released by the Cellular Operators Association of India (COAI). Cellular subscriber base has been growing at a massive pace for the past three years. In 1999, the announcement of the New Telecom Policy and the migration package from fixed license fee to annual revenue share regime gave a boost to the mobile sector. The result was that the cell subscriber base moved up from 790,000 in 1997 to 3.1 million in 2000.


4.4 Phenomenal Growth of the Indian Cellular Market The four metro circles showed fewer additions to their total mobile users -registering an increase of 4.4 percent from November to December 2002, Circles B and C saw high growth of 11.52 percent and 11.14 per cent respectively. The less lucrative circle C saw an increase of 8.58 for the one-month period. Metros recorded additions of 172,000, circle A an addition of 277,000, circle B of 268,000 and circle C an increase of 36,142. On a year on year basis, the numbers in metros topped the list with 4.054 million representing a 38.69 percent rise; circle A-3.516 million, registering a 33.54 percent increase; Circle B-2.550 million, a growth of 24.33 percent and circle C 360,000, witnessing a 3.44 percent rise. The International Telecommunication Union feels India has the potential to become No 1 in terms of the number of mobile phone users, considering the number of people currently without mobile phones in the country. Currently, China has the highest

number

of

mobile

phone

subscribers.

Michael

Minges,

head,

Telecommunications Data and Statistics Unit, ITU Telecommunication Bureau, said: "India has the least mobile connectivity with only 10.1 million subscribers as compared with China. India is the largest unserved market and therefore there is huge potential." According to the ITU report, in the last 10 years the telecommunication environment in the Asia-Pacific region has changed rapidly. The rate of change has been the most dramatic in the mobile communication sector. Service Provider

Dec' 1997

Dec' 1998

Dec' 1999

Dec' 2000

Dec' 2001

Dec' 2002

Mar' 2003

Bharti

123091

113259

153498

273262

484850

834269

902357

Sterling

96047

106201

126054

187617

343241

0

0

MTNL

0

0

0

0

45408

129809

132417

Idea

0

0

0

0

0

128306

165900

Hutchison Essar

0

0

0

0

0

580328

605485

Total

219138

219460

279552

460879

873499

1672712

1806159

Delhi Growth Rate YoY (%)

9.9

10.0

40.2

131.1

337.9

738.6

805.5

Mumbai

BPL Mobile

92230

111241

155373

261654

378912

573877

621172

Hutchison Max

122772

91601

143371

218677

380835

615836

665086

City

Delhi


MTNL

0

0

0

0

73248

110279

159500

Bharti Cellular

0

0

0

0

0

212304

243278

Total

215002

202842

298744

480331

832995

1512296

1689036

Mumbai Growth RateYOY(%)

15.3

8.8

60.3

157.7

346.8

711.2

806.0

RPG Cellular

25491

16244

24041

57647

107979

166305

179284

SkyCell

23044

18450

22963

38577

0

0

Bharti Mobinet

0

0

0

0

121036

200728

215109

Hutchison Essar

0

0

0

0

0

51832

55760

Total

48543

34694

47004

96224

229015

418865

450153

Chennai Growth Rate YoY(%)

5.9

-24.3

2.6

110.0

399.8

814.1

882.4

Modi

36664

20459

33126

90132

0

0

0

Bhari Mobitel

0

0

0

0

94077

188237

200736

Hutchison Telecom

0

0

0

0

0

247327

274281

BSNL

0

0

0

0

0

14997

19159

Usha Martin

26640

22386

34904

67426

131528

Total

63304

42845

68030

157558

225605

450561

494176

Calcutta Growth Rate YoY(%)

6.3

-28.1

14.2

164.5

278.7

656.4

729.6

All Metro Total

545987

499841

693330

1194992

2161114

4054434

4439524

Metro Growth Rate YoY (%)

11.14

1.74

41.13

143.25

339.90

725.30

803.68

All India Total

794232

1070603

1599364

3107449

5478932

10480430

12687637

All India Growth Rate YoY(%)

20.01

61.76

141.66

369.52

727.85

1483.55

1817.05

Chennai

Calcutta

Cellular Subscriber (GSM) Growth (Dec 97 to Mar2003)

The table on the preceding page describes the phenomenal increase in the cellular subscriber base (The data is for GSM subscribers only, authenticated data for WLL subscribers could not be found). The varied reasons for such a stupendous growth have placed India in the right orbit for a rightful position as a major global player in the world, in not so distant future. An increase of 1817%, could only be described as envious and considering that not even a sizable potential of the Indian market has been tapped, so far, makes the whole data much more meaningful, from investors and companies point of view. It would be prudent to add at this juncture that this


bewildering growth rate has been achieved at the very nascent stages of Indian telephony, and as the years progress and the base year for comparisons (Base year in this study has been taken as 1997) shifts to some latter year, the developments would look more sober as the market passes over from the initial stages of introduction towards growth and maturity. National Vs Metro Growth (%) 2000.00 1800.00 1600.00 1400.00 1200.00 1000.00 800.00 600.00 400.00 200.00 0.00 Dec'1997

Dec'1998

Dec'1999

Dec'2000

Dec'2001

Dec'2002

Mar '2003

Year

Metros

National

Metro Cities Subscriber Grow th Rate 1000.0

Percentage

800.0 600.0 400.0 200.0 0.0 -200.0 Year Delhi

Mumbai

Chennai

Calcutta


Percentage

All India Growth Rate YoY(%) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Dec'1

99 7

Dec'1

Dec'2

9 99

00 1

Mar'2 0

03

Year

There is a need to look at the various reasons that have contributed to the growth of cellular sector in India. If one were to look at the figures above, it becomes clear that the growth started from the metros to begin with and then caught up with the national fancy. It would be imprudent to say that inclination towards being more “mobile” was just a fad, or a passé. Instead there are certain deep rooted and well explainable reasons thereto. 4.5 Reasons For Boom In Consumer Spending The overall consumer attitude has resulted in the development of a very conducive environment for industrial as well as economic growth. Needless to say, higher disposable income, as a result of increased employment, better salary and wages structure, have resulted in more spending power. Combining increased levels of awareness and a paradigm shift towards value orientation rather than pure price sensitivity has lead to an interesting environment for business, both services and manufacturing activities 1. Sustained economic growth of 5.5 per cent per year through the 80s. and more than 12% in case of Industrial growth till late 90’s. 2. Increase in urban population by 75 million in the last decade to touch over 235 million in 1993 and estimated to be over 550 million by 2003 .


3. Drastic change in lifestyles with the emergence of multiple income urban households. 4. Increase in awareness created by the media - television (including CNN, STAR TV), radio (with many new FM channels) and print media. 5. Increasing literacy levels –The aggregate number of literates being 442 million, as per 1991 census. Another notable development is that the perceptual shift of consumers towards the need for better connectivity: from business and personal point of view, along with westernization have contributed to the phenomenal increase in the demand for cellular services. One should also bear in mind that this would not have been possible, had the affordability of telecom services would not have come to today’s level.

Telecom Affordability

Avg. Min. Call Rates(Local/1 min)

35 30 25 20 15 10 5 0 97

98

99

00 Year

01

02

03

Indian customers have always been highly price sensitive and the price factor has a great role to play in making a product/service/concept a success or a failure. Since the initial charging for cellular services was very high, it was a niche product/service rather than being a utility, but now with the call rate coming down to as low as 40 paise (Reliance Tariff Rates under the Dhirubhai Ambani Pioneer Offer), the cellular sector has witnessed a revolution as the affordability increased, and at the samwe time the utility has increased many folds, the result of which is a phenomenal 1817% growth (Dec 97 to March 2003).


Call Usage Pattern and Contribution towards Total Call Revenue (Aggregate) Usage

Share Of Total

Contribution towards Call

Subscribers

Revenue

>10,000

2.70%

47.10%

5001 to 10,000

2.50%

9.80%

2001 to 5000

7.90%

13.40%

1,001 to 2,000

14%

11.60%

501 to 1,000

21.30%

10%

0 to 500

51.60%

8.10%

(Calls Bi- Monthly)

Source: “Indian Telecom Review”, Business World, February, 2003

As the telecom affordability has gone up, the no. of users have experienced a phenomenal growth, but as is evident, the maximum users are the least revenue getters from a company’s perspective and curtail their telecom spending to the bare requirement as stipulated by the service providers. So, the companies derive their no’s. from here and their revenues from the top most category.


The change in perception also has helped the Indian customers venture into spending over non-conventional items which had a negligible share in the early 90’s, this is a macro effect and has its bearing on all the aspects of Consumer spending pattern and not specifically on the spending on fulfilling telecom needs. But nevertheless telecom sector is also one of the beneficiaries of this phenomenon. 4.6 Major Players in the Indian Cellular Sector Besides the service providers in the metros (Please refer to Table 4a), the Indian telecom market is divided into circles, the details of the service providers in the various circles respectively is provided in the Annexure-3, A Note on Major Service Providers


CHAPTER-5 TECHNOLOGY IN USE AND THE CONTROVERSY BETWEEN GSM & WLL OPERATORS The technological aspect is undertaken in this study, because it becomes important to understand the basic concept of underlying technology, by the virtue of which, modern telephony (especially in the Indian context) is functioning. It also provides the means of comparison and differentiation between the service offerings, their limitations and advantages, which reside in the very fundamentals of the technology that is being used. It also becomes Important to mention here that the battle between wireline and wireless was the first taste of competition that the post liberalized telecom sector had. Now, the tussle and the market share-bone of contention remains between the CDMA and the GSM based operators. Broadly, for the purpose of this study, we try to understand: 1. Wireline Technology & Wireless Technology 2. Distinction between WLL & GSM Technology India today lacks the infrastructure required for high speed communication that is imperative for the telecom revolution. Most of the present lines are copper cables operating at (low) while the optical networks that have been laid by the DoT, covering a distance of 31,771 km operate with a bandwidth of 51.84 Mbps. Looking into the future, the current capacity of our communication networks will be far outstripped by the demand. 5.1 Wireline Technology


The traditional wireline telephony to which India has been exposed to till recently, had been the forte of state run MTNL & BSNL. The fundamental technology behind this concept seems very rudimentary, if compared to the technological options that are now available. It involves carrying of voice and data traffic over co-axial copper wires, from the provider till the end user. For long distance, there is the use of satellites and tie ups with other operators for which there is a charge payable, and needless to say, this is passed on to the customers. Besides, the underlying technology itself faces certain lacunae, owing to the fact that the data suffers loss of transmission, leakages, stress, and a very high “Last mile linkage cost”. The answer to this particular problem lies in abandoning reliance on the physical medium of carrying traffic, to the maximum extent possible. This brings the concept of wireless connectivity into the picture. 5.2 Wireless Technology The first mobile wireless phones utilized analog transmission technologies, the dominant analog standard being known as “AMPS”, (Advanced Mobile Phone System). Analog standards operated on bands of spectrum with a lower frequency and greater wavelength than subsequent standards, providing a significant signal range per cell along with a high propensity for interference. These networks were based on digital, rather than analog technologies, and were circuit-switched. Circuitswitched cellular data is still the most widely used mobile wireless data service. Digital technology offered an appealing combination of performance and spectral efficiency (in terms of management of scarce frequency bands), as well as the development of features like speech security and data communications over high quality transmissions. It is also compatible with Integrated Services Digital Network (ISDN) technology, which was being developed for land-based telecommunication systems throughout the world. There are a variety of wireless technologies, for telecommunication purposes. FDMA- Frequency Division Multiple Access. TDMA- Time division Multiple Access.


CDMA- Code Division Multiple Access. TDMA is a digital air interface that divides a single radio frequency channel into 6 unique time slots, allowing a number of users to access a single channel at one time without interference. By dividing the channel into slots, three signals (two time slots for each signal) can be transmitted over a single channel. In this way, TDMA technology (also referred to as ANSI-136), provides a 3 to 1 gain in capacity over analog technology. There are approximately about 120 million worldwide TDMA subscriber for 2002. CDMA is being used in India, which is a full-fledged cellular technology. It is in fact being used in U.S, and Korea. 5.3 Limited Mobility for Voice WLL means that a subscriber is linked to the nearest exchange through radio links instead of copper wires. 

Unique government initiative for rapid phone expansion

Mobile WLL CDMA phone connects to POTS system

Allows data transfer rates of 144 Kbps

20 Km radius of mobility from base station

Extends POTS but encroaches on cellular networks

Multiple conflicts: license fees, revenue fees, interconnect agreements, urban-rural commitments

Currently about 800,000 subscribers to WLL phones

5.3(a) Wireless Local Loop (WLL) The Wireless Local Loop technology is India's indigenous technology. It was highly appreciated by UNDP. This technology replaces the wires and copper in local loop with a wireless system. It requires a compact base station, mounted on a rooftop or poles in the streets, which is used for transmission on a wireless medium to homes and offices. The technology is claimed to bring down the cost of per line telephone connection from Rs. 40 000 to 10 000 and facilities both voice and data. It is suited


for both dense urban and sparse rural deployment scenarios. India and other nations such as Fiji, Tunisia, Nigeria and Madagascar have already started to deploy. Frost & Sullivan forecasts that WLL transmission equipment will eventually constitute nearly 30% of all new lines. This technology will assist in more rapid installation of the network and is ideal for both urban and rural areas. Very small aperture terminals (VSATs) and low earth orbiting satellites (LEOs) are also being touted as intriguing technological solutions for rural telecommunications. None of these technologies is a panacea, but each of them will satisfy the demands of rural telecommunications. Different technologies will be more or less appropriate based on specific circumstances. It is most likely that a mix of these technologies will provide the ultimate solution. 5.3(b) Advantages Of WLL Over Traditional Wireline Connectivity WLL is cheaper and quicker than copper lines. As the cost of copper rises over time, so does the cost of acquisition, and set up of traditional system for wireline connectivity. In a traditional set up the most costly part is the “last mile”, especially in the rural and far flung areas. WLL is economical in this respect. Close to 90% of faults in telephonic lines occur in this “last mile”. With radio links replacing copper wires, the faults become almost negligible. 5.4 GSM Technology The idea of cell-based mobile radio systems appeared at Bell Laboratories in the United States in the early 1970s. However, mobile cellular systems were not introduced for commercial use until a decade later. During the early 1980’s, analog cellular telephone systems experienced very rapid growth in Europe, particularly in Scandinavia and the United Kingdom. The most prevalent wireless technology in the world today, is GSM. The GSM MoU (Global System for Mobile Communications) was instituted in 1987 to promote and expedite the adoption, development and deployment and evolution of the GSM standard for digital wireless communications. The GSM membership has grown exponentially since 1992. The membership now extends to 323 members from over 125 countries. (table given below) The GSM


network now services over 125 million customers world-wide. The world's satellite operators have also joined the GSM community, which further adds to its strength and impact on world markets. GSM is today, the world's leading digital standard accounting for 64% of the global digital wireless market. Year

Membership Networks on Air

Countries / Areas

Customers (millions)

1992

54

31

13

0.25

1993

78

48

34

1.4

1994

102

60

65

4.5

1995

156

86

113

12.5

1996

208

105

189

30

1997

256

110

233

70.3

1998

291

120

298

108

1998

323

128

300

125

2000

400

140

380

300

Today's GSM platform is a hugely successful wireless technology and an unprecedented story of global achievement. In less than ten years since the first GSM network was commercially launched, it became the world's leading and fastest growing mobile standard, spanning over 190 countries. Today, GSM technology is in use by more than one in ten of the world's population and it is estimated that at the end of 2002 there were 787 million GSM subscribers across the 190 countries of the world. The digital nature of GSM allows the transmission of data (both synchronous and asynchronous) to or from ISDN terminals, although the most basic service support by GSM is telephony. Speech, which is inherently analog, has to be digitized. The method employed by ISDN, and by current telephone systems for multiplexing voice lines over high-speed trunks and optical fiber lines, is Pulse Coded Modulation (PCM). From the start, planners of GSM wanted to ensure ISDN


compatibility in services offered, although the attainment of the standard ISDN bit rate of 64 Kbit/s was difficult to achieve, thereby belying some of the limitations of a radio link. The 64 Kbit/s signal, although simple to implement, contains significant redundancy. Since its inception, GSM was destined to employ digital rather than analog technology and operate in the 900 MHz frequency band. Most GSM systems operate in the 900 MHz and 1.8 GHz frequency bands, except in North America where they operate in the 1.9 GHz band. GSM divides up the radio spectrum bandwidth by using a combination of Time- and Frequency Division Multiple Access (TDMA/FDMA) schemes on its 25 MHz wide frequency spectrum, dividing it into 124 carrier frequencies (spaced 200 Khz apart). The most novel and far-reaching feature of GSM is that it provides most of cellular phone users with a choice – choice of network and choice of operator. Also, international roaming was and continues to be the cornerstone of GSM. For this to be possible, all networks and handsets have to be identical. With many manufacturers creating many different products in many different countries, each type of terminal has been put through a rigorous approval regime. However, at the time, no approval process was available, and it took nearly a year before the handheld terminals were tested and fit for market entry. Another of GSM’s most attractive features is the extent to which its network is considered to be secure. All communications, both speech and data, are encrypted to prevent eavesdropping, and GSM subscribers are identified by their Subscriber Identity Module (SIM) card (which holds their identity number and authentication key and algorithm). While the choice of algorithm is the responsibility of individual GSM operators, they all work closely together through the Memorandum of Understanding (MoU) to ensure security of authentication. This smartcard technology minimizes the necessity for owning terminals - as travelers can simply rent GSM phones at the airport and insert their SIM card. Since it’s the card rather than the terminal that enables network access, feature access and billing, the user is immediately on-line.


The growth of GSM continues unabated with more than 160 million new customers in the last 12 months. Since 1997, the number of GSM subscribers has increased by a staggering 10 fold. During late 2003 or early 2004, it is predicted that global GSM subscribers will smash through the one billion mark. 5.5 Controversy between WLL and GSM operators The cellular operators are complaining that the new services did not have to go through the license bidding process and that no interconnection will be given to them unless access charges are paid. The question is whether the new service offered by Reliance and Tatas is really WLL or not. If it is cellular then it is fair that all operators are equally treated. The WLL operators should also pay for the spectrum that they are using. Further, everyone should be allowed to bid for the spectrum to provide WLL service, interconnect agreements should be the same as, or very close to, that which the cellular operators signed. Conversely, if WLL is truly fixed wireless, then to provide local communication access to countless number of Indians should be encouraged as a low cost alternative. Both GSM and WLL are wireless technologies whereby electromagnetic signals are sent through air between user’s handsets and access switches which then connect the signals into a network, usually wired. The concept of “cellular� wireless


network came about because during the initial design different regions were divided into “cells”, each to be serviced by a different base station. Those moving from one cell to another would be handed of to the corresponding base station servicing the new cell. The network of base station could provide access to those moving around in a large region. Different protocols have been used in digital cellular telephony including TDMA, CDMA and GSM. Once the wireless call of a subscriber with cellular phone reached the base station servicing him, it would route the call to the nearest wired network. Thus the cellular network mostly provided only wireless access. Without interconnect provided by the wired network, the mobile operator would not be able to fully service their customer. As a norm, wireless operator pay interconnect charges (IUC) to the operators of the wired operators, further , because cellular operators use the airways at specific frequency ,it has to sought permission from Government . In the last two decades, in almost every country including India, spectrum license were given to companies through auction /bidding process. The main motivation for this is to use these spectrum auctions to add money to the public coffers. The rationale was that airways are public properties. Most implementations of WLL do not provide much mobility regardless of the technology being used .WLL is used in low and medium demand density areas and used proprietary systems that are not available on public wireless networks. Generally, these systems do not provide mobility. WLL implementations is what is known as PCS/PCN standards, which uses low power antennas and light weight inexpensive handsets and offer low mobility, not much more than 1 –2 kms. then ,of course, there is CT-2/DECT standards which is simply an extension of the cordless phones. all of these technologies use spectrum that is readily available and can be deployed without any additional licensing agreements with the government. To extend the mobility of the fixed wireless system, one can always set up a system of WLL switches that can hand-off calls to each other. This then becomes “cellular” for all intends and purposes. In recent years, two other fixed wireless services have been deployed in many countries :

multi-channel multipoint distribution services(MMDS) and local

multipoint distribution services(LMDS). In the US MMDS operates in the 2 –GHz frequency band and can provide access over a distance of about 50 Km from central-


transmitters site. LMDS uses transmitters operating in the 28-GHz frequency band with each transmitter covering a distance of about 5 km. Clearly, there is significantly more mobility in these technologies than in traditional fixed wireless. In the US and many European countries, LMDS and MMDS spectrum are provided only after bidding process. In all the implementation of WLL, as in the case of cellular, the WLL operators will not able to fully service their customers without inter-connect providers by both wired operators and also mobiles ones. There should b some fair way of handling the charges for this interconnect. Truly fixed wireless can be deployed very quickly. It generally has a much lower incremental cost than copper, and it is much cheaper than to deploy at a lower subscribed density. Given the fixed nature of the technology, the switches also have to do very little work to provide wireless access. Thus, the WLL switches are also less costly than the cellular switches. Further, using CDMA or DECT for WLL service is less costly than using GSM. The GSM architecture was designed to handle international roaming and as such the switches have to deal with a large amount of overhead work. The lower the mobility the lower the cost of antennas, switches and handsets. On the top of this, there are no license fees and the interconnect charges are low. No wonders that such a service could be offered much cheaply. Conversely, if there is going to be significant, i.e., 10 km and above, mobility attached to the new wireless technology being pushed by Reliance and Tatas, and the transmission is going to be at 2 GHz and above, perhaps it is simply “cellular” in WLL’s clothing. To place the controversy in its international perspective, in much of telecom development in the United States has centered on landline. Europeans took to the wireless

far

more

aggressively.

The

GSM

(global

system

of

mobile

communications) is a technology perfected primarily by the European nation to offer a global system of telecommunications. With “universal roaming” as it is cornerstone, GSM gives a unique number and a hand set that the user can seamlessly cross the continents without losing a single call.


CDMA is a technology that was perfected and launched into the market place by a single US vendor Quall Comm. The US as a country is far behind in mobile phone adoption compared to the rest of the world, thanks to universal availability of landlines in the abundance through out the country. CDMA came as a more superior band with optimizing alternatives and a large reach south Korea is one country that has adopted CDMA extensively. Many Asian countries including Australia, China, Singapore and India are at various stages of adopting CDMA. Like every late entrant in the technology space, CDMA has several better advantages over GSM- CDMA is a better on radio, radiates less and has better reach. Because of its wider reach, for a population that is sparsely populated over a larger area CDMA is likely to be more cost effective. Because of global roaming feature if USP for GSM there are larger overheads for GSM. CDMA does not have such high overheads. GSM technology was perfected in late 80’s and widely adopted in 90’s. CDMA is relatively new- its it a 1995 vintage technology. However GSM today enjoys incumbent advantage, 400+ million installed base v/s over 100 million-user base of CDMA. For international roaming GSM is the best bet; CDMA is far from being available globally. Most CDMA operates globally provide hand sent and lock in the customers. Reliance is able to offer by far an inexpensive “mobile service” by combining a series of limited mobility options at every circle and carrying inter circle traffic using a nation wide fiber optic backbone. It is able to offer the promised service at a cost that has taken everyone by surprise. True, the Reliance offer violates the “ letter of the law” but in the “ spirit of the laws “ it offers far superior option to millions of customers. This fact should lost sight of. It is true that the GSM operators do not get a level-playing feel they should be compensated for the exorbitant license fee that they had paid earlier (but only for the post 1999 period as they had charged the public equally exorbitant tariff till then). The real benefit to the cellular phone customers when the cellular phone operators who have licenses over several circles could offer calling options across the circles at the cost of a local call, no one complaint about extending” limited mobility” within a cell “ full mobility” across the circles! While Reliance offer for “full


mobility” may be perceived as backdoor entry. The fact that it benefits large number of customers should not be lost sight off. Every cell operators can and will offer inexpensive phone service to match, if not better, the Reliance offering. TRAI did not block such moves that are customer benefiting. As for level playing field, a committee of experts may go into the compensation that will have to be made to the GSM operators to ensure a level playing field. It should not be missed out that if such a move was initiated in time, MTNL could have played the role that Reliance is likely to play One company, Qualcomm, controls CDMA; a consortium, similar to Windows being controlled by Microsoft, controls GSM though pioneered by Nokia and Ericcson. Many users do not want to be at the mercy of one company; this being one of the latent reasons for resistance to CDMA, rather than any technological merits or demerits. There are no clear winners in this tussle, though for some time one “camp” might seem to be dominant. Ultimately price, phone instruments, display, coverage and range, reputation and service quality would decide the market success and not technology; it will never be CDMA or GSM; it will be CDMA and GSM for a reasonable amount of time. Only the proportions could vary over the next couple of years. 5.6 Why WLL Being Opposed By Cellular Operators? It is not an opposition to the WLL but the concept but to the concept of limited mobility. Cellular operators work on the GSM technology, which is the dominant cellular mobile worldwide. Cellular operators object to the farcical concept of limited mobility, firstly because it would be difficult to ensure that the mobility stays “limited”, Secondly, they point out that 90% of cellular subscribers do not move out of their SDCA, i.e. they do not use roaming facilities. This on the surface should not be opposed. But the reasons for a stiff opposition is that, firstly it amounts to giving entry to another mobile operator in a circle, and most importantly,. There is no level playing field, in terms of license fees, access charges and so on.


5.7 How WLL Can Offer Lower Tariffs? This again is a cause of dispute. Cellular Operators initially argued that WLL tariffs were set so low because basic service providers could cross subsidize these from higher revenue share from long distance calls. Subsequently, the revenue shares from long distance calls were made the same for basic and cellular operators. Cellular Operators now allege that the WLL tariffs (which are the same as fixed line tariffs)are being maintained low as a “predatory Pricing” tactic. Basic service providers, on the other hand, insist that the tariffs involved no subsidy and that they have established this with the telecom regulator. 5.8 Some More Issues in the Tussle There, however are certain more issues that need to be looked into, for understanding the root of tussle between the GSM & WLL operators: 1. Issues in permitting limited mobility : Proponents of full mobility argued that it did not make sense to impose artificial constraints on services that provide benefits to consumers (TRAI 2001b). The proponents noted that the government itself had asked for full mobility. Further, they argued that allowing full mobility would ensure that competition and deregulation of the mobile telephony sector kept pace with trends in national long-distance, international long-distance, and basic service sectors. TRAI (2001a) maintained that while consumers should not be denied a facility that can be made available to them through technological advancement, specially if any adverse impacts to other service providers can be mitigated through policy initiatives, full mobility ‘would pose a number of technoeconomic and regulatory problems’. In its recommendations TRAI (2001b), provided the following reasons for limiting mobility. First, TRAI asserted that allowing full mobility would make basic service comparable to mobile service and thus essentially remove the distinction between the two services. Because these services are provided under two different licenses, TRAI contended that the distinction between these two services must be retained. Second, TRAI stated that the frequency spectrum available for WLL is limited. Currently, the available spectrum is 20 MHz (paired). Because the number of subscribers that can be served is proportional to the frequency spectrum available,


the number of subscribers that can be served by WLL is also limited. TRAI asserted that it would be difficult for a basic service provider to cover the entire circle and provide service to all those who requested it, and, therefore, full mobility would pose serious problems. Third, TRAI argued that if full mobility was allowed, incumbent BSOs would be able to price intra-circle long-distance calls as local calls. TRAI maintained that this would amount to heavy subsidization of the intra-circle long-distance calls ‘in the garb of WLL services’. Further the incumbent, BSNL (Bharat Sanchar Nigam Limited) or MTNL (Mahanagar Telephone Nigam Limited), would be able to cross-subsidize WLL service from the profits from the ‘near monopoly markets’ it enjoys in most of the telecom circles. TRAI further argued that if full mobility were allowed, mobile service would become almost similar to WLL service with full mobility and, therefore, the growth of the cellular service market would be adversely affected. Opponents of allowing any mobility with WLL contended that basic service providers would get frequency spectrum for mobile service for almost nothing while mobile service operators paid considerable amounts for the frequency spectrum— almost 8.5 billion rupees per MHz, according to one estimate (Thomas 2001). In addition, some of them argued that the technology used by Basic Service Providers and the frequency spectrum allocated to them allowed them to provide WLL up to a range of 15 to 25 km, and it would be impossible to restrict the Basic Service Providers to a range lower than that (TRAI 2001b). Therefore, even with limited mobility the Basic Service Providers would be able to provide service that would compete with that provided by mobile service providers. Opponents of allowing any mobility argued that this would be unfair because Basic Service Providers would be able to provide the same service but under different license terms, service area classification, and different levels of entry fee. 2. Unified, Technology-Neutral Licenses: The debate around the issue of limited mobility with WLL highlights how the current regulatory and policy framework limits customers’ access to a technology that has

considerable potential for

providing them with low-cost service. These constraining aspects of the current regulatory structure will become more pronounced with greater convergence of markets and technologies in telecommunications. In addition to the blurring of wire-


line and wireless services, telephony and broadcasting are beginning to enter into each other’s markets. As operators in one service area use their facilities to deliver services reserved for other services, the existing policy framework will need to be revised. One possible solution is to issue unified, technology-neutral licenses. Such licenses with unrestricted entry provide a platform for better competition and allow new entrants to find their niches more effectively. The Draft Communications Convergence Bill (DoT 2001) addresses this issue. According to the Draft Bill, the proposed Communications Commission is required to grant licenses in four categories: (1) Network infrastructure facilities, (2) Network services, (3) Application services, and (4) Content application services. This licensing regime will result in unified, technology-neutral licenses for various application services such as telephony. However, the move to unified, technologyneutral licensing cannot be accomplished without considering several issues associated with changing the licensing regime. First, the licenses that are currently issued for different services, for example basic and mobile telephony, need to be revised to make them uniform, and that includes making uniform the fees being charged to the providers. While this may be easy to do for future payments – as was done by TRAI in its recommendations on limited mobility with WLL by reducing the revenue share for mobile service from 17% to 12% to make it consistent with the share Basic Service Providers were being charged – it may be harder to decide equitable treatment of previous payments. For example, if mobile service providers have been paying a higher license fee in the past for the same service that Basic Service Providers can provide with a lower license fee, is there a need to compensate mobile operators for these higher payments in the past? If so, how should the required amounts be determined? Second, until now the numbering plan was such that exchanges could distinguish between long-distance calls and local calls. However, if with full mobility, a Basic


Service Providers can provide a long-distance call at the same tariff as a local call, then the distinction between a long-distance call and local call disappears. This will require a change in the numbering plan. Third, if the government does allow a unified license for telephony, it must reconsider its decision to not allow telephony over the Internet. Telephony over the Internet is another technology that would compete with basic service because it may be able to provide this service at lower costs. If the government is considering a technology-neutral license, then it must allow all potential technologies, including Internet telephony, to compete. Last, some stakeholders have argued that the use of unified licenses may eliminate small players in the markets. According to these stakeholders, separate licenses enable a large number of small players to enter the various markets. Some of the markets such as those for ISPs (Internet service providers) allow the presence of many players while others such cause of limitations of the frequency spectrum or the requirement for large investments in infrastructure, respectively. By removing the distinction between these markets, we may also remove small players because they may not be able to compete with other players with deep pockets. Thus, as convergence is likely to reduce the number of viable players in the sector, it will be important to monitor the market to ensure that there is no abuse of market power by the players. Thus, there may be benefits from the move to a unified license regime, in particular to provide a regulatory framework that is compatible with the growing convergence of technologies and services in telecommunications. However, there are several issues that need to be addressed before such a licensing regime can be successfully implemented. On 8th January 2001, TRAI recommended for Basic Service Providers that it was not treating the provision of limited mobility with WLL as a service outside the ambit of their service provision. It said to do otherwise would be to prevent consumers from benefiting from the fruits of the technological progress. It noted that the quality of service provided by cellular operators was superior to what will be provided by Basic Service Providers by using WLL and, hence, it will not effect the cellular operators' business, it also stated that it is a different service. It said it views


WLL with limited mobility similar to a supplementary or value- added service for basic service. In that sense, this service would be similar to the supplementary services and roaming services that are presently allowed for cellular mobiles. The Authority further said that there is no reason to reconsider the issue of an entry fee for Basic Service Providers particularly because the purpose of an entry fee was mainly to deter non-serious entry of service providers. Likewise, the license fee and revenue share percentages need not be altered for Basic Service Providers. Though their revenue streams will now be higher, the amount of revenue share license fee will also be higher as a consequence. The Authority does not favor imposing a greater license fee burden on the service providers, as it will pass these high fees on to the consumer. It also said the charge made from WLL handsets should be same as the local call set at Rs. 1.20 per 3 min.

5.9 Some Concluding Observations Telecommunications reforms policies everywhere have recognized the need to have many more participants than the incumbent operator in the process of telecommunications network expansion and service development. It is generally accepted that these new participants will stimulate development of the sector and provide a degree of competition to the incumbent public telephone operator thus positively influencing the efficiency of service provision. Thus the question is no longer to have competition- the traditional arguments for exclusivity no longer hold. Instead, it is how fast competition should be ushered in.


CHAPTER-6 RESEARCH METHODOLOGY, FINDINGS & ANALYSIS 6.1 Objective of Thesis To understand what are the opportunities and scope of telecom sector. Moreover what they are doing in order to serve their customers, clients as well as future prospects in better and in most effective manner, which in turn help them in increasing their market share, and profitability by providing value for money & desired quality of service to their customers. Moreover projection of customer’s need well in advance and using proper medium to communicate & educate their customers to make maximum use of available services and offers.. Studying how telecom sector is generating revenue by providing various value added service such as GPRS, Caller tunes, ring tones, wallpapers, and other value added services. To study and review the various marketing strategies of various players present in the telecom industry. Also to compare and contrast the profiles of companies and market segment captured by them. 6.2 Scope of your thesis work: The reason for selecting the topic is that I am working in the telecom sector & moreover this sector is one of the fastest growing sectors of service industry in India. This sector is growing very fast as compared to the other sectors, & at the same time lot of opportunities, and expectation came from the customers to provide excellent service in less cost. 6.3 Sample Summary Area

New Delhi

Size

224 Respondents

Technique

Random Sampling done across New Delhi.

Selection

The respondents were selected at random and were approached mostly in public places, in various areas of New Delhi; Lajpat Nagar, Ashok Vihar, Dwarka, Greater Kailash, Connaught Place.


6.4 Modes of Data Collection

Questionnaires Reliance Infocom

Primary

On The Job Training KSA Technopak Observation

Secondary

Newspapers, Books Magazines

Internet, Journals

6.5 Questionnaire Design The questionnaire design is close ended, and carries information pertaining to aspects relevant to the scope of the study. Since, the impetus of the study is towards perception mapping: hence questions pertaining to this particular aspect are designed to measure responses on a Scaled Basis 6.5.1

Rationale of the questions asked

ďƒ˜ Question No. 1 to 5ha (Please refer to the Annexure-for a Sample of the questionnaire)


6.6 Primary Data Analysis & Project Work Flow

Data Collection

Coding & Arranging

SPSS MS Excel

Decoding Statistical Reports

Interpretations

Findings, Conclusions & Recommendations


6.7 Findings 6.7 .1 Overview The sample survey done was in New Delhi, and care was taken that respondents should adequately represent all possible demographics permutations. Hence the data collected could be relied upon as being an ample representation for the purpose of this study. However, the author feels it prudent to admit certain shortcomings that were observed during data analysis: 

The sample size chosen was, as best permitted by the constraints of time and resources and the practicality of conducting genuine research and not arbitrarily collected or fudged data.

It is felt that the categories of “Housewives” & respondents from the higher income group (40,000 and above per month) remain underrepresented.

The entire questionnaire was not filled up by explaining each and every question to the respondents.

Although the data converted into digital format for analysis was double checked for any errors of omission and/or commission, it is assumed with a confidence of 99.99% that there were no errors of the described nature.

6.7.2 Data Reflected Findings Respondents Age Group Age 15 to 20 20 to 25 25 to 30 30 to 35 35 to 40 40 to 45 45 to 50 50 to 55 55 to 60 60 & Above Missing Total

Freq. 30 47 56 20 14 19 13 7 2 2 14 224

%age 13.4 21 25 8.9 6.3 8.5 5.8 3.1 0.9 0.9 6.3 100


Respondents Occupation Occupation

Freq.

%age

Service

71

31.7

Business

49

21.9

Student

56

25

Housewife

2

0.9

Professional

32

14.3

Missing

14

6.3

224

100

Total

The respondents vary in age from 17 years to 79 years. The average age of the respondents is 24 years and the age groups 15 to 30 are found to be the maximum, 59.4%, in the sample. While the single most dominant group in the sample are the respondents in the age group of 25 to 30. The maximum respondents are engaged in Service as an occupation (31.7%), followed by Students (25%). The expectations of various groups vary, if we permeate the basic level of requirements, that is call receiving and sending. As the data to follow shows, the usage parameters, expectations from the service providers, the level of satisfaction attained, and the willingness to sacrifice (in terms of charges/price payable) are governed by two basic parameters: 1. Monthly Income & 2. Occupation Although Social group to which the respondents belong also has a bearing on his telecom expectations and the level of sacrifice, but lack of conclusive data and a great number of ambiguities in the data do not qualify this particular aspect to be remarked on, in this study.


Education Level Education

Freq.

%age

Under Graduate

40

17.9

Graduate

67

29.9

Post Graduate

41

18.3

Professional

60

26.8

Missing

16

7.1

224

100

Social Group

Freq.

%age

A

64

28.6

B

31

13.8

C

114

50.9

Missing

15

6.7

Total

224

100

Total

Social Group

To develop the demographics, the respondents were to asked to tick whichever items they owned, out of a given 7 items. On the basis of the responses, the total sample segregated into three categories: Category A- Respondents in the topmost social group, possessing 5 to 7 items mentioned in the questionnaire, out of which, Club Membership, Car, and Credit Card is a must. Category B- Respondents in this group possess 3 to 5 items mentioned in the questionnaire, out of which Personal Computer and Music System is a must.


Category C- Respondents who do not belong to either of the above groups. The above categorization becomes important in the context of developing the demographic profile of the respondents and to have a better understanding of the customers’ needs and expectations by developing an empathic view on the customer profile. Monthly Income Monthly Income

Freq.

%age

Below 10,000

64

28.6

10-20,000

61

27.2

20-30,000

47

21

30-40,000

14

6.3

40-50,000

6

2.7

Above 50,000

11

4.9

Missing

21

9.4

224

100

Total

More than 55% of the respondents have their monthly income from Rs. 0 to 20,000, while the higher income group (Rs. 30,000 and over) only constitutes about 14% of the total respondent base. The important thing to bear in mind here however is the fact that these respondents are the highest contributor to the company’s revenue as these are the highest users in terms of minutes of usage. Duration Of Usage Since When?

Freq.

%age

Less than 1 yr.

57

25.4

1 to 2 years

60

26.8

More than 3 yrs

73

32.6

Missing

34

15.2

224

100

Total


Type Of Connection Type Of Connection

Freq.

%age

Prepaid

87

38.8

Postpaid

104

46.4

Missing

33

14.7

224

100

Total

Respondents who have been using cellular services more than three years constitute about 32%, while those using it for less than one year and more than one year but less than two years are 25.4% and 26.8% respectively. The length of usage, again has a bearing on various aspects of a cellular customer profile, mainly: 1.

The loyalty increases with the term of usage.

2.

The respondents who have been using cellular for more than one year are in a better position to comment objectively on the various experiences that they have had with the service providers. So keeping this in mind, weightage has been attached in increasing order with respect to the length

of

usage,

for

the

purpose

of

mapping

the

level

of

satisfaction/dissatisfaction. 3.

The expectations of the users increase with the passage of time.

Above table represents the type of connection and as it is evident there is no drastic difference between the two, yet the no. of subscribers who have opted for post-paid plans outweigh the prepaid plan users by about 7.4%. This is not a very strong enough difference to make any conclusive statement, but it should be borne in mind that the type of connection may have some influence over the usage pattern and the experience of the subscribers mainly on the account that: 1.

Prepaid

subscribers

have

the

flexibility

of

curtailing their minimum expenditure on their mobiles, while the post paid


subscribers are bound to pay a minimum amount regardless of their usage or no usage for that matter. 2.

Post paid subscribers have certain benefits like reduced call rates and no of free calls, SMS charges and other benefits that vary from service providers to service providers. Usage of Services (%) Usage Frequency

Incoming

Outgoing

SMS/ MMS

Internet / WAP

Voicemail

Call Forwarding

Most

58.5

21.9

27.7

0.4

2.7

3.1

Frequent

22.3

33.9

20.5

8.5

14.7

4

Occasionally

3.1

24.1

21.4

10.3

6.3

8.9

Rarely

0.9

4.9

6.3

8.9

11.2

12.9

Never

0

0

5.8

53.1

46.4

52.2

Missing

15.2

15.2

18.3

18.8

18.8

18.8

Total

100

100

100

100

100

100

The data given in table above is an attempt to map the various categories of services, that a subscriber has an

option of using, that are being offered by the service

provider. The respondent’s views on the same have been presented in above table. The following are the major findings from the data collected: 1. Incoming Call facility is being utilized maximum by all the categories of subscribers, and as much as 80.8% (Most & Frequent together) use this facility, the most. This facility is being utilized the most, especially after the TRAI ruling in January, this year, making all incoming calls free on the general principle of CPP (Calling Party Pays). Outgoing calls on the other hand have a more humble figure owing to the fact that these are charged and users are expected to be more prudent in the usage. The subscribers, per data, depicts that the respondents attach a different degree of importance to this facility. Although there could be little doubt as to the fact


that all users primarily enter the cellular circle due to the twin advantages: Make and receive calls from anywhere(Subject to the network presence, of course), yet the facility of making calls is utilized to a great extent based on two factors: Price to be paid and the Urgency/Importance of the call to be made. 2. SMS, and now MMS have revolutionized the way we communicate today. This could be substantiated from the fact that on the eve of Diwali (an Indian festival), as much as 10 million SMS messages, truncated through a single service provider- Airtel, and that too originating only from New Delhi. It has evolved as a cheaper and an innovative medium of communication in lieu of voice. Although this concept is not very popular in the United States, and Europe, yet it has one of the largest users in the South-East Asia, where Philippines is recognized as the heaviest user of SMS facility per user. 3. Facilities like Internet, Call Forwarding and Voicemail have the least no. of users who are either actively using it or derive some kind of benefit in using them. Almost 50% of the respondents, on an average have never even used these three facilities.

Overall Experience

Fulfilling Of Promises

Customer Care

After Sale Service

Tariff Plans

Billing

Percentage

Satisfaction Index 70 60 50 40 30 20 10 0

Satisfaction Parameters Very Satisfied

Satisfied

Dissatisfied

Highly Dissatisfied

On an average 55.4 % respondents are satisfied on the various parameters. 59% of the respondents are satisfied on the parameters of Billing, Tariff Plans and Overall Experience. While the highest level of dissatisfaction (14%) is observed, while the respondents feel that the service provider has not been to fulfill all the promises that


were made to the subscriber at the time of his purchase, followed by unsatisfactory performance of the provider in case of Customer Care and After Sales Service (10.8% and 9.3% respectively). On the whole it could be commented here that their respective service provider satisfies the subscribers. About 10 years back, this particular index could hardly have had any meaning, as there was only state controlled DoT, and the monopoly over the telecom sector, hardly left any space for customer sensitivity, responsiveness, or customer care for that matter. However, in todays time, with the competetion level driving companies to the limit, it makes sense that no ground is left uncovered, to make sure that even dissatisfaction of 3.5% (Billing) and 8% (Tariff Plans) is reduced to a minimum. Users Importance Index 90 80

Percentage

70 60 50 40 30 20 10 0

Very Important Least Important

Important Not At All Imp

O n

Fe at ur es

ie nc y Ad d

Ef fic

Pl an s

Co nn ne ct

Ta rif f

y va ila bi lit

e

O fA Ea se

al es Af te rS

Sc

he m

Se rvi c

es

Br an d

Pr ic in g

Importance Parameters

Not Important

The level of importance that users attach to each parameter is different and although each user has a different set of view as to the importance he would like to attach to a particular attribute, yet, on the study of data, the following observation were made: 1.

76% of the respondent attach the maximum importance to pricing, which is not a surprise, given the price sensitive nature of Indian customers. But on the other hand, there are 9.8% respondents who do not attach importance to pricing, but are more conscious of the service that they expect from their providers.


2.

67.8% of the respondents attach importance to the Brand of the serfvice provider, but on the other hand, 16.5% consider brand as totally unimportant, but would rather base their decision of choosing a service provider on the basis of the value that they perceive, they can derive, by such a choice.

3.

The maximum importance attached to any parameter is in the case of Connectivity efficiency, because of a simple reason, that no matter how low the price become, but unless a minimum level of customer’s basic need ( and the entire value proposition of cellular services) is Connectivity, without which, other features loose any kind of attraction.

4.

The least importance attached to is , Add on Features., which would entail: Call forwarding, CLIP service, Voicemails, SMS based information services and plethora of others. As much as 62.5% respondents feel that this particular parameter has the least influence on their decision making, while choosing their service provider.

Analysis and Cross Category Comparisons Level of Understanding Customer's Plan Rating

50 40 Frequency

30 20 10 0 Very Easy

Easy

Cant Say

Difficult

Very Dif ficult

Parameters

Type Of Connection Prepaid

Type Of Connection PostPaid

Understanding of the tariff plans offer an area where there could be a lot of confusion and miscommunication between the provider and the user, due to the very


fact that there are a lot of complications involved, in tabulation of tariff plans, so that the user perceives the maximum possible benefit, gets a choice to choose his provider and also at the same time, the tariff plan should be viable for the companies. Such a comparison becomes more meaningful and enriched, if there is an in-depth study of the demographical categories that find the understanding of plans easy or difficult, so to enrich the level of our knowledge of customer understanding, this particular aspect is being analyzed from the point of correlations between the following: Social Group Vs Plan Understanding 100% 80% 60% 40% 20% 0% Very Easy

Easy

Cant Say

Difficult

Very Difficult

Param eters Social Group A

Social Group B

Social Group C

The respondents were asked to rate the tariff plans that were being offered to them, on a scale of 5, where 1 is the most easily understood and 5 is the rating for most confusing. On the study of the responses, following observations were made: 1. 52.6 % of the post paid subscribers find the tariff structure very easy to understand, while only 31.5 % of the prepaid subscribers find the plans very easy to understand,. The reason for this could be attributed to the fact that post paid subscribers get a detailed bill after each billing cycle, which has the description of the usage and price break-offs, while the pre paid subscriber does not have this facility and his balance is debited every time he avails any paid facility.


2. On the other side , the prepaid subscribers find the tariffs more difficult to understand than their post paid counterparts, mainly on account of the reason mentioned above, but at the same time, it should be noted that only a total of 11%(Both Pre and Post paid) rate the plans as difficult, so it could be concluded that understanding of the tariffs, per se do not pose any serious barrier in the customer’s perception regarding the providers. Another important thing to keep in mind here is to understand, who finds these difficult and which group of customers is comfortable. Such an analysis on part of the company would make understanding of their respective customer base more enriched and these could be take into consideration while designing tariff plans. As the data shows, Respondents belonging to Social Group C, find the plans the most difficult to understand, hence the designing of tariff plans should be done, keeping in view the demographics of this particular section( More Importantly, as this group represents about 51% of the total respondent base) The level of understanding of the tariffs plans is not influenced by the level of education (Figure given below), hence nothing concrete or conclusive could be commented upon this matter, the reason being that there is no obvious relationship trend that emerges between the two.


EducationVs Plan Understanding 100% 80% 60% 40% 20% 0% Very Easy

Easy

Cant Say

Difficult

Very Difficult

Plan Rating Under Graduate

Graduate

Post Graduate

Professional

The study of sample shows that there is no major correlation between education and level of comfort that the subscribers may have in the understanding of the tariff plans, yet it should be borne in mind that education does have an important bearing on the expectations of the subscribers


Age Vs Plan Understanding 100% 80%

V ery Dif ficult Difficult

60%

Cant Say Easy

40%

V ery Easy

20% 0% 15 t o 20

20 t o 25

25 to 30

30 to 35

35 to 40

40 to 45

45 t o 50

50 t o 55

Age

There again, no conclusive remark could be made, since there is no observable correlation between age and understanding of the tariff plans. Service Provider and Plan Understanding Very Difficult Difficult 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Hutch

Airtel

Idea

Reliance

Cant Say

Easy

Very Easy

Levels

Reliance scores the highest in terms of ease of understanding of the tariff plans, followed by Idea and Airtel, and Hutch. Idea, interestingly ,also has the highest no.


of users who have difficulty in understanding the tariff plans. The author would like to mention here that while studying data, it was observed that there is ambiguity in the data collected from the respondents who are using Reliance. More than 80% of the respondents had marked their type of connection as Prepaid, while Reliance does not have a prepaid plan, and operqates only on postpaid plans which are in the form of monthly billing cycle 6.6.2 Customers Spending Pattern Every business is interested in knowing their customer’s spending pattern, because based on this information, holistic policies of strategic importance like pricing and target markets are devised. It also acts as a competetion benchmarking parameter. To understand the customers spending pattern, this study entails: 1. The study of customers Income patterns 2. The study of customers spending pattern (specific to telecom) Monthly Income Social Group

Below 10,000

4010-20,000 20-30,000 30-40,000 50,000

Above 50,000

Total

A

14

7

28

2

5

8

64

B

7

7

6

8

1

2

31

C

43

47

13

4

1

108

Total

64

61

47

14

11

203

6

Income levels and social groups are in direct proportion and as the income rises, so does the no. of respondents in the social group. This would definitely have an impact on the spending in general and telecom spending in particular and as discussed in the later part of the study, Income-Social group has a great impact on the actual needs and the level of importance that is attached to various parameters in choosing a service provider.


Monthly Spending- Type Of Connection

Monthly Spending

3000 & Above

15

1500 to 3000 3 800 to 1500

15 7

Prepaid

20

Postpaid

500 to 800

39

250 to 500

38 0

20

38 16 40

60

80

100

Number of Subscribers

Customer’s who spend up to Rs. 500 per month, opt for a pre paid connection (70.3%) while in the higher spending group, 90% and above opt for a postpaid connection,. The reason for this kind of pattern is that heavy users opt for post paid due to ease of payment and also that the call charges are comparably lower in this type of connection. There however, is equilibrium attained in the moderate spending per month (Rs. 500 to 800 per month), where the prepaid and post paid customers are almost equal. This could also be identified as the demarcation line of customer’s who are in the transition phase of either promoting themselves from a lower spending level to a higher one or on the contrary, are deciding on curtailing their expenditure , so that they come move from a higher spending level to a lower one. In otrher words, this could be an important zone for providers to identify and base their strategy to maximize upward transition rather than the other way. Monthly Incom e-Monthly Spending

60 50 40

3000 & Above 1500 to 3000

Frequency 30

800 to 1500

20

500 to 800 250 to 500

10 0

Below 10,000

1020,000

2030,000

3040,000

M ont hly Income

4050,000

Above 50,000


There is a direct relationship that exists between income and spending; the data in the graph above substantiates this statement. As the income level rises, so does the monthly expense of respondents on their telecom needs. Although the subscriber base is the widest at the lowest income level, yet the service providers derive the bulk of their revenues from the low in numbers, but high in spending; the upper income- spending group from where the bulk of the revenue is drawn by the service providers Service Provider wise -Spending Pattern

3000 & Above

70 60

1500 to 3000

50

800 to 1500

40

500 to 800

30 250 to 500 20 10 0 Airtel

Hutch

Idea

Reliance

Trump

As evident, Airtel has the largest subscriber base, followed by Reliance, Idea, Hutch and Trump (As per the sample). Airtel has the maximum no. of subscribers(34.3% in the spending range of 250 to 500. Followed by 29.9% in the range of 500- 800. The “Cash Cow�, i.e. the top most category of 3000 and above contribute only 6% to the company topline. In this respect, Hutch is the leader in the premium segment, by cornering 14% of the total premium market share. Reliance also has done well by establishing its presence in a strong manner, in a short span of time, inspite of the fact that it had launched a new technology, in a nouvelle marketing strategy and against a very stiff competition. (Exact data for Reliance market share is not available).


6.6.3 Customer Perception of the Service Provider Usage Wise Ranking Usage

Airtel

Hutch

Idea

Reliance

Outgoing Calls

Rank 3

Rank 4

Rank 2

Rank 1

Incoming Calls

Rank 2

Rank 4

Rank 3

Rank 1

SMS/MMS

Rank 4

Rank 3

Rank 1

Rank 2

By a careful analysis of the data of the customer’s usage pattern, the above ranking has been awarded to the respective Service provider and the data warrants the following comments: Understandably, Reliance is ranked no. 1 in the usage of Outgoing Calls, by the users, for a simple reason that under the introductory offer by Reliance, it offered its customers a never before call charge of 40 paise per minute* (0.80 cents approximately at the rate of US $=Rs.46.5), while the prevalent rate charged by other service provider, on, an average was approximately Rs. 2.40* (5.16 cents). Idea is ranked no. 2 for the same category due to its tariff structure, which unlike other providers (except Trump), offers Off-Peak hour discounts to its customers. Reliance is ranked no.1 in the terms Incoming calls as well; this again is due to the fact that Reliance, being a WLL technology oriented provider is able to offer cheaper rates and that too on it’s own network. Idea is ranked no. 1 in the usage of SMS /MMS. There could not be any generic comment on this particular achievement by Idea, due to the fact that there is no visible difference between the SMS/MMS service provided by Idea and others (with the exception of Reliance, which has arrangements with only two service providers for exchange of messages on each other’s networks; Airtel and Idea)


Income Level And Importance attached to the Services Offered

Level of Importance

Very Important

Important

Not Important

Below 10,000

10-20,000

20-30,000

Pricing

Pricing/ Availability/Co nnectivity

Pricing/After Sale Service

Schemes/Conne Brand/After ctivity Sales Service Ease of Availability

Least Important Not At All Imp

Schemes Add On Features

Tariff Plans/ Connectivity

30-40,000

40-50,000

Brand/Ease of Brand/After Availability Sales Service

After Sale Service

Availability/Co nnectivity

Tariff Plans/Pricing/ Brand/Schemes Add On Features Add- On Schemes Features

Add -On Features

Above 50,000

Connectivity/ Availability/ After Sales Service Add On Features

Tariff Plans

Tariff Plans

Schemes Price

The importance that each income group attaches to the various Services offered as a basis of choosing a service provider is presented in the form of a matrix in the table above. And the following observations are made:  Pricing, although is a very important parameter for almost all the income group. Yet it could be said that it is not the only yardstick that the customer has, while making a decision of choosing the service provider. The income groups of 30,000 and above, for instance, as visible from the matrix, do not consider Pricing as a very important measure, they instead would appreciate value, service and quality and would be willing to pay the price for it.  The matrix again exemplifies the age –old marketing concept of segmentation and targeting. As the needs and the limitations of each category vary so, there needs to be a customization of the services, in the sense that there needs to be a package of offerings, which fulfills the value proposition of each segment respectively.


CHAPTER-7 CONCLUSIONS AND RECOMMENDATIONS There are two facets to a service: The user and the Provider. Both of them have a different perspective towards each other, and rightly so, owing to a difference in the needs, aspirations, level of commitment and the degree of sacrifice that each makes. The binding factor, nevertheless, remains the product/ service. One of the fundamental issues in marketing has been communication: which in itself is not just a singular, one time activity, but in fact a set of carefully designed package that is projection of a company’s image, product, values and commitments towards its customers. While , on the other hand, customers communication is a rather subdued one and has to be deciphered into understanding of the needs, the need fulfilled and communicated to the customer that a solution exists for the deficiency of a need. The study in the project has lead to an understanding of the environment that encompasses, influences and shapes the telecom sector in India. The study of consumer groups in the form of data collected through the questionnaires, in turn has lead to many unexpected findings, which , restricted to the scope of the study could be useful in understanding the dynamics of consumers. The primary questions to be answered, from a customer’s point of view, while initiating this study were (as proposed in the Project Proposal) 1. What exactly are my telecom needs? 2. The telecom company is offering so many services, do I need them? 3. The charges being levied on me are for so many services that I do not use and do not want to use either, why should I pay for them? 4. Billing structure is very complex; can’t they make it a little easier? In addition to the above, there are certain recommendations, based on the findings, for the benefit of the Service providers.


Defining needs for an individual becomes difficult, owing to the fact that these are very subjective and can not be easily quantified, yet an attempt is made to identify the needs of customers as a whole, based on the primary research conducted.

Primary Needs (Absolutes)

Affordability Connectivity

Secondary Needs (Subjective)

SMS Roaming

User Specific Needs (Customized)

Internet/WAP Call Forwarding Voicemail

With the advent of the competition, especially after government allowing full Foreign Equity participation, the number of options available to the customers is manifolds: Firstly there is a choice of the Technology (WLL or GSM), Secondly there is a choice of service provider and Thirdly, there are a no. of tariff plans available to the customers to choose from. From the customer’s point of view, this a choice but from the companies point of view, it is the intensifying competition, wherein the high cost (Entry, Infrastructure, Network), can be recovered only through volumes (in manufacturing parlance and Large numbers in Service parlance). The competition also demands a Para-price strategy, to enrich the offer, hence a constant value addition is being done in innovative ways. For example, Dial-A-Pizza or Car or Mechanic service by Hutch, Ringtones downloading by all the providers, Automatic Voicemail and optional Retrieval Service by Airtel , to name a few. Now customizing such a wide array of service is not a cost effective solution and ultimately the customer would have to pay for it, hence the package of value added services is little to unbundle and price it piecemeal.


Certain problems arose out of a Focused Group discussion, one of them was that there was an inherent difficulty of the participants in understanding the tariff plans being offered. But contrary to the initial belief, 53% of the respondents found it easy to understand the tariff plans being offered to them. Recommendations for the Service Providers 1.

Clear Needs Identifcation: Customer feedback and constant up gradation to understand the needs of the customer has to be an on going activity. This gains further importance in the light of the fact that the rate of change is quite rapid nowadays an hence the needs of the customers are reinvented and become obsolete at a very fast pace. During the data analysis it was observed that although the services provided by companies are quite technological advanced and the users can benefit a lot from them, yet a majority of the users are not availing the benefits of it. So it should be left at the discretion of the users which services he would use.

2.

Personal Touch : Personal touch is being lost and telecom services are becoming mass services in nature. With the advent of technology, of course personal touch could be introduced at certain aspects of customer relationship. For example, instead of seending notifications to the customers through SMS and addressing as “Dear Subscriber”, could be easily replaced with “ Dear John” or “Dear Paul” etc. also, despite the facty that tghere are customer service centers, yet the users (especially Airtel and Reliance subscribers) find it difficulot quite frequently to get through the Customer Service Centres.

3.

Degree of Customization:

The users feel that they are

paying for services that they are not using. Now, from a provider’ view it becomes very cost inefficient to have highly customized services for their subscribers when the subscriber base could be as large as a million (Airtel’s Delhi subscriber base). But at the same time efforts could be made, so that there is enough room/option available at the time of subscription. It should be done in a such a way that a bare minimum package should be offered and the customer can himself add on whatever services he thinks could be useful to him. There is a twin advantage in this kind of an approach:


a. The package would be more useful, customized and cost friendly for the subscriber. b. The customer attrition rate would be lesser in this case because the premium would be placed on a self chosen bundle of services that may not be matched by competition. 4.

Educating the Customers: Customers per se need to be educated about the various services, their usage , the charges levied upon them etc. in a proactive way. Which would mean that the initiative should lie with the providers to constantly educate customers. A more enlightened customer is inclined to use the services in a beneficial manner and enhance the fundamental for which services are introduced in the very first place; Value Addition.

5.

Simplification of tariff plans and cosostency: There is little doubt that the tariff plans are complex, and as such there are constant changes in them. Although this is notentirely under the purview of the companies, since regulatory authorities determine and revise the tariff plans from time to time, yet there needs to be some sort o fconsisitency , such that the user has clear understandingof his financial commitments.

Recommendations For The Users 1. Need and FIT analysis: the customer needs to be clear on his requirements and the level of financial commitment that he is willing to make. The FIT analysis would entail the degree to which the subscriber feels that his needs could match with the services being offered to him. This proactive approach would benefit the customer both in terms of choosing the right service provider for him and also save on his time and resources in case of choosing the best suited provider. 2. Survey: The user need to look beyond the advertisement and promotional gimmicks of the companies and should conduct a survey of various service providers and do a comparative analysis, specific to his own needs to identify the most suited package for himself. 3. Proactive: although it is expected that the companies would be communicating to the customers in detail regarding their service offering, yet the customers


themselves should be proactively engaged in asking relevant doubts clarified before they commit.

LIST OF REFERENCES 1. Bagchi, Pradipta: “Telecommunication Reforms and the State in India: The Contradiction of Private Control and Government Competetion”, CASI Ocassional Paper#13, December 1996 2. Singh Harsha Vardhan, Soni Anita and Kathuria Rajat: “Telecom Policy Reforms in India”, Convention on Telecom Reform, New Delhi, March 1998. 3. Arthreya, M.B., “India’s Telecommunication Policy, A Paradigm Shift”, Vol.20, No.1, Edition 1996. 4. Dr. Komandhur, Sowri Rajan: “Telecom Issues in India”, Ph.d, Head Telecom Division, Indian Telecom, Journal of Indian Telecom, April 96. 5. Taneja, Abhinav, “A Phone in Every Village:Taking Telecom to Rural India”, New Telecom Quarterly, September, 2001. 6.

“Procedure for Allocation of Spectrum on First Come First Served Basis”, Government of India, Ministry of Communications, Department of Telecommunications(23 March 2001), available at www.dotindia.com

7. Srinivas,S, Kaushik, “Liberalisation Of Telecommunications Services And Norms Relating To Interconnection In India”, Faculty of Law, McGill University, Montreal, January,1999, http://www.law.mcgill.ca/institutes/csri/paper-kaushik. 8. Recommendations on the Introduction on competition in long distance telephony: Telecom Regulatory Authority of India; December 13, 1999; http://www.trai.gov.in/dldrecomn.htm 9. Noll, Roger, “Telecommunications Reform in Developing Countries”; AEIBrookings Joint Center for Regulatory Studies; Working paper 99-10, November 1999 10. Hasan, Shahid, “End of VSNL’s Monopoly in 2002”, TERI, New Delhi, India. 11. Government of India, Press Information Bureau, National Telecom Policy 1994 12. ITU, 1999, “Trends in Telecommunication Reform 1999”, page 129


13. Statement of Vinod Vaish, Chairman, Telecom Commission of India, at the Asian Regional Conference of WSIS (Tokyo 13-15th January, 2003 14. Report by Randall Heaton, Product Marketing Senior Consultant, International Engineering Consortium, Available on http://www.orcnet.ca/docs/wll.pdf 15. Michael Lee, “WLL In Emerging Markets: Key Deployment Issues” , Intelecon’s Wireless Market Analyst, available on http://www.inteleconresearch.com/pdf/WLLForum.pdf 16. Alan Sicher “GPRS Technology Overview”, , Communications& Product Planning Manager, Dell, available on http://www.dell.com/downloads/global/vectors/2002-gprs_overview.pdf 17. “When there is a WLL there is a way” The Economic Times, 7 March, 2003 18. Report of The Group On Telecom & IT Conevergence On Limited Mobility, Ministry of Finance, 13 th December, 2001

Others 1. Department of Telecommunications (DoT): Annual Telecom Statistics (various years) 2. ICICI (1992): International Experiences in Telecommunications Reforms and its Relevance to India. Background Papers to Seminar, November 1992. 3. India Infrastructure Report - Expert Group (1996): - Policy Imperatives for Growth and Welfare, NCAER, New Delhi. 4. Planning Commission (1999): Ninth Five Year Plan, Planning Commission, India. 5. Telecom Regulatory Authority of India (TRAI 1998): Consultation Paper on Framework and Proposals for Telecom Pricing. 6. Telecom Regulatory Authority of India Act (1997) 7. Utton M.A. -(Basil Blackwell 1986) - The Economics of Regulating Industry World Bank (1997) Telecommunications and Economic Development, Johns Hopkins University Press.


ANNEXURE


QUESTIONNAIRE

Do You use a mobile?

YES

NO

Since When Are You a Subscriber

Less Than 1 Yr.

1 to 2 Yrs.

More Than 3Yrs. Your Service Provider Is.. Airtel

Hutch

Idea

Reliance

Trump/Dolphin

Garuda

Tata Indicom

Other_______ (Please Specify)

Your Average Monthly Spending On Mobile Is‌. 250-500

500-800

1500-3000

3000 & above

800-1500

Which type of Connection are you using at present? Prepaid

Post-Paid

On a scale 1 to 5, please rate your comfort level in understanding the current tariff plans offered to you? (1 representing absolute clarity in understanding & 5 being the most confusing.) _________ (Your Rating) Please Rate your usage of the various services on the scale given below Most Frequent a. Outgoing Calls b. Incoming c. SMS/ MMS d. Internet/ WAP e. Voicemail

Occasionally

Rarely

Never


f. Call Forwarding In choosing the service provider, what matters to you the most, in importance? V.Imp

Imp

Not Imp Least Imp Not At All Imp

Price/Charges Brand Schemes/Plans After Sales Service Ease of Availability Tariff Plans Connectivity Efficiency Add-On Features (Voicemail, MMS Etc.)

Please Rate your satisfaction on the parameters given below Very Satisfied

Satisfied

Dissatisfied

Billing Tariff Plans After Sale Service Customer Care Fulfilling Of Promises (Made at time of Purchase)

Overall Experience Your Name__________________

Age_____ years

Highly Dissatisfied


Occupation: Service Education :

Business

Under Graduate

Student

Graduate

Housewife

Post Graduate

Professional Professional

Your Average monthly income is.. Below 10,000

10-20,000

20-30,000

30-40,000

40-50,000

Above 50,000

Which of the Following do you own? (Please Tick ) Credit Card

Car

Two Wheeler

Personal Computer

Microwave

Club Membership

Music System

Thank You


Annexure- 2 Category wise List of Service Providers

Area Category

Area Of Operation A.P.

Category A

Service Provider J.T. Mobile

A.P. Gujarat Gujarat Karnataka Karnataka

Tata Cellular Birla AT&T Fascel Modicom J.T. Mobile

Maharashtra

Birla AT&T

Maharashtra

BPL Cellular

Tamil Nadu

BPL Cellular

Tamil Nadu

Srinivas Cellcom

Haryana

Aircel Digilink

Haryana

Escotel

Kerala

BPL Cellular

Kerala

Escotel

M.P.

RPG Cellcom

M.P.

Reliance Telecom

Punjab Category B

Category C

Modicom

Punjab

J.T. Mobile

Rajasthan

Aircel Digilink

Rajasthan

Hexacom

Rajasthan

Modicom

U.P. (E)

Koshika Telecom

U.P. (E)

Aircel Digilink

U.P. (W)

Escotel

U.P. (W)

Koshika Telecom

West Bengal

Reliance Telecom

Assam

Reliance Telecom

Bihar

Koshika Telecom

Bihar

Reliance Telecom

H.P

Bharti Telnet

H.P

Reliance Telecom

Orissa

Koshika Telecom

Orissa

Reliance Telecom

North East

Hexacom

North East

Reliance Telecom

Annexure-1

QUESTIONNAIRE


1. Do You use a mobile?

YES

NO

2. Since When Are You a Subscriber

Less Than 1 Yr.

1 to 2 Yrs.

More Than 3Yrs. 3. Your Service Provider Is..

Airtel

Hutch

Idea

Reliance

Trump/Dolphin

Garuda

Tata Indicom

Other_______ (Please Specify)

4. Your Average Monthly Spending On Mobile Is‌. 250-500

500-800

1500-3000

3000 & above

800-1500

5. Which type of Connection are you using at present? Prepaid

Post-Paid

6. On a scale 1 to 5, please rate your comfort level in understanding the current tariff plans offered to you? (1 representing absolute clarity in understanding & 5 being the most confusing.) _________ (Your Rating) 7. Please Rate your usage of the various services on the scale given below Most b. Outgoing Calls c. Incoming d. SMS/ MMS e. Internet/ WAP f. Voicemail g. Call Forwarding

Frequent

Occasionally

Rarely

Never


8. In choosing the service provider, what matters to you the most, in importance? V.Imp

Imp

Not Imp Least Imp Not At All Imp

Price/Charges Brand Schemes/Plans After Sales Service Ease of Availability Tariff Plans Connectivity Efficiency Add-On Features (Voicemail, MMS Etc.)

9. Please Rate your satisfaction on the parameters given below Very Satisfied

Satisfied

Dissatisfied

Highly

Dissatisfied Billing Tariff Plans After Sale Service Customer Care Fulfilling Of Promises (Made at time of Purchase)

Overall Experience

10. Your Name__________________ 11. Occupation: Service

Business

Age_____ years Student

Housewife

Professional


12. Education :

Under Graduate

Graduate

Post Graduate

Professional 13. Your Average monthly income is.. Below 10,000

10-20,000

20-30,000

30-40,000

40-50,000

Above 50,000

14. Which of the Following do you own? (Please Tick ) Credit Card

Car

Two Wheeler

Personal Computer

Microwave

Club Membership Music System

Thank You


Annexure- 3 Major Players in the Indian Mobile Sector Orange / Hutchison Max Telecom Orange is one of the world's leading communications companies. To date, Orange group companies operate in many European and Asian countries such as UK, France, the Netherlands, Germany, Italy, India, and China. The company is the fastest growing GSM operator in Asia. It is also one of the first to introduce new services such as SMS (Short Messaging Service) and VMS (Voice Mail Service) into the Asian market. Orange was formed in the UK in 1989, with the launch of Hutchison Telecom, to target the growing telecommunications industry. Hutchison Max Telecom is the largest cellular provider in India covering Mumbai, Delhi, Calcutta, and Gujarat state and the markets its services under the Orange brand. Hutchison Max Telecom is a part of the Hutchison Whampoa group. It covers Mumbai under the brand Orange. Command / Hutchison Telecom Operating under the Command brand name in Kolkata, Usha Martin Telekom Limited is part of the Hutchison Telecom group in India. It is a fully digital cellular phone service that has brought together world leaders in various technologies to establish itself as a leading operator in Kolkata. Command has already acquired a subscriber base of over 90,000 and has plans for aggressive growth ahead. It is known for its superior coverage and services, including various value added services such as e-mail alerts, mobile banking, and WAP. Essar / Hutchison Telecom Hutchison Essar, one of the major cellular service providers in Delhi, is a joint venture of Hutchison Telecom and Essar Group. In Delhi, Hutchison Essar offers cellular service under two brand names - Speed and Essar Cellphone. The company also offers a host of premier value added services including national and international roaming spanning in over 87 countries in 206 networks, Wireless Application Protocol (WAP) and Short Messaging Services (SMS), Voice Mail Service (VMS), Autoroam, Fax and Data, etc. The company has been a prime mover


in introducing these value added services in Delhi. At present, Hutchison Essar has a subscriber base in excess of 360,000 and has the largest pre-paid subscriber base in Delhi. Spice / SpiceCorp / Bharti Telecom SpiceCorp operates its cellular services under its subsidiary - Spice Communications - in the states of Punjab and Karnataka. Spice Communications is a joint venture between SpiceCorp (India) and DISTACOM (Hong Kong). Spice Communications is on a rapid growth trajectory. Both the Spice Punjab and Spice Karnataka networks have the highest ARPUs (Average Revenue Per User) in the country as well as dominant market shares. The combined subscriber base of Spice is around 493,000 (as of January 2002) and is growing at an average rate of 70% with extensive coverage of both urban and rural areas. In 2001, Bharti Mobiltel, a subsidiary of Bharti Televentures, acquired the Spice brand from Spice Cell (Kolkata) in 2001. Bharti Mobitel Ltd, markets its mobile services under the brand Airtel and is part of the biggest private integrated telecom conglomerates, Bharti Enterprises. Bharti is a leading cellular service provider, with a footprint in 16 states covering all four Indian metros. It has over one million satisfied customers. Established in 1976, Bharti has been a pioneering force in the telecom sector with many firsts and innovations to its credit. Bharti has many joint ventures with world leaders like Singtel (Singapore Telecom); Warburg Pincus, USA; Telia, Sweden; Asian infrastructure find, Mauritius; International Finance Corporation, USA; and New York Life International, USA. Tata Indicom/ Idea Tata is aanother major player and has presence in both basic and mobile telephony, it has a wider array of product as it has both GSM and CDMA technology to be offered to the users Reliance Infocomm


Reliance entered the sector on 28th December’ 2002. It has laid down fibre optic network in about 673 cities and is providing mobile (CDMA based) , basic wireless phones and it has plans to enter the data transmission business also.


ANNEXURE 4 GSM and CDMA GSM and CDMA are the two main competing network technologies deployed by cellular service providers world over. Understanding the pros and cons of both the technologies will help you make right decision according to your requirement. GSM (Global System for Mobile Communications) originated in Europe in 1990. The GSM Association is an international organization founded in 1987, dedicated to developing, providing and overseeing the worldwide wireless standard of GSM. While CDMA (Code Division Multiple Access ) is a proprietary standard designed by Qualcomm Inc in United States and has been the dominant network standard for North America and parts of Asia. It became an international standard in 1995. However now, GSM networks have penetrated the United States and the CDMA networks have spread in other parts of the world. People of both the camps claim that their architecture is superior to the other. The Technology: Mobile personal communication systems use microwave frequencies above 800 MHz for transmission and reception. All service providers operate in some pre allocated frequency bands according to international standards. For operatig in these mocrowave frequencies there are following access methods: •

FDMA ( Frequency Division Multiple Access) - FDMA puts each call on a seperate frequency.

TDMA ( Time Division Multiple Access) - TDMA assigns each call a certain portion of time on a designated frequency.

CDMA ( Code Division Multiple Access) - CDMA gives a uique code to each call and speards it over available frequencies.

GSM is a global standard based on TDMA. It is very popular in entire Europe, Middle East and Asia while CDMA is the dominant technology in United States and some parts of Asia.


But how does it effects the ultimate consumer ? I hope following considerations may be helpful. GSM 1.In case of GSM you can choose a handset seperately from a wide variety available in the market. It should be GSM 900/1800 compatible for use in India. Then buy a pre-paid or post-paid SIM card (Subscriber Identity Module that contains user account information) from any of the GSM Service Providers like Airtel, Hutch, Idea, MTNL, BSNL, Aircel, Spice etc. Just insert this SIM into your handset and start talking.

CDMA 1. Handset is network locked. You buy a package from the Service Provider like Reliance or Tata Indicom that includes a handset and a pre-paid or post-paid plan. Earlier it was difficult to change the handset and keep the same number but now to change a Reliance handset in future, you just need a handset change card costing a nominal amount. T-SIM enabled handsets of Tata Indicom can be changed easily.

2. A very large range of handsets to choose from as the big handset companies like Nokia, Motorola, SonyEricsson, LG, Samsung etc. are marketing their products through independent distribution and retail network.

2. Choice of handsets is limited to the models offered by the Service Provider. Although both Reliance and Tata have now a range of entry level, mid-segment and features rich advance handsets available with them.

3. You can easily change the service provider and continue with the same handset.

3. You can't change service provider and continue with the same handset. It could be technically possible but not easy.

4.In GSM different frequencies are used across different cells but that does not mean that voice clarity is necessarily compromised. Actually it depends upon the location and network traffic too.

4.Voice clarity is supposed to be better in CDMA network as it uses same frequency across all cells.

5. EDGE (Enhanced Data Rates for GSM Evolution) enabled GSM networks are comparable in terms of download speed. Please note an EDGE enabled handset is also required.

5. Data Transfer Speed is traditionally more in case of CDMA. BREW(Binary Runtime Environment for Wireless) technology which is exclusive to CDMA networks enables


faster data downloads. 6. GSM service providers are better networked globally to offer international roaming. But you must check for roaming call rates and coverage in the regions or countries where you visit frequently.

7. If you travel to other countries you can even use your same GSM cell phone abroad if it is a quad-band phone (850/900/1800/1900 MHz). By purchasing a local SIM card with call value and a local number in the country you are visiting, you can make calls against the card to save yourself international roaming charges from your home service provider.

6. Check for International roaming tie ups if you travel abroad frequently. Also check for the coverage in the region where you intend to use your cellphone within India. Tata is soon launching T-SIM to enable international roaming with one world one number concept.

7. CDMA phones that are not cardenabled do not have this capability.

Also you must consider the following while selecting a Service Provider: 1. First of all you must check which Service Providers are providing services in the areas where you will be using your phone. 2. If you want National or International Roaming then also check whether the Service Provider you have chosen facilitates roaming in the regions or countries where you visit frequently. 3. Cost of owning a handset 4. Cost of having a connection 5. Fixed monthly expenses 6. Usage charges. 7. Also it is helpful to check with the people using mobile in your area for the quality of service.


Annexure 5 India has been able to provide state of art world-class telecom infrastructure at globally competitive tariffs and to reduce digital divide by extending connectivity to the unconnected areas. Renowned telecom companies setting up their manufacturing bases in India. Mobile telephone has now become the highest selling consumer good. Reforms

Growth / Opportunities

1991 - Mobile sector opened to private 150 million telephone subscribers participation (Metros)

75 million new subscribers added in

1994 - Mobile (Circles) and Basic services the last two years opened up

About 5 million subscribers being

1997 - TRAI established

added every month since Dec. 2005

1999 - Migration to revenue share

Highest growth rate in the world, for

2000 - Formation of BSNL NLD sector the first time surpassing China opened up

This

growth

has

facilitated

the

2002 - BSNL launches nation-wide cellular expansion of BPO industry which employs 5 lakh people - 400 services, ILD sector opened up 2003 - Calling party pays introduced

45 MHz of additional spectrum from

Unified access license introduced 2004

-

Rationalization

and

further

reduction of license fees, Broadband policy announced 2005 - FDI limit increased to 74% ILD / NLD regime liberalized 2006 - One India introduced, ADC regime changed to revenue sharing

employees added per day

defence to be made available for growth of mobile services in the beginning of the year 2007 GSM spectrum between 15 MHz and 37 MHZ allotted in different service areas CDMA spectrum between 2.5 MHz and 15 MHz allotted in different service areas


Nokia, LG, Ericsson have set up their manufacturing facilities in India %

Motorola, Foxconn, Aspocomn etc.,

Tele

have also decided to set up their

Den

manufacturing base with an investment

sity

of about US$ 650 million Years

FDI of US$ 2 billion in telecom manufacturing by 2007 A center of excellence in telecom technology

in

Public

Private

Partnership (PPP) mode by 2007 Handset for Rs. 1,500 launched, expected to go further down to Rs. 1,000 Targets 2007 - 250 million telephone connections by 2007 taking the tele - density to 22 - Targets translate into an invetment requirement of US$ 15 billion - Revenue of Rs. 10,50,000 million @ Rs. 350 ARPU telephone connections is expected to be 500 million telephones 2010 -

Requirement

of

additional

investment

about

US$

about

800

25

billion

- Revenue of Rs. 21,00,000 million 2015 -

Telephone

connections

-

Additional

investment

would would

be be

about

US$

million 30

- Revenue of Rs. 33,60,000 million India to be positioned as a "Regional Hub" for telecom manufacturing Creation of additional 0.5 million jobs by 2010 and 1.5 million jobs by 2015 Opportunities in SAARC Region

billion


Telephone system in Sri Lanka is very inadequate particularly in rural areas with a teledensity of just 16.64 percent.

The teledensity in Pakistan has reached 17.84 percent, with at least 27 million telephone connections in the country.

The Teledensity level in Bhutan is very low, domestic service is very poor especially in rural areas at an estimated figure of just 4.3%.

Maldives has a 100 per cent digital switching and transmission network. The teledensity in the capital (urban) area is 29.9 while in the atolls (rural) it is 3.6. The overall teledensity including mobile is 35.7.

Bangladesh has a low teledensity of 0.79 phones per 100 people. This is due to the fact that telephone services are still limited in the villagesTeledensity in Nepal is estimated at 1.8 phones per 1000 inhabitants, making it a country with one of the lowest telephone connectivity rates in the world.

This year's India Mobile Service Usage and Satisfaction Survey conducted by IDC India had a surprise for everyone - there are different service providers at the top position in the overall satisfaction ratings across the Metro and category A, B and C telecom circles. "Though the industry average of satisfaction score for all the telecom players has gone up by two percentage points, Spice Telecom is the only service provider that has been able to cross the TRAI recommended benchmark of 95% on overall satisfaction”, said Shailendra Gupta, Manager, User Research, IDC India. Is it good enough to have satisfied consumers? No! seems to be the answer as per the recent India Mobile Service Usage and Satisfaction Survey, 2006. One of the key findings of the study was that a high 28% of mobile users, even though satisfied with their current service provider are likely to shift for a better service or offer. Though the percentage of such disloyal customers/opportunists has come down from last year's figure of 30%, it is still a large number to tackle. This trend can be associated with the lack of loyalty, which is primarily contributed by the fact that no service provider is perceived to be very strong on Quality of


Service (QoS). "Since customers are unable to distinguish between service providers on Quality of Service, scheme and offer become the key factors while selecting or shifting to a new service provider", Shailendra added. Looking closely at specific touch points of user satisfaction, two concern issues continue to bother customers - Customer Care and Billing. However, there are positive signs of improvement on both as compared to last year. The average waiting time while speaking to a customer care executive was a little below 3 minutes. “Across studies we have seen none of the brands being strongly associated with customer care in the consumer mind space. This could be one of the vacant positioning slots for mobile service operators", Shailendra further opined. When probed on billing, nearly one in every six (18%) mobile user was dissatisfied with the billing system of his/her service provider. This is way off the TRAI guideline that billing errors should be less than 0.1% (though not strictly comparable, this is a benchmark that service providers should follow). The scenario has, however, improved slightly with lower numbers of customers reporting being dissatisfied compared to last year (23%). More than half the users with a billing related problem perceive 'wrong amount being charged by the operator' as the prime reason for dissatisfaction. The perception on ‘complaint resolution by the operator within 3 days’ has improved significantly from 57% last year to 75% this year. VAS (Value-added Services), the buzzword in the telecom space was one of the key focus areas of the India Mobile Usage and Satisfaction Survey, 2006. SMS, roaming, and SMS-based VAS (ring tones and picture downloads) were the key VAS uses. The only area seeing growth in VAS usage is in the category B circles where users have taken heavily to downloading games, call forwarding and information services. The India Mobile Usage and Satisfaction Survey, 2006 was conducted on a sample of 3,743 mobile users spread across Metro and category A, B and C telecom circles. The study covered all the four metros and 10 other major cities from a representative set of category A, B and C circles.


Annexure 6 City/Circle Metros Delhi Operators Bharti Cellular Hutchison Essar MTNL Idea Cellular Mumbai BPL Mobile Hutchison Max MTNL Bharti Cellular Chennai Aircel Cellular Bharti Mobinet Hutchison Essar BSNL Kolkata Bharti Mobitel Hutchison Telecom BSNL All Metros Total A' Circle Maharashtra BPL Cellular Idea Cellular Bharti Cellular BSNL Gujarat Fascel Idea Cellular Bharti Cellular BSNL A.P. Idea Cellular Bharti Mobile Hutchison Essar BSNL Karnataka Bharti Mobile Spice Comm

Oct'2004 1545600 1316939 218180 571171

Nov'2004 1551052 1362043 241857 568368

Dec'2004 1554429 1407243 273450 603336

1169335 1329416 224564 612170

1179435 1384493 271634 633870

1189750 1439568 321292 646528

479967 442928 228828 305282

485277 456872 223184 306001

492504 445817 219624 309757

415184 591403

429905 602615

501123 616640

216220

226017

238648

9667187

9922623

10259709

502197 1181552 560053 690277

512197 1203472 576376 690277

518244 1213459 597322 690277

1094874 532481 369813 520235

1124967 549774 379997 520505

1152211 583392 409513 520505

524362 792328 323824 763486

526768 821110 341106 755867

562215 870977 360605 775988

1058595 340629

1096989 338704

1136502 338951


Hutchison Essar BSNL T.N. BPL Cellular Aircel Limited BSNL Bharti Cellular A' Circle Total B' Circle Kerala Idea Mobile BPL Cellular Bharti Cellular BSNL Punjab Spice Comm. Bharti Mobile BSNL Hutchison Essar Haryana Idea Mobile Aircel Digilink Bharti Cellular BSNL U.P.(W) Ideal Mobile Bharti Cellular BSNL Hutchison Essar U.P.(E) Aircel Digilink BSNL Bharti Cellular Rajasthan Aircel Digilink Hexacom BSNL M.P. Idea Cellular Reliance Telecom Bharti Cellular BSNL W.B. & A&N Reliance Telecom BSNL Bharti Cellular

473193 591334

480263 619408

501159 639812

369657 1032829 671193 326105 12719107

382657 1076258 692380 333347 13022422

389791 1154764 764524 325169 13505380

523246 361508 323631 576866

535610 366508 332953 612405

545406 370565 332126 670083

1117252 1173590 303595 120609

1147087 1210169 314063 145747

1158767 1250846 328568 160922

133698 115897 209146 272099

147292 128174 219280 275825

158408 142703 225954 283751

525729 321798 532020 36333

534938 334327 512601 79920

561430 345388 524715

718560 644873 125698

733665 691002 157910

744121 715993 171229

252469 354573 372810

272697 383815 375561

296425 413660 376687

426908 272171 203028 158165

447444 279030 209988 158218

468826 287890 215720 158459

144208 285355 35684

145946 288294 61671

148110 290040 96122


Hutchison 23055 Telecom B' Circle Total 10605186 C' Circle H.P. Bharti Telenet 155872 Reliance Telecom 17447 BSNL 100115 Bihar Reliance Telecom 308918 BSNL 373823 Orissa Reliance Telecom 126795 BSNL 278001 Bharti Cellular Ltd 40505 Assam Reliance Telecom 78190 BSNL 128248 N.E. Reliance Telecom 16523 Hexacom nil BSNL 56677 Jammu & Kashmir BSNL 124864 Bharti Cellular 37078 C' Circle Total 1802551 All India Total 34794031

58451 11081608

11581285

167737 19361 101354

176550 22906 101679

323062 389949

339637 398728

126910 287465

124330 291449

82344 136818

88062 145205

18500 nil 64281

19766 nil 72580

133595 59461 1910837

140360 70676 2032433


ECONOMIC REFORMS IN INDIA •

Government of India’s liberalization and economic reforms program aims at rapid economic growth and its integration with the global economy in a harmonized manner. Telecom sector reform, therefore, was given high priority.

The new policies have made government procedures transparent and eliminated licensing in many sectors.

The policy measures –

encourage entrepreneurship through market friendly systems;

facilitate easy access to foreign technology and foreign investment;

do away with the complex pre-entry approvals.

Approvals for all foreign direct investment proposals relating to the electronics and information technology hardware manufacturing, software development and ITES Sector, are under the automatic route.


TELECOM SECTOR RESTRUCTURING •

The new Telecom Policy 1999 has set the sector on the fast track. Open market competition has been established in all basic and value-added services;

The TRAI ensures a level playing field amongst the competing service providers including the incumbents, BSNL and MTNL;

In the private sector, Reliance, Tata and Bharti have emerged as major (vertically integrated) operators providing all telecommunication services including Internet and Broadband access;

A separate Telecom Disputes Settlement Appellate tribunal has been set up for dispute resolution.


TELECOM SERVICES •

India has one of the fastest growing telecommunication systems in the world with an average growth of about 22% for fixed and over 72% for Mobile telephone services - as witnessed recently in 2005/ 06 .

•

At end March 2006, the Telecom scenario was as follows: - Fixed Subscribers 50.18 million - Mobile Subscribers 90.14 million - Teledensity: Urban 24.62%; Rural 1.67% (2004); - Internet Subscribers: 6.94 million (including 1.34 million Broadband) - Village public phones: 0.549 million (89% of all villages*) - Microwave/UHF (Route Kms.): 166,450 (2004) - Optical Fibre (Route Kms.): 550,000 (2004)

*The Government aims to provide access to telecom services to all villages by November 2007 and has fixed Internet and Broadband targets for 2010 at 40 million and 20 million respectively.


INVESTMENT IN TELECOM SECTOR •

The total investment in Telecom sector stood (2005) at US$ 34.2 billion, which includes the private sector share of US$ 13.33 billion.

The total Telecom sector revenue during 2005-06 was US$ 19.3 billion with public to private sector ratio of 52:48;

Of the total roll out of telephone connections (basic fixed plus cellular mobile) at the end of 2005, private sector accounted for 53 per cent, while the public sector share stood at 47 per cent. For cellular the ratio of private/public was 3.67.

Source: TRAI •

According to a study, the estimated investment in the Telecom sector during the period 2004-2015 is expected to be of the order of US$ 49 billion for cellular mobile network (mobile teledensity 69%) and US$ 14 billion for the basic services fixed network for the SAARC countries. India’s share would be around 85%.

Source: UN ESCAP


STATUS ON POLICY AND REGULATORY ISSUES The year witnessed many landmark policy initiatives taken by the Government to spur the growth of the sector so that it performs to its true potential and significantly contributes to the tele density and affordability objectives of the Nation. The need of the hour is to make long distance telephony affordable for the masses. The first step taken in this direction corrected a long-standing anomaly of long distance calling in 4 states. In May 2005, it was decided that henceforth calls within UP (East) & UP (West); Maharashtra & Mumbai; Tamil Nadu & Chennai & West Bengal & Kolkata would be treated as local calls. This will benefit all the consumers and thus help in addressing the regional interests of the communities. Another step in the demolition of anomalous entry barriers was the decision of the Government to open up and simplify long distance licenses. Entry fees was reduced by 97.5% for NLD licenses and by 90% for ILD licenses in a bid to encourage operators to become national players and achieve economies of scale that would ultimately benefit the consumers through lower tariffs. This would not only bring India in line with international practices but also deliver improved benefits to consumers and increased revenues to the Government. Further, from January 1, 2006, Access Providers have been allowed to provide Internet telephony, Internet services and Broadband services. All these initiatives will lead to the death of distance and ensure that the ‘long distance’ revolution filters down to the common man in each and every corner of the country. Further with these initiatives, the Government has in fact ushered in a virtual convergent regime. Another important step forward has been in the relaxation of the FDI limit from 49% to 74%. This policy initiative has brought in much clarity in the regulatory


environment and has yielded immediate benefits with the entry of reputed global giants like Vodafone and Maxis into the country. 2005 has also witnessed a growing influx of global players like Ericsson, Alcatel, Motorola, Nokia, Samsung, LG Electronics, etc into the country to set up manufacturing and research facilities. Over the last 18 months, more than 10 MNCs have committed nearly Rs. 23,000 crores to telecom manufacturing in India and another Rs 9,000 crores is expected to be committed soon. Never before have so many telecom giants entered the country in such a short period of time. This encouraging trend is indicative of India’s growing importance in the global telecom landscape. On the anvil are many more such revolutionary measures/ initiatives, which are expected to be finalized in 2006. The most important one is the extension of USO subsidy support for shared wireless infrastructure in rural and remote areas. It was recognized that given the vastness of country the cost of rolling out networks especially to rural and remote areas could prove to be prohibitively expensive for service providers, which would ultimately translate into high tariffs for consumers. Thus, the Government proposed for shared infrastructure using USO subsidy to ensure expeditious rollout of mobile networks in the most cost effective manner and deliver both affordability and choice for consumers. Government proposal has elicited enormous interest from all quarters, access providers as well as independent infrastructure providers. Government is in the process of finalizing the details of this proposal and it is hoped that the initiative will be underway by the end of this fiscal.


Another issue where the industry is awaiting an announcement by the Government pertains to the Access Deficit Charge Regime. The industry has far long been seeking the introduction of a revenue share regime for ADC as this regime would be simple, fair, transparent and easy to implement and enforce. It appears that the government too is of the same view and it is hoped that a decision will soon be taken in this regard. 2005 has seen a significant growth in Value Added Services (VAS). In India this year, voice has increasingly become a commodity and the focus has shifted to data services. Revenues from the VAS segment are growing at a rate of 30-40% annually. This high take up of VAS indicates that the environment is conducive for the introduction of 3G services. 3G facilitate far higher speeds and data throughputs and enable the delivery of a wide range of multimedia services including video telephony, television, etc and offer a content rich broadband experience to Indian customers. Many operators have started preparations for upgrading their networks for 3G and are awaiting an announcement by the Government on the pricing and allocation of 3G spectrum. This year the industry took strong initiatives to advocate India’s path to 3G through the international consensus globally harmonized WRC-92 2.1 GHz band. The final spectrum allocation policy of the Government is expected to be announced by the end of this fiscal. In the light of international trends, there is an urgent need to expedite the process so that Indian operators are able to rollout 3G by the end of 2006. However, there are still some issues that need to be addressed for further accelerating the growth of the sector. The first issue is to improve the PoI connectivity. The industry has made several representations to TRAI and Government as regards the delay in provisioning of interconnection facilities to


private players. Improving PoI connectivity will help in providing seamless connectivity throughout the Licensed Service area. Another issue which will help exploit the potential of the sector is lowering the high level of levies and duties. The levies and duties on the Indian telecom sector are one of the highest in the world. As per the findings of TRAI, the total levies on the telecom sector including license fee, service tax and spectrum charges was at around 21% of AGR in 2005-06. Lower levies and duties can be a critical tool in the hands of policy makers to improve Tele-density. The sector has a burden of both sales tax and service tax. The financial implication of this double taxation is formidable and is estimated to be to the tune of Rs 4,900 crores for private GSM players. The Government may therefore consider bringing down the level of duties and levies on the telecom sector to enable higher penetration and growth. With this there will be effective increase in subscriber take up which would result in overall increase of productivity. With increase in volumes there will also be an increase in the revenues to the Government thus, it will be a win-win situation for all. On the legal front, in 2005 many problematic issues were settled. COAI’s stand was vindicated by judicial decisions in issues such as ADC on Roaming, Pulse Petition, Tata Walky and Direct Connectivity. The resolution of these issues has not only helped provide level playing field among the players but also carved a path for further Proliferation and growth of mobile services in the country.


Subscriber base The Growth of mobile services in India over the past few years has been phenomenal. Mobile subscribers are growing at a CAGR of around 85% since 1999 but fixed line subscribers are not growing at a similar pace. Now over 4 million mobile subscribers are added every month. Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: TRAI

Fixed Line (Mn)

Cellular Line (Mn)

14.54 17.8 21.59 26.51 32.44 37.94 40.62 42.58 45.91 46.78

0.34 0.88 1.2 1.88 3.58 6.43 12.69 33.6 52.21 93.04


Telecom Revenue Telecom revenue in India during 2005-06 was $19.50 billion. Average Revenue Per User (ARPU)

ARPU –Basic ARPU Mobile –CDMA ARPU Mobile –GSM ARPU Mobile -GSM-Post paid ARPU

Mobile

-GSM-

2004-2005 15 5.74 8.8 20.34

2005-2006 14.5 5.56 98 14

5.25

6

Prepaid Source: TRAI Minutes of Usage per subscriber (MOU) Year MOU-GSM Total MOU-GSM Pre-

Units Minutes Minutes

2004 2005 330 233

2005-06 393 308

paid MOU-GSM Post-

Minutes

599

675

paid MOU-CDMA

Minutes

N.A.

470

Total Source: TRAI

Performance 

The private GSM Mobile Operators have recorded a rise of 14% in the revenues in the first quarter of the current financial year (Apr. to June 06). The Adjusted gross revenue has increased from Rs 4,942 crs for quarter ending March 06 to Rs 5,621 crs for the quarter ending June 06.


On a year on year basis, the first quarter of the current financial year (Apr. to June 06) has witnessed a 49% rise in revenues as compared to the first quarter of the previous financial year (Apr. to June 05). The revenues of private GSM mobile operators have risen from Rs 3,760 crs for Apr. to June 05 quarter to Rs 5,621 crs for Apr. to June 06 quarter.

In spite of a rise in the Adjusted Gross Revenue, the private GSM industry has witnessed a fall in ARPU since the September 05 quarter. The average industry ARPU has fallen from Rs 375 for Sept. 05 quarter to Rs 347 for June 2006 quarter; a fall in ARPU of Rs 28 per subscriber since Sept. 05 (a decline of 7%).

Thus, although the revenues have risen consistently over the four quarters (since Sept. 05), the private GSM Service providers have witnessed a continuous decline in ARPU.


Bharti Airtel continues to be the leader as far as revenues are concerned with Rs 2,621 crore during the quarter July-September 2006 compared to Rs 2,310 crore in the previous quarter of the same year. The company's ARPU has however fallen from Rs 361 to Rs 348. Hutchison Essar has earned Rs 2,126 crore compared to Rs 1841 crore in the previous quarter. Hutch's ARPU has remained constant at Rs 373. Idea Cellular has reported revenue of Rs 848 crore.


TELECOM SECTOR IN INDIA - CHALLENGES AND OPPORTUNITIES