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The phenomenal growth of the Indian telecom industry during the past few years has been backed by a confluence of factors such as progressive regulatory regime, favourable demographic features and conducive business environment. The size of the telecom industry in terms of subscriber base has grown by more than 5 times in a span of last five years. The subscriber base increased from 77.64 mn by end of FY04 to 429.72 mn by end of FY09, at an annual average growth of 41%. The robust monthly net additions to the subscriber base are an indication of the exponential growth in the telecom sector. Around 14.25 mn net additions were made to the subscriber base during the month of Jul-09. So far declining tariff level on account of increased competition has been the key determinant of performance of the telecom operators. With the tariff levels being one of the lowest in the world, product differentiation and quality of services would play a crucial role going forward.

Besides the low tariff levels, connectivity, signal strength, various data service and a host of innovative value-added services are likely to determine the performance of the telecom players in future. Improved service quality, faster roll out of services in rural and remote areas, significant reduction in initial set up cost, increased consideration in infrastructure sharing, introduction of newer technologies such as 3G and WiMax, the acceptance of value-added services will all lead to increased acceptance of telecom services driving the future growth of telecom industry.

Growth in Subscriber Base

The rapid progress witnessed in the Indian economy in the recent past has been instrumental in catalysing the growth of the Indian telecom industry. The subscriber base of the industry grew from under 20 mn in FY98 to almost 429.72 mn in FY09. This exponential growth can be attributed to the significant reduction in the tariff during the last few years on account of intense competition. Infact, currently voice telephony tariff levels in India are among the lowest in the world.

Further, the rapid increase of the network capacity to cater to the fast growing subscriber base has also been vital for exponential growth of the telecom industry. On the regulatory fronts a number of initiatives such as removing the Access Deficit Charge (ADC) implementation of regulations for Mobile Number Portability (MNP) have been taken to support the growth of the Telecom industry. In the current era of intense competition, most of the telecom operators have passed on the benefits of the removal of ADC during FY09 to the customers in an attempt to increase the minutes of usage.

A significant proportion of the growth in telecom subscriber base was due to surge in wireless communication witnessed in past few years. In fact, while the wireless subscriber base has registered an annual average growth of 63.89% between FY04-FY09, the wireline segment has witnessed a decline in its subscriber base from 40.09 mn in FY04 to 37.96 mn in FY09. The obvious cost and fast deployment advantage have supported the wireless telephony to progress much more than the wireline segment. Further, the wireless services have become an attractive proposition for the consumers given the comparatively lower tariffs, advantage of mobility and increasing choices. Also, the fact that on an average a typical household has one mobile phone per person as against only one landline per household could also be responsible for the significant surge in mobile services as against wireline services.

Trend in Wireline Subscriber Base

In the initial phase of telecom sector development (FY98-FY04) the wireline sector dominated the industry in terms of subscriber base. It accounted for around 52% of the total subscriber base in FY04. However, the wireline segment, which had driven the growth of the telecom industry in the initial years of development, has experienced a slowdown in growth of its subscriber base. In fact, the wireline subscriber base of telecom industry has witnessed a sustained decline after reaching a peak of 41.54 mn by end-March 2006. Competitive advantage of the wireless service over the wireline segment in terms of comparatively lower tariff and inclination of consumers (especially the youth) towards mobile technology on account of user convenience and availability of value added services such as SMS, games et al might have stalled the growth of the wireline segment. While wireline subscriber base in both rural as well as urban area has witnessed a decline in the last 2 years, the rural subscribers declined at a rapid pace as compared with the urban subscribers. The wireline subscriber base in rural areas has declined by around 2 mn and that in the urban area has declined by 0.8 mn between FY07-FY09.

Growth in Public Call Office

The public call office has also witnessed substantial growth in the past few years. The number of public call offices has increased from around 1.92 mn in March 2004 to 6.201 mn in March 2009. Public call offices have also played a crucial role in the success of private players. The share of private players in this space has grown from below 9% in March 2004 to as much as 66.30% in March 2009. Reliance Communications Ltd has the largest share of 34.43% in the total public call offices followed by BSNL and TATA Teleservices that have a share of 30.26% and 28.02%, respectively. Thus, these three players alone account for more than 90% of the total public call offices.

Growth of Village Public Telephones (VPTs)

The coverage of the VPTs has improved in the last few years. As at end-March 2009, almost 94% of the villages were connected with the VPTs. In actual terms, out of the 593,485 villages present in India (as per Census 2001) almost 559,503 villages have been provided with a VPT. Thus, there are another 33,982 villages that are yet to be connected with a VPT.

BSNL accounts for almost 98% of the total installed VPTs in India. The private sector merely has a 2% share in VPT provision. The subsidy support received under the USOF for deployment of VPTs has played an important role in growth of VPTs in the rural areas. Between FY03-FY09 (till Sep-09) a total of Rs 6.86 bn was disbursed to BSNL for maintenance of VPTs that existed prior to 2002-2003. In villages where public telephones were installed using multiple access rural radio (MARR) technology prior to April 1, 2002, the USOF decided to fund the replacement of MARR technology to WLL technology. The total fund disbursed for this purpose was Rs 6.85 bn.

Trend in Wireless Subscriber Base

The robust growth witnessed in the telecom industry in the recent past has been driven by the exponential growth of the wireless segment. The subscriber base of the wireless services has surged to around 391.76 mn by FY09 as against a mere 33.69 mn FY04, registering an annual average growth of around 63.89% during this period.

The implementation of NTP 1999, which took steps in direction of increasing the role of the private sector in provision of telecom services and rationalising the fee structure (in order to make their functioning financially viable), has turned out to be a path breaking development for the telecom industry. Moreover, initiatives such as allotting third and fourth cellular licenses, shifting to the unified access licensing regime, execution of the calling party pays (CPP) regime, along with continued reduction in telecom tariffs amidst intense competition provided significant impetus to growth of the wireless subscriber base, which surpassed the wireline subscriber base for the first time in FY05.

The launch of tariff scheme with lifetime validity by various mobile service providers during December 2005/January 2006 has proved to be an important initiative for luring new customers. According to a study paper by the Telecom Regulatory Authority of India (TRAI), about 16 mn subscribers were added in tariff schemes with lifetime validity in mobile services during December 2005-June 2006. Fierce competition in provision of wireless services, which has intensified the price war between various service providers, has led to significant reduction in cellular tariffs in turn leading to greater usage. Further, the declining handset costs and the lucrative schemes launched by various operators to overcome competition have been instrumental in stimulating the exponential growth of the wireless subscriber base. Initiatives such as sharing of both active and passive infrastructure between the operators and availability of fund via the USO fund for tapping and expanding in the rural areas have also supported the growth in the wireless segment.

Within the wireless segment both GSM and CDMA technologies have witnessed substantial growth in the last few years. However, the GSM technology has continued to dominate the wireless segment accounting for a share of 76% in the total wireless subscriber base. With significant growth in the CDMA segment during 2006 and 2007 backed by some lucrative schemes such as “One Nation Plan”, launched by some leading players in this segment, the share of CDMA segment in the subscriber base increased 27.04% in FY07 form 22.38% in FY04. However, with the GSM subscriber base growing at a pace more than the CDMA subscriber base the GSM market share increased from 72.90% in FY07 to 75.87% in FY09. With this robust growth in the subscriber base, GSM segment contributed to about 80% of the total incremental subscriber addition for the entire Indian telecom market during FY09. Deployment of CDMA services by comparatively small number of operators might be responsible for relatively lower subscriber base of these services.

Prepaid Connections Popular Amongst Mobile Users

Prepaid customers account for a significantly higher share in the total subscriber base in both the GSM as well as CDMA segments. Prepaid subscribers form around 93.10% and 94.30% of the total subscriber base of the CDMA and GSM segments, respectively.

Ease of changing the tariff plans anytime coupled with the notion that prepaid connections help in limiting expenses within a fixed budget are likely to have made prepaid connections an attractive proposition for the customers, especially in the middle and lower income segments. Interestingly, in the metros, the proportion of postpaid subscribers is relatively higher as compared with other service areas. The B&C circle has comparatively higher proportion of the prepaid customers.

Teledensity

With sustained increase in subscriber base since the beginning of the current decade, the teledensity has witnessed a significant increase from just above 2% in FY99 to 36.98% by end of FY09. Even though the teledensity has improved substantially during the last decade, it is still low as compared with other developing countries. Thus, there is a huge untapped potential existing for the telecom operators in India. While the teledensity in India has improved substantially, there is a stark difference between the teledensity of the urban and rural areas. While the urban teledensity at 89% indicates a rapidly saturating urban market, teledensity of just around 15% in rural areas points to a huge potential market for the growth in the telecom industry.

The urban teledensity has improved from under 7% in FY99 to as much as 89% in FY09. In fact, in Delhi, the teledensity is as high as 125%. While the teledensity in the metros is rapidly reaching saturation point, the future growth in urban areas is expected to come from non-metros. The teledensity of the rural areas has also improved substantially during the last decade. The number of rural telephones increased from around 12.30 mn in March 2004 to 120.29 mn in March 2009. In fact the significant improvement in the rural teledensity has been primarily backed by the surge in wireless services in the rural areas. The wireless subscriber market in the rural areas has surged to 109.71 mn by end of FY09, taking the share of rural wireless subscriber to 28% of the total wireless subscriber in the country.

Over the years many initiatives have been taken by the central and state governments, telecom operators, NGOs, among others, for increasing the spread of telecommunication in the rural areas. Along with VPTs and rural community phones, which have been enabling services in the rural areas, a scheme of rural community phones (RCP) has been launched under the USO fund to create telecom infrastructure in rural and remote areas. Further, the Mobile Grameen Sanchar Sewak Scheme that provide telephones at the doorstep of the villagers is functional in about 12,000 villages and is likely to facilitate growth of mobile services in the rural areas, going forward. Increasing penetration through creation of a USOF that supported a variety of initiatives for sharing of infrastructure, developing infrastructure for mobile services in rural areas, etc was a major policy measure towards increasing the reach of telecom services in the rural areas.

A number of initiatives have been taken by the state governments along with NGOs and private companies to increase the reach of telecom services in the rural areas and to facilitate users (farmers, fishers et al) through modern telecom technologies. These programmes are being conducted in various parts of the country and have been playing a pivotal role in increasing the reach of the telecom services in rural areas.

Although the teledensity in the rural India has grown from as low as 0.5% in FY99 to around 15% in FY09, the rural areas still remain under-penetrated to a large extent. Large agricultural workforce, low per capita income, low literacy rates and around 60% of rural households not having access to electricity is likely to have limited the growth of the mobile services in rural areas. Further, underdeveloped telecom infrastructure in the rural areas has also been an inhibiting factor to necessitate rapid penetration of telecom services in rural areas. High network maintenance cost in rural areas compared with the urban areas on account of poor transportation, lack of skilled labour have also restrained the rapid growth of telecom services in these areas.

Nonetheless, various schemes, such as the Rural Community Phones (RCP) (launched under the USO fund) and the Mobile Grameen Sanchar Sewak (with a special thrust on rural telephony) are likely to boost telecom services in rural areas. The government envisages the rural teledensity to reach 25% and to achieve the target of 600 mn subscribers by the end of Eleventh Five-Year Plan. The rural areas have a huge untapped market for telecom services and this is likely to be a potential growth avenue for service providers, given that the urban markets are fast reaching their saturation level and growth in these markets is slowing. In fact, the services providers have already started to penetrate the rural markets in order to maintain the pace of subscriber growth. A closer look at the service area-wise subscriber growth figure reveals that the B and C circles accounted for around 53% of the total net additions in the wireless subscriber base during the quarter-ended June 2009 as compared with around 35% during quarter-ended June 2005.

Tariff Reductions

Across the board, reduction in telecom tariff has been one of the primary factors behind the exponential growth experienced by the Indian telecom industry. The competition within the various segments of the telecom sector has intensified in the past few years and has led to a price war between the operators. The race between the telecom service providers to capture the market, which led to substantial tariff reduction, has proved beneficial for the consumer. The array of tariff schemes is being made available by various service providers to suit the usage profile of a wide range of customers in India to stay ahead of competitors. Also, most operators offer schemes with assured lifetime connectivity without having to pay any recurring fixed charges. Moreover, intense competition and the resultant reduction in tariff levels induced the TRAI to gradually move towards a regime of tariff deregulation. While tariffs for some crucial segments like rural telephony, roaming services and leased lines are still regulated, all the other tariffs are under forbearance. The tariff regulation of TRAI has even granted the unique option for customers to avail a particular tariff for the entire licensing period of their service providers without having to fear any tariff hike.

Currently, the charges for outgoing local telephone calls have dropped to below Re 1/min and there is no charge for incoming calls. In fact, a leading telecom operator has recently announced a scheme where the CDMA subscribers will be charged Re 1 for all local calls and Rs 3 for long distance calls, regardless of the duration. The charges for national long distance calls and international long distance calls have also experienced significant reduction since 1999. A 1 minute call between Delhi and Mumbai that cost more than Rs 37/- in pre-TTO 1999 period can be currently made for almost at the price of a local call. Similarly, the tariff for a call to American continent from India has come down from Rs 75 to less than Rs 7 per minute within the same span of time.

The average outgo per outgoing minute (Rental revenue + Airtime revenue per outgoing minute), which is considered as a realistic indicator of tariff levels, has also witnessed significant decline in the last few years. In fact in the last 2 years, the average outgo per outgoing minute for GSM subscribers has declined by almost 34% from Rs 1.15 in March 2007 to Rs 0.76 in March 2009 and that for CDMA subscribers has declined from 0.81 in March 2007 to Rs 0.57 in March 2009.

Revenue Growth in the Industry

Despite the Indian economy witnessing a significant slowdown in growth on account of severe global economic crisis, the Indian telecom industry has shown resilient performance with a revenue growth of almost 18% (y-o-y) during FY09. A confluence of factors, such as under-penetrated rural areas, growing demand for telecom services (especially by the young population) have supported the industry growth. The revenue growth in the telecom industry during FY09 was primarily driven by the robust performance of the private sector. The revenue of the private sector grew by as much as 29% during FY09. On the other hand, the revenue of public sector witnessed a decline of around 4.80% during FY09; as a result, the share of private sector in total revenue increased to 73% during FY09 as compared with 66.50% in FY08 and that of public sector declined to 27% from 33.50% in the same period.

Within the GSM as well as the CDMA segment, revenue from call charges account for around 60% of the revenue. While the share of rental revenue for the GSM players is around 18%, for CDMA players it is comparatively higher at around 24%. However, for both these segments, the share of rental revenue in total revenue has witnessed significant decline in the last few years. The decline can be partly attributed to the intensified competition within the players that has led to intensive price-war between service providers.

Further, the share of revenue from SMS has also witnessed substantial decline in the recent past. Decline in SMS charges, lucrative offers designed by service providers (such as SMS package) coupled with falling call price leading to substitution effect is likely to have reduced the revenue share from SMS services. In fact the number of outgoing SMS per subscriber per month has witnessed a gradual reduction the last few years. The revenue form the value-added services and installation charges have witnessed a gradual increase in the past few years.

ARPU is Continuously Declining

The average revenue per unit (ARPU) of both GSM and CDMA subscribers has been on a downtrend in the last few years. The industry-wide ARPU of GSM service providers have witnessed a decline of around Rs 189 between FY05-FY04, from Rs 394 during the quarter-ended March 2005 to Rs 205 during the quarter-ended March 2009. The ARPU of CDMA service providers have also declined from Rs 256 in the quarter-ended March 2006 to Rs 99 during the quarter-ended March 2009. The decline in the ARPU over the years could be largely attributed to the reduction in tariffs of local, NLD and ILD calls. The customer-oriented policy taking by the regulatory body and intense competition among the players have to a greater extent resulted in declining ARPU in the telecom industry. The ARPUs have also been affected by the increasing proportion of prepaid subscribers and increasing subscription from lower income population. Postpaid ARPU has been five times that of prepaid ARPU, which could be attributed to the declining importance of processing fee on recharge coupon/ voucher purchased by prepaid subscribers; the gap is lowest in Circle C (3.68 times) and highest in Circle A (5.59 times).

During FY09 a total of 70.21 mn wireless subscribers were added in the Circle B and Circle C (which mostly comprise of the rural areas) as compared with 17.28 mn added in the metros. Moreover, given that the usage among the prepaid subscribers is relatively lower as compared with the postpaid subscriber, the ARPU for prepaid subscribers is less as compared with the postpaid subscribers. All India postpaid ARPU in the GSM segment stood at Rs 543 per month, which is about 3 times higher than that of all-India prepaid ARPU of Rs 181. In the CDMA segment, the all-India ARPU for the postpaid subscribers is around Rs 381 as compared with Rs 77 for the prepaid subscriber

It can be noted from the above figure that the ARPU in the B & C circles is relatively lower as compared with the other areas. This could largely be attributed to concentration of low income and low usage population in these regions. Going forward, the fall in ARPU is likely to continue given that the additional subscriber base for the telecom industry will emanate from the B & C circles. Thus, the deeper penetration in rural areas is likely to put downward pressure on the industry’s ARPU.

Minutes of Usage (MOU)

With gradually declining call charges, the minutes of usage for the GSM players witnessed gradual increase during the last few years. The minutes of usage (MOU) for GSM subscribers increased from 395 per subscriber per month during end-March 2009 to around 505 during the quarter-ended June 2008, before declining to 484 during March 2009. The marginal decline in MOU in the GSM segment could in part be attributed to increasing addition of low-income, low usage population to the subscriber base and slowdown in economic activity during the period.

The MOU of CDMA players, however, have witnessed a gradual decline in the last few years. The MOU for CDMA segment has declined form 550 per subscriber per month during end-March 2006 to 357 per subscriber per month during end- March 2009. The withdrawal of free minutes offers from the existing CDMA subscribe is likely to have dragged down the MOU in the CDMA segment to a certain extent.

With both the GSM as well as CDMA segment the postpaid customers have a higher minute of usage per subscriber per month as compared to the prepaid subscribers. Further, the MOU per subscriber per month is relatively lower in the metros as compared with the other circles for both the CDMA and GSM segments.

Local calls (inter circle) account for about 81.40% and 86.64% of the total all India minutes of use within the CDMA and GSM segments, respectively. NLD calls account for around 18% and 12.89% of the all-India minutes of usage for the CDMA and GSM sectors, respectively.

In the metro regions, the share of NLD is significantly higher as compared with the all-India average. The higher proportion of NLD in minutes of usage in the metro regions could in part be attributed to greater proportion of migrated population in these regions away from their families. ILD calls account for below 0.5% of the total minutes of usage at the all-India level in both the segments.

Growth of Mobile Value Added Services Market (MVAS)

The value-added services market is growing rapidly in India. According to a consultation paper published by the TRAI, the VAS contributes around 10%-14% of the total revenue of mobile telecom service providers. A confluence of factors such as the falling costs of value added services, enhanced handsets qualities, lowering age profile of mobile users have helped in stimulating the growth in this segment. Also, a host of innovative contents and packaging provided by the service providers is also luring the customers. Moreover, the consumers are increasingly looking for entertainment, different means for performing transactions and accessing information at their finger tips. VAS helps the consumers in receiving the same and hence is expected to become a major revenue segment for the telephone operators.

The rapidly-growing valued-added services segment has been one of the instrumental factors in India’s runaway success in mobile telephony. Value-added services are increasingly being viewed as an instrument for customer retention and service differentiation by the telecom operators given the rapidly increasing competition. The usage or demand for the VAS is higher among younger population. The CDMA services have handset constraints thereby its level of acceptance among the youth is low. Among the CDMA players, the share of VAS revenue in total revenue is lower as compared with that of GSM service providers. For many service providers mobile value-added services act as a guard against falling ARPU.

Currently, SMS, ringtone and colour ring back tones (CRBT) form a significant proportion of value-added services being provided by the mobile operators in India. According to an IAMAI report, SMS service, both person-to-person (P2P) and person-to-application (P2A), account for substantial proportion of the revenue generated by the value-added services in India. Another application that has become extremely popular among end-users is the voice application of CRBT, color ring back tone that allows differentiation among ringtones and provides an enhanced, personalised user experience on the mobile phone. This application generates significant revenue for the operator as consumers are quick to demand variety and frequently switch tones. According to the IAMAI report, the CRBT services contributed around 40% (June 2008) of the total value added services revenue of the mobile service providers.

In India, the VAS delivery has largely been based on the SMS, IVR, GPRS and WAP portal platforms. These VAS platforms are the backbone of the telecom operators for managing various entertainment services such as games, streaming audio/ video and ringtone downloads.

The MVAS market is currently dominated by SMS in terms of revenue. SMS can be P2P or P2A. A host of services such as the information services (news alerts, cricket scores) are provided through the SMS platform by the service providers.

Voice-based value-added services, such as customer support lines, are delivered via the Interactive Voice Response system (IVR). IVR is an interactive technology that allows a computer to detect voice and keypad inputs, thereby enabling the end user to select the options available on a particular service through pressing numbers on the key pad or using the speech recognition system. Given that the voice-based services can be delivered in different languages, these become a significant medium of providing value-added services to the rural and semi-urban areas. These are voice-based valueadded services such as news, live talk to astrologer, movie information, jokes, cricket commentary, which can be accessed by subscribers.

The General Packet Radio Service (GPRS) system is used by GSM mobile phones for transmitting IP packets, thereby enabling a user to access the internet on their mobile. Various services including MMS, downloading content such as wall paper, ringtones, games, are provided using the GPRS platform. The GPRS adoption in India is still at a very nascent stage given the significantly higher prices of data access. Despite being an effective mode of delivering MVAS, the progress of GPRS has been limited due to comparatively lower customer base.

Unstructured Supplementary Service Data (USSD) is a GSM standard that facilitates high-speed two-way communication between the mobile phone and the applications. USSD is a very useful mechanism that allows users to access applications through their mobile phone whether they are at home or overseas. USSD offers session-based communication and supports a range of applications. It permits users to search for information within that session-based service. The services are delivered through a continuous interactive session, unlike SMS where the interaction needs to be broken to separate messages. It is charged on a per minute basis and works out to be more economical than SMS. The industry holds a positive perspective towards its adoption as a means of accessing MVAS. Services such as content download, cricket updates, jokes, news alerts etc. can be acquired by consumers through process of using USSD.

Call Management Services (CMS) – Services such as missed call alerts, call forwarding, voice mail, incoming call block come under this category.

Mobile VAS may be broadly classified into the following three categories:

The consumption of VAS by the consumers requires feature handsets that facilitate easy access of content. Given the comparatively higher cost of feature-rich mobile handsets, their penetration remains low. The lack of feature-rich mobile handsets acts as a barrier to the surge in VAS. However, with the increase in competition between the handset manufacturers the price of feature rich handsets is likely to witness some moderation, which in turn would assist the increase VAS usage. Further, the introduction of 3G services, Next Generation Network (NGN)/ converged network, the usage of VAS is likely to gain momentum. 3G services and NGN would enable the high bandwidth multimedia content services, mobile TV and online gaming and thereby will push the demand for VAS as well as innovations in VAS products offering. According to a TRAI consultation paper, the mobile revenue through value added services is expected to cross 30% of the mobile telecom service provider’s revenue in the next 5-7 years.

Performance of the Internet Service

While the growth in internet subscriber base has witnessed significant improvement in the past few years, internet penetration in India is quite low by international standards. The subscriber base of internet services reached 13.5 mn on March 31, 2009 as compared with 0.09 mn in 1997. During the last 5 years (FY05-FY09), the subscriber base of internet services has registered an average annual growth rate of 24.46%, primarily driven by the rapid growth in subscriber base of the incumbent public sector. The growing demand of corporates for applications such as electronic commerce, Internet-leased lines, ISDN, VPN is driving the growth of the internet services market. Although the internet services in India have been on a growth trajectory, it has not been able to match the exponential growth witnessed in the mobile industry. Due to the limited fixed line coverage, low PC adoption, cost of operation and maintenance, low penetration in urban and rural population, service pricing and low computer literacy the internet service has not been able to make a major breakthrough as compared to mobile services.

Despite the fact that there is no restriction on the number of internet companies and more than 185 companies are operational, 96.09% of the share in the total internet subscriber base is accounted for by only the top 10 ISPs. The public sector incumbents, BSNL and MTNL, together accounted for almost 69.62% of the total internet subscriber base during the quarter-ended June 2008.

Broadband Growth in India

The broadband (>= 256Kpbs download speed) subscriber base has grown from around 0.02 mn in 2004 to almost 6.22 mn in 2009.

The share of broadband subscribers in the total internet subscriber base has increased substantially from just above 3% in March 2005 to 46% in March 2009. Moreover, the current growth in internet services is also driven by the broadband. Out of the 2.39 million internet subscribers added during June 2008 to June 2009, 2.24 million are broadband subscribers. Thus, around 94% of the net additions were in the broadband segment.

While the broadband subscriber base witnessed a y-o-y growth of 51.14% between June 2008 to June 2009, in absolute terms, it witnessed an increase of only 2.4 mn customers; this implies an average monthly net addition of just 200,000, which is very dismal as compared with the robust growth in the mobile industry. In fact, the monthly subscriber additions in the wireless segment in the month of June 2009 alone are more than double the entire broadband subscriber base. This points towards the dismal performance of the internet services as compared with the success of the mobile services in India. This poor growth has been on account of a number of reasons including slow growth of personal computers (PCs) in the country leading to abysmally low PC penetration, greater affordability issues as compared with mobile phones and the reluctance of state-owned telecom companies to unbundle their last-mile access infrastructure and share it with private telecom companies. While the growth in internet services has not seen the trend as observed in case of mobile services, it is sure to catch up with the introduction of newer technologies such as 3G, WiMAX and increased awareness about the benefits that may be derived out of it by the middle-class and the rural population. Major initiatives such as e-Agriculture, e-Health, e-Education, rural BPOs are slated to increase internet penetration as they set the base for the increasing acceptance of the same.

Broadband Access - Technologies & Market Share

Broadband access is provided through various technologies such as DSL (Digital Subscriber Line), cable modem, Ethernet/ Lan, fibre optic cables, leased lines, wireless etc. In India, DSL is the most-preferred technology used by the service providers to provide broadband services. DSL constitutes as much as 86.65% of the total broadband subscribers and is followed by Cable Modem Technology that constitutes 7.36% of the broadband connections.

Revenue of ISPs

The total revenue from the internet service stood at around 2.04 bn at the end of June 2009 marginally above 2 bn at end of March 2009. A detailed break-up of the revenue sources of the Internet service providers (ISPs) reveal that the revenue from broadband subscribers account for more than half of the revenue of ISPs. While the leased line subscribers account for around 22.26% of the total revenue of the ISPs, the dial-up subscribers contribute to almost 6.79%.

Dial up Access - Average Revenue Per User & Minutes of Use Per Subscriber

The Average Revenue Per User (ARPU) for dial-up internet usage has witnessed a gradual improvement in the last few quarter. However, over the last 3 years, the ARPU per month for dial-up internet usage has moved in a very narrow range of Rs 200-245/sub/ month.

The average MoU per subscriber per month for dial-up subscribers has witnessed a gradual improvement in the last few years. The MOU for dial-up subscriber has increased from around 175 per subscriber per month to around 243.57 per subscriber per month.

Internet Telephony

The Internet Telephony was thrown open for Internet service providers from April 01, 2002. As of June 2009, 34 ISPs were providing Internet Telephony services. The total MOU for internet telephony has increased to 131.94 million at the end of June 2009 from around 41.52 million in March 2005.

Performance in the PMRTS

With slowdown in economic activity and increased usage of mobile technology, the subscriber base of PMRTS has recorded a decline during FY09. The PMRTS subscriber base registered a decline of around 12.79% (y-o-y) during FY09 as against an increase of 15.04% during the previous fiscal.

Delhi has the highest number of subscribers (7048) followed by Mumbai (4921), Chennai (4069) and Bengaluru (3927). These 4 service areas account for 64.50% of the total subscribers.

Performance of VSAT

The customer base of VSAT industry has witnessed substantial growth in the last few years. The VSAT subscriber base grew at an annual average rate of 30% during FY05-FY09.

As at end March 2009, Hughes Communications Ltd accounted for the largest share (29.35%) in the total subscriber base of the VSAT services followed by the Bharti Airtel Bengaluru and HCL Comnet with a share of 25.88% and 25.35%, respectively.

1 MTNL (Mumbai) has not furnished PMR for the QE Mar’09. Hence the data for the quarter ended December 2008 has been taken

2 The TRAI Act was amended by an ordinance, effective from January 24, 2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI.

3 As per Economic Survey 2004-05

4 DTH - Direct-To-Home, VSAT - Very Small Aperture Terminal