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The Indian telecom industry has undergone significant structural transformation since its liberalisation in the 1990’s. During the last decade, the Indian telecom industry has evolved into a multi-segment, competitive market from a small supplier-dominated market having public sector monopoly. Coherent Government policies have played a crucial role in shaping the structure of the Indian telecom sector.

Structural Evolution of the Indian Telecom Industry:

Telecom Sector in the Pre-liberalisation Era (1980-1990):

Before liberalisation, the public sector held a monopoly in provision of telecom services. The entire telecom services operation in the country was carried out by the Department of Telecommunication (DoT), a public sector entity established in 1985. It managed the planning, engineering, installation, maintenance, management, and operations of telecom services for the whole of India. In order to ease out its operations, two new public sector corporations viz. MTNL and VSNL were set up under the DoT in 1986. Thus, before the entry of the private players, the telecom services were provided by three public entities viz. DoT, MTNL and VSNL. While MTNL primarily looked after the operation of basic telephony services in Delhi and Mumbai, VSNL provided international telecom services in India. DoT looked after basic telephony operations in regions other than Delhi and Mumbai. Prior to liberalisation the telecom services were broadly classified as domestic basic (which included basic telephony, telex and fax), domestic value-added services (VAS) which covered all other services such as paging, cellular, data services, VSAT and international basic and VAS.

Telecom Sector in the Post-liberalisation Era:

Private sector participation in the Indian telecom sector has been a gradual process, wherein the government initially permitted players from the private sector to provide Value Added Services (VAS) such as Paging Services and Cellular Mobile Telephone Services (CMTS), followed by the Fixed Telephony Services (FTS) or Basic services. Eventually the private sector has been allowed to provide almost all telecom services. Liberalisation process in the telecom services market began in 1992, with the unbundling of the domestic basic services and the domestic VAS and entry of private players for providing the VAS such as cellular and paging services. During this period, the government provided licenses to private players according to the services that were to be provided in the specified areas of service provision. The country was divided into circles (or categories) on the basis of economic potential. Thus, primarily these divisions were mostly adjoining the states of India. Such demarcations were primarily responsible for existence of various regional players in provision of telecom services. During 1994, through a competitive bidding process, licenses were granted to 8 CMTS operators in four metros, 14 CMTS operators in 18 state circles, paging operators in 27 cities and 18 state circles.

After the domestic VAS, the basic services were opened up to private players. The National Telecom Policy (NTP) 1994, which endeavoured to build world-class telephone services in India and aimed at providing telephones on demand, enabled the entry of private players in the provision of basic services. Given the need for resources in addition to government sources for achieving the targets of NTP-94, private investments and involvement of the private sector was considered inevitable to bridge the resource gap. Thus, the private operators were allowed to render basic services in the local loop. Initially, the provision of basic services had been deliberated as a duopoly between a selected service provider and the DoT. In line with this, policy licences were awarded to 6 BTS operators in 6 state circles.

The need for independent regulation had risen with the entry of private players. Also, to fulfil the commitments made when India joined the World Trade Organisation (WTO) in 1995, the Telecom Regulatory Authority of India (TRAI) was established in 19971 to regulate telecom services including fixation/revision of tariffs. The establishment of TRAI was a positive step in terms of separation of regulations from policy making and operations, which continued to be under the purview of the DoT2.

Further, in 1998, the Government also declared the policy for Internet Service Provision (ISP) by private operators and had even begun licensing of the same around that time. Subsequently the Global Mobile Personal Communications by Satellite (GMPCS) was also opened up for the private players.

Although the private players had been allowed to participate in many telecom services segments, the results of privatisation had not been satisfactory entirely. Thus, a New Telecom Policy (NTP-99) was announced on March 26, 1999, which came into effect from April 1, 1999. The NTP 1999 not only provided a major fillip to private sector participation in this industry but also laid down the path for significant development of the Indian telecom industry. The NTP 1999 allowed private operators providing cellular and basic service to migrate from a fixed licence fee regime to a revenuesharing regime to make the operations of the private players financially viable. This policy change provided the muchneeded relief to private players who were earlier burdened with huge debts that they had to service owing to their licence fee commitments. Another notable provision of the Act had been the entry of multiple private sector operators in the sector in contrast to the policy of duopoly practiced earlier. This not only increased competition in the industry but also assisted the private players to attract new investment and augment their subscriber base. The entry of private operators in the cellular sector helped to reduce the operational cost of the industry. It also reduced the mobile tariffs and provided a much needed boost to the industry. The Act also made the following provisions: it permitted interconnectivity and sharing of infrastructure among various service providers within same areas of operations; it allowed both voice and data traffic by service providers; it opened up national long distance (NLD) and international long distance (ILD) services to competition et al. Thus, the NTP 1999 can be viewed as the genesis of the cellular revolution being witnessed in India.

The NTP 99 had also enunciated to separate the policy and licensing functions of the DoT from the service providing functions to ensure a level-playing-field among private operators and incumbents. Accordingly, as a predecessor to corporatisation, two new departments viz. Department of Telecom Services (DTS) and the Department of Telecom Operations, were carved out of DoT, to separate the service provision and operational functions of DoT. Later in 2000, DTS was corporatised and renamed as Bharat Sanchar Nigam Ltd (BSNL), and thus the functions of the incumbent service provider were separated from that of the policy maker. DoT is now responsible for policy-making, licensing and promoting private investments in both telecom equipment manufacturing and in telecom services. Subsequently in 2002, even VSNL was privatised and its monopoly in ILD services was terminated (from March 31, 2002).

Current Structure of the Indian Telecom Industry:

Currently, both public sector players as well as the private sector players are actively catering to the rapidly growing telecommunication needs in India. Private participation is permitted in all segments of the telecom industry, including ILD, DLD, basic cellular, internet, radio paging, et al. The broad structure of the telecom industry (in terms of service providers) is depicted in the diagram below:

Public Sector:

After the privatisation of VSNL in 2002, only two premier PSUs, MTNL and BSNL operate in India and provide various telecom services. As noted earlier, MTNL operates in Delhi and Mumbai and BSNL provides services to the remaining country. In the post-liberalisation era, these PSUs not only have made significant progress but also have provided stiff competition to their private counterparts.

Private Sector:

Private operators have played a very crucial role in the growth of the telecommunication industry, primarily in the mobile services. With the liberalisation of the telecom industry, the private sector has been increasing its foothold in the telecom services space. After the introduction of NTP-99, the contribution of private players towards telecom services has witnessed rapid strides. While the private sector is instrumental in providing both fixed line as well as wireless services, it is mainly active in the wireless segment. The fixed lines account for only about 2% of private sector's total subscriber base. While some private players have a pan-India presence, there are many regional players that cater to only certain service areas.

Change in Market Share:

The subscriber base of the public as well as private players has grown rapidly post-liberalisation. The subscriber base of telecom industry grew from around 18.68 mn during FY98 to 429.72 mn during FY09 and a significant proportion of this growth has emanated from the private sector. The private players registered an absolute growth of around 339.30 mn in subscriber base during FY98-FY09. This could be largely attributed to rapid growth in mobile subscriber base of the private players. With the gradual opening up of the telecom industry, the private players have been able to garner strength and improve their hold on the telecom service provision. Further, the introduction of the New Telecom Policy (NTP-99), which enabled migration in the license fee payment mechanism from a fixed regime to a revenue-sharing regime, provided a major boost to private sector players. Moreover, initiatives such as allotting third and fourth cellular licenses, shifting to a unified access licensing regime, execution of calling party pays (CPP) regime, making incoming calls free, also drew significant growth in the cellular subscriber base.

Although the subscriber base of public entities has also expanded, it has grown at a much lower rate as compared with private players. During 1998-2008, the subscriber base of PSU operators grew by merely 71.72 mn. The public sector has witnessed sustained depletion in its share in the total subscriber base over the years, as it has been on a comparatively lower growth trajectory.

The share of private sector in the total subscriber base has increased substantially from 4.7% in FY98 to 79.2% in FY09. Even though these figures signify the dominance of the private sector in terms of subscriber base, it is important to note that the prominence of private and public sector service providers varies in different segments of the telecommunication industry.

Segments in the Telecommunication Industry:

Telecommunication services in India can be divided into two broad segments, wireline services and wireless services. While the wireline services include the fixed line telephony, wireless services comprise mobile, WLL (F) and WLL (M). On the whole, the Indian telecom industry has made significant progress; however, the source of emergence of this growth in terms of wireless and wireline segments has undergone substantial change in the past few years. The wireline segment, which accounted for a major share of the telecom industry during beginning of the current decade, has witnessed a decline in its subscriber base in the last 2 years. The subscribe base of the wireline segment, which reached a peak of 41.54 mn during FY06, has witnessed a declining trend since then. The subscriber base of the wireline segment has declined to 37.96 mn in FY09 from its peak in FY06. On the other hand, the growth in subscriber base of the wireless segment has increased substantially over these years. The subscriber base of the wireless segment has increased from around 6.70 mn in FY02 to as much as 391.76 mn in FY09. Over these years, not only the number of wireless subscribers but also the pace of its growth has increased substantially.

Other telecommunication services such as internet services, broadband services, VSAT, also have evolved gradually and have become an integral part of the Indian telecom industry. Thus, broadly the Indian telecommunication industry can be classified into the following segments:

Wireline Services

The wireline segment includes basic wireline services rendered to households, commercial units and to service providers such as public call offices. While the incumbent PSUs have been the dominant players in wireline service, some private players have been gradually making their presence felt in this segment. As on March 31, 2008, 5 licensed private operator groups were providing wireline connections in addition to the incumbent BSNL and MTNL.

Market Share in Terms of Subscriber Base

BSNL and MTNL have been key players in the wireline service. Even though private players have been allowed to participate in fixed services since 1994, they only have around 13% contribution in the fixed line subscriber base (as on March 31, 2009). Though private players like Bharti and Reliance have registered notable growth, the Government-owned BSNL dominates the segment in terms of subscriber base. The public sector companies enjoy a first-mover advantage in this segment and this is likely to have helped them seize a substantial share in the wireline market and maintain their dominance in this segment. The public sector accounts for almost 87% of the subscriber base of the fixed line services (as on March 31, 2009); however, over the years, the share of private sector has witnessed some improvement.

Wireless Services

Wireless services can be further divided into Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). The WLL (F) is operated under the CDMA technology. The GSM services, which account for 73% of the total subscriber base of the wireless service, dominate the wireless segment.

Wireless Subscriber Market Share: Service Wise (GSM & CDMA)

The wireless services have witnessed significant growth in the past few years. India primarily follows the GSM mobile system, in the 900 MHz and 1800 MHz band. The 900 MHz band has greater transmission characteristics, thereby enabling lower capital expenditure for expansion of coverage area as the number of towers and base stations required are lesser as compared to the 1800 MHz band.

The wireless services segment of the telecom industry clocked an annual average growth of around 63.79% during FY05- FY09. India has overtaken the USA to become the second-largest wireless network in the world, and is second only to China, with the addition of about 8 million subscribers every month in the recent times. By end of FY09, the wireless industry had touched the 391.76-mn-subscriber-mark. This total subscriber base of FY09 comprise of 297.26 mn GSM subscribers and 94.50 mn CDMA subscribers. During FY09, around 130.69 mn subscribers were added in the wireless segment of the telecommunication industry.

Private sector players have played an important role in the rapid growth of the wireless segment. The private players account for around 86% of the total wireless subscriber base. While public sector has been instrumental in the development of the wireline service, the growth in wireless subscriber base for these entities has been relatively slower compared to the private players. Currently 12 wireless service providers (including 2 PSUs) exist and compete in different regions. However, only 2 private players, Bharti and Reliance Communications, have nationwide presence along with state-owned entities, MTNL and BSNL, which together represent an additional pan-India presence. Many players have been taking initiatives to expand operations across the country. The GSM sector is dominated by players such as Airtel, Vodafone-Essar, and Idea Cellular, while the CDMA sector is dominated by Reliance and Tata Indicom. Bharti Airtel is the largest GSM mobile operator in India and has a subscriber base of 93.92 million followed by Vodafone-Essar, BSNL and Idea Cellular with a subscriber base of 68.77 mn, 46.71 mn and 38.89 mn, respectively. Reliance Communication is the largest CDMA mobile operator with a subscriber base of 52.65 mn followed by Tata Teleservices and BSNL that have a subscriber base of 35.12 million and 5.44 million, respectively. Only Reliance Communication and Tata Teleservices offer both GSM and CDMA networks.

Internet Services

Internet services in India have witnessed significant growth in the last few years owing to increased presence of the private players and emergence of new technologies. A significant improvement has also been seen in the quality of internet services given the substantial upgradation of telecom infrastructure. The subscriber base of internet services reached 13.50 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 registered an average annual growth of 24.46%, primarily driven by the rapid growth in subscriber base of the public sector players.

The public sector players dominate the internet market accounting for almost 69.30% of the total internet subscriber base. Among the public sector players, BSNL rules the internet provision market with a market share of around 53.61% followed by MTNL that accounted for 15.69% as at end March 31, 2009. Among the private players, Bharti Airtel Ltd has the highest internet subscriber base of 1.08 mn followed by Reliance Communications Infrastructure Ltd, which has a subscriber base of 0.93 mn.

In addition to the internet subscribers, around 117.82 mn wireless data subscribers also access the internet through wireless (GSM and CDMA) networks; in fact, broadband connections also have witnessed significant growth in the past few years. According to the Broadband Policy 2004, the broadband connection is an ‘always-on’ internet access with a minimum speed of 256 Kbps from the Internet Service Provider’s (ISP) Node to the customer premises equipment (CPE). The broadband subscriber base has surged to around 6.20 mn by end March 09 as against 0.18 mn at end March 05, registering a CAGR of around 142% during this period.

As at end March 2009, there were around 95 broadband service providers. However, around 96.95% of the total broadband subscriber base was accounted for by the top 10 players. In fact BSNL alone accounts for almost 57.24% of the total broadband subscriber base.

Internet telephony

Internet telephony is growing at a steady pace in India. According to the existing licensing policy, PC-to-PC internet telephony calls are allowed without any restriction. A PC or adapter can be used to call Public Switched Telephone Network (PSTN) / Public Land Mobile Network (PLMN) abroad; however, Internet telephony calls from such devices to PSTN/PLMN in India are not permitted. The Internet telephony has been permitted to all ISPs with effect from August 24, 2007. A total of 34 ISPs provided Internet telephony services in India (as on the quarter-ended March 31, 2009).

Public Mobile Radio Trunked Services

Public Mobile Radio Trunking Service (PMRTS) is an easy-to-use two-way radio communication, mainly used for command and control and group talking while on the move. PMRTS is used mostly in hotels, tour agencies, airports and hospitals among other places. Sixteen operators provide PMRTS in India (as on March 31, 2009).

Global Mobile Personal Communication by Satellite (GMPCS)

GMPCS services allow a subscriber to communicate from any point on earth through a handheld terminal. Under these services, the telephone numbers of users remain unchanged, irrespective of their location. GMPCS services have been operational in India since 1999. As on date, there is no licence for providing GMPCS service in India.

Very Small Aperture Terminals (VSAT)

VSAT is a communication system in which the radio signals are received and transmitted through a satellite. VSAT has a less than 3 meter tall dish antenna that relays data to the satellites in the geosynchronous orbit, which then relays data from terminals on earth to other terminals and hubs located in various parts of the world. It is an economical and viable option to connect different geographical locations. It provides connectivity to the points where regular systems or wired lines fail to reach and last mile connectivity is difficult to achieve. VSATs are mostly used for various types of communications as well as to transfer broadband data such as VoIP, satellite Internet and video or narrowband data such as polling, SCADA (Supervisory Control and Data Acquisition), credit cards transactions and RFID (Radio Frequency Identification). In India the VSAT services market is growing rapidly. Currently, 9 VSAT service providers are offering VSAT services in India.

Mobile Value added Services (MVAS)

Over the last few years, Mobile VAS has gained significance as it has been emerging as a potential alternative revenue stream. VAS enables the subscriber to use the mobile phone for a host of purposes such as for sending short messages, pictures, to surf the Internet, for mobile banking including mobile payments, to read news headlines, astrology, to listen to music, to play games and to seek various other types of information. Provision of VAS is either directly done by the telecom operators or by a third party VAS Provider (VASP). Services such as SMS, GPRS are provided directly by the telecom operators and others such as astrology, ring back tunes are provided by the VASPs. In most cases, the contents used for providing VAS are sourced from content providers/content developers or copyright owners known as content owners. Bulk of VAS services currently being provided by the mobile operators in India are in the form of SMS, ringtone and caller ring back tones (CRBT).

1 TRAI was established with effect from February 20, 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997

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.