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Telecom Sector

The Indian telecom industry has evolved as one of the fastest-growing sectors in the country. Currently, India’s telephone network is one of the largest communications network in the world. India is the third-largest country in the world in terms of telecom subscriber base up from the earlier eleventh position in 2001. Its subscriber base included 300.5 million subscribers (both wireline and wireless) as on March 31, 2008; at the end of December 2007, the total world telecom subscriber base was 4,525.9 million1. The largest subscriber base was in China (912.8 million), followed by the US at 418.6 million.


Source: TRAI

The Indian telecom sector contributed more than 2.7% of the country’s GDP at market prices in FY08. Total revenue of the telecom services sector during FY08 was estimated at Rs 1,290.8 billion2, up by 22.6% over the previous year. In FY08, the revenue share of private sector companies in total revenues was 66% as compared with 48% in FY06, while public sector companies’ revenue share declined from 52% in FY06 to 34% in FY08.

Telecom Segments

Telecommunication services include wireline and wireless services. Wireline services include basic service, that is, fixed line. Wireless services include mobile, WLL (F), and WLL (M). The fixed wireline market is dominated by state operators, BSNL, and MTNL, who together account for around 89% of the total subscriber base. Private sector services are presently available in selective urban areas, and collectively account for the remaining 11% of subscriptions. However, private services focus on business/corporate sector, and offer reliable, high-end services, such as leased lines, ISDN, closed user group, and videoconferencing. Other services offered include Internet Service Provider (ISP), Very Small Aperture Terminal (VSAT), Radio Paging Services, Public Mobile Radio Trunked Services (PMRTS), Internet Telephony and Cable TV services.

In India, wireless services are provided using two technologies: Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). The WLL (F) is operated under the CDMA technology. Players like Airtel, Vodafone-Essar, and Idea Cellular dominate the GSM sector, while Reliance and Tata Indicom dominate the CDMA sector.

Growth trends

Wireline and Wireless Services

Telecom network growth has been noteworthy in recent times. In March 2008, tele-density reached 26.22%, which rose by 43.83% over the previous year. The sector has recorded remarkable growth due to a steep increase in the mobile subscriber base and also various tariff plans launched by service providers.


Source: TRAI

The GSM has historically grown faster than the CDMA segment. The CDMA segment grew at 53.16% in FY08 while the GSM segment grew by 60%. The GSM segment had a subscriber base of 192.73 million as of March 2008, which was 73.8% of the total 261.1 million subscribers in the wireless segment, whereas the CDMA subscriber base stood at 68.37 million.

By end of March 2008, the total wireless subscriber base in India stood at 261.1 million, up from just 13.0 million during March 2003. The wireline subscriber base, on the other hand, declined from 41.33 million by end of March 2003 to 39.42 million by end of March 2008. Average revenue per user (ARPU) per month has also declined substantially on the back of competition and decline tariffs. All India blended ARPU for GSM (per month) for the year ended March 2008 decreased by 11% to Rs 264 as compared with Rs 298 for the year ending March 2007. While ARPU for post-paid services increased by 4.1% from Rs 613 in March 2007 to Rs 638 in March 2008. Prepaid ARPU declined by 10.4% from Rs 250 in March 2007 to Rs 224 in March 2008.

The minutes of usage (MOU) per subscriber declined from 1,050 in the post-paid segment in the year ended March 2007 to 1,015 in the year ended March 2008. In the meanwhile, prepaid segment’s MOU surged by 14% to 438 from 384.

Market Share

In CDMA, Reliance Infocomm registered a healthy growth, as its subscriber base rose from 24.62 million at the end of March 2007 to 38.78 million at the end of March 2008; similarly, Tata Teleservices subscriber base also posted robust growth and reached 24.33 million at the end of March 2008 from 16.02 million in March 2007.

In GSM, Airtel continued to be the largest service provider at end-March 2008, with a subscriber base of 61.98 million (up from 37.14 million in the previous year). BSNL’s GSM subscriber base stood at 36.21 million at the end of FY07 from 27.43 million during the corresponding period in the previous year. Likewise, Vodafone also recorded high growth in terms of GSM subscriber base at 44.13 million at the end of FY08 against 26.44 million in FY07.

Public and Private Sector

During FY00-FY08, private operators’ total subscriber base (including both wireless and fixed line) increased at a CAGR of 79.9% and the absolute addition was 218.9 million. In the same period, absolute subscriber base of the public sector operators was 53.04 million (a CAGR of 14.7%).

It’s evident from the above table that shows India’s position in terms of world tele-density that its tele-density is far below its peers. However, considering its rising income, favourable government policies, and high competition in the sector, its tele-density is definitely going to improve over the next couple of years. The improvement is certain especially because of its anticipated rise in per capita income, burgeoning IT/ITeS, retail, textile, pharmaceutical, banking and financial sector, and emergence of one of the largest telecom subscriber bases in the world.

Telecom Equipment

Considering the steady growth of cellular and wireline connections in the country, telecom equipment manufacturers are looking at huge opportunities from domestic players as well as in the international market. Telecom equipment production recorded a CAGR growth of 18.6% during FY03-FY07. According to the Planning Commission of India, it is expected that during the Eleventh 5-year plan period, telecom equipment worth US$ 73 billion will be required and export potential will be worth US$ 12 billion.

Telecom infrastructure

With the telecom subscription base increasing every month by around 6.5 million (mostly wireless customers), the telecom infrastructure sector plays a crucial role in meeting the growing demand from the sector. Rising call traffic, limited bandwidth, and significantly limited telecom towers have been some challenges the telecom companies have been facing over the years. As the Indian government has set a target of 500 million connections by 2010, around 330,000 towers will be required in the next 2 years, that is, another 220,000 towers from the existing 110,000.

3G and Value Added Services Market in India

Currently, in India, more than 270 mn people use mobile phones. Due to increasing demand and in order to increase revenue, the mobile telecom operators are attracting customers by providing value added services (VAS). Increasing competition is also the key factor to aggressively marketing VAS.

According to TRAI, VAS in telecommunication industry refers to non-core services, the core or basic services being standard voice calls and fax transmission including bearer services.

Introduction of 3rd Generation mobile communications networks (3G)
 The introduction of 3G is expected to bring about a paradigm shift in the Indian telecommunications industry, particularly mobile VAS offerings. In an ideal 3G scenario, users would get abundance of VAS developed by independent service providers with various of business combinations and technical implementations. In addition, 3G will improve the application of VAS and also help to add more features to the existing application.

Customers will be able to access the Internet on mobile devices, download music, pictures, play 3D games and even send multimedia messages – at wireless broadband speeds. These services will be extensively used by the customers. 3G would facilitate a high bit-rate of mobile data, offer greater network capacity and facilitate rich-data applications such as Voice over Internet Protocol, video telephony, mobile multimedia including video conferencing and interactive online gaming. Increased bandwidth will allow quicker and more convenient downloads such as personalised music recommendations, full length tracks, polyphonic ringtones, master-tones, full length videos, artist greetings, among others. The introduction of 3G is expected to change the telecommunications landscape dramatically – not just for the consumer, but also for the service providers.

Outlook

India continues to be one of the leading countries in the telecom sector (during FY00-FY08 the Indian telecom sector grew at a CAGR of 34.2%). With unified licensing, the government has ended license Raj in telecom, tried to create a level-playing-field for all operators and paved way for faster and sustainable growth of the telecom industry. On the demand side, reduction in tariffs and cost of handsets, which essentially make the service affordable for users, have supplemented growth.

The telecom service providers are expected to introduce VAS through the 3G network soon. It is notably expected that with the introduction of 3G, VAS would definitely help to boost service provider’s revenue and a wide range of services. Thus, 3G applications are expected to drive ARPU and traffic, so as to improve brand image and increase customer loyalty. VAS which will be provided through 3G network would require advanced technology as well as higher investments. Creation of mass market will happen with content branding, rationalised pricing and consumer awareness. This will also call for a proper regulatory framework in place. According to TRAI, VAS is estimated to contribute between 10 - 14% of the total revenue of the telecom service providers, which is further expected to cross 30% in the next 5 -7 years.

According to the Economic Survey FY07, India will have a total of 650 million telephone connections by 2012, which will be in line with its vision to provide 200 million rural telephone connections. Public sector undertakings alone (that is, BSNL and MTNL) will require funds to the tune of Rs 1,216.30 billion at the end of the Eleventh 5-year plan. To sum up, it can be said that the government’s measures and initiatives have helped India in emerging as one of the leading telecom nations today, and hence, it will easily attain further growth.