India's Leading Infrastructure Companies

India's Leading Infrastructure Companies 2015

Introduction
Like all means of communication, the reach of telecom services to all parts of a country is essential to its socio-economic development. The Indian telecom industry has witnessed exponential growth in the last decade. The catalysts for this growth are technological advancements, policy liberalisation and a plethora of reforms. India currently has the second largest telecom network in the world, next only to China.

The reach of telecommunication services has expanded by leaps and bounds over the past decade. As per World Development Indicators statistics published by the World Bank, the number of telephone subscribers has risen from a mere 75.7 mn in 2003 to 915.2 mn by the end of 2013. The mix of telephone subscriptions underwent a radical change, with the number of fixed line subscriptions at the end of 2013 (28.9 mn) being lower than the number at the end of 2003 (42 mn), while the number of mobile phone subscribers jumped from 33.7 mn to 886.3 mn over the corresponding period.

The telecommunication sector has been one of the noteworthy contributors to India’s growth. The share of the telecom services industry in India’s total GDP has reflected a rising trend over the past five years.

The Indian telecom service market operates in three main areas, namely, mobile services, fixed line services, and broadband internet services. About 13 player, from both, the private and the public sector, are engaged in providing telecom services in India. Private players continue to dominate the wireless segment of the sector, accounting for a mammoth 89.2% thereof. On the other hand, private players dominate the wire line segment with a lion’s share of 77.3%.

As per the Annual Report 2013-14 of the Department of Telecommunications (DoT), Ministry of Communications & Information Technology, the number of telephone connections in the country rose to 933 million at the end of March 2014 from 898 million a year ago. Of these 933 million connections, almost 97% are wireless connections.

While the number of wireless telephone connections has continued to grow, landline telephone connections reflect a declining trend. The number of fixed line connections, which stood at 30.2 million at the beginning of FY14 declined to 28.5 million as on March 31, 2014. Contrastingly, the number of wireless telephone subscriptions rose from 867.8 million to 904.5 million over the same period. Consequently, the share of wireless telephones increased from 96.6% as on April 1, 2013 to about 97% as on March 31, 2014.

The overall tele-density (telephones per 100 persons) of the country as of March 31, 2014 stood at 75.2%. The disparity between the urban and rural sectors, however, is quite wide. The teledensity in the urban sector as on March 31, 2014 stood at an impressive 145.5%, while it was at a much lower 44% in the rural sector.

The wireless segment subscription base is composed of GSM and CDMA connections. As at the end of Mar-14, GSM subscribers constituted 93.7% of the wireless market with 847.4 million subscribers.

The domestic wireless sector reflects a rapid shift in demand from basic voice services to highend value added services. As a result, the proportion of revenue from calls has been showing a declining trend over the years. In the GSM segment, the share of revenue derived from calls has declined from as high as 61% in FY09 to 57.7% in FY14. However, the share of revenue from calls has increased from the 52.7% levels witnessed in FY13. The share of other revenues (value added services, data services, roaming charges, installation etc.) increased from 16.9% in FY09 to 24.2% in FY13. For CDMA service providers, the share of call revenues dropped from 59.6% in FY09 to 38.7% at the end of FY14. The share of other revenues in the CDMA segment, in contrast, almost trebled from 14% in FY09 to 40.8% in FY14.

The drop in revenues from calls can be attributed to dropping call charges in the light of competitive pricing across players from all segments. The competition has resulted in declining minutes of usage (MoU) which has further affected the Average Revenue per User (ARPU) in the past few years.

Financial Performance Of Telecom Sector
As per the TRAI, the total gross income of the Indian telecom sector grew at a CAGR of 12.6% over the five year period ending March 31, 2014. In FY14, the gross revenue of the telecom sector stood at र 2,338.2 bn, which translates into a 10% growth over the preceding year.

Investments in the Telecom Sector
The last three five-year plans have witnessed a multi-fold increase in investments made in the telecom sector. With the total telephone subscriptions having reached 640.46 mn in FY11, the target of achieving 600 mn connections by Mar-12 in the eleventh five-year plan was achieved during 2007-11 itself. The achievements during the eleventh five-year plan include the auction of 3G and BWA spectrum, increase in FDI to 100%, and decline in tariff, which culminated in a rapid growth of subscribers.

FDI in telecom is one of the crucial sources for meeting the needs of funds for growth and expansion. FDI inflows in to the telecom sector peaked in the year 2009-10. However, the last couple of years saw a dip in FDIs with uncertainty in the wake of the 2G scam, which led to cancellations of licenses. During the period 2008-13, FDI in telecom plummeted to 38.7% on a CAGR basis from र 117.27 bn to र 16.54 bn. Thereafter, however, with the government having allowed 100% FDI in the sector in Jul-14, FDI rebounded to र 79.87 bn by Mar-14, and went on to jump to र 139 bn by Aug-14. As per the RBI, gross bank credit to the sector has seen a rapid rise from र 41 bn levels in 2003 to र 878 bn by 2013. Having said that, bank credit to the sector declined by 6.6% in 2013.

The Road Ahead
Policy initiatives in the last decade have helped transform the Indian telecom industry. The reach of telecom services, especially in rural areas, is set to increase rapidly in the coming years, thanks to competitive servicing in terms of mobile connections, broadband, and the growing influence of the internet. The fact that governments seek to provide wide spread, highly effective and low cost telecommunication services across nation augurs well for the sector. The overall broadband subscriber base is expected to increase to around 175 mn by the end of the twelfth plan. Notable growth in the VAS segment is also a key indicator of the changing demand patterns. Participation from private players with sufficient investments can help overcome the short-term challenges faced by the sector and would ensure sustainable growth. Another factor that is bound to aid the penetration of telecommunication services is the 100% FDI allowance in the sector. This move is certainly going to bring in a lot of investment in the sector, and improve technology.