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India's Leading Infrastructur Companies 2013

 
 

The Indian telecom industry has seen exponential growth in the last decade, led by technological advancements, policy liberalisation, and reforms. As on Dec 31, 2012, India ranks second after China for its telecom market1. Among the top ten countries in terms of mobile-cellular subscriber base, India registered the fastest five-year CAGR of 29.9% followed by countries such as Indonesia, Vietnam, and Nigeria, which have expanded more than 20% in the same period. Further, the mobile subscription per 100 inhabitants has grown from 63.74 in 2007 to 125.19 in 2012.

Telecom has been one of the major catalysts in India’s growth story. Intense competition and technological advancements in mobile devices have contributed to the unprecedented growth in this sector. The share of the telecom services industry in the total GDP of the nation has been on the rise during the past three years (contribution to GDP went up from 3.5% in 2011 to 3.9% in 2013).

The Indian telecom service market operates in three main areas – mobile services, fixed line services, and broadband internet services. The sector comprises of around 13 players from the private and public sector. As on March 2013, the private players dominate the wireless segment with 87.7% share in subscriber base, while the PSU operators dominate the wire line segment.

Performance of Telecom Sector

In a highly competitive mobile phone market, there is a rapid shift in demand from basic voice services to high-end value added services. This offers huge scope of growth for telecom service providers. Observations showed that for the GSM service providers, the share of revenues derived from calls have dropped from 62% in 2009 to 53% in 2013 whereas other revenues (including value added services, installation etc.) have picked up from 9% in 2009 to 15% in 2013. For CDMA service providers, that recorded a 43% share in 2013, the drop in the share of call revenues was even steep. Other revenues for CDMA service providers have more than doubled in the last few years. 

Composition of Revenues

The drop in revenues derived from calls can also be attributed to the drop in call charges witnessed on account of competitive pricing across players from all segments. Further, rising competition in the telecom sector has resulted in declining Minutes of Usage (MoU) which has further affected the Average Revenue per User (ARPU) in the last few years.

According to the TRAI, the total gross revenue of the Indian telecom services recorded a CAGR of 10.5% in the last five years. In FY13, the gross revenue of the industry was at Rs 2,125.9 bn, up from Rs 1954.4 bn in FY12 and registering a YoY growth of 8.8%.

Investments in the Telecom Sector

During the last three five-year plans, there has been a multi-fold increase in the investments made in the telecom sector. The target envisaged for achieving 600 mn connections by March 2012 in the eleventh five-year plan was achieved during 2007-11 itself, with the total telephone connections reaching 640.46 mn. The share of rural telephones in total telephones increased from 22.8% in 2006-07 to 33.4% in 2010-11. The achievements during the eleventh five-year plan included the auction of 3G and BWA spectrum, increase in FDI to 100%, and decline in tariff, resulting in the 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 has seen sharp decline in the FDI’s with uncertainty around the 2G scam leading to cancellations of licenses. During the period 2008-13, FDI in telecom plummeted to 38.7% on a CAGR basis from Rs 117.27 bn to Rs 16.54 bn. Bank credit to the sector recorded a CAGR of almost 15%. However, in 2012-13, bank credit also declined by nearly 7%. 

Major Initiatives, Policies and Recommendations

1. National Telecom Policy (NTP-2012)

NTP 2012 was approved by the government in May 2012, designed for making available affordable, reliable, and secure telecommunication and broadband services across the entire country. The following are some of the major objectives of NTP:

• Striving to create One Nation-One License across services and service areas

• Increasing the teledensity to about 70 by 2017 and 100 by 2020 in rural areas, from current levels

• Offering affordable and reliable broadband services by achieving 175 mn broadband connections by 2017 and 600 mn by the year 2020, providing a minimum of 2 Mbps download speed and making available on demand, higher speeds of at least 100 Mbps

• Facilitating transition to IPv6, which offers huge address space among many other features that are crucial for future need

2. USOF (Universal Service Obligation Fund)

The government in the recent past has launched several schemes to bridge the digital divide between rural and remote locations. Universal Service Obligation Fund is one such initiative that aims at improving the penetration of telecom facilities in rural and remote areas. A total amount of Rs 472.7 bn has been collected under USOF, out of which Rs 224.7 bn has been utilized until Dec 2012.

National Optical Fiber Network (NOFN) is one such project funded under USOF and is executed by a SPV named Bharat Broadband Network Ltd. This project aims at connecting the 250,000 gram panchayats in the country through optical fiber, using which the telecom service providers like mobile operators, Internet Service Providers (ISPs), cable TV operators, content providers can launch various services in rural areas. 2011.

Other achievements under USOF include2:

- Setting up of 7310 towers and the commissioning of 15,971 base transceiver stations by Nov 2012 under the Shared Mobile Infrastructure Scheme of USOF

- Under VPT scheme, a total of 97.97 % villages had been covered by Nov 2012

- USOF signed an agreement with Bharat Sanchar Nigam Ltd under the Rural Wireline Broadband Scheme to provide wire-line broadband connectivity to rural and other remote locations. As on Aug 2012, a total of 391,245 broadband connections have been provided and 10,076 kiosks have been set up in rural and remote areas. 

3. Telecom Infrastructure

Telecom infrastructure is a key asset and acts as an enabler towards the growth of the telecom sector. A thriving telecom market offers a huge opportunity for the domestic telecom equipment manufacturers. As per TRAI, the demand for telecom equipment was at about 5.5% of the global demand. It is projected to grow to USD 21 bn by 2015 and USD 37 bn by 20203. Despite the growing demand, the Indian telecom manufacturing sector has not been able to meet the required supply. Hence, in order to cut down on its import dependence, it is imperative for India to strengthen its telecom R&D, IPR creation, and product industry. The twelfth plan proposes to strengthen innovation and R&D in telecom by achieving selfreliance in telecom/ICT equipment design and manufacturing. It proposes that the domestic industry meet about 30% of the demand from the beginning of the twelfth plan and target 70-80% by the end of 12th Plan. 

With 3G/4G expected to account for nearly 25% of the subscriber base by 2017, the total cost for core telecom equipment for 3G segment is expected to be about Rs 1500 bn. Broadband is another of the government’s focus area where the cost of manufacturing Customer Premises Equipment (CPEs) is estimated to be around Rs 500 bn.

4. Urban Planning recommendations

It promotes sharing of tower infrastructure to minimize locating of new sites within the same vicinity. It recommends atleast 10% of site sharing by service providers by 2014.

5. Green Telecom

About 300,000 mobile BTS towers in the country have 15-20 KVA diesel generator as power back-up. Two bn litres of diesel5 is consumed every year, generating 5.4 mn tons of carbon. The plan recommends the adoption of green policy in Telecom and incentivises use of renewable energy sources. It prioritizes IPR generation and R&D in development of products for lowenergy, low electro-magnetic (EM) emission, high performance wireless systems. It aims at 8% progressive reduction of carbon emission for the mobile network by the year 2012-2013, 12% by the year 2014-2015, 17% by the year 2016-2017 and 25% by the year 2018-19.

Road Ahead

Policy initiatives in the last decade have helped transform the telecom industry in India. In the years to come, telecom services are expected to see deeper penetration with mobile subscriptions, broadband, and the Internet gaining prominence. The government targets to provide wide spread, highly effective and low cost telecommunication services across the length and breadth of the nation. The overall broadband subscriber base is expected to be 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. 

1 Department of Telecommunications Annual report 2013
2 Economic Survey 2013
3 Report Of The Working Group On The Telecom Sector For The Twelfth Five Year Plan (2012-2017)