Telecom Industry - Section C.potx

8/10/2019 Telecom Industry - Section C.potx

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GROUP MEMBERSAKSHITA . AMIT . JAMAL . REETU . SARTHA

SHIVENDU . SONAL BHUPTA

TELECOM INDUSTRY


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Dynamics of the industry Critical success factors Regulations that affect the

industry Imports and Exports Recent events : New entrant

new products, M&As,Bankruptcies, exits etc

Analysis of Costs and profit Future Outlook

Size of the industry Structure of the Industry Growth rate over the past 3-5

years Expected Growth Rate in the

future Key Growth Drivers Segmental Analysis Key performance parameters for

the industry

CONTENTS


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SIZE AND STRUCTURE OF

TELECOM INDUSTRY


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HISTORY (POST LIBERALIZATION PERIOD

Historically telecom network in India was owned andmanaged by Government as it is considered as astrategic service. At that time the Telecom industry wasmonopoly in nature.


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EVOLUTION

1851 1882

Telegraphservices openedfor public

1854 1930

Radiobroadcaswas initiIndia


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EVOLUTION

1965 19951985 1997

TRAI wascreated

VSNLintroducedinternet inIndia

DoT formed


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PRIVATISATION OF INDIAN TELECOMINDUSTRY

Privatisation of telecom industry started in 1981 underIndira Gandhi.

First contract signed with Alcatel CIT of France tomerge it with Indian Telephone Industries (ITI).

Initial goal of setting up 5,000,000 phone lines everyyear.

Policy let down due to political opposition.


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SECOND ATTEMPT Attempts to liberalise started again by Rajiv Gandhi

government. Sam Pitroda was called in

as a consultant. Centre for Development of

Telematics(C-DOT) was founded.


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EVOLUTION OF TELECOM INDUSTRY


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PRESENT SCENARIO

India is 4th largest market in Asia after China, Japan andSouth Korea. India is the 5 th largest in the world 2 nd largest among emerging economies of Asia.

Contribution of telecom sector in terms of revenue is 2.1% of GDP as compared to 2.8% in developedeconomies.

Lowest tariff charges in the world.


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INDIAN TELECOM INDUSTRY FACTS

One of the fastest growing cellular markets in the world in terms ofnumber of subscriber additions 19.35 million in 3 months (April t2007)

Expected to reach total subscriber base of about 500 million by 2010(i.e., more than one phone for every household)

Annual growth rate of the telecom subscribers 47 percent (2006 More GSM subscribers than fixed-line subscribers Total telecom subscribers 225.21 million (June 2007) Tele density 19.86 percent (June 2007) Number of new mobile subscribers added every month 7

(June 2007) Handset market USD 4,750 million (2006 07)


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STRUCTURE OF THE INDUSTRY Telecom services can be divided

predominantly into basic, mobile andInternet services.

It also comprises smaller segments, suchas radio paging services, Very SmallAperture Terminals (VSATs), Public MobileRadio Trunked Services (PMRTS) andGlobal Mobile Personal Communicationsby Satellite (GMPCS).

The growth witnessed in the mobileservices and Internet services segmentswas higher as compared to otherservices, such as basic services and radiopaging services


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NETWORK STATUS OF THE CURRENT FINAYEAR (2012-13 )

The total number of telephones increased from 951 to965 million during the period of April to June 2012 The number of the telephones declined to 865 in

December 2012. The decline was mainly because of the removal of

inactive mobile connections by the services providers There was a increase of 330.33 to 343 million


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THE CHART SHOWING THE NUMBER OF CONNEC


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TELE-DENSITY

Shows the number of telephones per 100 population. Important indicator for the telecom penetration of the

country. Tele-density was 78.66% at the end of march 2012 and

declined up to 73.35% at the end of December 2012


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AMONGST THE SERVICES AREAS (2013 )

tamil nadu , 109

himachal , 102

punjab , 101

kerla , 100

karnataka , 96


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AMONGST THE METROS (2013)

delhi , 220

mumbai, 159

kolkatta , 155

, 0


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COMPARISON BETWEEN RURAL AND URBAN


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COMPOSITION OF TELECOM SECTOR

Wireless The wireless subscriber was 919.7 million in the financial year

2012. In the year 2011 it was 811.67 wireless subscribers The overall growth 13.26% Out of 919.7 million there were 88% GSM subscribers and 12

% CDMA


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WIRELESS SUBSCRIBERS


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WIRE LINE SUBSCRIBERS

The subscriber base of the wire line subscribers in theyear 2012 was 33.66 when compared to 2011 it was 31.44million.

Registering a decrease of 2.20 million.


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WIRELINE SUBSCRIBERS


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BROADBAND AND INDUSTRY SUBSCRIBE

The internet subscribe in the 2012 was 22.67 whencompared to 19.66 in the year 2011 There was a increase of 3.10 million subscribers. Annual growth rate of 16.19%


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STRUCTURE OF INDIAN TELECOM INDUS

Indiantelecomindustry

Publicsector

mtnl bsnl

Privatesector

Indiancompanies

Foreigninvestmencompanies


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MAJOR PLAYERS


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MARKET SHARE OF WIRELESS SERVICEPROVIDERS


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MARKET SHARE OF GSM PROVIDERS


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MARKET SHARE OF CDMA PROVIDERS


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MARKET SHARE OF WIRELINE SUBSCRIB


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GROWTH IN THE INDUS


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GROWTH IN TELECOM INDUSTRY India has the fastest growing telecom network in the world.

Indian telecom network is second largest in the world after China.

Liberalization of the sector has not only led to rapid growth but also helped a greatdeal towards maximization of consumer benefits, evident from a huge fall in tariffs.

The total number of telephones in the country stands at 904.56 million

Overall teledensity has increased to 73.32% as of 31 October 2013.

The total numbers of mobile phone subscribers have reached 875.48 million as ofOctober 2013.

The mobile tele-density had increased to 70.96% in October 2013.

In the wireless segment, 4.90 million subscribers were added in October 2013.

The wire line segment subscriber base stood at 29.08 million


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NETWORK STATUS DURING CURRENTFINANCIAL YEAR (2012-13)

The total number of telephones continued to increase till June 2012 and increasedfrom 951.35 million to 965.52 million during the period April to June 2012. Thereafter,number of telephone connections declined to 895.51 million by the end ofDecember 2012.

The decline in telecom user base after June 2012 has been primarily due to theremoval of inactive mobile telephone connections by the service providers

The rural telephones have increased from 330.83 million to 343.88 million during theperiod April to June 2012 and declined thereafter to 338.59 million by the end ofDecember 2012 .

The urban telephones increased from 620.52 million to 621.65 million during theperiod April to June 2012 and then declined to 556.92 million by the end ofDecember 2012.


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TELE-DENSITY


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BROADBAND Increase in broadband activity is seen as an integral driver of improved socio

economic performance


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INTERNET SUBSCRIBER BASE Driven by growth in Internet usage through mobile phones, total net

subscriber base in India increased by 20.38% to reach 198.39 million tilApril-2013 Internet usage through mobile phones dominated the total subscriber

base with about 89% share. Total number of subscribers who accessedInternet by mobile devices stood at 176.5 million during the quarterended June 2013.

The number of Internet subscribers, except through access by mobiledevices, increased from 21.61 million at the end of March to 21.89million at the end of June, up 1.3%.


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EXPECTED GROWTH OF THETELECOM INDUSTRY


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EXPECTED GROWTH India is the worlds second-largest telecommunications market. The telecom infrastructure in India is expected to increase at a

compound annual growth rate (CAGR) of 20 per cent during theperiod 2008 2015 to reach 571,000 towers in 2015.

The mobile phone industry in India is likely to contribute US$ 400billion to the countrys gross domestic product (GDP)

It has the potential to generate about 4.1 million additional jobs by2020

The mobile ecosystem generated approximately 5.3 per cent ofthe GDP for India and directly supported 730,000 jobs in 2012.


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The Indian mobile advertising market is estimated to reach Rs 2,800

crore (US$ 457.52 million) by 2016 from the current Rs 180 crore (U29.41 million).

Increasing demand for smart phones and availability of high speednetworks, such as 3G and 4G services, has resulted in the rapid growthof the Indian market

Indian Mobile Gaming Market Forecast to 2017 estimated theto reach Rs 18.5 billion (US$ 302.28 million) in 2017 and grow at a CAGof nearly 24 per cent during the period 2013


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FUTURE - RELYING ON 3-G For future growth, the industry is banking on high value 3G and

data services that fetch higher revenues per user and are moreprofitable.

Though 3G services were launched by the major carriers in 2011,customer conversions have been slower than anticipatedbecause of higher costs.

However, the rising popularity of smart-phones and intensivemarketing has led to increased demand for these services.


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FUTURE PROSPECTS

As the fastest growing telecommunications market in the world, India is projected to have 1billion telephones by 2015 and is estimated

to become world's largest mobile phone market by subscriptions by2013.

With a large population yet to have access to telecommunication andteledensity still being 76.86 % and rural tele-density at 37.48 %, there i

significant growth opportunity for the sector, especially in rural areasand 3G and BWA yet to make significant inroads.


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FACTORS CONTRIBUTING TO ENLARGEDOPPORTUNITIES FOR GROWTH An expanding Indian economy with increased focus on

the services sector Population mix moving favourably towards a younger

age profile Urbanization with increasing incomes


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KEY GROWTH DRIVERS OF THTELECOM INDUSTRY


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GROWTH DRIVERS IN INDIAN TELECOM MARK

Liberalisation: Increasing Affordability of Handsets Prepaid Cards Bring in More Subscribers Introduction of Calling Party Pays (CPP)

Changing Demographic Profile Increased Competition & Declining Tariffs Outlook


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LIBERALIZATION The relaxation of telecom regulations has played a major

role in the development of the Indian telecom industry. The liberalisation policies of 1991 and the consequent

influx of private players have led the industry on a highgrowth trajectory and have increased the level ofcompetition.

Post-liberalisation, the telecom industry has receivedmore investments and has implemented highertechnology.


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INCREASING AFFORDABILITY OF HANDS

The phenomenal growth in the Indian telecom industrywas predominantly aided by the meteoric rise in wirelesssubscribers, which encouraged mobile handsetmanufacturers to enter the market and to cater to thegrowing demand.

Further, the manufacturers introduced lower-pricedhandsets with add-on facilities to cater to the increasingnumber of subscribers from different strata of the society.


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INTRODUCTION OF CALLING PARTY PAYS (CPP

The CPP regime was introduced in India in 2003 andunder this regime, the calling party who initiated the callwas to bear the entire cost of the call.

This regime came to be applicable for mobile to mobilecalls as well as fixed line to mobile calls.

So far India had followed the Receiving Party Pays (RPP)system where the subscriber used to pay for incomingcalls from both mobile as well as fixed line networks.

Shifting to the CPP system has greatly fuelled thesubscriber growth in the sector.


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PREPAID CARDS BRING IN MORE SUBSCR In the late nineties, India was introduced to prepaid cards,

which was yet another milestone for the wireless sector. Prepaid cards lured more subscribers into the industry besides

lowering the credit risk of service providers due to its upfrontpayment concept.

Prepaid cards were quite a phenomenon among first-timeusers who wanted to control their bills and students who hadlimited resources but greater need to be connected.

Pre-paid cards greatly helped the cellular market to growrapidly and cater to the untapped market.


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CHANGING DEMOGRAPHIC PROFILE

The changing demographic profile of India has alsoplayed an important role in subscriber growth.

The changed profile is characterised by a large youngpopulation, a burgeoning middle class with growingdisposable income, urbanisation, increasing literacylevels and higher adaptability to technology.

These new features have multiplied the need to beconnected always and to own a wireless phone andtherefore, in present times mobiles are perceived as autility rather than a luxury.


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INCREASED COMPETITION & DECLINING TARI

Liberalisation of the telecom industry has fuelled intense competition,

especially in the cellular segment. The ever-increasing competition has led to high growth of subscribers

and has put pressure on tariffs, which have seen a sharp drop over theyears.

When the cellular phones were introduced, call rates were at a peak ofRs 16 per minute and there were charges for incoming calls too.

Today, however, incoming calls are no longer charged and outgoingcalls are charged at less than a rupee per minute.

Apart from these major growth drivers, an improved network coverage,entry of CDMA players, growth of value-added services (VAS),advancement in technology, and growing data services have alsodriven the growth of the industry.


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OUTLOOK

The telecom industry in India has experiencedexponential growth over the past few years and hasbeen an important contributor to economic growth;however, the cut-throat competition and intense tariffwars have had a negative impact on the revenue ofplayers.

Despite the challenges, the Indian telecom industry willthrive because of the immense potential in terms of newusers. India is one of the most-attractive telecom marketsbecause it is still one of the lowest penetrated markets.


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SEGMENTAL ANALYSIS OF THTELECOM INDUSTRY


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MARKET SEGMENTATION IN TELECOMINDUSTRY Market segmentation is a concept and a process well

known and largely used worldwide, in most businessenvironments.

It is basically a process of grouping customers intohomogenous groups in order to optimize the use ofresources and increase efficiency, be it in terms ofproduct adoption, communication and branding,distribution or pricing.


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SEGMENTS IN THE TELECOMMUNICATIONINDUSTRY Telecommunication services in India can be divided into

two broad segments, wireline services and wirelessservices.

The Indian telecom industry has made significantprogress; however, the source of emergence of thisgrowth in terms of wireless and wire line segments hasundergone substantial change in the past few years


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Other telecommunication services such as internet services,broadband services, VSAT, also have evolved gradually andhave become an integral part of the Indian telecom industry.

Thus, broadly the Indian telecommunication industry can be

classified into the following segments Wire line services Wireless service: GSM and CDMA Internet services Public Mobile Radio Trunked Services Global Mobile Personal Communication by Satellite (GMPCS) Very Small Aperture Terminals (VSAT) Mobile Value Added Service


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CONNECTED INDIA: TELECOM MISSION 2020 SHOULDTO ACHIEVE THE FOLLOWING OBJECTIVES

To recognize and treat telecom infrastructure as critical infrastructure to accelerate the pace of growth of the sector and increase its contribution to the Indian economy To connect the unconnected at affordable prices to ensure 100% telecom coverage of the country; achieve rural penetration of 100% and reach overall wireless penetration of 110% To strengthen broadband penetration to reduce the digital divide; achieve total broadband connections of 150 million To earn revenues of around US$60 billion


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KEY PERFORMANCE PARAMETERTELECOM INDUSTRY


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KEY PERFORMANCE PARAMETERS A performance indicator or key performance indicator (KPI)

is a type of performance measurement. An organization may use KPIs to evaluate its success, or to

evaluate the success of a particular activity in which it isengaged.

Sometimes success is defined in terms of making progresstoward strategic goals, but often success is simply the

repeated, periodic achievement of some level ofoperational goal (e.g. zero defects, 10/10 customersatisfaction, etc.).

Accordingly, choosing the right KPIs relies upon a goodunderstanding of what is important to the organization.


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KEY PERFORMANCE PARAMETERS 'What is important' often depends on the department

measuring the performance - e.g. the KPIs useful to financewill be quite different from the KPIs assigned to sales. Since there is a need to understand well what is important (to

an organization), various techniques to assess the presentstate of the business, and its key activities, are associatedwith the selection of performance indicators.

These assessments often lead to the identification of potentialimprovements, so performance indicators are routinelyassociated with 'performance improvement' initiatives.

A very common way to choose KPIs is to apply amanagement framework such as the balanced scorecard.


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KEY PERFORMANCE PARAMETERS KPI tells the performance of a network on a

daily/weekly/monthly basis, helps to improve network, so that operator & customer both enjoy theservice

There are various Key Performance Parameters of thetelecom industry which help us in gauging the extent towhich the network provider is successful andappreciated among the customers


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Cost of support systems Cost of operational system Average call length Analysis of ASR routes Network traffic, congestio Idle time on network Dropped calls

Availability Grade of service Service life of equipment Bit error ratio (data, bits &

elements transfer)

Bit rate (data, bits andelements transfer)

Downtime / Time out ofservice

Call completion ratio

1. SYSTEMS AND NETWORK PERFORMANCEANALYSIS / CAPACITY PLANNING


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2. QUALITY / USAGE (AIRTIME): ANALOF THE VOLUME OF SUCCESSFUL CA

Mean Opinion Score Service Duration of calls Billed amount on each call


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3. COVERAGE % of land covered with services % of population covered with services Average land unavailable to services Average population unavailable to services

Access to customer service


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4. FAULTS AND COMPLAINS (TROUBLE TIANALYSIS) % of open and level of escalation priority required % closed Mean time to resolved Work in progress

Customer service level statistics


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5. CUSTOMER ANALYSIS Customer segmentation Analysis of subscriptions Top N customers Churn (No. of Subscriber who stopped using Services or

left particular network)


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SOME OTHER PARAMETERS ASR (Answer Seizure Ratio) - Number of successfully answered calls div

by the total number of calls attempted (seizures) multiplied by 100 (Answer / Seizure) * 100 = Answer Seizure Ratio. Standard Value = 40% - 45% MOU (Minutes of Usage) per Subscriber It calculates the Total Minut

in a Network divided by the number of subscribers

CCR (Call Completion Ratio) - Total no of calls completed / Total no of attempted * 100% Higher the ratio is better Standard Value > 98%


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LUSR (Location Update Success Rate) - Its a ratio of no. of times mupdate its location successfully to the no. of times mobiles requestnetwork for Location update

LUSR = (Location Update Success / Location Update Request)*100 Standard Value >= 98%.

PSR (Paging Success Rate) - Its a ratio of no. of times network successffind the mobiles to the no. of times network tries to locate the mobileswithin its area

PSR = (No. of Network Paging Response / No. of Network PagingAttempts)*100

Standard Value >= 92%


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SUMMARY OF GSM OPERATORS KEY PERFORMINDICATORS (AUG-SEP 2013)

CSSR CALL SET-UP SUCCESS RATE

CDR CALL DROP RATE

TCH TRAFFIC CHANNEL

SDCCH STAND ALONE DEDICATED CONTROL CHANNEL


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SUMMARY OF CDMA OPERATORS KEYPERFORMANCE INDICATORS (AUG-SEP 2013)

CSSR CALL SET-UP SUCCESS RATE

CDR CALL DROP RATE

TCH TRAFFIC CHANNEL

SDCCH STAND ALONE DEDICATED CONTROL CHANNEL


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DYNAMICS OF THE INDUSTR

OLIGOPOLY


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OLIGOPOLY An oligopoly is a market form in which a market or industry isdominated by a small number of sellers. In India, the telecom sector is dominated by the following

companies:


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DEPARTMENT OF TELECOM Separated from Indian Post and Telecommunication

Department in 1985 Responsible for telecom services in entire country until

1986. MTNL and VSNL carved out of DoT.


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1990 S Pressure on the government to open up telecom

industry under the LPG policies. Value Added Services (VAS) and cellular telecom

sector were opened up for competition from privateinvestments.

Narsimha Rao - led government introduced the

National Telecommunications policy (NTP) in 1994. Foreign firms were eligible to 49% of the total stake.


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1990 S In 1997, the government set up TRAI (Telecom

Regulatory Authority of India). The government corporatized the operations wing of

DoT on 1 October 2000 and named it as Departmentof Telecommunication Services (DTS) which was laternamed as Bharat Sanchar Nigam Limited (BSNL).

In April 2002, TATA took 25% stake in VSNL.

MAJOR PLAYERS & MARKET SHARE


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MAJOR PLAYERS & MARKET SHAREWIRELESS SEGMENT

WIRE-LINE SEGMENT


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WIRE LINE SEGMENT

BROADBAND


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BROADBAND


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PRICE & NON PRICECOMPETITION STRATEGIES

TELECOM INDUSTRY


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WHAT IS PRICE COMPETITION Price competition is commercial competition characterized by the

repeated cutting of prices below those of competitors.

In the short term, price wars are good for consumers, who can takeadvantage of lower prices.

Often they are not good for the companies involved because the lowerprices reduce profit margins and can threaten their survival.


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WHAT IS NON PRICE COMPETITION Non-price competition is a marketing strategy in which one firm tries to distinguish

its product or service from competing products on the basis of attributes like design,quality of service or any other sustainable competitive advantage than price.

Non Price competition typically involves promotional expenditures, marketingresearch, new product development, and brand management costs.

Firms engage in non-price competition, in spite of the additional costs involved,because it is usually more profitable than selling for a lower price, and avoids the riskof a price war.

Although any company can use a non-price competition strategy, it is most

common among oligopolies and monopolistic competition, because firms can beextremely competitive.

VS

PRICE COMPETITION IN INDIAN


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PRICE COMPETITION IN INDIANTELECOM INDUSTRY

Tata Docomo entered the Indian market with a new concept of chargingthe customer per second. It literally revolutionized the Indian telecomindustry.

Indian mobile telephone companies have come a long way and no longerperceive lowering prices and increasing subscribers as tools for survival.

To ensure their sustenance, telecom players in India are slowly hiking callrates and doing away with promotional offers.

"The reason behind increasing call rates is that none of the players has aserious incentive to lower prices. The intensity of competition has comedown after many players left the Indian market following cancellation of

some licences after 2G scam," Mahesh Uppal, director, Com First telecomconsultancy, told IANS.

With the changing dynamics in the market and the primary objective ofincreasing the data penetration amongst customers, Tata DOCOMOl h d it 2G d 3G d t l b d h i (VBC) t iff b 90


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slashed its 2G and 3G data volume based charging (VBC) tariffs by 90percent.

Earlier, Vodafone and Airtel went for a whopping reduction in the 2G datacharges by 80% and 90% respectively. Following the suit Idea lowered the2G data tariff by 90% in 8 circles.

NON - PRICE COMPETITION IN


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INDIAN TELECOM INDUSTRY Rather than cutting call charges which was the theme about two yea

ago at the height of the price war companies are trying to woo users woffers of freebies on recharge vouchers. More than 95% of Indiaphone users are on pre-paid schemes that use such vouchers.

The offers vary across schemes, but mostly they either give the sameamount of talk time for a lower price, or more talk time for the same price.


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Attraction of customers by using *celebrity* fan fareanother non price strategy that telecom agenciesemploy.


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Sponsoring of various events is also one of the non pricistrategies that the telecom companies employ to grab theattention of customers.


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OTHER COMPETITVE EDGES

Direct Handset Sales Ecosystem wars Duopoly Fear Near Field

communication Embedded Software

sim


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CRITICAL SUCCESS FACTO

The Telecommunications industry today is a key enabler of


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The Telecommunications industry today is a key enabler ofproductivity across economies and societies.

Not only a significant contributor towards the economic

activities of countries, but also towards the growth of otherindustries. In recent times, developing nations have witnessed

significant transformation within this sector due to thimpact it has had on their economies.

The booming and emerging economies of China and Indiahave been impacted the most by the rapid growth of theTelecom industry in the past decade.

It has a significant social cultural and economic impact on


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It has a significant social, cultural and economic impact onthe modern society. In 2008, estimates placed the industry'srevenue at $3.85 trillion or just under 3 percent of the grossworld

India has become the most competitive and one of thefastest growing telecom markets with an expected growthrate of over 26% and generated employment opportunitiesfor about 10 million people (PTI, 2007).

The number of subscribers are growing at a rapid pace,which is adding to the growth and importance of theindustry. This makes the telecom one of the most lucrativesectors today.

In emerging markets, like that of India, factors such as


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g g , ,customer service, regulations and policies are some of themain factors that are shaping the indust

The methodology used to benchmark the performances ofservice providers in order to create a loyal customer base aswell as to retain it, and customer service is one of the factorsthat influences the revenue growth of the telecom industry

The Government of India aims to develop the nation as aglobal telecommunication hub and provides regulatorysupport to the industry to achieve the goal and to proposeinfrastructure status to telecom (IBEF, 2011)


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ROLE OF NUMBER OF SUBSCRIBERTHE TELECOM INDUSTRY


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From an industrial point of view, an increased number of

subscribers also stimulates the development of its relatedindustries such as demand for both hardware and softwareproducts.

According to Porters Five Forces theory, the growtsubscriber numbers can be related to the strength requiredto compete with existing competitors.

Another potential benefit that results from the steady growth


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Another potential benefit that results from the steady growthof number of subscribers in the telecom industry is that, itgathers crucial customer related information.

Operators maintain databases with personal informationand choice, which is collected during the registration andcancellation processes.

Customers are normally obliged to provide personalinformation as well as personal opinions on the product orservice and this information is valuable for the company andthe industry to understand better their customers bpreferences, and segmentations, which provides necessarystatistics in order to improve the efficiency in marketinganalysis.

REASONS FOR INCREASED NUMBER OF


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The dramatic increase in number of subscribers in Indiantelecom industries is due to a combination of factors.

The most significant factor among these is thetechnology innovation factor.

For example, with the emergence of smart phones and

high speed networks , consumers are more and moreattracted towards mobile devices and at the same timemoving away from personal computers.

REASONS FOR INCREASED NUMBER OFSUBSCRIBERS-


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Other factors contributing towards the increase in

subscribers are - increasing affordability of mobile handsetsand services that has lowered the entry level, and also thechanging demographic profile in developing economy,which has diversified the market population.


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Over the last decade, technology innovation hasenabled the expansion of telecom infrastructure frommetropolis to rural areas where the majority of Indianpopulation is located.

Hence, telecommunication services become easilyaccessible and cover large portion of the cpopulation that eventually resulted in the increase ofsubscribers

TECHNOLOGICAL INNOVATION


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India witnessed tremendous increase at the end of 2010 from

63% to 67.6%(TRAI, 2010). Furthermore, launch of the Internemarket also drove growth in the telecom subscriber base.

According to TRAI (2010), the total wireless subscriber base inthe industry crossed the 500-mn-mark and reached 509.03

million by the end of September 2009, which took India tothe second position in terms of wireless network in the world,next only to China.


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Intense competition has lowered the prices of hardware andservices in the telecom industry.

This helped in lowering the entry barrier into the market andthus made it affordable to a large percentage of thepopulation.

At the same time, competition among multiple operatorsalso reduced tariffs, particularly in the Indian telecomindustry, which is characterized by intense competition, haswitnessed continuous price wars.

The expansion of wireless networks and growth in subscriberbase, both in urban and rural areas has led to a boost in thesale of mobile handsets across India (IBEF, 2010)

INCREASING AFFORDABILITY


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The changing demographic profile of India has alsocontributed to the growth of number of subscribers.

A large young population, a burgeoning middle class,with growing disposable incomes, and also urbanization,which is increasing literacy levels and higher adaptabilityto technology, characterizes the changed profile

The urbanization rate in India was 41%, with an increaseof 17.25 million in urban population (Ministry of Statisticof India, 2012).

DEMOGRAPHIC PROFILE CHANGE


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TECHNOLOGICAL INNOVATIO


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Today telecommunications is a highly technical industry,which is constantly evolving, and inventing technologiesto improve the cost, coverage and quality ofcommunication.

It is one of the most R&D intensive-industries, with leadingmultinational corporations (MNCs) spending on averagebetween 10 and 20% of their revenues in R&D

TECHNOLOGY AS A GROWTH FACTOR


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Indian companies in the telecom-equipment

manufacturing segment are yet to feature in the globaltelecom landscape.

Though a few Indian mobile operators have a significantpresence globally, manufacturers in India face

challenges such as high logistics costs, an unreliablepower supply, inadequate tax benefits and competitionfrom low-cost Chinese equipment (Ernst and Young,FICCI, 2011). Initially, Indian core telecom equipmentcompanies operated as resellers for foreign companies.

TECHNOLOGY INVESTMENTS AND ITS BE


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Global players, with an intention to enter the fast growingIndian telecom market partnered with local companiessuch as Fibcom, Anda Telecom, GOIP Global ServicesTirumala Seven Hills, Savitri Telecom, etc. have all acted asIndian subsidiaries or local partners to these player(Knowledge Faber, 2009).

THE FUTURE OF TECHNOLOGY AND ITS CONTRIBUTI


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Technological innovations in 3G mobile technology iscapable of delivering broadband content that includesrich multimedia services such as video calling, video ondemand, location based services and remote access/VPN applications.

Also next generation technologies such as LTE (Long

Term Evolution), Mobile WiMAX or 4G networks aexpected to drive the wireless services in the future. Applications such as IPTV and Mobile TV will be th

beneficiaries of such technological innovations.

THE GROWTH OF THEINDUSTRY


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Investments in Broadband by the telecom companies are

growing rapidly in India. The Department of Telecom in theIndian government has formulated the Broadband Policy2004, which envisions the creation of a framework throughvarious access technologies such as optical fiber, digitalsubscriber lines (DSL) on copper loop, cable televisionnetworks, satellite media, terrestrial wireless and futurtechnologies(Ernst and Young, FICCI, 2011)


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GOVERNMENT REGULATIONS APOLICIES


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All industries, irrespective of the product or service,depend heavily on the support they receive from thegovernment to survive in the market.

The role of the government is seen as an essentialsupporter of the industry, employing a host of policies tocontribute directly to the competitive performance of

strategic or target industries (Porter, 1990).

REGULATIONS AND POLICIES AS A FACTO


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In 1999, the Indian Government established the National

Telecom Policy 1999, which played a key role in shapingthe sector and later in 2000 introduced theCommunications Convergence Bill that setup theautonomous commission called the CommunicationsCommission of India (CCI) that acts as thesuper/regulatory body to regulate telecommunications,Internet and Broadcasting sectors.

POLICY MAKERS AND THEIR INPUTS


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The Planning Commission of India in its eleventh five-year

plan for the period 2007 till 2012 stated that theapproach would be towards achieving faster, broaderand inclusive growth, with special attention to enhancethe rural connectivity (Planning Commission, 2008)


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KEY REGULATIONS FOR THETELECOMINDUSTRY


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According to the report released by Ernst and Young,

and FICCI (2011), The Telecom Regulatory Authority ofIndia (TRAI) established as an independent statutoryregulatory authority is one of the key powers that advisethe government in matters related to the developmentof telecommunication technology and the telecomindustry in general. The key feature of Indias regregime is transparency in industry information, an opapproach and encouragement of consultation withstakeholders.

KEY REGULATIONS


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The Universal Service Obligation Fund (USOF), which came

into effect in 2002, was introduced to provide access totelegraph services to people in rural and remote areas ofIndia at affordable prices.

The USOF was estimated to hold around $ 3.6 billion at theend of FY10 (IANS, 2010).

However, rural teledensity was at 28.4%, whereas urbanteledensity was about 137.3%, resulting in a huge digitaldivide (Ernst and Young, FICCI, 2011).

The USOF has a long way to go to improve the ruraltelephony connectivity.

TELEDENSITY

IMPLICATIONS OF POLICIES AND REGULATION


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Every new policy or regulation set by the government

and its relevant authority has a direct or indirect effecton the growth of the sector. Be it in supporting new entrants, Foreign Direc

Investment, helping the rural and remote areas to beconnected or changing the tax structure of the industryand the consumers.

All of them have diversified effect on the growth. The political environment in the country plays a vital role

in the implementation of these policies and regulations.

IMPLICATIONS OF POLICIES AND REGULATIONTHE GROWTH OF TELECOM SECTOR


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In India, though telecommunications has grown rapidly, itneeds to achieve more in terms of teledensity as comparedto other countries.

For example, in The Tenth Plan of the planning commissionhad envisaged a teledensity of 9.91% by March 2007, but fell

short of about 65.0 million connections (PlanninCommission, 2008)


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Though the policies of the Indian Government are meant toimprove the growth of the sector, the effectiveness of theimplementation falls short in many aspects.

Thus, the co-relation between the Government policies andregulations with respect to the growth of telecomcompanies is weak.

With plenty of strong potential, the sector requires much


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more attention and a robust policy framework to addressthe challenges that exist and help to capture theopportunities that the sector holds for the country.

India needs to improve its Critical Infrastructurealong with uniform policy and single window clearan

Theres also a need to address civic issues such as zoningregulation, single window clearance, preferential treatmentfor sharing and incentives in a timely manner (Ernst andYoung, FICCI, 2011).


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IMPORTS & EXPORTS

GLOBAL TELECOM EQUIPMENT SCENARIO


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GLOBAL TELECOM EQUIPMENT SCENARIO A $290 Bn industry- one of the high tech industry

Driven by innovation, system design expertise and manufacturing

Infrastructure Equipment(40%) Wireless(Driving Growth) Wireline(enabling broadband infrastructure)

Handsets/CPE(60%) 2G, 3G, Smartphones, CPE

Dominated by few large players Top 5 players contribute 70% of the revenue Emerging Markets are driving growth

APAC (37%), EMEA (28%), North America (30%), Others (5%) Indian demand is around 6-7% of the global

INDIA EQUIPMENT POTENTIAL


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INDIA EQUIPMENT POTENTIAL India consumed nearly Rs 54,000 cr of equipment last FY. Majority of network infrastructure equipment is imported.

Telecom Equipment is the 2 nd largest item of trade deficit. Handset production has ramped up in the last few years

Production of >Rs 15,000 Cr; a majority of components are stillimported

TRAI has set a target to have 80% of demand met bylocal production by 2020

India can become a large exported of telecom productsby 2020


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INDIA TELECOM EQUIPMENT DEMAND


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INVESTMENTS


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PUBLIC SECTOR VERSUS PRIVATE SECTOR


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PUBLIC SECTOR VERSUS PRIVATE SECTOR


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PUBLIC SECTOR VERSUS PRIVATE SECTOR The capital employed has shown growth of 94 per cent over

the last six years. The capital employed by public and private sector

companies has shown a decrease of 16 per cent and growthof 275 per cent, respectively over the last six years.

The Gross Block has shown growth of 134 per cent over the

last six years. The Gross Block of public and private sector companies has

shown an increase of 56 per cent and 270 percent,respectively over the last six years.


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FOREIGN DIRECT INVESTMENT Initially domestic companies were encouraged to tie up with

foreign ones so as to bring in more capital and improvedtechnology.

However, with disastrous financial results, foreign firmswanted to exit by late 1990s.

The policymaker changed the rules and most of the foreigncompanies were bought out by domestic companies.

FDI was limited to 74 per cent.

Desai, A.V. (2006), Indias Telecommunication Industry: History, Analysis, DiagnSage Publications India, New Delhi.


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CURRENT POLICY FDI is fully open for manufacturing and infrastructure

sectors. For services, FDI is increased to 100 per cent, with

automatic approval up to 49 per cent. Beyond that, it would require the approval of Foreign

Investment Promotion Board (FIPB).


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Source: Department of Telecommunications


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INWARD FDI FDI in the telecom sector has grown at a Compound Annual

Growth Rate (CAGR) of 24.8 per cent between 20002011 12 (April February, 2011 12).

However, this hides significant variations over the decade. Growth rate peaked in 2001 02, 2005 06 and 2007-08. The 2008 10 numbers signal that the worldwide slowdown

probably resulted in increased FDI inflow to India and the

telecommunications sector benefited from that. However, the continued uncertainty in worldwide economic

conditions coupled with domestic factors such as inflation,and infrastructure implementation bottlenecks haveprobably contributed to reducing FDI in 2010 11.

FDI IN TELECOM SECTOR(RS CRORE) AND


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( )GROWTH RATE OF FDI IN TELECOM


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There is no significant correlation between inward FDI and the number of wirelesssubscribers.

FDI has gone up and down with the number of subscribers steadily increasing.


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The relationship between Inward FDI in the telecommunications sector andAverage Revenue Per User (ARPU) for the years 2000 01 through 2011

There does not seem to be any correlation between the two.


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Since 2005 06 there are indications of positive correlation between FDI antelecom exports.

However, imports are much higher than both exports and FDI indicating that mostof the Indian domestic needs are being met by imports.

OUTWARD FDI


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Indian companies have reached overseas destinations to tap new markets and have acquiredtechnologies.

The market has witnessed investment in the form of greenfield projects, and the majority of thiscapital value has been used to acquire companies.

The Indian telecom sector has actively been a part of the global M&A activity, leading to theemergence of telecom giants from India.


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MERGERS & ACQUISITIONS Rationale behind Mergers in Telecom sector.

Acquisition of licenses or geographical territories Acquisition of spectrum Acquisition of telecom infrastructure and network Acquisition of customer base to achieve an economic base Acquisition of brand value

Higher operating profit (EBITDA) margin Acquisition of Customer Base

GOVERNMENT POLICY ON M&A


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GOVERNMENT POLICY ON M&A At present, intra-circle M&A is allowed subject to the

following conditions: The total number of operators in a circle should not fall below four Market share and revenues of the merged entity should be less than

40% in each circle A three-year lock- in for owners equity in the new operators that have

been given licenses recently (no lock-in if fresh equity)

Maximum spectrum of the merged entity will be capped at 15MHz forMetros and A circle and 12.4MHz for B circle and C circle No one entity can hold equity stake of 10% or more in more than one

licensee company in the same circle

IMPORTANT M&A IN INDIAN TELECOM SE


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Acquisition of 41% of stakes of Orange services in Mumbai byHutchison from Max for USD 560 million in 1998.

Acquisition of Command Cellular Services in Kolkata byHutchison from Usha Martin in 2000. Acquisition of 79.24% stakes of Aircel, Chennai by Sterling

group from RPG group for Rs. 210 Crores in 2003. Acquisition of 48% stakes in Idea cellular by Aditya Birla grou

from the Tata group in 2005. Acquisition of Hutch services in India by Vodafone in 2006. Acquisition of Broadband Wireless Access division of

Qualcomm India by Bharti Airtel for USD 165 million in 2012 Acquisition of 5% stake in Bharti Airtel by Qatar Foundation

Endowment for USD 1.26 Bn in 2013.

KEY CHALLENGES FACING INDIAN TELECSECTOR


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Availability of affordable CustomPremises Equipment(CPE)

Availability of adequate power fTelecom infrastructure Addressing various issues related

EMF radiation Need of encouragement for

development of content/applicatias per the regional requirement fwider and faster penetration of

Broadband. Availability of adequate spectrum Need for promoting R & D, Prod

Development and indigenousmanufacturing

Policies relating to Foreign DirectInvestment(FDI)

Policies relating to Service Tax Policies relating to import of Telecom

equipment Evolution and expansion of emerging

telecom technologies like NGN , LTE ,Cloud computing etc.

Convergence of Telecom services

and networks. Effective security system for

Protection of Telecom Infrastructure Need for evolving uniform policy for

addressing Right Of Way(ROW) issues

SECTOR

TELECOM SPECTRUM ALLOCATION IN IND


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What is Spectrum? The word spectrum refers to a collection of various types of electromagnetic radiations of

different wavelengths. Spectrum or airwaves are the radio frequencies on which all communication signals travel.

In India the radio frequencies are being used for different types of services like spacecommunication, mobile communication, broadcasting, radio navigation, mobile satelliteservice, aeronautical satellite services, defense communication etc.

Agencies allocating spectrum The International Telecommunication Union (ITU) at the World Radio Communication

Conferences allocates spectrum frequencies for the use of various countries. Since the mobile communication technologies provide international roaming facilities, it is

essential to allocate spectrum in the common bands which are being used the world over. The Wireless Planning and Coordination (WPC) Wing of the Ministry of Communications

created in 1952, is the National Radio Regulatory Authority responsible for FrequencSpectrum Management, including licensing and caters for the needs of all wireless users inthe country.

WPC is divided into major sections like Licensing and Regulation (LR), New Technology Group (NTG) and Standing Advisory Committee on Radio Frequency Allocation (SACFA).

SACFA makes the recommendations on major frequency allocation issues, formulation of the frequency allocationplan, making recommendations on the various issues related to International Telecom Union (ITU), to sort outproblems referred to the committee by various wireless users.

INDIAS NATIONAL FREQUENCY ALLOCATION PTh N ti l F q All ti Pl (NFAP) f th b i f d l t d


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The National Frequency Allocation Plan (NFAP) forms the basis for development andmanufacturing of wireless equipment and spectrum utilization in the country.

Frequency bands allocated to various types of radio services in India are as follows.

0-87.5 MHz is used for marine and aeronautical navigation, short and medium waveradio, amateur (ham) radio and cordless phones. 87.5-108 MHz is used for FM radio broadcasts 109- 173 Used for Satellite communication, aeronautical navigation and outdoorbroadcast vans 174-230 MHz not allocated. 230 450 Used for Satellite communication, aeronautical navigation and outdoorbroadcast vans 585-698 Used for TV broadcast 806-960 Used by GSM and CDMA mobile services

960-1710 Aeronautical and space communication 1710- 1930 Used for GSM mobile services 1930-2010 Used by defense forces 2025-2110 Satellite and space communications 2170-2300 Satellite and space communications 2400- 2483.5 Used for Wi-Fi and Bluetooth short range services 2483.5-3300 Space communications 3600-10000 Space research, radio navigation 10000 used for satellite downlink for broadcast and DTH services

TELECOM SPECTRUM POLICY IN INDIA


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In India GSM technology works in the frequency bands of 900 and 1800MHz and CDMA technology works in the 800 MHz band.

Presently, 100 MHz spectrum is ear marked for GSM services and 20 MHz isearmarked for CDMA.

Out of this 65 MHz of GSM band is still with Defense forces. The minimumamount of spectrum required for launching GSM services is 4.4 MHz.

In 2002, the government introduced a subscriber linked spectrumallocation process, which provided for a maximum allotment of 12.5 MHzof spectrum per operator in each service area.

However due to the deluge of over 570 UAS license applications, in Dec2007, DoT delinked spectrum from the telecom license and implementeda policy of first come first served basis for spectrum allocation.

It depended entirely on submission of license fees to DoTs WPC wispectrum license.

In 2008 DoT revised the criteria for additional spectrum allocation.According to this, the subscriber base required for additional spectrumallocation was hiked two to six times for different circles.

INDIAN TELECOM SPECTRUM AUCTION


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In India, the Department of Telecommunications (DoT)conducts auctions of licenses for electromagnetic spectrum.

India was among the early adopters of spectrum auctionsbeginning auctions in 1991. Despite the early start, services were slow to roll out caused by

unforeseen problems with the design and rules of the auction. Potential service providers were required to seek foreign

partners, as the DoT felt that no Indian company alone hadthe financial means to enter the industry.

Bidding for all licenses required a two stage screeningprocess.

2010 SPECTRUM AUCTION In 2010, 3G and 4G telecom spectrum were auctioned in a


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, phighly competitive bidding. The winners were awarded spectrum in September, and Tata Docomo

was the first private operator to launch 3G services in India. The Government earned INR677.19 billion (US$11 billion) from the 3G

spectrum auction. The broadband wireless spectrum auction generated a revenue of INR385

billion (US$6.2 billion). The Government earned a total revenue of over INR1062.19 billion (US$17

billion) from both auctions. Participants

Airtel, Aircel, Idea, Reliance Communications, S Tel, Tata Teleservices, Vodafone Essar (

Now Vodafone India) BSNL and MTNL were also awarded spectrum without participating in thebidding process.

Condition that each would pay an amount which would be equivalent tothe highest bid in the respective service areas as and when the 3Gauctions took place


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2012 SPECTRUM AUCTION


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DoT auctioned 2G spectrum in both GSM and CDMA bands. The government put on sale 271.25 MHz of spectrum. Eleven blocks having 1.25 MHz each in the 1800 MHz frequency band were auctioned,

except in Mumbai and Delhi where only eight blocks were available. Three of the eleven blocks, in each circle, were reserved or new telecom Initially, only Videocon Telecommunications Limited and Tata Teleservices (Tata DoCoMo

CDMA) had applied to participate in the auction for spectrum in 800 MHz band (CDMA). Both companies withdrew their applications before 5 November, the last date for

withdrawal of applications. The withdrawals meant that there were no bidders left and the CDMA spectrum auction

was subsequently cancelled. The final list of bidders was announced on 6 November. This was followed by a mock

auction on 7 and 8 November and the e-auction of 1,800 MHz band began on 12November.

Participants Airtel, Idea, Vodafone, Videocon, Telewings Communications


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The DoT auctioned 2G spectrum in GSM (1800 MHz) and CDMA (800 MHz) bands. The Government decided to sell airwaves in Delhi, Mumbai, Karnataka and Rajasthan for

1800 MHz band, and pan India for the 800 MHz band. The Government also announced that it would auction the unsold spectrum in the 1800

MHz band from the 2012 spectrum auction. The government reduced the reserve price for 1800 MHz by 30% and for 800 MHz by 50%

from the 2012 spectrum auction. The Government had planned to auction airwaves in Delhi, Mumbai and Kolkata for 900

MHz band simultaneously with the 1800 MHz band. The Government failed to finalize the auction for the 900 MHz band as incumbent

operators had moved the Delhi High Court, to stop the auction of the 900 MHzbandwidth,

Plea to court after they failed to get a response from the DoT on their plea for renewal oflicenses for the 900 MHz spectrum band which they had bought in November 1994.



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2013 SPECTRUM AUCTION DoT issued notice inviting applications for spectrum auction

on 30 January 2013, and the last date for submitting anapplication was 25 February 2013.

The auction for all three bands was planned to begin on 11March 2013.

No bidders expressed interest in the 1800 MHz and 900 MHzbands and as a result, the auction for those bands was

postponed indefinitely. The auction for spectrum in 800 MHz band proceeded as

planned on 11 March Only Bidder was MTS India for 800 MHz band.

Circle Price per block


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Delhi 4504.9 million (US$72 million)

Gujarat 1461.5 million (US$23 million)

Karnataka 2145.8 million (US$34 million)

Kerala 424.5 million (US$6.8 million)

Kolkata 739.2 million (US$12 million)

Maharashtra & Goa No bid

Mumbai No bid

Tamil Nadu 1989.6 million (US$32 million)

Uttar Pradesh (East) No bid

Uttar Pradesh (West) 698.2 million (US$11 million)

West Bengal 167.9 million (US$2.7 million)


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COST ANALYSIS OF INDIANTELECOM INDUSTRY

COST STRUCTURE OF INDIAN TELECOMINDUSTRY


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INDUSTRY The telecom sector is characterised by very large

investment costs High fixed cost Industry suffers from high fixed

which prove an entry barrier for new entrants High Sunk Costs These Include - Infrastructure tenanc

costs, Customer Switching Costs, Falling ARPU etc. Wage shares are at about 1/3 of the total operating

costs

MAJOR COSTS INVOLVED


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MAJOR COSTS INVOLVED Infrastructure costs Spectrum costs Government Licences Joint Ventures, mergers and acquisitions Cost for sharing of infrastructure resources Operating costs Sunk Costs

SUNK COSTS


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SUNK COSTS A notable part of the investments are what economists refer

to as sunk costs . These are long term investments whiccan be used only for specific economic activities.

An example is a fixed access network providing subaccess to the local exchange.

This investment only has value for the supply of telecomservices in this particular local area.

Once the investment is made the operator can only exit thisparticular market at 103 considerable costs.

Other investments have a shorter time horizon and/or canmore easily be applied for other activities.

INFRASTRUCTURE COSTS


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INFRASTRUCTURE COSTSInvestments in telecom networks can be divided into the

following functional elements: Terminal equipment Access Network Switching Transmission/Long line Other (buildings etc.)


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COST BREAKUP


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COST BREAKUP

23%

15%

0%5%

11%

17%

29%

AIRTEL

Access charges

License fee and schargesCost of goods sol

Employee benefi

Power and fuel

Rent

COST BREAKUP


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COST BREAKUP

54%

5%3%

9%

16%

13%

MTNL

Employee Benefits

Revenue Sharing

Licence Fees

Administrative, OpOther ExpensesDepreciation & Am

Finance Cost

COST BREAKUP


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COST BREAKUP

39%

1%24%

30%

6%

BSNL

Employees remunbenefitsFinancial expenses

Depreciation andamortisationAdministrative, opother expensesLicence and Spectr

GROSS REVENUES OF OPERATORS


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PAT MARGINS OF OPERATORS


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INDIAN TELECOM INVESTMENT OPPORTU


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INDIAN TELECOM INVESTMENT OPPORTU

Second largest telecom penetration, worlds highestmonthly additions

Indian Telecom sector to witness huge investments Telecom Subscribers to cross 1.5 billion by 2015 and 5 billion

by 2020

INDIAN TELECOM INVESTMENT OPPORTUN


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About 25 per cent ( Appx. 300 million) would be 3G/4Gsubscribers About $ 70 Bn. is estimated to be invested in rolling out

green field 2G, 3G/4G The total investment in the pan-India broadband rollout is

expected to be $ 20 Bn

Regulatory Framework provides level playing field for all operatorsThe Department of telecommunications (Government of India) is the main governing body for theindustry.

Telephone Regulatory Authority of India (TRAI) assists the Government of India (GoI) to take timely


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Indian Telecom Industry Framework

Indian Government Bodies Independent Bodie

Wireless Planning andCoordination (WPC)

Department ofTelecommunications

Telecom Commission

Group on Telecom and IT(GoT-IT)

Telecom Regulatory Authority ofIndia (TRAI)

Telecom Disputes Settlement andAppellate Tribunal (TDSAT)

Handles spectrum allocation andmanagement

DoT Licensee and frequencymanagement for telecom

Exclusive policy making body of DoT

Handles ad hoc issues of the telecomindustry

Ind

Tele

decisions and introduce new technologies in the country.


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VALUE ADDED SERVICES


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VALUE ADDED SERVICES

FUTURE GROWTH DRIVERS


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Booming KnowledgeSectormajor global hub for ITenabled services.

Burgeoning MiddleClass

MNs add every year

Rising Income Levels4th largest economy.

LaP

60% popu35

High GDP Growth8% -9% p.a. in next comingyears.

GROWTH

ComInnovation

TECHNICAL OPPORTUNITIES


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M- Commerce M wallet

and Mobile Banking.

Mobile TV Mobisodesentertainment video clips.

LBS Market place navigation,

emergency etc.

Video onEntertainmen

Mobile GamingPositive shift of

consumers behavior.

GROWTH

Data Cneed to conne

and an


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THANK YOU!

Telecom Industry - Section C.potx

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