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CHAPTER IV
ANALYSIS OF GROWTH OF TELECOMMUNICATION
SERVICE IN INDIA
4.1 INTRODUCTION
This chapter presents the current telecom industry scenario, both in the global
and national perspective. Competitive position of various firms under study as well as
the development of telecom services over the last decade is analysed. Government
policy changes to facilitate the growth of the telecom sector as an important segment
of the economy is also discussed.
Telecom services are one of the fastest growing industries in the world. Due to
advancement in technology, economy of use and expanding customer base, mobile
phone has become a common man’s product today. Developing nations today have
quality telecom networks as good as the developed nations. Due to huge investments
in development of telecom infrastructure, the entire landscape of India is covered by
mobile service providers. To understand the developments in the industry and
competitive position of various firms under study, a detailed analysis is presented.
4.2 MOBILE PHONE NETWORKS; A GLOBAL PERSPECTIVE
Mobile Telecommunication refers to the exchange of information, ideas
and thoughts through the medium of a mobile phone, telephone or wireless
network. According to the World International Property Organisation, ‘‘a mobile
communications system/network refers generally to any telecommunications
system which enables wireless communication when users are moving within
the service area of the system.
A typical mobile communications system is a Public Land Mobile Network
(PLMN).’’ Until the invention of modern technology, the use of semaphore,
flags, heliograph, relay runners; riders and criers, smoke signals, drum, and light
signals; message-carrying pigeons, and even the postal system were the
64
traditional long-distance communication media. According to Balasubramanian86 et
al., (2002, p. 349), ‘‘the first transmission involving a single mobile platform
occurred in June 1898, when Marconi transmitted a radio signal over 42 miles
between a French naval vessel and the Wimereux shore station. The first
transmission between a mobile transmitter and a mobile receiver occurred in July
1898 when aboard the Royal Navy warship Juno , Marconi received messages
from the warships Alexandra and Europa at ranges of up to 45 miles.
Mobile communications systems have been developed because of the
increasing need to free users to move away from fixed telephone terminals
without impairing availability of users. Mobile technology has rapidly developed
from first generation (1G), second generation (2G), third generation (3G) to beyond
third generation (3.5G and 4G) mobile technology that uses digital wireless
technology that supports faster display of multimedia and global roaming. A
comparison between developed and developing countries global investments in
telecom sector is given in Table 4.1.
TABLE 4.1
GLOBAL INVESTMENTS IN TELECOMMUNICATIONS (US$ BILLION)FROM 2008 TO 2012
2007-2008 2008-2009 2009-2010 2010 -2011 2011-2012
Developedcountries
156 181 152 148 137
Developingcountries
77 95 92 93 94
Total 233 276 244 241 231
Source: Report on global industry outlook 2011-12 published by InternationalTelecommunication Union: August, 2012, page 147-149.
86 Balasubramanian, S., Peterson, R.A. and Jarvenpaa, S. L.,(2002) “Exploring the Implications
of M-Commerce for Markets and Marketing,” Journal of the Academy of Marketing Science,
Vol. 30, No. 4, Fall 2002, pp.348-361.
65
From table 4.1, it can be seen that during 2007-08, developed countries were
investing more than double of the investment by the developing countries. However,
by 2011-12, this gap has narrowed. In absolute terms, the investments by developed
countries started declining by 2009, whereas the developing countries are still
increasing the investment in telecom sector. The combined investment of developed
and developing countries also shows a downward trend from 2009 onwards.
4.3 ROLE OF MOBILE TELECOMMUNICATION
Mobile communication network providers, in delivering services to customers,
operate in an environment that involves purposeful relationships and interactions
between several actors in many activities and with different resources. Some of the
players in mobile telecom industry providing services to the customers at their
various locations are: the mobile operator who provides the location positioning
infrastructure that tells where the customer is; the content provider that delivers
the information; the supplier that combines the information with the location
information and makes it location relevant; and the platforms through which the
customers can access the services . Therefore it appears that any mobile telecom
network needs to have several key players along its value chain in delivering services
to its customers (Pura M,2005)87.
Together this means that phones have a positive impact on improved incomes,
reduced risk, and an improved sense of well-being.’’ Some of the roles played by
mobile telecommunication are: It is an enabler of Mobile commerce and promotes
dissemination of useful information to entrepreneurs and enhancing business creation.
It is a source of employment for many people whose jobs are created and/or facilitated
directly or indirectly by the existence of mobile telecommunication. It is a
significant source of revenue not only for its business operators but also to
87 Pura, M. and Brush, G. (2005), "Hedonic and Utilitarian Motivations for Mobile Service
Use", Paper presented at SERVSIG Research Conference, in Singapore 2.-4.
66
governments through taxes paid by income earners in the mobile telecom
industry. It is a cheap means of communication and therefore cost-effective since it
reduces the cost of travel.
Some of the arguments raised against the use of mobile phones are that: It
elicits more unwanted calls as a result of being accessible from anywhere in
the country. There is a potential cost of using a mobile phone for business, and the
costs will be so high as to damage their business. This is a potential danger,
particularly when employees are using business mobiles, as there is a risk that
some employees could misuse the phone raising bills massively. But ever- reducing
call rates are keeping such arguments at bay. Table 4.2 gives a comparison of
revenues and subscriber base for leading mobile phone network providers in the
world.
TABLE 4.2
COMPARISON OF WORLD’S LEADING MOBILE PHONE NETWORK
PROVIDERS ON REVENUES AND SUBSCRIBER BASE IN 2011.
Rank Operator RevenueUS$, Billion
SubscriberBase Million
Revenue $ PerSubscriber/ year
1 China Mobile 20 584 34
2 Vodafone 15 353 43
3 Verizon 14 102 139
4 AT&T 13 96 145
5 Telephonica 12 220 55
6 NTT Docomo 11 57 201
7 Deutsche Telecom 9 133 70
8 France Telecom 8 110 74
9 America Movil 7 225 32
67
Rank Operator RevenueUS$, Billion
SubscriberBase Million
Revenue $ PerSubscriber/ year
10 Sprint 6 50 130
11 Au(KDDI) 5 33 175
12 Telecom Italia 5 82 60
13 Soft Bank 4 25 164
14 MTN 3 111 35
15 Vivendi 3 39 88
16 China Unicom 3 167 18
17 Bharti Airtel 3 200 15
18 SK Telecom 3 26 109
19 STC 2.5 31 84
20 Telenor 2.5 109 23
Source: Key ICT indicators for developed and developing countries. Published by
International Telecom Union , April, 2010, page18-26.
From table 4.2, it is seen that China telecom is the leader in subscriber
numbers as well as revenues as per 2011 data. Multinational form Vodafone,
American Movil and India’s Airtel also have sizable subscriber base. Average
revenue per user is one of the lowest in India for Airtel, whereas it is highest in
Japan, for NTT Docomo.
4.4 MOBILE PHONE NETWORKS BUSINESS IN INDIA
India’s telecom sector has been doing exceptionally well in the past decade. Its
structural and institutional reforms have provided tremendous growth opportunity to
this sector. India has nearly 200 million telephone lines making it the third largest
network in the world after China and the USA. With a growth rate of 45%, Indian
telecom industry has the highest growth rate in the world. The first reforms in Indian
68
telecommunications sector began in 1980s when the private sector was allowed in
telecommunications equipment manufacturing. In 1985, Department of
Telecommunications (DOT) was established.
Liberalization, technological advancements, and increasing demands of the
customer for more sophisticated services have helped the cellular mobile sector to
become increasingly competitive and market- oriented. In India, rapid diffusion of
telecom, at least in the urban areas, has been progressing, thanks to the hyper-
competitive telecom markets with the post-liberalization entry of several Indian and
global players. In such a competitive milieu, survival and success of the Indian
players will depend on competitiveness. For service providers, the pursuit of service
quality is essential for competitiveness and is gaining momentum. As a result, service
quality has become an important means of differentiation and is critical for achieving
corporate success.
For the past few years, cellular mobile service sector has been experiencing the
highest growth rate in terms of revenues and subscribers in many countries as well as
in India (www.nationmaster.com). Table 4.3 shows the growth rate in telephone lines
from 2004 to 2011.
69
TABLE 4.3
GROWTH OF INDIA’S TELECOM SERVICES DURING THE PERIOD
2004-2011(LINES IN MILLIONS ; GROWTH RATES IN PERCENTAGES;
TELE-DENSITY IS NUMBER OF TELEPHONES PER 100 SUBSCRIBERS)
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
Fixed line 45 49 40 39 37 37 35 36
Growthrate
5 8 -17 -3 -3 -2 -5 -5.5
Mobilephones
50 76 149 233 346 525 752 912
CombinedGrowth
rate
48 52 96 56 48 51 43 40
Teledensity 7 10 17 25 33 46 66 71
Source: Annual Performance Indicators during the year 2005 to 2012. Published by
Telecom Regulatory Authority of India during 2005 to 2012.
It can be seen from table 4.4 that fixed line or land line connections declined
from 2006-07 and its growth recorded negative trend thereafter. But mobile phone
service recorded tremendous growth right from introduction till now. In eight years it
has grown from 50 million to 912 million users. However, the combined growth rate
for both sectors show a stagnant trend. Tele-density of population has also shown a
steady increase from 7 per 100 in 2004-05 to 71 in 2011-12.
Despite the ongoing concern about service quality, most of the cellular mobile
service providers in India focus primarily on expanding their subscriber’s base and
tend to overlook investing in service quality. Profitability of leading firms for the past
five years is given in table 4.4
70
TABLE 4.4
PROFITABILITY (PERCENTAGE) OF MAJOR TELECOM NETWORK
PROVIDERS IN INDIA FROM 2008 TO 2012
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
Vodafone 17 11 0 -3 .01
Idea 11 16 10 9 5
Aircel 35 9 -8 -66 0
Reliance 21 18 30 4 -6
Bharti 23 24 23 26 20
TTSL -46 -35 -33 -21 0
BSNL 20 8 2 -6 -8
Source: Annual report 2011, published by Cellular Operators Association of India ,
2012, April, p16-19.
From Table 4.4, it is seen that the profitability of the firms have been
decreasing and many of the firms are in the red showing negative profitability. Falling
Average Revenue per User and diminishing tariffs due to severe competition has
caused this situation. Bharti Airtel with 20% and Idea with 5% are the only companies
that reported profits in 2011.
4.4.1 Beginning of telecommunication in India
India has also kept pace with the developments in telecom technologies
globally. Today the Mobile service customers in India have access to the best and
latest technologies in the world. From its inception in 1851 during the British rule till
today, Indian telecom industry has gone through a steady progress trajectory. Year-
wise Evolution of the telecom industry in India and Important Milestones/events
happened are given in Table 4.5.
71
Telecommunication is important not only because of its role in bringing the
benefits of communication to every corner of India but also in serving the new policy
objectives of improving the global competitiveness of the Indian economy and
stimulating and attracting foreign direct investment.
Indian Telecom industry is one of the fastest growing telecom markets in the
world. In telecom industry, service providers are the main drivers; whereas equipment
manufacturers are witnessing growth and decline in successive quarters as sales is
dependent on order undertaken by the companies.
4.4.2 Major Players in Indian mobile phone services
There are three types of players in Indian telecom services:
1. State- owned companies (BSNL and MTNL)
2. Private Indian- owned companies (Reliance Infocomm, Tata Teleservices,
Shyam)
3. Foreign invested companies (Vodafone, Aircel, Bharti Tele-Ventures, Idea
Cellular, Spice Communications)
4.4.3 Policy Initiatives
The government has taken many proactive initiatives to facilitate the rapid
growth of the Indian telecom industry. 100% foreign direct investment (FDI) is
permitted through the automatic route in telecom equipment manufacturing. FDI
ceiling in telecom services has been raised to 74%. Introduction of a unified access
licensing regime for telecom services on a pan-India basis is another policy. The DOT
has plans to introduce mobile number portability in a phased manner. The government
is also implementing a programme of connecting 66,822 uncovered villages under the
Bharat Nirman programme. The government will invest US$ 2 billion to set up
112,000 community service centres in rural India to provide broadband connectivity
in 2008-09. The Department of Telecommunications (DoT) has stated that foreign
72
telecom companies can bid for 3G spectrum without partnering with Indian
companies.
TABLE 4.5
MILESTONES IN TELECOM SECTOR DEVELOPMENT IN INDIA
Year Event1851 First operational land lines were laid by the government near Calcutta
(seat of British power)1881 Telephone service introduced in India1883 Merger with the postal system1923 1923 Formation of Indian Radio Telegraph Company (IRT)1932 Merger of ETC and IRT into the Indian Radio and Cable
Communication Company (IRCC)1947 Nationalization of all foreign telecommunication companies to form the
Posts, Telephone and Telegraph (PTT), a monopoly run by thegovernment's Ministry of Communications
1985 Department of Telecommunications (DOT) established, an exclusiveprovider of domestic and long-distance service that would be its ownregulator (separate from the postal system)
1986 Conversion of DOT into two wholly government-owned companies:the Videsh Sanchar Nigam Limited (VSNL) for internationaltelecommunications and Mahanagar Telephone Nigam Limited(MTNL) for service in metropolitan areas.
1997 Telecom Regulatory Authority of India created.1999 Cellular Services are launched in India. New National Telecom Policy
is adopted.2000 DoT becomes a corporation, BSNL2000 TRAI Amendment Act to form a separate dispute settlement
mechanism called Appellate tribunal2000 August- National Long distance segment opened for competition2001 A Fourth cellular operator permitted in each circle.2001 Unrestricted entry in basic services WLL2002 VSNL disinvested. Tata group buys stake. Guidelines for Universal
Service Obligation announced, International Long distancecommunication opened for competition, Internet Telephony opened up.
2003 Guidelines for unified service access license issued2004 Broadband Policy 2004, Government of India aims at 9 million
broadband connections and 18 million internet connections by 2007.2005 Bharath Nirman launched. Every village to have phones by 2007.2006 One India plan launched to trigger off a price war2007 2007: Roaming rental reduced to zero. Reduction of roaming tariffs to
the extent of 22%-56%2010 3G auction, Wi-Max announced, Smart phones and tablets in market,
Number portability feature introduced.
73
2011 Corruption charges in 2G/3G licensing and a Cabinet minister goes tojail. Licenses cancelled and re-auction planned.
2012 Joint Parliamentary Committee set up for probe in to the 2G scam.
Source: A decadal profile published by Telecom Regulatory Authority of India: 2012,September, page 56-68 .
From the beginning of telecom in India from 1851, the industry has progressed
in leaps and bounds over the last two centuries. After the monopoly in the telecom
sector was abolished by the new telecom policy in 1991, many of the Indian industrial
houses and multinationals started investing in telecom products and services. All of
them could achieve significant growth utilizing the huge untapped market. Increase in
subscriber base for leading network providers is given in table 4.6.
TABLE 4.6
SUBSCRIBER BASE OF WIRELESS [GSM AND CDMA] SERVICES
FROM 2007 TO 2012 ( IN MILLION)
2006 2007 2008 2009 2010 2011 % growth
Airtel 37 61 93 127 162 181 11.7
Reliance 28 46 72 102 135 153 12.7
Vodafone 26 44 68 100 134 150 11.8
Idea 14 24 38 63 89 112 25.9
BSNL 30 40 52 69 91 98 7.2
Tata 16 24 35 65 89 81 -8.9
Source: Performance indicators published by Telecom Regulatory Authority of India,
2012, June, page no 1-6
Table 4.6 shows that all forms in Indian telecom service industry showed
impressive growth in numbers during 2006 to 2011. One exception is Tata tele-
services which had many operational issues due to restructuring and mergers. In
terms of absolute numbers, Airtel, Vodafone and Reliance recorded higher growth
74
compared to Idea and BSNL. However, in terms of cumulative growth, Idea is clearly
ahead with an impressive 25.9 % growth in subscriber base.
Competition is much more in India as there is large number of firms in each
circle or state, averaging six . Call rates is also considerably low in countries like
India and China, two of the fast growing markets. The average revenue from
customers of mobile phone service has been showing a falling trend for the past few
years. This is due to the competition on one side and the new technology features
which speed up communication and data transfer on the other.
TABLE 4.7
COMPARISON OF AVERAGE REVENUE PER MOBILE PHONE USER IN
VARIOUS COUNTRIES (IN US$)
2007-2008 2008-2009 2009-2010 2010 -2011 2011-2012
USA 47 49 47 50 NA
China 8 9 9 9 9
Russia 9 9 6 7 7
Brazil 19 21 17 NA NA
Germany 31 28 29 27 27
Australia 31 29 28 27 25
India 5 4 3 2 2
Pakistan 3 2 2 2 2
Source: Key ICT indicators for developed and developing countries. Published by
International Telecom Union , April, 2012, page143-145.
Table 4.7 shows the trend in ARPU in various countries. Highest is the USA
with $47 followed by Germany and Australia. India is having an ARPU of below $5,
approximately Rs. 300. Pakistan is also similar with US$ 2 which is very low. Even
China has per user of $9 which is almost double of that of India.
75
Dual SIM phones were introduced in 2011 which facilitated customers to pack
two different telephone lines in one handset. Telecom subscriber base has recorded a
steep growth due to the low call charges and falling price of handsets. Even the rural
customers could afford a mobile phone connection in India. Increasing bargaining
power of customers and price wars between firms has enabled all citizens to own one
or more mobile phones. Millions of subscribers are being added to the network every
month.
4.4.4 Indian Telecom Policy
After 1991’s liberalization in Government’s policies, the telecom sector has
allowed various private players to enter into the Indian market. Earlier, the sector was
operating under public sector giants like Bharat Sanchar Nigam Limited (BSNL),
Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited
(VSNL) but after the National Telecom Policy (NTP) by Government in 1994 many
private players entered in Indian telecommunication market. But this market is
regulated by Telecommunication Regulatory Authority of India (TRAI). It acts as an
independent regulator of the business of telecommunications in the country which
was set up in 1997 by the government of India. Indian telecommunications today
benefits from among the most enlightened regulation in the region, and arguably in
the world. The sector, sometimes considered the “poster-boy for economic reforms,”
has been among the chief beneficiaries of the post-1991 liberalization. While breaking
the monopoly of Government over telecom sector, the new entrants were made to pay
license fee and spectrum allocation charges to the Government. This provided a good
source of income for the Government. Contribution from telecom sector to
government finances over the past 7 years is shown in Table 4.8.
76
TABLE 4.8
CONTRIBUTION OF TELECOM SECTOR (IN INR BILLION) TOGOVERNMENT FINANCES 2004-2010.
Source: Indian telecom services, a decade of growth. Published by Price Water
Coopers , August, 2011, p 23-34.
From table 4.8, it can be seen that the Government revenues from telecom
license fee showed a steady increase from 84 billion rupees in 2004-05 to 98 billion
in 2010-11. Similarly, Spectrum allocation charges also showed a steady increase
from 7 billion to 38 billion during the same period. The income from spectrum and
associated issues has now stalled the auction process.
Unlike electricity, where reforms have been stalled, telecommunications has
generally been seen as removed from “mass concerns,” and thus less subject to
electoral calculations. Market -oriented reforms have also been facilitated by lobbying
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
License fee 84 68 66 70 89 95 98
Spectrumcharges
7 10 14 21 31 35 38
Total 91 78 80 91 120 130 136
77
from India’s booming technology sector, whose continued success of course depends
on the quality of communications infrastructure. Growth figures in rural and urban
sector in telecom is shown in table 4.9. Despite several hiccups along the way, the
Telecom Regulatory Authority of India (TRAI), the independent regulator, has earned
a reputation for transparency and competence.
TABLE 4.9
RURAL-URBAN DIVIDE OF INDIAN TELECOM SUBSCRIBER BASE AS IN2011.
Particulars Wireless Wire line Total
Total subscribers 811.59 34.73 846.32
Total net addition 20.21 -0.14 20.07
% monthly growth 2.55 -0.39 2.43
Urban subscribers 538.05 26.04 564.08
Net addition 12.88 -0.06 12.81
% monthly growth 2.45 -0.25 2.32
Rural subscribers 273.54 8.69 282.23
Net addition 7.33 -0.07 7.26
% monthly growth 2.75 -0.81 2.64
Source: Annual report 2011. Published by Telecom Regulatory Authority of India for
the year 2011 , June, page no 13-16.
As shown in Table 4.9, wireless connections were growing steadily over the
wire line connections. Out of total 846.32 million connections, contribution of
landline is only 34.73 million. Rural subscriber base also shows a significant growth
to 282.23 million lines. With the recent resolution of a major dispute between cellular
and fixed operators, Indian telecommunications already among the most competitive
markets in the world appears set to continue growing rapidly. Regulations also
focused in broadening the subscriber base in to rural sector as well. The ratio between
the Rural and Urban mobile phone lines is 34:66 today.
78
4.4.5 Government Initiatives for growth
The India government has taken a number of significant proactive initiatives to
encourage the rapid growth of the telecom industry in the country. In a historic move,
the country has allowed 100 per cent foreign direct investment (FDI) in the telecom
equipment manufacturing segment through the automatic route. In addition, the FDI
ceiling in telecom services has been increased to 74 per cent. Some of the other
notable measures by the government include launching of a unified access licensing
regime for the telecom services industry on a pan-India basis and extending the
mobile number portability in the nation in a phased manner, starting from the fourth
quarter of 2008. The Bharat Nirman programme launched by the government is
targeting to connect the remaining 66,822 uncovered villages within the very near
future.
4.4.6 Stages of Telecom Regulations in India
a) Liberalization: - The process of liberalization in India began with new economic
policy in 1991. Telecom equipment manufacturing was de-licensed in 1991 and value
added services were declared open to the private sector in 1992. Following this radio
paging, cellular mobile and other value added services were gradually opened to the
private sector. This has resulted in large number of manufacturing units being set up
in the country. As a result most of the equipment used in telecom area is being
manufactured within the country.
b) National Telecom Policy 1994:- In 1994 Government announced the National
telecom policy with important objectives, including availability of telephone on
demand, provision of world-class services at reasonable prices, improving India’s
competitiveness in global market and promoting exports, FDI and domestic
investment, ensuring India’s emergence as major manufacturing/export base of
telecom equipment and universal availability of basic telecom services to all villages.
c) Telecom Regulatory Authority of India (TRAI) :- The Telecom Regulatory
Authority of India (TRAI) was established with effect from 20th February 1997 by an
79
Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997, to
regulate telecom services, including fixation/revision of tariffs for telecom services
which were earlier done by Central Government. TRAI’s mission was to create an
environment needed for the growth of telecommunication at a pace that will enable
India to play a major role in emerging global information society. One of the main
objectives is to provide a fair and transparent policy that facilitates fair competition.
On 24 January 2000, TDSAT was set up to adjudicate any dispute between a licensor
and a licensee, between two or more service providers, between a service provider
and a group of consumers, and to hear and dispose of appeals against any direction,
decision or order of TRAI.
d) New Telecom Policy: - The most important milestone and instrument of telecom
reforms in India is the New Telecom Policy, 1999 (NTP 99). The New Telecom
Policy, 1999 (NTP-99) was approved on 26th March 1999, to become effective from
1st April 1999. NTP-99 laid down a clear roadmap for future reforms, thinking the
opening up of all the segments of the telecom sector for private sector participation.
Key features of NTP 99 include the Strengthening of Regulator, National long
-distance services opened to private operators, International long -distance Services
opened to private sectors, Private telecom operators licensed on a revenue sharing
basis, plus a one-time entry fee. Resolution of problems of existing operators
envisaged. Direct interconnectivity and sharing of network with other telecom
operators within the service area was permitted. Department of Telecommunication
Services (DTS) corporatized in 2000. Spectrum Management was made transparent
and more efficient.
4.4.7 Service Provider- wise Market Share as on 31.03.2012
The Country is divided into 23 Service Areas consisting of 19 Telecom Circle
Service Areas and 4 Metro Service Areas for providing Cellular Mobile Telephone
Service (CMTS). In terms of National Telecom Policy (NTP)-1994, the first phase of
liberalization in mobile telephone service started with issue of 8 licenses for CMTS in
80
the 4 metro cities of Delhi, Mumbai, Calcutta and Chennai to 8 private companies in
November 1994. Subsequently, 34 licenses for 18 Territorial Telecom Circles were
also issued to 14 private companies during 1995 to 1998. During this period a
maximum of two licenses were granted for CMTS in each service area and these
licensees were called 1st & 2nd cellular licensees. These licensees were to pay fixed
amount of license fees annually based on the agreed amount during the bidding
process.
Subsequently, they were permitted to migrate to New Telecom Policy (NTP)
1999 regime wherein they are required to pay License fee based on revenue share,
which is effective from 1st August, 1999. State- owned Public Sector Undertakings
(PSUs) {Mahanager Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam
Limited (BSNL)} were issued licenses for provision of CMTS as third operator in
various parts of the country. Further, 17 fresh licenses have been issued to private
companies as fourth cellular operator in September/ October, 2001, one each in 4
Metro cities and 13 Telecom Circles. As per conditions of the License Agreement,
cellular operators are free to provide, within their area of operation, all types of
mobile services including voice and non-voice messages, data services and Public
Call Offices (PCOs) utilizing any type of network equipment, including circuit and/or
package switches that meet the relevant International Telecommunication Union
(ITU) /Telecom Engineering Centre (TEC) standards.
The old cellular licensees (1st and 2nd CMTS licensees) in telecom circles
have been given additional concession for a period of 4 years with effect from 1st
April 2004 in the license fee. The license fee, excluding spectrum charges for old
cellular licensees (1st and 2nd CMTS licensees) in telecom circles is 8% of
"Adjusted Gross Revenue" (AGR) for category `A' circles, 6% of AGR for category
`B' Circles and 5% of AGR for category `C' Circles for a period of 4 years with
effect from 1st April 2004.
In addition to license fees, the CMTS licensees pay spectrum charges on
revenue share basis of 2% of AGR for spectrum up to 4.4 MHz. For spectrum
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beyond 4.2 MHz up to 6.2 MHz, they are required to pay additional charges @1% of
AGR. For spectrum beyond 6.2 MHz, which shall be given if the subscriber base is
more than 0.5 million, they are required to pay additional 1% of AGR. Allocation of
spectrum beyond 6.2 MHz is subject to availability; however, spectrum allocation
would be limited to a maximum of 10MHz + 10MHz per operator in a service area.
Such additional allocation could be considered only after a suitable subscriber base,
as may be prescribed, is reached.
The usage of mobile services in India has penetrated to almost all economic and
social sectors. Penetration rate of mobile phones in India has reached a noteworthy
level. According to the Department of Telecommunications of India, there were 346.9
million wireless telephones in India as of December 2008 . With 35.53 million net
additions during the quarter, total wireless (GSM + CDMA) subscriber base increased
to 427.28 million at the end of June 2009, and wireless Tele-density reached 36.64.
India's mobile subscriber base is expected to grow at a compound annual growth rate
(CAGR) of 18.3% from 2007 to 2013 , reaching a penetration rate of 53.4% by the
end of 2013.
4.4.8 Segmentation of the Indian Telecom Consumer Market
With the proliferation of mobile phone users, several micro segments have also
emerged lately, each with their own specific needs. The rationale behind this
segmentation is to identify customers on the basis of their stage in life and hence to
tailor-make schemes for each customer segment. The different segments are explained
as follows:
a) Youth: Over the years, service providers have started giving greater attention to
this segment, as it has emerged as one of the biggest users of mobile phones. For the
youth, mobile phones are not just a necessity, but rather an indispensable accessory.
This segment particularly values prepaid schemes with free SMS services. It is further
differentiated into various micro-segments based on age and gender. For instance,
youngsters in the age group of 19 to 23 years generally have a large circle of friends
and more access to money.
82
b) Young Professionals: People entering the workforce and thus moving out of the
dependent bracket constitute this market segment. They generally prefer using post-
paid schemes with value added services like information about stock markets, news
updates and so on.
c) Micro Small and Medium Enterprises: This segment mainly consists of people
who are switching over from landlines to mobile phones, seeking a cost advantage.
The focus here is on economy-packages rather than value added services.
d) Family: Family as a segment consists of more number of dependents. These
dependants are serviced by prepaid schemes. Geographically dispersed families tied
by the same cellular service providers may get cost advantages in terms of lower pulse
rates.
e) Special Categories: The ‘Special’ category includes a small but growing segment
which requires largely customized services sought by celebrities, politicians, CEOs
and the super-rich. Tailor -made schemes for each segment have been a great success
so far. This customization, however, has reached such a stage that every service
provider has numerous schemes being provided at the same time. Being short- term
schemes, they keep changing frequently and customers thus start switching from one
service provider to another based on the attractiveness of the scheme. This has
brought down customer loyalty and hence service providers are finding it difficult to
retain existing customers. It is estimated that in the near future the plethora of
schemes provided by the different service providers will stop being a differentiating
factor.
FDI plays an important role in telecom sector as well as an economy as a
whole. Earlier, there were very few public players like BSNL, MTNL and VSNL in
this sector but as the time progressed and competition increased, the private players
like Airtel, Reliance, Tata, Vodafone and Idea came into play which changed whole
scenario of telecom sector. FDIs are important because they not only bring capital and
technology into the market but they also provide employment opportunities and
effective productivity also.
83
The liberalization measures post-1990 have changed with foreign investments
radically, now portfolio as well as Foreign Direct Investment are not only allowed but
also actively encouraged. During the decade of the nineties, the 'ceilings' on FDI in
different sectors were progressively raised. In 2001, 100 per cent foreign investments
were allowed in several industrial sectors. Also, 100 per cent Foreign Direct
Investment is allowed in almost all the infrastructure sectors. FDI policy provides the
investor- friendly environment growth to the telecom sector.
4.5 TELECOM SERVICES IN KERALA
Kerala is a costal state of south India having a full western coastal line of about
600 km and average width of 100 km. Its peculiar geography has enabled mobile
phone forms to give complete coverage of the state in a short span of time. All the 14
districts of Kerala are sufficiently covered under GSM networks. Geographic map of
Kerala showing the three districts under study is shown in Figure 1.
Fig4..1: Political map of Kerala
83
The liberalization measures post-1990 have changed with foreign investments
radically, now portfolio as well as Foreign Direct Investment are not only allowed but
also actively encouraged. During the decade of the nineties, the 'ceilings' on FDI in
different sectors were progressively raised. In 2001, 100 per cent foreign investments
were allowed in several industrial sectors. Also, 100 per cent Foreign Direct
Investment is allowed in almost all the infrastructure sectors. FDI policy provides the
investor- friendly environment growth to the telecom sector.
4.5 TELECOM SERVICES IN KERALA
Kerala is a costal state of south India having a full western coastal line of about
600 km and average width of 100 km. Its peculiar geography has enabled mobile
phone forms to give complete coverage of the state in a short span of time. All the 14
districts of Kerala are sufficiently covered under GSM networks. Geographic map of
Kerala showing the three districts under study is shown in Figure 1.
Fig4..1: Political map of Kerala
83
The liberalization measures post-1990 have changed with foreign investments
radically, now portfolio as well as Foreign Direct Investment are not only allowed but
also actively encouraged. During the decade of the nineties, the 'ceilings' on FDI in
different sectors were progressively raised. In 2001, 100 per cent foreign investments
were allowed in several industrial sectors. Also, 100 per cent Foreign Direct
Investment is allowed in almost all the infrastructure sectors. FDI policy provides the
investor- friendly environment growth to the telecom sector.
4.5 TELECOM SERVICES IN KERALA
Kerala is a costal state of south India having a full western coastal line of about
600 km and average width of 100 km. Its peculiar geography has enabled mobile
phone forms to give complete coverage of the state in a short span of time. All the 14
districts of Kerala are sufficiently covered under GSM networks. Geographic map of
Kerala showing the three districts under study is shown in Figure 1.
Fig4..1: Political map of Kerala
84
Source: Political map of Kerala, published by Prokerala, January,2012 page 1,available at http://www.prokerala.com/kerala/maps/kerala-population-map.htm
Key demographic statistics of the state of Kerala is given in Table 4.10.
TABLE 4.10
A SNAPSHOT OF KERALA STATEDate of Formation 1 November 1956
Location South West tip of the India's main land
Capital Thiruvananthapuram
Area 38,863 Sq.km.
Principal Language Malayalam
Currency Indian Rupee
National Festival Onam
Geographical Data longitude North Latitude between 8 degree 18' and
12 degree 48' East between 74 degree 52'
and 77 degree 22'
Neighbouring States/ Union Territories Tamil Nadu, Karnataka and Lakshadeep
Demography Population (2011) * 3,33,87,677
Male (2011)* 1,60,21,290
Female(2011)* 1,73,66,387
Sex Ratio (Females Per 1000 males)* 1,084
Population density (2011)* 859/sq.km
Total Fertility Rate (NFHS-111) 1.9
Infant Mortality Rate (SRS 2008) 12
Life expectancy 71
Male Life expectancy 71
Female life expectancy 73.62
Percapita income Rs.27,048
Source: Department data, published by Kerala PR department , 2011 June, p 11-14.
85
The state is leading in many indicators like literacy rate, low infant mortality
rate, low population growth, high life expectancy and so on.
The mobile phone service is well established in the state today with all
operators giving good service including number portability. The early entrants and
market leaders in the industry are, Idea, BSNL, Vodafone and Airtel.
Idea is enjoying the largest market share followed by BSNL, Vodafone, and
Airtel. Idea was the first company to launch the services in Kerala in 1997. It was an
Escorts company at that time and they captured market with aggressive selling
strategies. BPL telecom was another licensee at the beginning and because of the local
brand image for BPL Televisions, they also created a large customer base. However,
later on BPL was acquired by Hutchinson Max and again it changed hands to
Vodafone. Virgin, Etisalat and Uninor are new entrants without any significant
market penetration.
Kerala has diverse soil types, including red-loamy, lateritic, coastal alluvium,
peaty and saline-peaty. These types of soils support a variety of agricultural crops
such as rice, spices, coconut and rubber. Malayalam is the most commonly spoken
language. Hindi, English and Tamil are the other languages used. Geographical area
is (sq km) 38,863 Administrative districts (No) 14 . Population density is (persons per
sq km) 819. Total population is (million) 31.83 . Male population (million) 15.47,
Female population (million) 16.36. Population growth rate is (1991-2001) 9.4 % and
Sex ratio (females per 1,000 males) 1,058. Table 4.10 gives the subscriber base of
different firms operating mobile phone services in Kerala.
TABLE 4.11
MOBILE PHONE CONNECTIONS OF MAJOR FIRMS IN KERALA
Name of service provider Number of connections
Airtel 34,24,958
Vodafone 52,46,322
Idea 65,86,675
BSNL 59,65,314
86
Source: Annual report ,2011 , published by Cellular Operators Association of India,2012 August, p 34-45.
From table 4.10, it is seen that Idea is the leader in Kerala with more than 6.5
million lines, followed by BSNL with 5.9 million and Vodafone with 5.2 million.
Reliance and Tata are also major players, but they are in the CDMA technology
sector. Aircel is a recent entrant having the lowest share of 1.8 million lines.
Literacy rate of the state is 90.9%, Male 94.2%, Female 87.9%. Average life
expectancy (years) 73.9. Kerala has a tele-density of 80 per cent as compared to an
all-India average of 52.7 per cent as of March 2010. The state has 1,242 automatic
telephonic exchanges. About 98 per cent of Kerala's telephone exchanges have
Internet connectivity through the national Internet backbone.
Kerala had nearly 24.2 million wireless subscribers and 3.5 million wire-line
subscribers as of March 2010. The state is planning to build a telecom city near
Techno park with an investment of around US$ 109 million. Other telecom service
statistics for the state are, GSM cellular subscribers: 18,873,340; Internet/broadband
subscribers: 1,059,800 ; Wireless subscribers: 24,194,621; Wire-line subscribers:
3,460,358 ; Number of Telephone exchanges: 1,242.
4.5.1 Major Mobile operators in Kerala
There are many firms in the state including the public company BSNL. Some of them
are existing from the beginning of mobile phone services, but some have entered the
market recently through the merger/acquisition route.
1. BSNL
2. Bharti Airtel
3. Aircel Limited
4. Vodafone Essar
5. IDEA Cellular
6. Reliance Communications
Reliance 43,34,654
Tata 32.45.678
Aircel 18,34,432
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7. Tata Indicom
8. Virgin Mobile
9. Etisalat DB Telecom
10. Aircel
More details on the Mobile phone network companies under study are given
below.
a) Bharti Group( Airtel) is the largest private communication service provider in
the country, across all types of licensed communication services. It focuses on
different areas of business through independent joint venture companies: Bharti
Cellular for cellular operations, Bharti Telenet for fixed services, Bharti-BT Internet
for Internet services, Bharti BT for VSAT and WAN consultancy, Bharti Telesoft for
telecom software development, Bharti International for joint ventures in global
markets, Bharti Televentures for projects, and Bharti Telecom for telecom equipment
development. Bharti Group has over USD 200 million of turnover and controls about
20 % of the total telecom market in India. It is the second largest player in terms of
total number of subscribers from cellular and fixed services.
b) Bharat Sanchar Nigam Limited (BSNL) was formed on October 1, 2000 by
corporatization of the erstwhile Department of Telecom Services and Department of
Telecom Operations. BSNL is a government of India-owned Public Sector
Undertaking (PSU). It is the largest PSU in the country and serves the entire length
and breadth of India. The main functions of BSNL include planning, engineering,
installation, maintenance, management and operation of voice and non-voice
telecommunications services all over the country. It has launched a nationwide mobile
phone service under the brand ‘CellOne’ and internet telephony services under the
brand name ‘Webfone’. BSNL provides fixed, internet and cellular services in the
country.
c) Vodafone Essar in India is a subsidiary of Vodafone Group Plc and commenced
operations in 1994 when its predecessor Hutchison Telecom acquired the cellular
license for Mumbai. Vodafone Essar now has operations in 16 circles covering 86%
of India's mobile customer base, with over 45.78 million customers. Vodafone Essar,
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under the Hutch brand, has been named the 'Most Respected Telecom Company', the
'Best Mobile Service in the country' and the 'Most Creative and Most Effective
Advertiser of the Year'. Sales/Revenues/Turnover USD 69,378.08 million (Revenue)
d) Idea Cellular
Idea Cellular is part of the Aditya Birla Group, which is India's first truly
multinational corporation. Aditya Birla Nuvo Ltd. holds 35.7 per cent, Birla TMT
Holdings Ltd. 44.9 per cent, Grasim 7.5 per cent, and Hindalco 10.1 per cent in Idea.
Sales/Revenues/Turnover is Rs. 24,005.50 million . Idea has a customer base
of over 17 million, IDEA Cellular has operations in Delhi, Maharashtra, Goa, Gujarat,
Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttaranchal, Haryana, UP-West,
Himachal Pradesh and Kerala. Acquisitions / Strategic Alliances Merged with Tata
Cellular Limited in 2001, thereby acquiring original license for the Andhra Pradesh
Circle Acquired RPG Cellular Limited and consequently the license for the Madhya
Pradesh (including Chattisgarh) Circle in 2001. In 2004 acquired Escotel, incumbent
cellular service provider in Haryana, UP(W) & Kerala and new licensee in HP
Acquired Escorts Telecommunications Limited (subsequently renamed as Idea
Telecommunications Limited) in 2006 Merger of seven subsidiaries with Idea
Cellular Limited in 2007.
Future Prospect- Idea also plans to enter rural and neglected circles as a strategy
to gain subscribers. Other advancements in the telecom industry will help it cut costs -
use of e-mail to send bills to customers; sharing cell sites; smaller base transmission
stations that will mean lesser infrastructure requirements and expenses and
independent tower operators. Along with its plan to go for a national long- distance
license, it will also look at international long-distance in the near future.
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4.6 IMPORTANCE OF SERVICE QUALITY IN MOBILE PHONE
NETWORKS
Economists have sometimes treated quality as a linear function representing the
amount of service provided by a unit of a given commodity, or as a scalar index
representing several attributes. For a given price, it is assumed that consumers prefer
more quality and that quality co-varies with price common sense notions.
Schmalensee has pointed out that although price and quantity can be treated as
scalars, "it is far from obvious that any single mathematical representation of 'quality'
can serve for a broad spectrum of products." Instead, an understanding of the meaning
of "quality" for any particular product or service requires an unbundling of quality
attributes and elucidation of their applicability.
Collier, in The Service/Quality Solution, views the many dimensions of quality
as part of a "consumer benefits package." The consumer benefits package is "a clearly
defined set of tangible (goods-content) and intangible (service-content) attributes
(features) the customer recognizes, pays for, uses or experiences." Excellent service
quality is "consistently meeting or exceeding customer expectations (external focus)
and service delivery system performance criteria (internal focus) during all service
encounters." Collier writes from the point of view of the profit-maximizing firm, for
which "service/quality" (his term emphasizes that services are imbued with quality) is
a means of gaining a competitive advantage. The company that can put together a
more desirable consumer benefits package will have an edge on rivals.
For telecommunications, service quality is a multitude of attributes that will
allow providers to exploit their advantage to gain market share for their products and
services, whether it is getting a consumer where he or she wants to go on the Internet
faster than a rival, providing cellular service in formerly "dead" rural areas, or
providing video that is full motion rather than freeze frame. State regulatory
commissions, which represent the public, have a different orientation to the consumer
benefits package in telecommunications than the firm attempting to maximize profits.
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For their purposes, the package is made up of the array of characteristics that
contribute to meeting or exceeding consumer expectations of the public- switched
network, whether the network is based on a central platform or is formed by more or
less equal interconnecting systems.
4.7 CHAPTER SUMMARY
Mobile phone service with ever- increasing applications have changed the
lifestyle and the way people work, function, and communicate. This is felt globally as
well as in developing countries like India which is second only to China in terms of
Mobile phone industry growth. This chapter presented the global trends, Indian
growth story, historical milestones, as well as the structure of market in Kerala, the
geographic area of study. The next chapter presents the analysis of demographic data
of the respondents.