Indian Telecom Sector by Suresh

8/8/2019 Indian Telecom Sector by Suresh

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United world school of business [mumbai]

Term II

Indian Telecom

IndustrySuresh Solanki (50)

i n t e r n a t i o n a l b u s i n e s s


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BONAFIDE CERTIFICATE

Certified that this project report INDIAN TELECOM

SECTOR ..

Is the bonafide work of ..SURESH SOLANKI (50)

Who carried out the project work under my supervision

DR. PRIYA M KENKAREHEAD OF THE DEPARTMENT

United World School of Business (Mumbai)


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Major Players in the Indian Telecom Sector

Network Services

International Business: Term II


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Table ofContentsExecutive Summary

1 Indian Telecom Industry

1.1 History

1.2 Quick Facts

1.3 Telecom services

1.4 Industry Sectors

1.5 Growth Avenues

1.6 Industry Revenue (2002-2010)

1.7 Subscriber Growth

1.8 Major Players

1.8.1 Wireless Service Providers (Market share)

1.8.2 Handset Manufacturers (Market share)

1.9 Major Investments

1.10 Rural Telephony

1.11 Exploring the rural telecom opportunity

1.12 Policy Initiatives

1.13 Indias Subscriber base comparison with world

2 Telecom Regulatory Authority of India (TRAI)

2.1 Mission

2.2 Role of TRAI

2.3 Recommendatory Functions

2.4 Mandatory Functions

2.5 Other functions

3 Scenario of Indian Telecom Sector

3.1 Liberalization

3.2 National Telecom Policy 1994

3.3 Telecom Regulatory Authority of India

3.4 New Telecom Policy 1999

3.5 Performance of Telecom Equipment Manufacturing Sector



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3.6 Opportunities

3.7 Network Expansion

4 Indias Competitive Advantage

4.1 Stable Economic Outlook

4.2 Large Market Potential

4.3 Large Talent Pool

4.4 Low Labour Cost

5 The Road Ahead

5.1 Gradual Progression in Telecom Sector

5.2 Acquiring New Subscribers through expansion in Rural India

5.3 Selling More to Existing Subscribers

5.4 Government Initiatives

5.5 The reasons for the increasing importance of MVAS can be classified as

5.6 Defining VAS

5.6.1 Basic definition of a VAS

5.6.2 Definition as per TRAI

5.7 Mobile VAS in rural market

5.8 Access devices for MVAS

5.8.1 GPRS Handsets

5.8.2 3G Handsets

6 Key trends in telecom industry

6.1 Mobile Number portability (MNP)

6.1.1 The Inhibitors

6.1.2 MNP Implementation globally

6.2 Wimax v/s 3G

6.3 Mobile Virtual Network Operator (MVNO)

6.4 IPTV

6.5 Telecom penetration in rural India faces challenges

6.6 TRAI fixes MNP charges at RS 19



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6.7 Telecom tariff war in India reaches new heights

6.8 IT telecom to scale new heights in 2010

7 Industry Updates

7.1.1 Idea Cellulars Acquisition of Spice Telecom

7.1.2 Vodafones entry into India

7.1.3 Telenor-Unitech Deal

7.1.4 TTSL Do Como Deal

7.1.5 Bharti-MTN deal (in talks)

7.2 FDI Investments in the Telecom Sector in India

7.3 Outsourcing by Telecom Service Providers in India

7.3.1 Hutchitson Essar (now Vodafone) and Nokia Deal

7.3.2 Bharti Airtels IT Outsourcing to IBM

7.3.3 Bhartis Outsourcing to Alcatel-Lucent

7.3.4 Bharti Outsourcing Deal with Nokia & Ericsson

7.4 Entry of MTS & Videocon in the Indian market

8 Future Technology Trends

8.1 IP Multimedia Subsystems (IMS)

8.2 High Speed Downlink Packet Access (HSDPA)

8.3 4G or Fourth Generation Networks

9 Targets set by the government


9.2 Rural Telephony

9.3 Broadband

9.4 Infrastructure Sharing

9.5 Introduction of Spread of IPTV and Mobile TV

9.6 Manufacturing

9.7 International Bandwidth

9.8 Research & Development



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10 Indian Telecommunication at a glance

11 Conclusion

12 References

Appendix A



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Executive Summary

The rapid growth in Indian telecom industry has been contributing to

Indias GDP at large. Telecom industry in India started to set up in a phased

approach. Privatisation was gradually introduced, first in value-addedservices, followed by cellular and basic services. Telecom Regulatory

Authority of India (TRAI), was established to regulate and deal with

competition (the service providers). This gradual and thoughtful reform

process in India has favored industry growth. Upcoming services such as

3G and WiMax will help to further augment the growth rate. The Indian

telecommunications industry is one of the fastest growing in the world and

India is projected to become the second largest telecom market globally by

2010.

This is evident from the facts of Telecom Industry for example, Indiaadded 113.26 million new customers in 2008, the largest globally. The

countrys cellular base witnessed close to 50 per cent growth in 2008,

with an average 9.5 million customers added every month. This would

translate into 612 million mobile subscribers, accounting for a tele-density

of around 51 per cent by 2012. It is projected that the industry will

generate revenues worth US$ 43 billion in 2009-10.

In this report we have tried to capture most of the areas of Telecom

Industry. Major highlights of the report are History of Telecom Industry,

Current Industry Analysis, Role of TRAI, Scenario of Indian Telecom, FDIRegulation, Competitive advantages, Outsourcing in Telecom, Emerging

Technologies, Latest Innovation, and Growth Trends, Mergers and

Acquisitions.



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1 Indian Telecom Industry

1.1 History

1851 Introduction of Telegraph services

1947 Foreign Telecom Companies nationalized to formPTT

1980s: The Beginning Tele-density in 1980-81: 0.3%

Introduction of public pay phones

Private Sector

allowed

DOT, MTNL and VSNL formedEarly to Mid90s: a MessyAffair

Telecom policy 1994- Basic telephony service to privateoperators- 49% FDI

- 8 licensees began operations inAug 1995

Late 90s

Birth of a regulator:TRAI NTP 1999(New Telecom Policy)

2000+

CAGR of around 85% since 1999FDI: 74% (2005)

2007-2009 having the world's lowest call rates the fastest

the number of subscribers (45 million in 4months),

the world's cheapest mobile handsetthe world's most affordable colour phone

1.2 QuickFacts

Total telecom subscribers:

429.72 million (March 2009) Wireless

subscribers: 391.76

million

Wire line subscribers: 37.94 millionTele density: 36.98 per centIndias service providers revenue in Q1 (2009):$8.2 billion

I nd i a s Rur a l M o b ile Ph o n e U s e r s: 1 0 0 Millio n

1.3

http://indiatelecomnews.com/?p=284http://indiatelecomnews.com/?p=284http://indiatelecomnews.com/?p=284http://indiatelecomnews.com/?p=284http://indiatelecomnews.com/?p=284


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Teleco

m

service

s

Telecommunication sector in India is primarily subdivided into two

segments, which are Fixed Service Provider (FSPs) and Cellular

Services. Telecom industry in India constitutes some essentialtelecom services like telephone, radio, television and Internet.

Telecom industry in India i s specifically emphasizing on latest

technologies like GSM (Global System for Mobile Communications),

CDMA (Code Division Multiple Access), PMRTS (Public Mobile Radio

Trunking Services), Fixed Line and WLL (Wireless



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Local Loop) India has a prospering market specifically in GSM mobile service

and the number of subscribers is growing very fast.

Intern

et

PMRTS

VSATs

RadioPaging

GMPCS

Basic

Services

Mobile

Services

1.4 Industry Sectors

NetworkInfrastructureCompanies:

Alcatel-Lucent,Cisco, Ericsson

Telecom ServiceProviders: Bharati-Airtel, Vodafone,Idea, Reliance.

Telecom

Telecom EquipmentManufacturers:Nokia, Motorola,Samsung

Telecom SolutionsProviders: Tech-

Mahindra, Aricent,IBM Indi Wipro,

Sasken

From holistic point of view telecom industry can be divided to four

sub-sets. The major forces in Indian telecom industry are Service


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providers. All major telecom equipment suppliers have their R&D

centers in India. In last 5 years, global giants in mobile devices

have set up their manufacturing facitilities in India. The discussion

in this document is mainly restricted to only Telecom Service

Providers.


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1.5 Growth Avenues

Managed services is another segment that is attracting telecom companies.

On account of the rapidly growing subscriber base, service providers find it

difficult to manage their infrastructure and network management operations. In

such cases, they completely or partially outsource their infrastructure or

network management operations.

To reduce their network deployment costs, many service providers are

considering infrastructure sharing offers the following advantages:

Improved service quality

Increased affordability for customers

Faster roll out of services in rural and remote areas

Significant reduction in initial set up costs

Increased environmental aesthetics

Lower operating costs for service providers

Enterprise Telecom Services includes key services, such as voice over

Internet protocol (VoIP), dedicated telecom communication systems; IT

infrastructure enabled unified communication services, etc. Telecom service

providers are increasingly targeting enterprises by providing dedicated services

and are expected to witness major developments in near future.


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Virtual Private Network is a private data network that provides

connectivity within closed user groups via public telecommunication

infrastructure. Competition is likely to heat up in the VPN segment as DOT has

relaxed the norms for private players.

3G The Indian government plans to auction the spectrum for 3G services byinviting bids from domestic as well as foreign players, and creating a

competitive environment that offers better services to consumers. Therefore,

the 3G spectrum is among the major investment opportunities and growth

drivers of the telecom industry.

The immense potential for 3G is reflected by the 3040 percent annual

growth in Value- Added Services.

Cell phone manufacturers are striving to develop USD 100 priced 3Ghandsets for the

Indian market.

India expects to replicate its 2G growth in 3G services.

WiMAX has been one of the most significant developments in wireless

communication in the recent past. Since this mode of communication provides

network access in inaccessible locations at a speed of more than 4 Mbps, it is

expected to be a major factor in driving telecom services in India, especially

wireless services. Thus, it will lead to the increased use of telecom services,

Internet, value-added services and enterprise services. WiMAX is expected to

accelerate economic growth and assist in providing better education, healthcare

and entertainment services.

It is estimated that India will have 13 million WiMAX subscribers by 2012.

Aircel is the pioneer in WiMAX technology in India.

The state-owned player, BSNL, aims to connect 74,000 villages throughWiMAX.

Bharti, Reliance and VSNL have acquired licenses in the 3.3GHz

range to utilise the opportunities offered by this domain.

Value Added Services: The VAS industry was worth USD 632 million in

200607. The industry is estimated to grow by 60 percent in 200708 and

become an USD 1,011 million opportunity.

The VAS industry is currently focussing on the entertainment sector, such as the

Indian film industry and cricket; however, there is scope for growth in other

avenues as utility-based services, such as location information and mobile

transactions.


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Rural Telephony: As the government targets to increase rural teledensity from

the current 2 percent to 25 percent by 2012, rural telephony will require major

investments. This segment will boost the demand for telecom services,

equipment, Internet services and other value-added services; thereby, offering

great market opportunities for telecom players.


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1.6 Industry Revenue (2002-2010)

According to a Frost & Sullivan industry analyst, by 2012, fixed line revenues areexpected to touch US$

12.2 billion While mobile revenues will reach US$ 39.8 billion in India. India has

become the second country in the world to have more than 100 million CDMA-based (code division multiple access) mobile phone subscribers after the US,

which has 157 million CDMA users. The Indian telecommunications industry is on

a growth trajectory with the GSM operators adding nearly 9 million new

subscribers in April 2009, taking the total user base to 297 million, a growth of

3.11 per cent over the additions made the previous month. The figures, however,

do not include the GSM subscriber additions made by

RelianceTelecom.

Yea Revenue(US$2002- 9

2003- 10

2004- 11

2005- 15

2006- 20

2008- 32

2009- 43

Revenue (US$billion)

Revenue (US$billion)

43

32

2015

910 11


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will be used only in urban areas.


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1.8.1 Wireless Service Providers (Market share)

As on June 30th 2009

18%

8%

1%1%

3%

24%

1

8%

Bharti

Airtel

Vodaf

one

Essar

BSNL

I

D

E

A

A

i

r

c

e

l

Reliance GSM

MTNL5%

11%11%

Loop Mobile

Tata Teleservices

Sou

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http://www.coai.com/http://www.coai.com/http://www.coai.com/http://www.coai.com/http://www.coai.com/http://www.coai.com/http://www.coai.com/http://www.coai.com/http://www.coai.com/http://www.coai.com/http://www.coai.com/http://www.coai.com/


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1.8.2 Handset Manufacturers (Market share)

India's telecom equipment manufacturing sector is set to become

one of the largest globally by 2010. Mobile phone production is

estimated to grow at a CAGR of 28.3%, totaling 107 million

handsets by

2010. Nokia Leads the market with whopping 60% share. Koreangiant Samsung currently at number

Three is looking forward increase its market share to 20% throughaggressive marketing.

Hands

etMarket

5%

15%

6%

7%

8%

60%

N

ok

ia

So

ny

Sa

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su

ng

M

ot

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Others


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1.9 Major Investments

The booming domestic telecom market has been attracting huge amounts of

investment which is likely to accelerate with the entry of new players and launch of

new services. Buoyed by the rapid surge in the subscriber base, huge investments

are being made into this industry.

The Russian government is likely to pick up equity amounting to US$ 670

million-US$ 700 million in Sistema Shyam TeleServices Ltd (SSTL), a joint

venture between Russia-based telecom major Sistema and Shyam Group in

India, by the end of this financial year. SSTL is also planning to invest US$

5.5 billion over the next 5 years in India.

Norway-based telecom operator Telenor has bought a 60 per cent stake inUnitech Wireless for

US$ 1.23 billion.

Japanese telecom major NTT DoCoMo acquired a 27.31 per centequity capital of Tata

Teleservices for about US$ 2.6 billion in November 2008.

Bahrain's Batelco has signed a deal to buy 49 per cent in Chennai-based S-

Tel, a GSM service provider, for US$ 225 million.

BSNL, India's leading telecom company in revenue terms, will put in aboutUS$ 1.16 billion in its

WiMax project.

Vodafone Essar will invest US$ 6 billion over the next three years in a bid to

increase its mobile subscriber base from 40 million at present to over 100

million.

Telecom operator Aircel, which launched GSM mobile services in Bangalorein February 2009, plans to invest US$ 220.58 million over the next year to set

up base stations across the state.

Some deals are discussed in detail in industry consolidation section.

1.10 Rural Telephony

Rural India had 76.65 million fixed and Wireless in Local Loop (WLL) connections

and 551,064 Village Public Telephones (VPT) as on September 2008. Therefore, 92

per cent of the villages in India have been covered by the VPTs. Universal ServiceObligation (USO) subsidy support scheme is also being used for sharing wireless

infrastructure in rural areas with around 18,000 towers by 2010.

1.11 Exploring the rural telecom opportunity

It is believed that of the next 250 million people expected to go mobile; at least

100 million will come from rural areas. Though the rural mobile penetration is

highest in Punjab (20.69 per cent), followed by Himachal Pradesh (17.09 per


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cent), Kerala (10.63 per cent) and Haryana (10.20 per cent), most

companies are now sweating it out by hard selling their products and services in

the rural areas of the region. As a result, the geographical coverage of mobile

telephony in India has gone up from 13 percent, a couple of years ago, to 39

percent now.


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1.12 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

Plan to introduce mobile number portability in a phased manner

The government is implementing a program of connecting 66,822 uncoveredvillages 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 foreigntelecom companies can

Bid for 3G spectrum without partnering with Indian companies. Only after

winning a bid, would they need to apply for unified access service licence

(UASL) and partner with an Indian company in accordance with the FDI

regulations.


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1.13 Indias subscriber base comparison with the world (as on 2008)


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2 Telecom Regulatory Authority of India (TRAI)

2.1 Mission

To ensure that the interests of consumers are protected and at the same time to

nurture conditions for growth of telecommunications, broadcasting and cable

services in a manner and at a pace which will

Enable India to play a leading role in the emerging global information society.

2.2 Role of

TRAI One of the main objectives of TRAI is

to provide a fair and transparent policy

environment which promotes a level

playing field and facilitates fair

competition. In

pursuance of above objective TRAI hasissued from time to time a large

number of regulations, orders and

directives to deal with issues coming

before it and provided the required

direction to the evolution of Indian

telecom market from a Governmentowned monopoly to a multi

operator multi service open competitive market. The directions,

orders and regulations issued cover a wide range of subjects

including tariff, interconnection and quality of service as well as

governance of the Authority. The functions of TRAI can be divided

as : Recommendatory function and Mandatory Function.

2.3

Recommendatory

Functions

Need and timing for introduction of new service provider

Terms and conditions of licence to a service provider

Revocation of license for non-compliance of terms andconditions of license

Measures to facilitate competition and promote efficiency inthe operation to facilitate growth in industry

Technological improvement in services by service providers

Inspection of type of equipment used by service provider


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Measures for Technological development

Efficient Management of available spectrum

2.4

Mandatory

Functions

Ensure compliance of terms and conditions of license

Fix the terms and conditions of their inter connectivity betweenservice providers

Ensure Technical compatibility and effective inter-

connection between different service providers


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Regulate arrangements for sharing of revenues amongst service providers

Lay-down the standards of QoS to be provided by service provider, ensure

this by periodical survey

Lay-down and ensure time period for providing local and long-

distance circuits of telecommunication between different service providers

Maintain inter-connect agreement register

Ensure compliance of USO (universal service obligation)

2.5 Other functions

Levy fees and other charges as determined by regulations

Perform administrative functions as entrusted to it by Central government oras per TRAI act

Notify in Official Gazette the service rates and message rates within andoutside India

Snapshot of TRAIfunctions


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3 Scenario of Indian Telecom Sector

The telecom services have been recognized the world-over as an important tool forsocio-economicdevelopment for a nation. It is one of the prime support services needed for rapidgrowth and modernization of various sectors of the economy. Indiantelecommunication sector has undergone a major process of transformation throughsignificant policy reforms, particularly beginning with the announcement of NTP 1994and was subsequently re-emphasized and carried forward under NTP 1999. Driven byvarious policy initiatives, the Indian telecom sector witnessed a completetransformation in the last decade. It has achieved a phenomenal growth during the lastfew years and is poised to take a big leap in the future also. The Indian Telecommunications network with430 million connections (as on March 2009) is the 3rd largest in the world. The sector isgrowing at a speed of 46-50% during the recent years. This rapid growth is possible

due to various proactive and positive decisions of the Government and contribution ofboth by the public and the private sectors to the Indian consumers at affordableprices. Presently, all the telecom services have rapid strides in the telecom sector havebeen facilitated by liberal policies of the Government that provides easy market accessfor telecom equipment and a fair regulatory framework for offering telecom servicesbeen opened for private participation. The Government has taken following maininitiatives for the growth of the Telecom Sector:

3.1 Liberalization

The process of liberalization in the country began in the right earnest with theannouncement of the New Economic Policy in July 1991. Telecom equipmentmanufacturing was de-licensed in 1991 and value added services were declared opento the private sector in 1992, following which radio paging, cellular mobile and othervalue added services were opened gradually to the private sector. This has resulted inlarge number of manufacturing units been set up in the country. As a result most ofthe equipment used in telecom area is being manufactured within the country. A majorbreakthrough was the clear enunciation of the governments intention of liberalizingthe telecom sector in the National Telecom Policy resolution of 13th May 1994.

3.2 National Telecom Policy 1994

In 1994, the Government announced the National Telecom Policy which defined certainimportant objectives, including availability of telephone on demand, provision of worldclass services at reasonable prices, improving Indias competitiveness in global marketand promoting exports, attractive FDI and stimulating domestic investment, ensuringIndias emergence as major manufacturing / export base of telecom equipment anduniversal availability of basic telecom services to all villages. It also announced a seriesof specific targets to be achieved by 1997.


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3.3 Telecom Regulatory Authority of India (TRAI)

The entry of private service providers brought with it the inevitable need forindependent regulation. The Telecom Regulatory Authority of India (TRAI) was, thus,established with effect from 20th February 1997 by an 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 vested inthe Central Government.

The TRAI Act was amended by an ordinance, effective from 24 January2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal(TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSAT was setup to adjudicate any dispute between a licensor and a licensee, between two or moreservice 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.

3.4 New Telecom Policy 1999

The most important milestone and instrument of telecom reforms in India is the NewTelecom Policy 1999 (NTP 99). The New Telecom Policy, 1999 (NTP-99) was approvedon 26th March 1999, to become effective from 1st April 1999. NTP-99 laid down a clearroadmap for future reforms, contemplating the opening up of all the segments of thetelecom sector for private sector participation. It clearly recognized the need forstrengthening the regulatory regime as well as restructuring the departmental telecomservices to that of a public sector corporation so as to separate the licensing and policyfunctions of the Government from that of being an operator. It also recognized theneed for resolving the prevailing problems faced by the operators so as to restore theirconfidence and improve the investment climate.

Key features of the NTP 99 include: 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-timeentry fee.

Resolution of problems of existing operators envisaged. Direct interconnectivity and sharing of network with other telecom operatorswithin the

Service area was permitted. Department of Telecommunication Services (DTS) corporatized in 2000. Spectrum Management made transparent and more efficient.


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3.5 Performance of telecom equipment manufacturing sector

As a result of Government policy, progress has been achieved in the manufacturing oftelecom equipment in the country. There is a significant telecom equipment-manufacturing base in the country and there has been steady growth of themanufacturing sector during the past few years. The figures for production and exportof telecom equipment are shown in table given below:

(Rs in

Crores)

Year Production Export

2002-03 14400 402

2003-04 14000 250

2004-05 16090 400

2005-06 17833 1500

2006-07 23656 1898

2007-08 41270 8131

Rising demand for a wide range of telecom equipment, particularly in the area ofmobile telecommunication, has provided excellent opportunities to domestic andforeign investors in the manufacturing sector. The last two years saw many renownedtelecom companies setting up their manufacturing base in India. Ericsson set up GSMRadio Base Station Manufacturing facility in Jaipur. Elcoteq set up handsetmanufacturing facilities in Bangalore. Nokia and Nokia Siemens Networks have set uptheir manufacturing plant in Chennai. LG Electronics set up plant of manufacturingGSM mobile phones near Pune. Ericsson launched their R&D Centre in Chennai.Flextronics set up an SEZ in Chennai. Other major companies like Foxconn, Aspcom &Solectron etc have decided to set up their manufacturing bases in India.

The Government has already set up TelecomEquipment and Services Export Promotion Council and Telecom Testing and SecurityCertification Centre (TETC). A large number of companies like Alcatel, Cisco have alsoshown interest in setting up their R&D centers in India. With above initiatives India isexpected to be a manufacturing hub for the telecom equipment.


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3.6 Opportunities

India offers an unprecedented opportunity for telecom service operators, infrastructurevendors, manufacturers and associated services companies. A host of factors are

contributing to enlarged opportunities for growth and investment in telecom sector:

An expanding Indian economy with increased focus on the services sector Population mix moving favorably towards a younger age profile Urbanization with increasing incomes

Investors can look to capture the gains of the Indian telecom boom and diversify theiroperations outside developed economies that are marked by saturated telecommarkets and lower GDP growth rates.Inflow of FDI into Indias telecom sector during April 2000 to March 2009 was about Rs275,444 million. Also, more than 8 per cent of the approved FDI in the country isrelated to the telecom sector.


The telecom sector has shown robust growth during the past few years. It has alsoundergone a substantial change in terms of mobile versus fixed phones and publicversus private participation.

The number of telephones hasincreased from 54.63 million as on 31.03.2003 to 429.72 million as on 31.03.2009.Wireless subscribers increased from 13.3 million as on 31.03.2003 to 391.76 million ason 31.03.2009. Whereas, the fixed line subscribers decreased from 41.33 million in

31.03.2003 to 37.96 million in 31.03.2009. The broadband subscribers grew from ameager 0.18 million to 6.22 million during the last 5 years.


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4 IndiasCompetitiveAdvantage

An analysis of the Indian telecom industry under the Porters Diamond Model

reveals that India offers a competitive advantage for firms operating in the country.

India is the fastest growing free

market democracy in the world. It

has a mature and dynamic private

sector, which accounts for 75 per

cent of Indias GDP, and a market with

enormous potential due to its large

size and diversity. It is also expected

to achieve the highest growth rate

among the BRIC countries (Brazil,

Russia, India and China). India offers

significant businessopportunities to the

services, as well as the

manufacturing sectors. This is

because India offers benefits such

as cost advantage in product

development and back-office

processing and the large-scale

availability of skilled

English-speaking

professionals. The middle class

population is also a significant

market for any business

entity. AT Kearney ranked India as the second-most attractive democracy in its

FDI confidence index. The success of MNCs is a proof that India is an attractive

investment destination. Indias huge domestic market and buoyant economic

growth have always attracted foreign investors.

Some of the key advantages of investing in India areoutlined below.

4.1 Stable Economic Outlook

A decade of reforms has opened the country to greater competition and spurred

industries to become more efficient. India is currently the fourth-largest economy

on PPP basis and is well positioned on a continuously increasing growth curve.

Indias emergence as a leading destination for foreign investment is a result of

positive indicators such as a stable 6 per cent annual growth, rising foreign

exchange reserves of over US$ 266.18 billion(July 24th

2009) and Foreign Direct

Investment (FDI) of US$ 15 billion. Goldman Sachs had earlier predicted that India


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4.2 Large Market Potential

Around 30-40 million people in India join the middle class every year. The countrys

upper middle class spends 6 percent of its earnings on telecom services. India is

one of the largest consumer markets in the world. Due to rapid economic growth

and rise in disposable income, the spending power of consumers is increasing

rapidly. It has been forecasted that 15 years down the line, Indians will be

approximately four times richer than they are today. As per this forecast, Indians

will purchase five times more cars and consume three times more crude oil than

they do today.

According to the 2001 census, about 54 per cent of the countrys total population

was below 25 years of age. By 2013, another 200 million people will be joining the

league, representing an exponential growth in the consuming class. India will

become a large consumer of world resources - be it natural or man- made, thereby

offering numerous opportunities to marketers around the globe. Approximately 33

per cent of Indias population will be residing in urban areas by 2026, as against 28

per cent in 2001.

4.3 Large Talent Pool

The working age population is expected to rise by 83 per cent by 2026. India has

over 380 universities and about 1,500 research institutes, which churn out

approximately 200,000 engineers, 300,000 post graduates, 2,100,000 other

graduates and around 9,000 PhDs. This large base of skilled manpower offers

unparalleled advantages to the companies operating in India. As a result, many

multinational companies have either established operation hubs in India to

leverage this sizeable talent pool, or they have outsourced their work to a third

party in India. The numerous BPOs and KPOs flourishing in India are a direct


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- Intensivecompetition inthe country hasmade it possible

for serviceproviders tooffer theservices withlowers fare inthe world,profitability,

- Many newhandset havebeenlaunched.

Chance

Firm

strategy

structur

e and

rivalr

y.

- India has alarge middleclass of 300million,

- Growingaffordability andlifetime freeschemes havecare a marketat the bottom ofthe pyramid.

- Lowteledensity

(~18%) offershuge futurepotential.

FactorConditions

Demand

Conditions

-Presence of

skilled labour pool.

- Rapidlydevelopingrobusttelecominfrastructure

.

- Increasingdisposable

incomeofc

onsu

mers.-

Increasingdemandduetochanging


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lifestyles andgrowingattraction formobiles with newfeatures.

Rela

ted

andsup

port

ing

Industries

Government

- Competent handsetmanufacturers have

produced the lowestpriced handsets for theIndian market.

- Handset players are settingup manufacturing bases inIndia for better operationmanagement.

- Many telecom and

equipment and software

companies are based in

India.

-The government

extends full support toindustry through

reform processes.

- Policies are in place

to safeguard the

interests of service

providers, as well as

those of consumers.

Porters Diamond Model IndianTelecom Industry


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5 The Road Ahead

The target for the 11th Plan period (2007-12) is 600 million phone connectionswith an investment of US$ 73 billion. Apart from the basic telephone service, thereis an enormous potential for various value- added services. In fact, the real potential

for telecom service growth is still lying untapped.

According to the CII Ernst & Young report titled 'India 2012: Telecom growthcontinues', revenue fromIndia's telecom services industry is projected to reach US$ 54 billion in 2012, asagainst US$ 31 billion in2008.

India is the worlds largest untappedmobile market

5.1 Gradual Progression in Telecom Sector

The progression chart below depicts the major regulations and events driving the

extra ordinary growth of Telecom sector from year 1999 to 2008. In order to

capitalize this opportunity of meeting the consumer needs in highly

competitive market the operators have reduced the tariffs to attract

consumers with low purchasing power primarily in semi urban and rural India. In fact

lucrative offers like being paid for incoming calls have transformed the

scenario completely. Through these changing regulations and events, the Industry

players are aiming to achieve the following

Acquiring new subscribers by expanding in Semi Urban and Rural India

Selling more services to existing subscribers


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The recent TRAI recommendation permitting PC-to-phone calls where ISPs can

offer cheaper STD calls and even free local calls. This would result in further

reduction of voice tariffs. This would lead to increased focus on MVAS by mobile

operators.


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5.2 Acquiring New Subscribers through expansion in Rural India

Acquiring customers have always been a great challenge for companies. Given

the current level of saturation in Metros and Urban Market and cut throat

competition among operators , increasing subscriber base in urban market

would be all the more challenging. Therefore a lot of operators with adequate

support from Government are eyeing the rural market for future growth. Big

operators like Airtel have claimed that soon mobile connections and recharge

vouchers etc will be available at all such places from where people buy match

boxes. This certainly explains the future penetration of these services in remotest

of villages.

5.3 Selling More to Existing Subscribers

This is relatively easier as compared to acquiring new customers. Also since now

the new subscriptions will largely happen at the bottom of the pyramid therefore

the new subscriptions will further lower the average revenue per user. In such a

scenario mobile VAS sector is a potential long-term revenue stream as it will beeasier to sell more to the existing customers.

5.4 Government Initiatives

Government also has supported the growth of this sector by coming out with a

number of initiatives for the low end subscribers of rural India, and Universal

Service Obligation (USO) fund was one such initiatives. The USO fund was an

initiative taken up by the government to increase rural teledensity. In recent

developments, BSNL and two private operators will erect 427 towers in remote

areas offering over four lakh mobile connections. All the towers are expected to

be erected and commissioned by December 2008. Under the second phase, DoT

aims at erecting 11,000 towers throughout the country to offer over 11 million

mobile connections ADC was levied by Telecom Regulatory Authority of India

(TRAI) in 2003 to provide support for BSNL's rural telephone obligation. Telecom

Regulatory Authority of India (TRAI) has recently given orders for the withdrawal

of the ADC (Access Deficit Charge) and the subsequent passing of the benefit to

the consumers by the telecom operators.

5.5 The reasons for the increasing importance ofMVAS can be classified as:

Decrease in ARPU despite increase in MOU:Though the subscriber base is

growing at a rapid pace and has positively impacted industry revenues, operatormargins also have shrunk owing to competition and lower Average Revenue per

User (ARPU) as the major growth is coming from bottom of the pyramid. As ARPU

declines and voice gets commoditized, the challenge is to develop alternative

revenue streams and retain customers by creating a basis for differentiation in

high-churn markets.

Need for differentiation: There is a greater need among the telecom

operators to differentiate themselves from each other.

Number of Licensees: With increasing number of licensees (98 UASL, and


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37 cellular licenses) in the telecom space the average numbers of

operators in many circles have increased to 5-6 operators offering more

choices to the consumer. Thus the competition among the operators has

increased tremendously. Therefore it is very important for them to

differentiate themselves from the others. Now that voice has got

commoditized these operators are using MVAS for their


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differentiation and marketing these services heavily for creating

awareness among the consumers.

Decreasing Call Rates: In order to attract consumers with relatively low

purchasing powers

primarily from Semi Urban and Rural India the operators have drastically

reduced the call rates making it affordable to even the lower segment of

society. The tariff in India is one of the lowest at Rs.1 per minute as compared

to the tariff in developed nations like USA and UK where the call rates are

Rs.13 and Rs7-8 respectively.

3G bidders who are non operators: The arrival of new technologies will

give rise to greater competition as many non operators are also bidding for

the 3G licenses. Department of Telecom

has planned to allow five 3G operators in each circle depending on

the availability of spectrum.Therefore there would be a greater need to

differentiate one self in order to attract new customers and retain the

existing ones. Saturation in Metro and Urban Market: The metro/urban areas offer

high level of penetration and have significant mobile subscribers. In such a

highly saturated market with the entry of MVNOs the competition will get

fierce. Therefore capitalizing on value added services will give operators

opportunity to increase ARPU by providing premium services.

Increasing need and demand from consumers: In addition to the above supply

side reasons the pull effect from consumers asking for more than just basic

telephony is also a key driver for MVAS services. Today most of the consumers are

seeking more from their communication device apart from just mobility and

desire to stay connected. As we have seen, Telecommunication has moved beyond

providing just basic voice calls. The mobile phone has evolved from a mere

communication device to an access mode with an ability to tap a plethora of

information and services available in the ecosystem. This is the reason why it is

now being referred to as the fourth screen, after Cinema halls, Television and PC.

5.6 Defining VAS

But the fundamental question that remains is how VAS is defined. A clear MVAS

definition is not only required to clear the air among the MVAS providers but it will

also have an impact on the dynamics of the Value chain. A detailed definition of

VAS might have an impact on the licensing issues surrounding VAS. Lets look at

different VAS definitions floating in the market.

5.6.1 Basic definition of a VAS

Value Added Service (VAS) in telecommunication industry refers to non-core

services, the core or basic services being standard voice calls and fax

transmission including bearer services. The value added services are


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characterized as under:-

Not a form of core or basic service but adds value in total service offering.

Stands alone in terms of profitability and also stimulates incremental

demand for core or basic services

Can sometimes be provided as stand alone.

Do not cannibalize core or basic service.


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Can be add-on to core or basic service and as such can be sold at premiumprice.

May provide operational synergy with core or basic services.

A value added service may demonstrate one or more of these characteristics and

not necessarily all of them. In some cases, the value added service becomes so

closely integrated with the basic offering that neither the user nor the provider

acknowledge or realize the difference. A classic example is of P2P SMS. Some of the

operators do not consider P2P SMS as part of their VAS revenue.

5.6.2 Definition as per TRAI

In the Unified Access Service License (UASL), VAS isdefined as follows-Value Added Services are enhanced services which add value to the basicteleservices and bearerservic

esfor which separate licence areissued

The Government of India issues licenses for the following ValueAdded Services:-

Public mobile trunking service

Voice mail service

Closed users group domestic 64 kbps data network via INSAT satellites system

Videotex service

GMPCS

Internet

Audiotex Unified messaging service

5.7 Mobile VAS in rural market

The next wave of Telecom growth will come from the bottom of the pyramid.

For majority of the population in the rural segment, the mobile phone is the first

communication device. Rural should not always be interpreted as poor and

therefore some categories of MVAS might apply directly to them.

But whether the statement can be extended to MVAS depends on some keyfactors. One is to clearly

identify the need of the rural segment, second is to communicate the services tothem i.e. generate awareness and thirdly, to provide an easy and cheap access

mode to the rural consumers. All these 3 are quite big challenges and therefore

needs to be addressed adequately for MVAS to take off in Rural India. Apart from

the identification of rural consumer needs and development of relevant

content, communication of these services to the rural population would be a bigger

challenge. One way to do this is to communicate through regional SMS for which a

separate SMS gateway needs to be installed. Literacy level of the geographical


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area will be another limitation. Therefore the better communication option is Voice

in regional languages. The challenge with regional voice is not only investment but

also blockage of the already scarce spectrum.

Marketing the content in rural market is going to be all the more challenging. This

would require right packaging and pricing of MVAS. Providing cheap access mode

to end consumer would be another key booster to rural MVAS. Current voice

MVAS charges are expensive from a rural consumer perspective


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therefore that also would need to be addressed for e.g. the sachet model couldprove to be successful

here.

MVAS is going to address two main needs of rural consumers- connectivity and

entertainment mode. Connectivity will provide Information VAS on Agriculturenecessary for the farmers livelihood e.g. mandi rates, weather, etc. Health,

finance, job opportunities etc are potential areas. Mobile also has the potential

to evolve as a key entertainment mode considering lack of other entertainment

options in rural areas. The industry has witnessed some type of content being

downloaded more in small towns of UP and Bihar rather than in metros like

Delhi and Mumbai. Therefore by leveraging on these two aspects MVAS can be a

success in rural area.

5.8 Access devices for MVAS

5.8.1 GPRS Handsets

Currently the penetration of GPRS enabled handsets are close to 26% in India as

against 99% in South Korea and 76% in Japan. Of the total mobile subscribers in

India 65 million possess GPRS-enabled handsets. Of all those who posses GPRS

enabled handsets only 20-25% of them have got the GPRS activated and only

about 15% use it. Even in case of developed nations like South Korea and Japan

not more than 50% of the subscribers owning GPRS enabled handsets use it.

This clearly indicates that the consumer today engage more in text based services

than the web based applications. Therefore for MVAS to grow to its full potential

the handset manufacturers will have to look at ways to manufacture GPRS


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enabled phones which are affordable and user friendly. Moreover they would also

need to increase its awareness and educate the consumers on how to use GPRS.


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5.8.2 3G Handsets

The market for 3G in the country is expected to be huge with over 65 million

wireless subscribers, who use their handsets to access data services on the Web.

These subscribers are currently using mobile handsets which are internet-enabled

and are potential broadband subscribers with the deployment of advanced

wireless technologies such as 3G. According to Indian Cellular Association (ICA)

about 5% of mobile users already have handsets that can work on 3G

spectrum. In addition, out of all those possessing the 3G enabled handsets

the number of people who would use 3G services would be determined by the

quality of content available. Unlike most other countries, we are looking at 3G

services not only as premium services but also as an extension of 2G. Since our

broadband penetration is abysmal, 3G would provide a much required boost to it.

Given that mobile phones are much cheaper as compared to PCs, the demand

for broadband on mobile is expected to be much greater. More importantly,

3G will solve problems more in rural India. Therefore the shift towards 3G would

depend on affordability of handsets along with the quality of content available.


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6 Key trends in telecom industry

6.1 Mobile Number portability (MNP)

One of the most frequent definitions that prevail in the telecom circles for

number portability is: "Number portability is a circuit-switch telecommunications

network feature that enables end users to retain their telephone numbers when

changing service providers, service types, and or locations."

Why mobile number portability (MNP)? When fully implemented nationwide by

both wireline and wireless providers, portability will remove one of the most

significant deterrents to changing service, providing unprecedented convenience

for consumers and encouraging unrestrained competition in the

telecommunications industry. In short, this is the best method to increase the

efficiency of the service provider by increasing the competition, thereby ensuring

better services in all respects.

From the subscribers perspective, this is a deceptively simple and very welcome

change, because they can change wireless service providers without worrying

about notifying friends, family and business contacts that their wireless number is

changing. In addition, being able to port a number from one provider to another

eliminates the hassle and expenses of changing business cards, stationery,

invoices and other materials for businesses.

From the wireless carriers perspective the change is anything, but simple.

Virtually all of wireless carriers systems are affected. Especially any system that

relies on mobile identity numbers (MINs) or mobile directory numbers (MDNs) will

be affected. Examples of critical systems and processes that would be affected

are: billing, customer service, order activation, call delivery, roamer registration

and support, short messages service center, directory assistance, caller ID,

calling name presentation, switches, maintenance and CSC systems, home

location registers (HLRs), and visiting location registers (VLRs).

6.1.1 The Inhibitors

Huge Costs: One of the most common barriers in MNP implementation, within

any country, has been the implementation cost. Service Providers have been

constantly bargaining for time, based on the cost factor, from their respectivegovernments. Referring to the recent example of the US, where each of the large

carriers would need to spend $5060 million to institute the service and an

equivalent sum to maintain it. The FCC on this plea gave wireless carriers in the

US another year, i.e., till November 2003, for resolving implementation issues. The

experience of developed countries exhibits that local number portability for fixed

wireline was introduced within two to three years of introduction of competition to

incumbent state telcos. The cost estimate for the implementation of WNP in

developed nations like the US can be very helpful for the other countries, who wish


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to think on the lines of number portability. To add on increased marketing costs

are to be realized as the carriers look to lock up their current base before number

portability is implemented, and then aggressively pursue the customers of other

carriers thereafter.


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Customer Retention/Increased Competition: Every subscriber in a race to

retain its customer would like to offer its customers best services so as to save

them from porting. Its like a blessing in disguise for the customers, as they would

get better service irrespective of the carrier, albeit with the same number.

Infrastructure Upgrade: To support WNP, a company has to upgrade both itshardware and software capabilities, which will amount to some cost. Softwares

need to be upgraded to provide proper routing of calls. The carriers need to

upgrade their networks to handle portability requests. The provider, which has its

portability compatible would be expected to attract maximum customers and will

emerge the winner.

Cost Recovery and Bill Reconciliation/Query Processing: When a customer

plans to shift, the old service provider (OSP) has to perform a query to identify if

there are any billing amounts pending, which they need to recover before the

subscriber moves to the new service provider (NSP).

6.1.2 MNP Implemen tation globally

Globally, Singapore was the first country to implement MNP in 1997, followed by

Hong Kong in 1999 and Australia in 2001. Off late, many countries have adopted

the MNP model to prevent market doldrums and putting pressure on service

providers to furnish more services at a competitive price level. However, it has not

been able to produce any significant results in these markets.

While it has worked in markets like Hong Kong and Australia, it failed to bear fruit

in the UK, France, Germany, Pakistan, Ireland, Malta, among others. MNP worked in

Hong Kong due to the speedy porting process and the availability of already

implemented solution (for fixed-line services). In Australia, the regulator effectivelypromoted number portability and was able to maintain the maximum porting time

of just under three hours.

Furthermore, in Finland, where initially the implementation was viewed as a

success due to dearth of minimal contract periods and high migration incentives,

operators failed to sustain the momentum.


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The failure in most markets where MNP was implemented is attributed to factors

like half-hearted implementation, issues related to contract, lack of consumer

awareness, overboard of paperwork, technical difficulties and poor customer

service.


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The neighboring country Pakistan, the first country in Southeast Asia to introduce

MNP in March 2007, experienced less than 1% portability. One of the reasons for

such poor response is the pitiable customer service and time consuming process

during porting the number. Pakistan has over 90 million cellular subscribers with

approximately 95% of them pre-paid.

According to experts, disaster recovery and business continuity are also critical

elements for MNP providers and hence, it is essential to have a backup center

connected over secured redundant leased lines. This center should also be located

on a different seismic area.

There is no doubt that if implemented successfully, MNP can be a big boon

for Indian cellular subscribers. However, considering the overall market dynamics

and past experiences, the approach of the government and gaps in implemetation

planning, its success can be strictly questioned in the long run.

The regulators therefore need to build their fundamentals. To make MNP utilitarianfor consumers, the government needs to have a clear roadmap, strategic policies

and should define strict guidelines and timelines for the service providers.

6.2 Wimax v/s 3G

The WiMAX vs. 3G cellular showdown is poised to become one of the next great

market battles in the telecom industry. Fortunes will be made and lost in this

battle, and the user experience of the Internet will be irreversibly changed in the

process. 3G scores for voice; Wimax may lead to increased broadband penetration.With the Department of Telecommunications gearing up for simultaneous release

of 3G and WiMax spectrum, analysts expect the two emerging wireless

technologies to battle it out for supremacy.

WiMax or Worldwide Interoperability for Microwave Access is a telecom

technology that enables wireless transmission of data. The technology is

available as IEEE 802.16D (fixed) and IEEE 802.16E (mobile). It offers downloads

of up to 70 Mbps as compared to the 15 Mbps that 3G provides. Mobile WiMax

offers download speeds of around 20 Mbps. In India, companies like Tata

Communications Internet Services, Intel, Bharat Sanchar Nigam Ltd, Bharti Airtel

and Reliance Communications are the proponents of WiMax. Most of the companieshave had beta-runs of the technology. According to a top official with a service

provider, telecom service providers are in various stages of WiMax

implementation. Some companies have commercially launched fixed WiMax

services in certain cities.

While opponents of WiMax say currently it cannot be used for mobile

applications, the first mobile WiMax network was introduced in Italy this July.

Another reason for the industry pinning its hopes on WiMax is its ability to increase


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users might move over to WiMax-enabled devices for data, even though they mightstick with 3G or 2G

spectrum forvoice.

The Telecom Regulatory Authority of India has set a target of 20 million broadbandconnections by 2010 from the current 4.3 million. The industry expects WiMax to

bridge the gap. According to a consultant of Ernst & Young service providers

would mainly use the technology for gaining traction with the customers, as

providing the last mile over the conventional digital subscriber lines would be

time-

consuming andcostly.

3G WiMax Result

To be auctioned DoT has

recommended 25%ofreserv

e

priceof3G

spectrum

Advantage WiMax

Spectrum Allocation Simultaneous Simultaneous Neutral


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Best technology Evolvingtechnology

Advantage 3G

Equipment/Standard Evolved over the years Newtechnology Advantage 3G

Datadownloadspeeds(Fixed)

Datadownloadspeeds(Mobile)

15 Mbps 70 Mbps AdvantageWiMax

15 Mbps 20 MBPS AdvantageWiMax

Operators will have to use 3G spectrum to revive voice services that

are being choked by a dearth of 2G spectrum, Patel added. The

WiMax customer premise equipment (CPE) is priced at Rs 5,000-

10,000, while the CPEs for 3G would be cost Rs 10,000 and above.

The industry will know the winner in the next six months, when the

spectrum allocation is complete.

6.3 Mobile Virtual Network

Operator (MVNO)

Mobile Virtual Network Operator (MVNO) is a GSM phenomenon

where an operator or company which does not own a licensed

spectrum and generally with out own networking infrastructure.

Instead MVNOs resell wireless services under their brand name,

using regular telecom operator's network with which they have a

business arrangements. Usually they they buy minutes of use

from the licensed telecom operator and then resell minutes of

usage to their customers of MVNO. Currently MVNOs are emerging

in fast pace in European markets and beginning in USA also.

Slowly MVNO phenomenon catching up in Asia and other parts of

the world also.

An example for MVNO is Virgin Mobile. Virgin Mobile plc is a mobile

phone service provider operating in the UK, Australia and Canada,

and the US. The company was the world's first Mobile VirtualNetwork


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Operator launched in the UK in 1999. It does not maintain its own network, and

instead has contracts to use the existing network(s) of other providers. In the UK,

Virgin Mobile uses the T-Mobile network. In the US, the Sprint network is the

carrier. In Australia, Virgin Mobile operates on the Optus network. In Canada, it

uses the Bell Mobility network. These networks use different technology (GSM in

the UK and Australia and CDMA in the US and Canada).

Usually MVNO's do not have their own infrastructure; some providers are actually

deploying their own Mobile Switching Centers (MSC) and even Service Control

Points (SCP) in some cases. Some MVNO's deploy their own mobile Intelligent

Network (IN) infrastructure in order to facilitate the means to offer value-added

services. In this way, MNVO's can treat incumbent infrastructure such as radio

equipment as a commodity, while the MVNO offers its own advanced and

differentiated services based on exploitation of their own IN infrastructure. The

goal of offering value-added services is to differentiate versus the incumbent

mobile operator, allowing for customer acquisition and preventing the MVNO fromneeding to compete on the basis of price alone.

MVNO's have full control over the SIM card, branding, marketing, billing, and

customer care operations. While sometimes offering operational support systems

(OSS) and business support systems (BSS) to support the MVNO, the incumbent

mobile operators most keep their own OSS/BSS processes and procedures

separate and distinct from those of the MVNO.

In the future a cell phone user may be able to subscribe to a network operator plus

multiple MVNOs for specific data services over the same phone. One MVNO could

provide sports news, another weather and traffic and still another could provide

instant messaging capabilities. In this way, each MVNO and the network operator

could focus on their own niche markets and form customized detailed services

that would expand their customer reach and brand.

Regul ation ofMVNOs

So far MVNOs have not been regulated in any country. The ITU has receivedseveral requests to study the issue, specifically to provide input on whethergovernment intervention is necessary to allow MVNOs to offer services and

applications at a lower price to consumers. This would help to ensure a moreefficient use of the spectrum but some incumbent providers argue that themarket is already competitive and intervention is not necessary.

6.4 IPTV

IPTV (Internet Protocol Television) delivers television programming to

households via a broadband connection using Internet protocols. It requires a

subscription and IPTV set-top box, and offers key advantages over existing TV

cable and sat e llite technologies. IPTV is typically bundled with other services like
http://www.wisegeek.com/what-is-a-satellite.htmhttp://www.wisegeek.com/what-is-a-satellite.htmhttp://www.wisegeek.com/what-is-a-satellite.htm


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Video on Demand (VO D ), v o ice o v er IP (V OIP ) or d ig ital ph o n e , and Web access,

collectively referred to as Triple Play.

Because IPTV arrives over telephone lines, telephone companies are in a primeposition to offer IPTV

services initially, but it is expected that other carriers will offer the technologyin the future. IPTV
http://www.wisegeek.com/what-is-vod.htmhttp://www.wisegeek.com/what-is-vod.htmhttp://www.wisegeek.com/what-is-a-voice-over.htmhttp://www.wisegeek.com/what-is-voip.htmhttp://www.wisegeek.com/what-is-voip.htmhttp://www.wisegeek.com/what-is-a-dect-phone.htmhttp://www.wisegeek.com/what-is-a-dect-phone.htmhttp://www.wisegeek.com/what-is-vod.htmhttp://www.wisegeek.com/what-is-a-voice-over.htmhttp://www.wisegeek.com/what-is-voip.htmhttp://www.wisegeek.com/what-is-a-dect-phone.htm


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6.6 TRAI fixes MNP charges at Rs 19

India is all set to usher in the mobile number portability services, offering a facility tothe customers to change their service provider while retaining the same number. It islikely to be put in place by January 2010 as the telecom regulator has directedoperators to make adequate technical arrangements for the same.

The Telecom Regulatory Authority of India (TRAI) has decided to fix Rs. 19 as MNPrequest processing charges; the customers are required to pay the intended operatorfrom December 31, 2009.

6.7 Telecom Tariff War in India Reaches New Heights

The ongoing tariff war in the highly competitive Indian telecom market has been takingnew shape with every passing day. Operators have been announcing new promotionalschemes including reduction in tariffs for voice call, slashing roaming charges andmany more such lucrative offers. Recently floated idea of per second call rates hasfurther aggravated competition among telecom players with every operator seeminglyimitating others for retaining their market share.

6.8 IT, Telecom to scale new heights in 2010

Research firm IDC, in its latest outlook for 2010, has claimedfurther growth of telecom and Information Technology industrynext year given to some transformational changes on the anvil inthese segments.

There would be a surge in desktop and mobile devices with the introduction of smartphones, cloud-based computing and telephony. The firm said in its influentialPredictions 2010 study that market has been on recovery path and there is a wide

spread anticipation of modest growth in IT and telecommunications spending in 2010
http://www.topnews.in/trai-fixes-mnp-charges-rs-19-2238922http://www.topnews.in/telecom-tariff-war-india-reaches-new-heights-2241458http://www.topnews.in/it-telecom-scale-new-heights-2010-2243135http://www.topnews.in/trai-fixes-mnp-charges-rs-19-2238922http://www.topnews.in/telecom-tariff-war-india-reaches-new-heights-2241458http://www.topnews.in/it-telecom-scale-new-heights-2010-2243135


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7 Industry Updates

7.1 Consolidation in Industry.

Telecom players are looking to tap into global funds to finance their aggressive

growth plans. This will result in partnerships joint ventures and equity sellout to

foreign players. New license holders will continue to look to sell their stake at a

premium. New policies will seek to curb this license arbitrage. Smaller players with

operations in only a few circles will find in difficult to compete with the nationwide

players. The industry may see consolidation with these smaller operators being

acquired by the larger ones. Unbundling of the corporation will continue as

companies will seek f or economies of scale and lower startup cost by

infrastructure sharing. 3G and WiMax license will spur M&A and partnership

activity.

7.1.1 Idea Cellulars Acquisition of Spice Telecom

There were three transactions as part of this acquisition; acquisition of shares ofSpice, a non-compete fee and a capital infusion of about Rs 7300 crores received

from TM International Bhd (TMI). With respect to shares, Idea acquired 40.8%

stake of Spice Communications at Rs 77.30 a share for Rs 2,716 crore. There was a

share swap in which Spice shareholders got 49 Idea shares for every 100 Spice

shares held. An additional Rs 544 crore was paid to the promoters of Spice group as

'non-compete fee'.

The deal was strategically important for Idea Cellular as it was looking forward to

transfer itself into a pan-India telecom service provider. The spectrum auctioned

by GoI is a scarce resource nowadays and cost a premium. Also theres restriction

by TRAI with respect to number of operators per telecom circle. So it makes senseto acquire a small telecom operator. Small players like Spice Telecom operating at

only a few circles(Karnataka and Punjab) will find difficult to compete with the

nationwide players in the long run. So it was a win-win deal for both companies.

7.1.2 Vodafones entry into India

Vodafone paid a discounted price of $10.9 billion in cash for

acquiring the 52% stake held by Hutchison Telecom

International (HTIL) in Indian mobile firm Hutch-Essar. HTIL

declared a special dividend of 6.75 HK dollars per share

following the completion of the formalities. The final price was

a reduction of

$180 million from the originally agreed price of$11.08 billion.

Vodafone is the largest mobile telecommunications network company in the world.

The deal gave them access to one of the fastest growing mobile markets in the

world.


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7.1.3 Telenor-Unitech Deal

Norwegian Telecom major Telenor is in the process of acquiringcontrolling stake of

67.25% in Unitech wireless via equity infusion. The enterprise

valuation of Unitech Wirelsss is about Rs 10,900 crore. As per thedeal, Telenor will infuse cash in four stages and at each phase, by

increasing its stake in Unitech Wireless. In the first phase, they

got 33.5% ownership in Unitech Wireless. In the second phase

they completed the acquisition for a 49 per cent stake in Unitech

Wireless by paying Rs

1,130 crore for a further 15.5 per cent stake in the company. The

acquisition is expected to be completed by end of this quarter.

7.1.4 TTSLDoCoMo Deal.

Japanese carrier NTT DoCoMo acquired 26 per cent stake in TataTeleservices (TTSL). The Tata DoCoMo-branded GSM service has already started

in Southern India and gradually will be expanded nationwide. DoCoMosinternational expansion plans have not always proven successful, with the firm

historically preferring to take small stakes in firms and thentry to influence their strategy. It has been lessprepared to take majority stakes and imposeits will, as other leading carriers have chosento do.

The difficulties faced by the firm inspreading its domestically successful i-

mode service internationallytypify the obstacles it has faced overseas. With Tata, DoCoMo had saidparticipating proactively in TTSLs management by providing human resourcesand technical assistance to help realise improved network quality and the possibleintroduction of leading-edge, value-added services.

7.1.5 Bharti-MTN deal (in talks) .

Recently Bharti Airtel has re-started its audacious merger bid with MTN that could

create a $61-billion transnational telecom goliath with combined revenues of $20

billion and over 200 million subscribers across Africa, Asia and Middle East, will beamong the world's 10 biggest telecom companies. The deal could be win-win for

both parties. Bharti is under pressure in its home country due to severe

competition and looking forward to spread its risk across geographies. Meanwhile,

the African telecom operator is also encountering some of the problems that its

counterpart in India is confronting. MTN may have higher ARPUs (in the range of

$12-20), but they are also falling fast.

7.1.5.1 Strategic benefits to bothplayers


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Synergies would be sought from a number of areas, including procurement,

operational best practice, R&D and international network sharing. The two

companies will not overlap in each others business operations: Bharti Airtel will

be the primary vehicle for Bharti and MTN to pursue further expansion in Africa

and the Middle East.


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With both Bharti and MTN operating in high-growth

geographies, it would be imperative for them to

incrementally expand into untapped areas. Collaborating

with each other would seem the logical way ahead. The

most important, and visible fallout of the deal, if it

materializes, will be the advantage of economies of scalefor the new entity.

In recent times, companies are more amenable to

mergers and acquisitions. Of late, companies are finding

it tough to obtain easy funds for expansion, which calls for

more collaboration if corporate intend to expand. Bharti

would not be involved only in MTNs day-to-day activities,

but it would also have a say while making bigger strategic

decisions, such as those pertaining to investments in

other geographies or sourcing of equipment.

The high subscriber base and financial muscle will give Bharti-MTN the desired

edge while dealing with vendors. Once the merger happens, the economies of

scale of the complete outfit (Bharti-MTN) would be taken into account. For

instance, even if the company places an order worth just $1 million, the vendor

would not hesitate to lap it up, as there could be orders worth a billion dollars in

other projects. This would offset whatever concerns there may be with respect to

the small population size in countries where MTN operates.

7.1.5.2 Takeaways forBharti

The biggest takeaway for Bharti is in the form of access to new geographies

with high growth potential. Without a partner, Bharti would have to embark

on a Greenfield project, which would be time-consuming and capital

intensive.

Besides, without local knowledge (with respect to the market and

government regulations), Bharti could be on a sticky wicket. The Indian telco

does not have the expertise in running multi- country operations.

MTN has operations in 21 countries across Africa and the Middle East and is

one of the largest emerging market mobile operators globally. While Africa

has one-third of the worlds population, its telephonic density is just 30 per

cent. This offers plenty of room for expansion. The fact that 95 percent of

Africa is prepaid, which ensures all cash operations, fits perfectly into Bhartisplans.

The options for Bharti were to go either the Greenfield way or with anexperienced partner.

MTNs strong foothold in some growing markets such as South Africa,

Botswana, Iran and Nigeria ensures that when the growth in India starts to

slow down, Bharti would be ready to take off in other geographies. Besides,

there is a lot of potential in Africa as three-fourths of the continent is still


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untapped.

Africa is quite like rural India and from that perspective; Bharti could learn

how to roll out

infrastructure in ruralIndia.


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In addition, MTN is strong in the value-added services (VAS) and mobile

commerce space. So, as and when mobile commerce picks up in India (after

RBIs approval), Bharti would be able to tap this market through MTNs

expertise.

MTN has a vast experience in running multi-country operations and

overcoming regulatory hurdles. By working with MTN, life for Bharti will get a

lot of easier.

7.1.5.3 Major Challenges forthe merg er

One of the major challenges would be the integration of the company on the

ground. It is tough for intercontinental companies to merge seamlessly

because of cultural divide.

Alcatel-Lucent for instance is still trying to adjust to cultural divide. Although

Nokia-Siemens has

bridged this divide faster, it was because both the companies were European.

The Black Empowerment Act could pose a challenge, as it is meant tosafeguard the rights of the black population. As per this Act, blacks are

ensured a minimum shareholding management seats and voting rights.

The countrys strong trade union, Congress of South African Trade Unions(COSATU), which has

influence over President Jacob Zuma, had almost wrecked the Vodafone-Vodacom deal.

7.2 FDI Investments in the Telecom Sector in India:

The Indian telecom industry has always allured foreign investors. In fact, thecumulative FDI inflow, from August 1991 to March 2007, in the telecommunication

sector amounted to US$ 7,513.22 million. This makes telecommunication the

third-largest sector to attract FDI in India in the post liberalization era.

The investment was majorly in handset manufacturing and telecomservice provider.

FDI in Telecommunication Sector (US$ million)

2008-09 2345.38

2007-08 1275.65

2006-07 521

2005-06 680


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2004-05 129

2003-04 116


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With stable macroeconomic impetus and numerous other advantages, India

has the potential to become the electronics manufacturing hub of the world.

Excited by the record-breaking industry growth, investors have outlaid US$ 1.5

billion in the past two and a half years in the Indian telecom sector. India will

receive an additional US$ 2 billion investment in the next one year. With the world

now recognising Indias manufacturing potential, the Indian telecom handsetmanufacturing market is likely touch US$ 7 billion by 2010.

An example is Nokia. The company has already produced 25 million handsets in

its Chennai facility. It will pump in an additional US$ 150 million to this set up. The

company exports around 20 per cent of its volume to South-east Asia, the Middle

East and Africa. Local manufacturing allows companies to avoid 4 per cent

countervailing duties on imported handsets, thereby further reducing the cost.

7.3 Outsourcing by Telecom Service Providers in India

Managed service is another segment that is attracting telecom companies. On

account of the rapidly growing subscriber base, service providers find it difficult to

manage their infrastructure and network. In such cases, they completely or

partially outsource their infrastructure or network management operations.

7.3.1 Hutchitson Essar (now Vodafone) and Nokia Deal:

A case in point is Nokia which is managing the network for Hutchison Essar Limited

in 19 circles in India. Having successfully capitalised on the business potential of

managed service, Nokia is already earning 30 per cent of its total revenue from

this segment. The company has also shifted its first Global Network Solutions

Centre (GNSC) to India. The company manages 39 cellular networks in 30countries. Its Indian centre will act as a global hub for other Nokia operation centres.

Advantages of ManagedService

Smooth management of technologicalcomplexity

Opportunity to strengthen corecompetency

Reduction in financialoutlay

Touching base with new processes andtechnologies

7.3.2 Bharti Airtels IT Outsourcing to IBM:

Another dimension of managed service is telecom, communication and network

management solutions for enterprises. Bharti Televentures and IBM, together

offer telecom and IT solutions in India. The solutions and services portfolio


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comprises of the remote monitoring of servers, security operations and network

operations, providing data centre services (including server hosting, server

management and storage management), IT help desk services and end-to-end

connectivity and fulfilling all telecom and communication requirements.This

information technology outsourcing deal with infotech major IBM is estimated to be

in the range of $700-750 million for a ten-year period.


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The deal involved outsourcing of BTVL's hardware, software and IT service

requirements to IBM. The agreement specifies that payments made to IBM India

will be linked to the percentage of revenue generation by BTVL and pre-defined

service level agreements. The percentage-linked revenue payment is modelled to

decrease with BTVL's increase in revenue.The deal includes all customer-

facing IT applications like billing, customer relationship management and datawarehousing. In addition, Internet, e-mail and online collaborations are included in

it. On the infrastructure front, IBM will consolidate BTVL's data centre, IT helpdesk

and enhance its disaster recovery centre capabilities, he said.

7.3.3 Bhartis Outsourcing to Alcatel-Lucent:

Telecom major Bharti Airtel has a $500-million deal to Alcatel-Lucent for

outsourcing the management and servicing of its broadband and fixed line

network for five years.The deal involves the creation of a joint venture with

Alcatel-Lucent holding 76 per cent of the equity, and Bharti having the remainder24 percent. The joint venture will help accelerate performance as Bharti migrates

to the next generation networks for the broadband and telephone customers.

7.3.4 Bharti Outsourcing Deal with Nokia & Ericsson

Bharti Airtel awarded a $400m contract to Nokia for expanding its managed GSMnetworks in eight

circles. This also marks Bhartis third major deal with Nokia in the last two years.Bharti would have

100% ownership of the networks supplied by Nokia, with the actual payment beinglinked to utilisation of capacity and fulfillment of agreed quality of service

parameters.

This comes close on the heels of Bhartis recent signing of a $1bn three-yearservice contract with

Ericsson towards design, planning, supply, installation, commissioning andupgrading of its network in

15 telecomcircles.

This emphasises Bhartis policy towards outsourcing all operational activities,

including customer services to global majors. This has enabled Bharti to focus on

its core areas: product innovation, value added services, marketing, branding and

pricing. It has enabled Bharti to concentrate on customers, finances and

regulation. As per the three-year contract, Nokia will provide managed services and

expand Airtels GSM/GPRS/EDGE networks in eight circles of Mumbai,

Maharashtra & Goa, Gujarat, Bihar, Orissa, Kolkata, West Bengal and Madhya

Pradesh.


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The network monitoring operations will be carried out from Nokias state-of-the-

art Global Network Services Center in Chennai. The deal also envisages Nokia to

deploy its WAP solution across Bhartis national network to enhance its mobile

packet core network capabilities. This will make usage of data services easy,

thereby increasing the consumption of content on the Bharti network.


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7.4 Entry of MTS & Videocon in the Indian Market

&

Having started in the Moscow license zone in 1994, S in 1997 received licenses forf

Documents

Indian Telecom Sector by Suresh