India can create new telecom tech

December 06, 2004 13:14 IST

India can build new technology in the telecom sector that leapfrogs the legacy systems in the
West and leverage these systems to serve the global market, Satyam Computer Services
director T R Anand said on Monday.
"We have the advantage Western countries do not have. They have old systems while we can
build new ones to suit our requirements," Anand said in his address at 'Telecom in India:
opportunities and challenges' in Bangalore at the regional summit of Tele-management forum.
He said the systems designed for India's needs could also be exported and this would help
firms become global players. "Firms will have to look at shifting from network centric to
customer centric, besides improving on the delivery of quality of service," he said.
India is the second largest emerging market in Asia after China and the eighth biggest market
in the world, he said.
Telecom industry in 2003 stood at $1.3 trillion, which included $1.05 trillion in telecom services
and $250 billion in equipment, he said, quoting research firm Gartner that has predicted it to
grow to $1.6 trillion by 2007.
Telecom equipment manufacturers association of India chairman N K Goyal said India needs
to attract $80 billion in investments to achieve a subscriber base of 250 million in the next few
years.

TheIndianTelecomIndustry
TheIndianeconomyisonthepathofresurgence.Thegradualopeningupoftheeconomy
ensuredsteadygrowthevenatatimewhenothercountrieswereinthegripofamassive
slowdown.Progressivereformssuchastheremovalofrestrictionsonforeigninvestment
andindustrialdelicensingareresponsibleforthisgrowth.TailoringtheEXIMpolicyto
promoteexportsandaligningtheimportdutiestomeetWTOcommitmentsfurther
contributedtothisdevelopment.Thistrendisexpectedtocontinueinthenextfiveyears,
drivenbyafavorablebusinesspolicyenvironmentintermsoftaxcuts,broadeningtax
base,
andreducedinterestratesonborrowings.
Suchstructuralchangeshavehadapositiveimpactonthetelecommunicationssectorand
a
compoundannualgrowthrate(CAGR)of13.42percentisestimatedfor20022006.The
futureoftheindustryliesinthemainlineandcellularsegmentsandconstant
technological
innovationssuchasInternetProtocol(IP)basedservices.Revenuesfromvoiceservices
willexperiencesustainedgrowthevenasthosefromdataservicesareexpectedtoincrease
sharplyduetoasurgeinusage.ThetelecommunicationsindustryinIndiaislikelytosee
consolidationamongmajoroperatorsandprivatizationofmanyGovernmentcompanies.
TheCountryIndustryForecastfortheIndiantelecomindustrystudiesthecountry
specific
factorssuchaspolitics,businesspolicy,andmacroeconomicindicatorsthathavean
impact

onthissectoranditsmainsegments.Thisreportprovidesincisiveanalysisoftheindustry
for19962001aswellasforecastsfor20022006.
ProactivePolicies:KeytoFutureGrowth
Indiasmovetowardglobalization,especiallyinthetelecomsector,hastobedrivenby
transparentpoliciesandbettermarketconditionstoattractforeign
investments.According
tothisreport,Therecentpolicystanceofopeningoftheinternationallongdistance
(ILD)
segmentandlegalizationofInternettelephonyshouldresultinhugeinvestmentinthe
industry.However,theGovernment,onitspart,shouldensureanenvironment
conducive
toforeignparticipationbyincreasingtheFDIlimitandfollowingtransparentpolicies.
CellularSubscribersandRevenuesforRobustGrowth
Theentryofnewoperatorsandtheintroductionofnovelservicescoupledwiththe
increasingimportanceofwirelesscommunicationarefactorsthatarelikelytocontribute
tothegrowthinthenumberofsubscribersinthecellularsegment.Asthereportsays,In
thelastquarterof2001,thenumberofsubscribershadreachedthe5millionmarkdueto
thecontinuousfallinairtimerates,achieving0.5percentmobilepenetrationinIndia.
Revenues
fromcellularphonesareexpectedtogrowataCAGRof37.29percentduringthe
forecast
periodwithhigherdatausageandmultimediaservices.

Telecom
(very old
report)

[Key Points | Financial Year '04 | Prospects | Sector

Financials]

Although India's teledensity has improved from 3.64% in March 2001 to over

7.5% in March 2004, we are way behind other developing nations and also the
Asian economies. The total annual telecom revenue is estimated to be around Rs
435 bn and the sector can broadly be divided into three segments, basic
telephony, cellular telephony and the internet.

The cellular telephony segment has emerged as the fastest growing segment in

the Indian telecom industry. In fact, the segment achieved a landmark in FY03
when for the first time, more cellular subscribers were added than fixed line
subscribers. A slew of tariff reduction in the past 18 months has helped the
segment to gain in popularity. The cellular segment is playing an important role in
the industry by making itself available in the rural and semi urban areas where
teledensities are the lowest and where the fixed line services will take some time
to come because of high capital investments required to build a network.

As far as the internet services are concerned, currently there are about 130 ISPs
(internet service providers) who cater to an estimated 9.8 m users through 1.7 m
connections. Currently, two firms, Videsh Sanchar Nigam Ltd (VSNL) and
Satyam Infoway Ltd (Sify) dominate the internet services landscape by
accounting for nearly 66% of the market.

On the international basic telephony front, the end of VSNL's monopoly in 2002

brought two private players in the international basic telephony business and the

immediate effect was the fall in tariffs. In the first six months only, the tariffs fell by
50% and the trend is likely to continue. With the most favored customer status
given to VSNL by fixed line majors like BSNL and MTNL going away in FY04, the
segment witnessed fierce competition.

In order to ensure fair competition and protection of consumer interests, Telecom

Regulatory Authority of India (TRAI) was established in 1997 for providing a
policy framework and guiding the companies in the right direction. Although, TRAI
has had few successes to its credit, there are a couple of issues like the current
WLL row and the controversy regarding the move toward an unification licensing
regime (under this, one player can provide all the services viz. Basic, cellular,
International Long Distance, National Long Distance in one circle or nationally)
which need to be resolved quickly so that it benefits both the companies and the
consumers.

Will telecom tariffs dip further?

The Telecom Regulatory Authority of India (Trai) has said that access deficit charges (ADC)
can be brought down further.
India's telecom market is among the fastest growing in the world and the tariffs are
among the lowest in the world - an average of less than two US cents.
A reduction of ADC would mean further lowering of telecom tariffs.
Who pays the ADC?
The ADC is paid by operators to BSNL mainly to undertake rural telephony services and
currently stands at Rs 5,000 crore a year. As of now the ADC is fixed at 11 per cent.
Why is there scope for reduction of ADC?
In 2003, there were 13 million mobiles in India. Today there are 47 million.
According to Trai chairman Pradeep Baijal, with such volumes, margins are with the
operators, therefore government and operators must work towards bringing down the
tariffs.
Hence, there is space for reducing ADC.
Will the ADC cut be uniform?
ADC is differential on different calls. Therefore the reduction will be differential on different
calls, according to Baijal.
It will be different across segments like national long distance, local or international.
Why is the Trai thinking of reducing ADC further?
To boost mobile growth.
Baijal says that unless ADC is brought down from the current level, pushing growth in the
mobile segment would be difficult.

ADC must come down to introduce lower tariffs and unless tariffs go down further, the
kind of growth that China has witnessed will not happen in India.
Lower tariffs will mean growth in the rural telecom market and that market is huge.
Apart from ADC, what else can be reduced?
According to the Trai chairman, not just ADC, even Universal Service Obligation (USO) and
revenue share paid by operators to the government must also come down.
"In the unified license penultimate recommendations, we have recommended that," he
said.
"We have a strong case for that. If you reduce the revenue-share, the addressable market
will be higher and the government would be compensated by growth rather than revenue,
he said, adding the present Finance Minister is very supportive of this idea.
Will all this result in predatory pricing?
The tariffs are to be decided by market. Trai says that it will not allow predatory pricing.
This decision was taken three months back and it has disallowed proposals of Reliance and
BSNL in this direction.
Other countries allow this. "And this decision allows a relief to the consumer because he
gets a lower tariff. And lower tariffs could be sustained by the operators through growth,
therefore we allowed this," says Baijal.

Will telecom tariffs dip further?

The Telecom Regulatory Authority of India (Trai) has said that access deficit charges (ADC)
can be brought down further.
India's telecom market is among the fastest growing in the world and the tariffs are
among the lowest in the world - an average of less than two US cents.
A reduction of ADC would mean further lowering of telecom tariffs.
Who pays the ADC?
The ADC is paid by operators to BSNL mainly to undertake rural telephony services and
currently stands at Rs 5,000 crore a year. As of now the ADC is fixed at 11 per cent.
Why is there scope for reduction of ADC?
In 2003, there were 13 million mobiles in India. Today there are 47 million.
According to Trai chairman Pradeep Baijal, with such volumes, margins are with the
operators, therefore government and operators must work towards bringing down the
tariffs.
Hence, there is space for reducing ADC.
Will the ADC cut be uniform?
ADC is differential on different calls. Therefore the reduction will be differential on different
calls, according to Baijal.

It will be different across segments like national long distance, local or international.
Why is the Trai thinking of reducing ADC further?
To boost mobile growth.
Baijal says that unless ADC is brought down from the current level, pushing growth in the
mobile segment would be difficult.
ADC must come down to introduce lower tariffs and unless tariffs go down further, the
kind of growth that China has witnessed will not happen in India.
Lower tariffs will mean growth in the rural telecom market and that market is huge.
Apart from ADC, what else can be reduced?
According to the Trai chairman, not just ADC, even Universal Service Obligation (USO) and
revenue share paid by operators to the government must also come down.
"In the unified license penultimate recommendations, we have recommended that," he
said.
"We have a strong case for that. If you reduce the revenue-share, the addressable market
will be higher and the government would be compensated by growth rather than revenue,
he said, adding the present Finance Minister is very supportive of this idea.
Will all this result in predatory pricing?
The tariffs are to be decided by market. Trai says that it will not allow predatory pricing.
This decision was taken three months back and it has disallowed proposals of Reliance and
BSNL in this direction.
Other countries allow this. "And this decision allows a relief to the consumer because he
gets a lower tariff. And lower tariffs could be sustained by the operators through growth,
therefore we allowed this," says Baijal.

TEL 580
SWOTAnalysis
Market Evolution
IP Telephony is still in its infancy. There is no doubt that this technology is
changing the way people communicate and conduct business, but many have
reservations about the Quality of Service (QoS) that can be achieved.

In the very early stages of IP Telephony the lack of interoperability between

products from different vendors meant the majority of the market for such
products lay with hobbyists and enthusiasts. It was not seen as a viable way to
conduct business, even if savings on call costs were considerable. Table 1 below
shows the percentages of sales to users in various sectors between 1995 and
1999.
Hobbyists Enterprise Telecos
1995

94%

2%

4%

1996

90%

3%

7%

1997

75%

5%

20%

1998

55%

10%

35%

1999

45%

15%
Table 1.

40%

The growth of IP Telephony in the enterprise sector looks set to rise as companies
aim to capture new markets and make considerable cost savings by bypassing the
PSTN (Public Switched Telephone Networks).
The following graphs were published in a white paper by AT & T which looks at
the evolution of Internet Telephony.

From figure 1 below, it is clear that until now the bulk of global traffic is voice.
However it is expected that by the year 2005, data will account for almost 50%
of global traffic.

Figure 2 shows the explosive growth in Internet traffic in just six years. This
growth is largely due to the falling prices in home computing equipment and free
internet connections provided by many ISP's (Internet Service Providers). These
ISP's generate revenue through site sponsors and advertising.

The number of online users worldwide has also increased both commercially and
for home use. This growth has led to a whole new way of life for individuals and
a whole new way forward in business. Almost anything can be found or bought
on the Internet somewhere. Figure 3 below shows the ever increasing number of
Internet users worldwide who take advantage of what the Internet has to offer.

Figure 4 shows the market evolution of IP Telephony. By 2005, IP Telephony is

expected to be relatively comonplace in business. With the growth in Internet
traffic and users, IP Telephony provides yet another way to conduct business,
attract new customers and cut calling costs.

With every improvement in IP Telephony, especially increases in Quality of

Service and the introduction of standards and interoperability guarantees from
major vendors, more and more businesses are attracted to what IP Telephony may
offer their company.
Main Contents Page
Back to Top

Strengths

Weaknesses

Opportunities

Threats

Strengths
There are many advantages to be gained from implementing an IP Telephony
solution within the organization. The following list aims to highlight some of the
advantages of such a strategy.

IP Telephony helps to eliminate wasted bandwidth by not

transporting the 60% of normal speech which is silence.
IP - the underlying protocol - is supported by most platforms
and is independent of the transport protocol used.
IP is an open standard and has been around for many years.
Only one physical network is required to deal with both
voice/fax and data traffic instead of two physical networks.
Having only one physical network has the following
advantages:
o lower physical equipment costs.
o lower maintenance costs.
o increases the ability to exploit new technologies.
o increases bandwidth efficiency.
IP Telephony can provide considerable cost savings on long
distance and international calls as the PSTN is bypassed using
VoIP Gateways.
Unified messaging systems can be achieved by

sending/receiving e-mails and faxes from PC's phones, fax

machines or handheld devices.
Main Contents Page
Back to Top

Strengths

Weaknesses

Opportunities

Threats

Weaknesses
While there are many aspects of IP Telephony which provide considerable
benefits, the technology is still very young and problems remain. The following
section looks at some of the weaknesses of this technology and their
consequences.

The Internet is not the best medium for real time communications. Individual
packets can take different routes and varying delays can be encountered and
packets lost in transit. Waiting for delayed packets or retransmission of lost
packets can result in considerable degradation of quality. Long delays in transit
can affect quality so much that the technology can become unusable, though
many vendors do have solutions which aim to negate the degradation suffered
due to transit delays.

While some standards have been set by the ITU, the technology is not fully
standardised and there is no guarantee that products from different vendors will
be interoperable. Some vendors are trying to resolve this problem by forming
groups and making guarantees about the products in the group but this is only a
partial solution - vendors outwith the group cannot guarantee interoperability.

Heavy congestion on the network can result in considerable degradation of

service as IP is not good at providing QoS (Quality of Service) guarantees.
Feedback to Lucent Technologies customers reflect this worry. Major companies
are planning to install IP Telephony capabilities at some point and have carried
out initial investigations, however:

Some organizations feel that the QoS needs to be improved before they
will invest heavily in IT Telephony solutions.

Others see the immaturity of the technology and lack of standards across
the board as a major drawback.

Since only one physical network for both data and voive/fax transmissions is

required, failure of the network could be catastrophic as all communications

capabilities are lost.
Main Contents Page
Back to Top

Strengths

Weaknesses

Opportunities

Threats

Opportunities
Many vendors offer the ability to incorporate Virtual Private Networking (VPN)
with relative ease into the IP Telephony solutions they provide. This allows any
transmission to be encrypted using a number of cryptographic techniques and
providing security by transmitting the communications through a 'tunnel' which
is set up using PPTP (Point-to-Point Tunneling Protocol) before commencing
communications.

IP Telephony allows companies to exploit Computer Telephony

Integration to its full extent. For example, a user visiting the company
web site can click on a link and speak to customer service or sales
representatives directly. This allows traditional telephone sales/
helpdesks to be linked to E-Commerce which can lead to more efficient
processing, and not to mention increased sales.

The convergence of communications technologies allows greater control over

communications, most vendors provide logging and accounting facilities
whereby all usage can be monitored.
Main Contents Page
Back to Top

Strengths

Weaknesses

Opportunities

Threats

Threats
A commercial threat may be posed if the company is slow to incorporate new
technologies compared to its main competitors. Revenue generated through ECommerce is expected to rise sharply over the next few years and IP Telephony
and CTI (Computer Telephony Integration) techniques provide a new way of
attracting business and customers.

If the converged solution fails, all communications are lost. This can result
in a loss of new business and / or extremely unsatisfied existing customers.
Since all the telephony needs of the company are integrated, the security
policy of the company should be reviewed to enhance current security
measures. The system must be protected from attack by malicious intruders
wherever possible, loss of network services do to a successful attack could
prove catastrophic.
Lack of interoperability between vendor products could, potentially, cause
problems at a later date.

Quality of service can be compromised when network traffic is high. This could
result in a decrease in productivity, conflicting with the notion that an IP
Telephony solution increases productivity.
Main Contents Page
Back to Top

Strengths

Weaknesses

Opportunities

Threats

TEL 580
SWOTAnaly
sis
Market Evolution
IP Telephony is still in its infancy. There is no doubt that this technology is
changing the way people communicate and conduct business, but many have
reservations about the Quality of Service (QoS) that can be achieved.

In the very early stages of IP Telephony the lack of interoperability between

products from different vendors meant the majority of the market for such
products lay with hobbyists and enthusiasts. It was not seen as a viable way to
conduct business, even if savings on call costs were considerable. Table 1 below
shows the percentages of sales to users in various sectors between 1995 and
1999.
Hobbyists Enterprise Telecos
1995

94%

2%

4%

1996

90%

3%

7%

1997

75%

5%

20%

1998

55%

10%

35%

1999

45%

15%
Table 1.

40%

The growth of IP Telephony in the enterprise sector looks set to rise as companies
aim to capture new markets and make considerable cost savings by bypassing the
PSTN (Public Switched Telephone Networks).
The following graphs were published in a white paper by AT & T which looks at
the evolution of Internet Telephony.

From figure 1 below, it is clear that until now the bulk of global traffic is voice.
However it is expected that by the year 2005, data will account for almost 50%
of global traffic.

Figure 2 shows the explosive growth in Internet traffic in just six years. This
growth is largely due to the falling prices in home computing equipment and free
internet connections provided by many ISP's (Internet Service Providers). These
ISP's generate revenue through site sponsors and advertising.

The number of online users worldwide has also increased both commercially and
for home use. This growth has led to a whole new way of life for individuals and
a whole new way forward in business. Almost anything can be found or bought
on the Internet somewhere. Figure 3 below shows the ever increasing number of
Internet users worldwide who take advantage of what the Internet has to offer.

Figure 4 shows the market evolution of IP Telephony. By 2005, IP Telephony is

expected to be relatively comonplace in business. With the growth in Internet
traffic and users, IP Telephony provides yet another way to conduct business,
attract new customers and cut calling costs.

With every improvement in IP Telephony, especially increases in Quality of

Service and the introduction of standards and interoperability guarantees from
major vendors, more and more businesses are attracted to what IP Telephony may
offer their company.
Main Contents Page
Back to Top

Strengths

Weaknesses

Opportunities

Threats

Strengths
There are many advantages to be gained from implementing an IP Telephony
solution within the organization. The following list aims to highlight some of the
advantages of such a strategy.

IP Telephony helps to eliminate wasted bandwidth by not

transporting the 60% of normal speech which is silence.
IP - the underlying protocol - is supported by most platforms
and is independent of the transport protocol used.
IP is an open standard and has been around for many years.
Only one physical network is required to deal with both
voice/fax and data traffic instead of two physical networks.
Having only one physical network has the following
advantages:
o lower physical equipment costs.
o lower maintenance costs.
o increases the ability to exploit new technologies.
o increases bandwidth efficiency.
IP Telephony can provide considerable cost savings on long
distance and international calls as the PSTN is bypassed using
VoIP Gateways.
Unified messaging systems can be achieved by

sending/receiving e-mails and faxes from PC's phones, fax

machines or handheld devices.
Main Contents Page
Back to Top

Strengths

Weaknesses

Opportunities

Threats

Weaknesses
While there are many aspects of IP Telephony which provide considerable
benefits, the technology is still very young and problems remain. The following
section looks at some of the weaknesses of this technology and their
consequences.

The Internet is not the best medium for real time communications. Individual
packets can take different routes and varying delays can be encountered and
packets lost in transit. Waiting for delayed packets or retransmission of lost
packets can result in considerable degradation of quality. Long delays in transit
can affect quality so much that the technology can become unusable, though
many vendors do have solutions which aim to negate the degradation suffered
due to transit delays.

While some standards have been set by the ITU, the technology is not fully
standardised and there is no guarantee that products from different vendors will
be interoperable. Some vendors are trying to resolve this problem by forming
groups and making guarantees about the products in the group but this is only a
partial solution - vendors outwith the group cannot guarantee interoperability.

Heavy congestion on the network can result in considerable degradation of

service as IP is not good at providing QoS (Quality of Service) guarantees.
Feedback to Lucent Technologies customers reflect this worry. Major companies
are planning to install IP Telephony capabilities at some point and have carried
out initial investigations, however:

Some organizations feel that the QoS needs to be improved before they
will invest heavily in IT Telephony solutions.

Others see the immaturity of the technology and lack of standards across
the board as a major drawback.

Since only one physical network for both data and voive/fax transmissions is

required, failure of the network could be catastrophic as all communications

capabilities are lost.
Main Contents Page
Back to Top

Strengths

Weaknesses

Opportunities

Threats

Opportunities
Many vendors offer the ability to incorporate Virtual Private Networking (VPN)
with relative ease into the IP Telephony solutions they provide. This allows any
transmission to be encrypted using a number of cryptographic techniques and
providing security by transmitting the communications through a 'tunnel' which
is set up using PPTP (Point-to-Point Tunneling Protocol) before commencing
communications.

IP Telephony allows companies to exploit Computer Telephony

Integration to its full extent. For example, a user visiting the company
web site can click on a link and speak to customer service or sales
representatives directly. This allows traditional telephone sales/
helpdesks to be linked to E-Commerce which can lead to more efficient
processing, and not to mention increased sales.

The convergence of communications technologies allows greater control over

communications, most vendors provide logging and accounting facilities
whereby all usage can be monitored.
Main Contents Page
Back to Top

Strengths

Weaknesses

Opportunities

Threats

Threats
A commercial threat may be posed if the company is slow to incorporate new
technologies compared to its main competitors. Revenue generated through ECommerce is expected to rise sharply over the next few years and IP Telephony
and CTI (Computer Telephony Integration) techniques provide a new way of
attracting business and customers.

If the converged solution fails, all communications are lost. This can result
in a loss of new business and / or extremely unsatisfied existing customers.
Since all the telephony needs of the company are integrated, the security
policy of the company should be reviewed to enhance current security
measures. The system must be protected from attack by malicious intruders
wherever possible, loss of network services do to a successful attack could
prove catastrophic.

Lack of interoperability between vendor products could, potentially, cause

problems at a later date.

Quality of service can be compromised when network traffic is high. This could
result in a decrease in productivity, conflicting with the notion that an IP
Telephony solution increases productivity.
Main Contents Page
Back to Top

Strengths

Weaknesses

Opportunities

Threats

INTRODUCTION
Telecommunication has now become the backbone of any modern economy
due to its all-pervasive nature of running through almost every human
transaction - commercial, digital or even personal. The emerging new
economy, powered by technology and dictated by the digital revolution is
incredibly forcing the telecom industry to grow more than ever before.
The changing lifestyle of human beings enhanced by Internet, facilitated by
mobile communications and enriched by e-commerce would give a real
boost to this industry. As trade and industry grow, telecom services also has
to expand commensurately because it is one of the greatest infrastructure
and life-blood for the modern trade and commerce.
For the second populous country in the world and the fifth one in terms of
purchasing power parity, an average total tele-density of 4.4 basic
telephones, rural tele-density of just 1 basic telephone and around 0.5
cellular telephones per 100 people points towards its potential for growth.
Against this backdrop, in advanced countries the tele-density is averaging
in 50-60 (basic telephones) range.

India's telephone network with 38.45 million direct exchange lines (DEL), as
of 31 March 2002, is one of the largest in the world and the third largest
among emerging economies (after China and Republic of Korea).
Monopolised by the government, the sector was a big victim of huge
operational inefficiency and customer apathy till recently. However, the
opening up of economy per se has improved remarkably the service
conditions. The scenario is undergoing dramatic changes day by day.
Private players are now flocking to this sector with unexpected enthusiasm
and the scenario is set to witness fierce competition, both in basic
telephony, cellular, international, national long distance and other valueadded services.
In developed countries telecom industry is viewed as the prime mover of
GDP growth and India is now increasingly getting ready to follow the same
trend.
INDUSTRY STRUCTURE
The telecom sector can be broadly divided into Service providers and
Equipment manufacturers. Service providers consist two, namely basic
(fixed line) and value-added. The value-added services include cellular,
radio paging, public mobile radio paging, trunking, global mobile
positioning communication services, VSAT services, electronic mail, voice
mail, internet services etc. In all these areas, the policy of the government
has undergone a sea change over the period of the years and especially
after the New Telecom Policy '99.
The basic service segment was earlier dominated by the public sector. The
Department of Telecom Services (rechristened as Bharat Sanchar Nigam
Limited) provides basic service to the entire country except Mumbai and
Delhi, which is being catered to by Mahanagar NIgam Telephone Niagm
(MTNL). Videsh Sanchar Nigam (VSNL) was earlier the international service
provider catering to all the telecom services originating from India to
overseas. But now, VSNL is no longer a Government company post its
divestment. Further its monopoly has also ended from 1 April 2002 and
private players can provide international telephone services. Some players
like BHarti have already taken a lead and may start providing services in
the near future.
The basic telephony sector has virtually been in the grip of the government
till a few years back. It was opened up to private sector during 1994 when
six companies got licenses for operating the basic services in six areas. The
six licenses were given to Bharti Telenet, Essar Commvision, Shyam
Telecom, Hughes Tele.com, Tata Teleservices, and Reliance Telecom for
Madhya Pradesh, Punjab, Rajasthan, Maharashtra and Goa, Andhra Pradesh
and Gujarat. Now, the government has issued further licences to players
like Reliance, Tatas, HFCL, Bharati, Aircel Digilink and Birla AT & T for 76
circles. Now, there is now no bar on the number of players that can provide
basic services.

In value-added category, cellular mobile service is the most visible in which

private players can operate in all the 22 circles in the country including the
4 metros. In each circle, 2 operators were initially allowed and later BSNL or
MTNL was given the choice as the third operator. Now, a fourth player is
also allowed as per the new guidelines and many cities have already
witnessed a four cornered fight amongst the cellular operators.
Further, the national long distance services (NLD) market has also been
opened up and players like Bharti, Tatas and Reliance have already started
work on providing NLD services. Internet service itself has now evolved as a
separate industry. Besides, other value added services will also see
competition in future.
Telecom equipment manufacturers are the other category of players in the
industry, which was exclusively reserved for government enterprises until
1984. Till that time it was dominated by Indian Telephone Industries
(switching, transmission and terminal equipments). Hindustan Cables
(cable products) and Hindustan Teleprinters (telex machines/ modems).
Thereafter, private entry was allowed in the manufacture of telephone
instruments, cables, transmission equipment, small switching exchanges
developed by C-DoT and manufacture of large exchanges.
At present, private sector is allowed to manufacture the entire range of
telecom equipments. Now several new private players like Himachal
Futuristic, Global Telecommunication, Bharati Telecom, Tata Telecom,
Shyam Telecom, etc. are serious players in the field.
The production of telecom equipments in India increased from USD 1.3
billion in 1993-94 to USD 2.48 billion in 1997-98, and is expected to reach
USD 5 billion in 2002. The requirement of telecom equipment by various
users during the five-year period from 1997-2002 is estimated at USD 22.3
billion, of which equipments worth USD 18.5 billion will be produced in
India.
CURRENT SCENARIO
The industry grew at 20% per annum over the last four years. The target
set for 2000-01 was 5.58 million lines against which 5 million connections
were provided. Waiting list in India was 19 lakh in March 1999,which has
only grown further to more than 30 lakh now which still validate the
demand supply mismatch. MTNL has no waiting list as of now, but BSNL is
still carrying it. It is proposed to add 32 million lines during 2001-06.
Competition is hotting up even for MTNL in the basic services in Mumbai
with the entry of Huges Tele.com.
According to the latest COAI figures, total cellular subscribers in the country
increased to 13.33 million in April 2003 from 6.71 million in April 2002.
Meanwhile, Himachal Futuristic Communications (HFCL) acquired 74% stake
in Hindustan Teleprinters (HTL) for Rs 55 cr. Consequently HTL's board was
revamped, and currently has seven members, of which three are HFCL
representatives, two government nominees and two individuals from

Industry. Further, HTL which was hitherto making only telecom switches,
will expand its products to new broad band and access products shortly,
which will be complementary to HFCL's existing telecom products.
The planning commission has set an ambitious target of adding 817.10 lakh
telephones by March 2007, of which 315.50 lakh lines will be for mobile
phones and 501.6 lakh lines will be for fixed phones. This projection takes
cognizance of the government intent to provide phone on demand by the
year 2002 and to achieve an All India teledensity of 11.5% and 3% in rural
areas by Mar '07.
VSNL has filed application with DOT for licence to run National Long
Distance (NLD) telephone services. Other companies, which have applied
for NLD business are Bharti group and Reliance group.
VSNL is likely to take on lease the optic fibres of other telecom companies,
and plans to decide on setting up its own optic fibre cables after reviewing
its first year of NLD operations. It plans to invest about Rs 2,000 crore over
a period of seven years in NLD business.
VSNL has been exempted from furnishing a bank guarantee for Rs 400
crore and for the payment of Rs 100 crore as entry fees. Further, other
companies entering NLD business needs to cede 15% of revenues, but
VSNL need not do so for the first five years. These concessions were given
to VSNL as part of the government proposal to compensate it for loss of its
monopoly ahead of schedule. Originally, VSNL was to lose its monopoly by
Mar'04, but the date was advanced to Mar'02 to boost private and foreign
investment into the telecom business.
Foreign direct investment (FDI) inflow in the telecom sector touched Rs
8,122.4 crore during August 1991 to November 2001, with cellular mobile
telephone service contributing Rs 2,215.4 crore and accounting for 27.2%
of the inflow.
During the period August 1991 to November 2001, the actual flow of FDI
was Rs 8,122.4 crore. During the year 2001-02, there has been a noticeable
increase in the FDI inflow which was Rs 3,612.7 crore up to November
2001, according to the latest data compiled by the Department of Telecom
(DoT).
In terms of approval of FDI, the telecom sector is the second largest after
the energy sector, it pointed out.
Of the actual FDI inflow of Rs 8,122.4 crore in the telecom sector during
August 1991 to November 2001, the cellular services attracted Rs 2,215.4
crore, contributing 27.27% to overall telecom FDI inflow during the period.
The basic telephone services, on the other hand, attracted FDI inflow to the
tune of Rs 393.7 crore, translating into 4.85% of the overall FDI inflow in
the sector.

While manufacturing and consultancy segment saw FDI inflows of Rs 767.7

crore, in terms of contribution it accounted for 9.45% of the overall inflow in
the sector during the period.
In the other telecom segments, radio paging services accounted for 1.12%
of the overall FDI inflow at Rs 91 crore, while the cable TV network and
Internet attracted Rs 74.6 crore (0.92%).
BUDGET IMPACT
The abolition of 10 % surcharge on the import duty is a positive step for the
telecom industry. Concessional rate of 5% customs duty admissible to
specified equipments and parts thereof for basic telephone service, cellular
service, pager services, V-SAT, PMRTS and internet services extended up to
31 March 2002. This will make basic service providers to save on project
costs. Customs duties on telephonic or telegraphic switching equipments
and set top boxes reduced to 15%. With this the penetration may be
increased with the lower cost of the instruments. Earlier, the five-year tax
holidays for profits from basic telecommunication services was extended up
to 31 March 2003. The government proposes to introduce a Convergence
Bill to cover telecommunications, information technology, and information
and broadcasting sectors in an integrated manner. GOVERNMENT POLICY
The industry's fate is extremely susceptible to government's policies.
Although the sector was opened to private competition almost ten years
back, the same is not reflected in either telephone penetration or
investment in the sector due to unclear or/and frequently changing
government policies as also due to anti-private sector attitude of
BSNL/MTNL.
However, change-over from fixed license fees to revenue-sharing-cumentry fee regime has taken away one of the most important obstacles to
telecom growth in India as the high license fees quoted by the players
under the earlier regime had made projects of most of them totally
unviable. The New Telecom Policy of 1999 has considerably eased the
ground rules.
The recent opening up of long distance telephony to private sector is a
milestone. Monopoly of VSNL with regards to internet services and internet
gateways has already been lifted and now we have large number of ISPs
and many private internet gateways.
There is significant advancement on the divestment front as well with the
Tata group, the largest Indian business house, formally taking over the
management control of VSNL on 13 February 2002 from the Centre by
signing the shareholders agreement in Mumbai. The Tatas, presented a
cheque of Rs 1,439 crore as payment towards acquiring 25% equity stake
in VSNL. The Centre sold 25% of its 52.97% stake at a price of Rs 202 per
share.
Earlier, the share purchase agreement between the government of India,
VSNL and Panatone Finvest, as investing vehicle, and the four Tata group

companies as its principals viz Tata Sons, Tata Power, Tata Iron & Steel
Company and Tata Industries, was signed on 6 February 2002 for the
transfer of 25% of the subscribed and paid-up capital of VSNL.
The government has also indicated its plans to divest its stake in MTNL and
BSNL but no time frame has been set for the divestment.
In a major initiative, the government has announced that internet
telephony will be opened up from April '02, coinciding with removal of
monopoly of VSNL over International long distance operations (ILDO).
In another major move, the Centre granted a licence to Reliance and a
letter of intent to four other entities for providing international long
distance (ILD) services. These include one Indian company - the Bharti
group and three overseas companies - Internet access company Data
Access, the Indian unit of Hong Kong's Pacific Century Cyberworks and
Connecting Networks. The four entities would have to pay an entry fee of
$5 million each before they are granted final licences.
Also, the Centre is understood to have received three more applications for
ILD telephony licences from Spice Corporation, Aircell and Satyam Infoway
(Sify). With this, the total number of ILD applicants has now touched eight.
While Spice has named STT Communications as its partner, Aircell is
planning to go along with Asia Tech Mauritius and the Mauritius-based
Cellunet of India. Sify has named Sterling Commerce International Inc and
the Government of Singapore Investment Corporation as its partners for the
venture.
Earlier the government was waiting for TRAI's recommendations on ILDO.
Recently, TRAI has suggested unlimited competition in the ILD services
sector. It has also suggested a one time entry fee of Rs 25 cr and an
unconditional bank guarantee for Rs 25 cr for fulfilling the stipulated rollout
conditions. Further, the annual license fee of 15% of the gross revenue,
including the universal services obligation, is also stipulated.
In a major initiative, the government has accepted all the recommendations
of TRAI on ILD operations. Unlike NLD services, wherein the operator has to
lay nation wide network of optical fibre cable, the ILD services can be
launched by setting up gateways and entering into agreements with the
ILD providers. Hence, the investment in ILD segment will be very low
compared to NLD segment.
Trai functions as an independent regulatory body while the Telecom
Commission is vested with executive and policy-making powers. Recently,
the government also relaxed the norms of FDI into this sector. The foreign
cap of 49% was raised to 74% in ISP, Internet gateways, radio paging
services and end-to-end bandwidth services. In basic and cellular services,
however, the sectoral cap would continue at the existing 49% level.
DEMAND DRIVERS

The most important factor is the abysmally poor telephone penetration

of 4.4 lines per 100 population as against the world average of close to 15
and a very high 50-60 in some of the advanced countries. India has set for
itself a stiff target to achieve a tele-density of 7 by 2005 and 15 by 2010.
This translates to an addition of approximately 75 million lines by 2005 and
175 million lines by 2010. The rural tele-density has been targeted at 4 by
2010 with reliable telecom facilities in all villages by 2002.
Government's massive investment plans amounting to Rs 832.50 billion for
infrastructure is another factor. As the government opens up long distance
telephony, a dozen corporations has plans for Rs 36,000 crore investment
in the sector.
Growing cellular market due to aggressive marketing by companies will get
a boost with the increasing demand with changing lifestyles in metros,
mini-metros and other select pockets of the country. The cost of mobile
calls and the handsets are falling fast after the entry of MTNL. The
availability of limited mobile services based on wireless in local loop
technology will further expand the market for mobile services as these
services are perceived to be far cheaper than the existing GSM-based
mobile services.
Government is seriously considering reduction in excise and customs duties
for telecom products. Latest budget has already reduced the import duty on
cellular handsets to 5% from 25%. The growth and spread of Internet and
other IT-enabled services are also strong demand drivers for the telecom
sector.
STRATEGIC IMPERATIVES
The sector being capital intensive, government was the only player so far.
Though private players are now permitted, only large players with deep
pockets can enter and operate successfully in this field. Smaller players are
likely to sell out or merge with larger players. Again, the industry is very
technology-intensive and hence the chances of obsolescence are immense
for different modes of communication. In advanced countries this has
already changed the dynamics and the structure of the industry.
Digital revolution is fast catching up and companies that remain alert to
changes and adapt accordingly in no time can only survive. The buzz word
is broadband and integrated services encompassing basic, ISP, STD/ISD,
mobile and other value-added services under one roof or through
consortium and alliances.
The earnings in the sector hinge on government policies to a great extent.
Cellular service is a classic example. Role of Trai in tariff fixation is a clear
indication. In fact, one of the key issues in the telecom sector since
liberalisation has been the regulatory framework. However, the
reconstitution of the Trai and the creation of the Telecom Dispute
Settlement and Appellate Tribunal (TDSAT) are significant steps and will
strengthen the regulatory mechanism and provide an expeditious
mechanism to resolve disputes.

The earnings of operators in basic service depend directly on the number of

DELs it is metered per the number of calls made. Higher utilisation implies
higher earnings. The entry of private sector will take some business away
from MTNL. Hughes Ispat is targeting the lucrative commercial sector with
incentives and sops. About 10% of MTNL's clients (the commercial users)
contribute to over 70% of its revenue points to this type of risk. The
prospective reduction in tariffs would increase the number of call minutes.
As local calls are subsidized by long distance calls, the recent tariff hike
announced by Trai for local calls may impact usage especially residential,
but reduction in STD/ISD rates may increase the overall usage.
Despite the spurt in cellular subscriptions, operator's finances are worst
due to huge license fees and low talk time records. MTN'Ls entry is putting
pressure on to other operators in Mumbai and Delhi as it has priced its
services lower than the existing service providers. Similarly, with BSNL
launching cellular services nationwide shortly, the competition is bound to
intensify further which in all likelihood will lead to lower realisation on
account of price war. OUTLOOK
As the world is increasingly getting connected with the advent of Internet
and its different value-additions, telecom industry's prospects are probably
the best. With a tele density of 2.9 telephone lines per 100 inhabitants
against a world average of 15, the potential for growth is enormous in this
sector. Besides, the government has targeted 12.5 lines per 100 people by
the year 2008. With deregulation and entry of large number of private basic
service providers, the industry's growth potential has skyrocketed. The
demand for telecom services in India is not limited to basic telephone
services but also to value-added services like cellular, radio paging,
Internet and global mobile communication by satellite services.
The telecommunications service market is forecast to grow 24% annually
over the next three years and more than double in value to Rs 77,000 crore
($16.1 billion) by 2004/05 from the current Rs 32,500 crore in 2000-01, as
per market researcher CRIS INFAC.
It forecast the Indian market for basic telecom services will grow 18.5% per
year over to double in value to Rs 53,200 crore in the year to March 2005,
from Rs 27,000 crore in the year 2000-01.
The number of phone lines over the same period is expected to nearly
double to 59.3 million from 32.2 million. CRIS INFAC expects the demand to
increase at an average annual rate of 13.9% in the "A" category circles, till
March 2005. During the period March 2001 to March 2005, demand is
expected to increase by 15.8% in the "B" category circles and 22.7% in the
"C" category circles.
The waiting list for telephone lines is expected to decline deom 8.2% of
demand by end-March 2001 to 4.7% of demand by end-March 2005.
According to a study by Deutsche Bank, though the number of cellular
subscribers is expected to increase, the cellular operators' revenue is
estimated to increase by a lower rate. The growth in subscriber base is not

fully reflected in the growth in revenues as the average revenue per user
(ARPU) is expected to fall.
Further, the study predicts that by 2004-05, the cellular subscriber base
would shoot up to 24 million and the cellular operators' revenue will zoom
to Rs 137 billion while the ARPU would be Rs 5623. Also, the share of prepaid cards in the subscriber base will shoot up to 58% in 2004-05 from a
mere 23% in 2000-01. The share of pre-paid cards is expected to be 38%
in 2001-02 and to 50% in 2002-03. The study further reveals that, the
revenues from pre-paid card segment is estimated to increase from Rs 11
billion in FY 2001-02 to Rs 70 billion by 2004-05. During the same period,
revenues from post paid connections will increase from Rs 37 billion to Rs
67 billion.
In another study by research firm Gartner, the number of cellular
connections in India is expected to touch 70 million by 2007, as cut-throat
price war lures consumers. The market is projected to grow at a CAGR of
39% to notch up a base of 70 million subscribers by 2007.
A recent research by Gartner indicates that the number of cellular
connections in Asia Pacific would increase to 797.8 million by 2007 while
cellular services revenue would touch US$142.9 billion.
A strategic research by Frost & Sullivan estimates that the Indian basic
telecommunications equipment market will reach a level of $ 8 billion by
2003 which was just $ 0.9 billion during 1996-97. The transmission
equipment industry and, more so, the WLL, though currently it is not being
manufactured in India, is expected to generate revenues of $1.423 billion
during 2002-2003. The convergence of entertainment, media and telecom
would again only increase the need for more telecommunication facilities.
The changes are expected to bring in an investment of $ 37 billion (Rs
1,72,400 crore) by 2005 and $ 69 billion (Rs 3,21,500 crore) by 2010.
STATISTICS
Growth in Cellular Subscribers in India

(No. of Subscribers)

Month

2000-01

2001-02

% Growth

April

1962787

3702834

88.65%

May

2041181

3871514

89.67%

June

2181914

4077962

86.90%

July

2326040

4288987

84.39%

August

2456983

4542187

84.87%

September

2623656

October

2783820

November

2933979

December

3107449

January

3273839

February

3417540

March

3577095

Source : Cellular Operators Association of India

Telecom Sector as on Aug '00

Number of Telephone Exchanges

28394

Net Switching Capacity (lakh lines)

277.37

Village Public Telephones (Nos.)*

378460

Trunk Automatic Exchange (TAX)

Capacity (in Lakhs)

20.59

Public Call offices

705037

Coaxical Cable (Route KMs)

30968

Microwave, UHF (Route KMs)

176551

Optical Fibre (Route KMs)

185231

Tansmission Systems (Route KMs)

392750

STD Facility Provided

- District Head Quarters

585

- Sub-divisional Head Quarters

1149

- Tehsil Head Quarters

2822

- Short Distance Changing Centres

2547

No. of STD stations (by July 2000)

22048

Increased to 410422 by June '01

Growth in land line telephone network of BSNL

Year ending March Equipped Capacity DEL* Waiting List MCU*

1971

1.19

0.98 0.31

2279

1981

2.47

2.15 0.45

8472

1991

5.82

5.07 1.96

23897

1995

12.03

9.8

2.15

58600

1996

14.63

11.98 2.28

78452

1997

17.74

14.54 2.89

96755

1998

21.26

17.8 2.71

115120

1999

26.05

21.59 1.98

147645

2000

32.77

26.51 3.68

162760

2001#

39.91

32.44 2.92

n.a.

Note : DEL = Direct Exchange Lines;

MCU = Metered call unit revenue
# Provisional

State Wise Tele-density in India as of March 2001

S.No

CIRCLES/STATES

URBAN

RURAL

TOTAL

ANDAMAN & NICOBAR

14.09

4.56

7.13

ANDHRA PRADESH

8.22

1.33

3.45

ASSAM

8.51

0.25

1.26

BIHAR

4.18

0.20

0.80

JHARKHAND

GUJARAT

10.06

1.42

4.67

HARYANA

10.28

1.34

3.80

HIMACHAL PRADESH

22.24

3.17

4.91

JAMMU & KASHMIR

6.33

0.12

1.65

10

KARNATAKA

8.65

1.60

4.00

11

KERELA

9.12

4.95

6.25

12

MADHYA PRADESH

4.46

0.42

1.51

13

CHHATISGARH

1.07

14

MAHARASHTRA

11.06

1.24

5.43

15

NORTH-EAST-I

1.84

16

NORTH-EAST-II

1.77

17

ORISSA

6.06

0.48

1.42

18

PUNJAB

13.03

2.49

6.06

19

RAJASTHAN

6.86

0.81

2.35

20

TAMIL NADU

12.69

0.45

5.04

21

UTTAR PRADESH

5.31

0.29

1.45

22

WEST BENGAL

1.82

0.44

2.30

23

DELHI

15.50

0.00

13.24

ALL-INDIA

8.47

0.85

3.04

Tele-density = No. of Phones per 100 population

# expected to be greater than 1.1

Tuesday, September 28,2004

The aggressive Tariff cut is aimed at garnering greater share of expanding subscriber
base, but this can impact ARPU despite expected increase in usage
India is amongst fastest growing cellular services market in the world.
Given the intense competition amongst players and the need to sustain /
increase their market share in the accelerating cellular services market, the
telecom players are into another round of price war. Already ARPU is very
low compared to the rest of world. After the current rate cuts, there could
be further erosion of topline and bottomline. Another area of concern is the
churn rate. Reliance Infocomm (RIM) started it all on August 13 by slashing
the tariffs by 60%. Other players had no option but to follow suit in order to
keep the churn rate under control. Most of the schemes are introductory
offer or time bound. The smaller players like BPL Mobile, Aircel Digilink will
be facing some adverse effect after the price war. The previous price war
lead to consolidation. There are still more than 6 service providers while the

optimum number is considered to be around 3-4. Hence there is still scope

of consolidation.
Players eye revenues from value added services
The service providers are expecting to compensate the reduction in tariff
through increase in volume and talk time. While talk time is set to increase,
it will not fully compensate for the loss of revenue from reduction in tariff
rate. New investments are made to increase the income from value added
services. Currently the value-added service contributes around 6% of
topline. In developed countries, the value added services contribution is
around 30% to the topline. Though now the major chuck of value added
service is contributed by SMS, operators are adding new service like web
browsing, online games, ring tones, songs on request, news update, mobile
banking, etc
Impressive growth in subscriber base
The subscriber base for telephony services continued its growth pattern
during August 2004 also. In the month of August 2004, around 1.87 million
subscribers were added as compared to 1.95 million subscribers in July
2004. For mobile segment 1.67 million subscribers have been added during
August 2004 as compared to 1.72 million in July 2004. During the first five
months of current financial year approximately 7.52 million mobile
subscribers have been added, making it a total of 41.12 million mobile
subscribers at the end of August 2004. In the fixed segment, a total of 0.20
million subscribers were added during August 2004, as compared to 0.23
million in July 2004. These were predominantly WLL (F). With this the total
subscriber base of fixed lines have reached 43.65 million. The gross
subscribers base consisting of fixed as well as mobile have reached around
85 million resulting into the overall tele-density of around 7.74.
Surge in subscriber base expected, but set to ARPU to decline
Cellular connection is expected to reach 56 million by the end of 2004 and
130 million by 2008. Outbound SMS volumes grew 200% to reach 7.39
billion messages in 2003. The main driver of growth is the price difference
between voice calls and SMS. Growth is expected to continue based on
increased use of SMS for text-based information/entertainment services on
demand, games and marketing. As per a recent study, despite the growth
of SMS, the average revenue per user (ARPU) is likely to decline 13%
annually to Rs 339 by 2008.
In the last five years ARPU for GSM Cellular services has declined from Rs
1319 per month that prevailed at the earlier stages of competition to Rs
469 per month. It is almost one third of what prevailed in the year 2000
evidencing hectic competition leading to steep fall in tariff rates. ARPU for
postpaid service alone has declined from Rs 1560 per month to Rs 1056 per
month in last five years, thereby showing a decline of 32%. For prepaid
service, there has been a sharp decline of 65% in ARPU in the last five
years from Rs 822 per month to Rs 288 per month

India's private mobile operators, representing some 60 percent of the

booming wireless market, reported that revenues in April-June rose 8.4 %
from the previous quarter, offsetting the 6.7% decline in average revenue
per user (ARPU). ARPU is considered a key indicator of the soundness of a
telecom operation and therefore has a direct correlation with the revenues
of a player. The low levels of ARPU have been attributed to a large
percentage of users in the pre-paid segment; this is as large as 70 per cent
and is said to be around 80 per cent on a month-to-month increment.
Though its economy is picking up, personal disposable income is still very
low, and average revenue per user (ARPU) is not set to climb anywhere
near the rates of western countries or even other emerging nations, such
as China. India's operators are building their networks with a view to
making a profit from an ARPU of as little as $10 a month, while the ARPU in
China is about $12, about $35 in Western Europe, and about $55 in the U.S.
Teledensity in India is still quite low (around 7%), with just 44 million fixed
lines and 41million mobile lines in a country with more than 1 billion
people. These numbers are set to grow at very high rates, particularly now
that the country has government regulators that are committed to
eradicating barriers to growth in the telecom sector. There is also pent-up
demand for connectivity, driven particularly by the expanding IT services
sector.
Capex requirements
Already, the governments proposal to raise FDI limits to 74% has run
into rough waters. Meanwhile, the Indian operators are expected to invest
between $5 billion and $6 billion in 2004, inclusive of license payments and
is likely that capex could drop in 2005. However, once the major backbone
infrastructure is complete, we can expect rise in capex in order to cater to
ever increasing subscriber base and rise in usage. The momentum of
reform and growth in the telecom sector is now well established. The
regulator is also expected to come out with policies on spectrum usage,
broadband access and implementation of carrier access codes.
Bhartis plans
Bharti televentures plans to increase its share in the domestic mobile
market from 21% at present to 22% in a years time. Towards this end,
the company also plans to invest US$ 700 million to expand its network in
FY 2005-06. This is in addition to around US$ 700 to 750 dollar planned
investments in the current year.
Bharti televentures overall ARPU is likely to decline by 10 to 12%
annually from the present US$ 11, largely due to aggressive and steep
reduction in tariffs.
GSM to remain popular and dominant
Private GSM operators compete with powerful business groups Reliance and
Tatas who offer similar services based on the rival CDMA technology.

Nevertheless, between GSM and CDMA technology, the subscriber base is

tilted towards GSM and is expected to remain so in the foreseeable future.
Marked by Low ARPU, regulatory hassles & hectic competition
India's mobile industry is growing by between three and four percent each
month (on sequential basis) in terms of number of users, but revenue
hasn't kept pace because carriers regularly resort to cutting tariffs to lure
new users or attract them away from rivals. But behind the attractive
growth prospects lie a host of regulatory and economic factors that have
kept many wireless providers out of the country. Another factor is that
economic conditions do not appeal much to telecom companies used to
doing business in more affluent industrialised nations. Average revenue per
user (ARPU) still hovers around $10 in India, a figure expected to decline
over the next few years. Cellular operators must also pay 12 % of gross
annual revenues to the government, and 2 to 3 % of annual revenues for a
spectrum fee. Any company willing to brave the risks will also face some
stiff competition.
There is still only limited competition in international and domestic longdistance services. This is because subscribers still do not have a choice of
carrier. Though TRAI issued a directive 18 months ago making it mandatory
for all mobile and fixed-line service providers to enable their subscribers to
choose from among long-distance operators through incorporation of
carrier access codes, service providers have ignored the directive. TRAI is
now trying to ensure that the directive is implemented. Reliance is set to
hook up 1.7 million buildings with fiber to deliver triple-play services (voice,
video, data) to homes and businesses from early 2005, though a soft
launch of data services to business users is set to start any day now.
Outlook
The telecom services industry growth is being spurred by rapid economic
expansion ushered in by political and economic reforms of the 1990s.
Indias gross domestic product increased by 8.1 percent in the fiscal
year ending 31st March 2004 and is expected to grow at a healthy pace.
Even with the recent growth, only 4 % of the population currently have
cellular service, which leaves plenty of room for growth. As per a recent
study, the subscribers are expected to grow at a compound annual growth
rate of 23% over the next five years. The handset shipments are also
expected to increase by 9.5% annually, and voice and data revenues will
swell by more than 26% annually.
The service providers have undertaken the recent round of tariff cuts with
hope of recouping the loss of revenue through increased usage and
subscriber base. In case the game plan does not work accordingly, all the
providers will have to take a hit on the profitability. However, if profitability
is hit, then the service providers may find it difficult to raise funds to meet
future capex. Also, there is still scope of consolidation. Recent acquisition of
Aircel by Hutch starts intra circle consolidation. Earlier round of
consolidation was more focused on increasing the coverage area. After

establishing countrywide coverage, the major players may look into adding
subscriber by acquiring smaller players within circle.
Another major stumbling block in addition of subscriber base is the high
cost of handset. As low cost entry-level handset become easily available,
we can expect service providers adding up numbers especially in rural and
lower income group. Low-cost handset manufacturers like Pantech and Geo
from Korea, Bird from China, BenQ from Taiwan and Sagem from France are
at different phase of entering the Indian market. Continued growth depends
a great deal on continued economic growth, political stability, and favorable
regulatory measures. For now, the focus is on aggressive expansion of
subscriber base and increasing the share of value added services in total
revenues, so as to absorb the relatively sharp fall in tariffs.
Indicators

FE
FE
FE
2000 2001 2002
1) Subscriber's Base (in millions)
i) Fixed
26.65 32.71 38.33
ii) Mobile
1.9
3.58 6.54
Gross Total
28.55 36.29 44.87
iii) Internet
0.95 3.04 3.42
iv) Broadband
NA
NA
NA
2) Traffic (MOU) (minutes of use/ sub/month) *
i) Mobile (Cellular)
197
223
218
3) ARPU (Rs./sub/ month) **
i) Mobile (Cellular)
1319 1113 884
ii) All Services (Fixed,
NA
NA
794
Mobile, NLDO, ILDO)
4) Teledensity (%age)
Population in million
1016 1032 1048
(Estimated)
i) Fixed
2.62 3.17 3.66
ii) Mobile
0.19 0.35 0.62
Gross Total
2.81 3.52 4.28
* Data regarding MOU for fixed lines not available
** Data regarding ARPU for fixed lines not available
*** Estimated ARPU for all services combined

FE
2003

FE
2004

%age growth over FE

2003 (One Year)

41.48
13
54.48
3.64
0.08

42.84
33.69
76.53
4.55
0.19

3
159
40
25
138

225

302

34

634

469

-26

682

575*** -16

1069

1088

3.88
1.22
5.1

3.94
3.1
7.04

2
155
38

Telecom: Growth in subscriber over previous month

GSM Service providers

Bharti Cellular
BSNL
Hutchinson

July'2004
7712043
6231924
6584452

Aug'2004
7995452
6871748
6841248

addition
283409
639824
256796

Var.
3.7
10.3
3.9

Idea Cellular
BPL Cellular
Spice Comm
Aircel Digilink
Reliance Telecom
MTNL

4214571
2209232
1349925
973072
888576
429371
30593166

Basic Telecom Operators

Bharti Telenet
Wireline
700,903
WLL (F)
27,659
CDMA
Total
728,562
HFCL Infotel
Wireline
118258
WLL (F)
28101
CDMA
36381
Total
182740
Reliance Infocomm
Wireline
160
WLL (F)
770571
CDMA
7563839
Total
8334570
Shyam Telelink
Wireline
78454
WLL (F)
21708
CDMA
26957
Total
127119
Tata Teleservices
Wireline
393785
WLL (F)
1050442
CDMA
718486
Total
2162713
MTNL
Fixed**
4219241
WLL (F)
125056
Total
4344297
** Includes Wireline/FWT
Var. (%) exceeding 999 has been truncated to 999
Sources: COAI & ABTO

4298446
2267749
1382800
1015712
908313
437883
32019351

83875
58517
32875
42640
19737
8512
1426185

2.0
2.6
2.4
4.4
2.2
2.0
4.7

722779
27292
750071

21,876
-367

3.1
-1.3

21,509

3.0

121301
32162
39865
193328

3,043
4,061
3,484
10,588

2.6
14.5
9.6
5.8

13747
845312
7831699
8690758

13,587
74,741
267,860
356,188

999
9.7
3.5
4.3

80883
21611
26786
129280

2,429
-97
-171
2,161

3.1
-0.4
-0.6
1.7

391314
1167597
698716
2257627

-2,471
117,155
-19,770
94,914

-0.6
11.2
-2.8
4.4