Telecommunications Last Updated: December 2010

The Indian telecommunications industry is one of the fastest growing in the world. The industry
has witnessed consistent growth during the last year on the back of rollout of newer circles by
operators, successful auction of third-generation (3G) and broadband wireless access (BWA)
spectrum, network rollout in semi-rural areas and increased focus on the value added services
(VAS) market.

According to the Telecom Regulatory Authority of India (TRAI), the number of telephone
subscriber base in the country reached 742.12 million as on October 31, 2010, an increase of
2.61 per cent from 723.28 million in September 2010. With this the overall tele-density
(telephones per 100 people) has touched 62.51. The wireless subscriber base has increased to
706.69 million at the end of October 2010 from 687.71 million in September 2010, registering a
growth of 2.76 per cent.

Meanwhile, Indian Global System of Mobile Communication (GSM) telecom operators added
17.45 million new subscribers in November 2010, taking the all-India GSM cellular subscriber
base to 526.18 million, according to the Cellular Operators Association of India (COAI). The
GSM subscriber base stood at 508.72 million at the end of October 2010.

Value-Added Services (VAS) Market

Mobile value added services (VAS) include text or SMS, menu-based services, downloading of
music or ring tones, mobile TV, videos and sophisticated m-commerce applications. As per a
report, ‘India Telecom 2010’ released by KPMG in December 2010, currently, the VAS market
is worth US$ 2.45 billion-US$ 2.67 billion, which is around 10 per cent of the total revenue of
the wireless industry. The share of VAS in wireless revenue is likely to increase to 12-13 per
cent by 2011, on the back of increased operator focus on VAS due to continuous fall in voice
tariffs, increasing penetration of feature rich handsets, availability of vernacular content and
increased user adoption of VAS applications.

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. According to the
Department of Industrial Policy and Promotion (DIPP), the telecommunications sector which
includes radio paging, mobile services and basic telephone services attracted foreign direct
investment (FDI) worth US$ 1,062 million during April-October 2010-11. The cumulative flow
of FDI in the sector during April 2000 and October 2010 is US$ 9,993 million.

As per an industry report the telecom industry witnessed merger and acquisition (M&A) deals
worth US$ 16.60 billion during April-December 2010, which represented 28.26 per cent of the
total valuation of the deals across all the sectors during the period analysed. There were 10
inbound, outbound and domestic M&A deals in the telecom sector during the first nine months
of the current fiscal. The biggest M&A deal in the sector was made by telecommunications
service provider Bharti Airtel through the acquisition of Zain’s African mobile services
operations in 15 countries. The deal involved a transaction of US$ 10.7 billion. In another deal,
Bharti Airtel acquired 100 per cent stake of Telecom Seychelles Ltd for US$ 62 million.

Other major M&A deals included the acquisition of 95 per cent stake in Infotel Broadband for
US$ 1,032.26 million by Reliance Industries and 26 per cent stake of US-based mobile
chipmaker Qualcomm’s Indian arm for US$ 57.72 million by India's Tulip Telecom and Global
Holding. Further, India-based GTL Infrastructure Ltd has bought 17,500 telecom towers of
Aircel Ltd. for US$ 1,702.95 million.

Going Global

In March 2010, Bharti Airtel bought the African operations of Kuwait-based Zain Telecom for
US$ 10.7 billion, driving the Indian player into the league of top ten telecom players globally.

The Reserve Bank of India (RBI) has liberalised the investment norms for Indian telecom
companies by allowing them to invest in international submarine cable consortia through the
automatic route. In April 2010, RBI issued a notification stating "As a measure of further
liberalisation, it has now been decided... to allow Indian companies to participate in a consortium
with other international operators to construct and maintain submarine cable systems on co-
ownership basis under the automatic route." The notification further added, "Accordingly, banks
may allow remittances by Indian companies for overseas direct investment."

Tele-medicine

With increase in cell phone users to around 700 million and introduction of 3G services soon in
the country, remote treatment and diagnosis of patients through mobile phones would become a
reality in the near future. In fact, a few telecom operators and value-added service developers are
planning to use mobile phones for diagnostic and treatment support, remote disease monitoring,
health awareness and communication.

The Gujarat health department plans to connect all villages through its telemedicine network.
The state government has so far expanded the reach of telemedicine services from 53 villages in
2008 to 453, and hopes to cross 500 villages soon. Jay Narayan Vyas, state health minister, said
"First thing we plan to do is to start the 104 service over the phone. People can call up and talk to
paramedics in call centers who can suggest the primary action to be taken in case of any health
emergency. Also, they would be able to suggest generic and over the counter drugs."

3G Services

The Department of Telecom has taken the pioneering decision of launching of 3G services by
BSNL and MTNL and initiation of process for auction of spectrum for 3G services to private
operators. Allocation of spectrum for 3G and BWA services was done through a controlled
simultaneous, ascending e-auction process.

All the 71 blocks that were put up for auction across the 22 service areas in the country were
sold, leaving no unsold lots. Auction for 3G spectrum ended on May 19, 2010 after 183 rounds
of intense bidding over a span of 34 days. The Government is expected to morph revenue worth
US$ 14.6 billion. All the available slots across 22 circles have been sold to seven different
operators.

A pan-India bid for third generation spectrum stood at US$ 3.6 billion. The Anil Ambani-led
Reliance Communication bagged the highest number of 13 circles at a cost of US$ 1.9 billion,
followed by Bharti Airtel in 12, Idea in 11 and Vodafone and the Tatas in nine circles each,
according to the Department of Telecommunications. MTNL and BSNL will have to pay US$
1.42 billion and US$ 2.2 billion respectively.

3G spectra have already been allotted to successful bidders for commercial use on September 1,
2010 as per the timelines indicated in the Notice Inviting Application (NIA) and in the Letter of
Intent issued after the bid amounts were deposited. The 3G spectrum has been allotted to AirTel,
Aircel, Vodafone, S Tel, Reliance, Idea Cellular and Tata Cellular Services who won the bids
through the electronic auction spread over a period of 34 days in respect of 3G and 16 days in
respect of BWA. The BWA spectra have also been assigned to the successful bidders which are
Aircel, Augere, Tikona, Qualcomm, Infotel and Bharti. 3G & BWA spectrum would enable users
to have value added services like video streaming, mobile internet access, higher & faster data
downloads.

Manufacturing

The Indian telecom industry manufactures a vast range of telecom equipment using state-of-the-
art technology.

As per a press release by the Ministry of Communications & Information Technology, the
production of telecom equipments in value terms is expected to increase from US$ 10.87 billion
during 2008-09 to US$ 11.87 billion in 2010-2011. Favourable factors such as policy moves
taken by the Government, incentives offered, large talent pool in R&D and low labour cost can
provide an impetus to the industry. Exports increased from US$ 89.24 million in 2002-03 to US$
3 billion in 2009-10 accounting for 26 per cent of the total equipment produced in the country
and it is expected to increase to US$ 3.33 billion in 2010-11.

Meanwhile, telecom regulator TRAI has released a consultation paper on ‘Encouraging Telecom
Equipment Manufacturing in India’ seeking views of stakeholders for promoting research and
development (R&D) and manufacturing of telecom equipment in the country. The consultation
paper issued on December 28, 2010 aims at discussing, debating and finalising measures for
promotion of R&D and creation of intellectual property as well as manufacture of telecom
equipment and electronic components in India.

Further, the Indian mobile handsets market continued to grow in the third quarter 2010 as well to
record a quarter-on-quarter growth of 3.6 per cent to touch 40.08 million units in the quarter,
according to market intelligence firm IDC’s India Quarterly Mobile Handsets Tracker. The year
2010 is expected to end with total mobile handset sales of 155.9 million units.
The study further showed that the Finnish handset maker Nokia had the largest share of 31.5 per
cent in terms of units shipped during the third quarter of 2010. Nokia was followed by the
Chinese brand G’Five in terms of unit shipments market share and Korean handset manufacturer
Samsung occupied the third slot.

According to a report by technology researcher Gartner Inc, India ranks fourth in manufacturing
telecom equipment in the Asia-Pacific (Apac) region. The country has a 5.7 per cent share of the
region's total telecom equipment production revenue of US$ 180 billion in 2009.

"We expect India to move up to the third spot (after China and South Korea) with a share of 8.5
per cent of the total (estimated) Apac telecom equipment production revenue of US$ 277 billion
by 2014," Gartner said. The firm estimates India's telecom equipment production revenue to
grow at a CAGR of 17.1 per cent to reach US$ 22.6 billion in fiscal 2014. India will be the
fastest growing telecom equipment production market in the Apac region over the next five
years, it predicts.

Rural Telephony

The rural Telephone connections have gone up from 3.6 million in 1999 to 12.3 million in March
2004 and further to 200.77 million in March 2010. Their share in the total telephones has
constantly increased from around 14 per cent in 2005 to 32.75 per cent at the end of October
2010. The rural subscribers have grown to 243.04 million at the end of October 2010. The
wireless connections have contributed substantially to total rural telephone connections; it stands
at 233.95 million in October 2010. During 2010-11, the growth rate of rural telephones was
21.05 per cent as against 18.69 per cent of urban telephones.

The private sector has contributed to the growth of rural telephones as it provided about 84.27
per cent of rural telephones during October 2010.

The government plans to connect all revenue villages in India either through landline, mobile or
WLL by February 2011. “We have already connected about 96 per cent of the revenue villages.
The remaining 25,000 villages will have connectivity by February 2011,” stated Mr Sachin Pilot,
Minister of State for Communications and IT.

Further, the Government, under Bharat Nirman II Programme, has envisaged providing
broadband coverage to all 250,000 Gram Panchayats by 2012.

Policy Initiatives

The government plans to formulate a comprehensive ‘National Telecom Policy 2011’ including
the recognition of Telecom as infrastructure and as an essential service, encouraging Green
Telecom, steps to accelerate migration from IPv4 to IPv6 at the earliest, release of IPv6
standards by Telecom Engineering Centre for implementation in the country, etc., as per a press
release by the Ministry of Communications & Information Technology.
Further, the government plans to take concrete steps towards finalisation of ‘National Broadband
Plan’ including strategy for implementation and initiation of steps for roll out of optical fibre.

The government has taken many proactive initiatives to facilitate the rapid growth of the Indian
telecom industry.

• In the area of telecom equipment manufacturing and provision of IT-enabled services,

100 per cent FDI is permitted
• No cap on the number of access providers in any service area. In 2008, 122 new Unified
Access Service (UAS) licences were granted to 17 companies in 22 services areas of the
country
• Revised subscriber based criteria for allocation of Global System of Mobile
Communication (GSM) and Code Division Multiple Access (CDMA) spectra were issued
in January 2008
• To provide infrastructure support for mobile services a scheme has been launched to
provide support for setting up and managing 7,436 infrastructure sites spread over 500
districts in 27 states. As on December 31, 2009, about 6,956 towers had been set up under
the scheme

According to the Consolidated Foreign Direct Investment (FDI) Policy document, the FDI limit
in telecom services is 74 per cent subject to the following conditions:

• This is applicable in case of Basic, Cellular, Unified Access Services, National/

International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS),
Global Mobile Personal Communications Services (GMPCS) and other value added
Services
• Both direct and indirect foreign investment in the licensee company shall be counted for
the purpose of FDI ceiling. Foreign Investment shall include investment by Foreign
Institutional Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible
Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts
(GDRs) and convertible preference shares held by foreign entity. In any case, the 'Indian'
shareholding will not be less than 26 per cent
• FDI up to 49 per cent is on the automatic route and beyond that on the government route.
FDI in the licensee company/Indian promoters/investment companies including their
holding companies shall require approval of the Foreign Investment Promotion Board
(FIPB) if it has a bearing on the overall ceiling of 74 per cent. While approving the
investment proposals, FIPB shall take note that investment is not coming from countries
of concern and/or unfriendly entities
• The investment approval by FIPB shall envisage the conditionality that the Company
would adhere to licence Agreement
• FDI shall be subject to laws of India and not the laws of the foreign country/countries

The Road Ahead

According to a report published by Gartner Inc in June 2009, the total mobile services revenue in
India is projected to grow at a compound annual growth rate (CAGR) of 12.5 per cent from
2009-2013 to exceed US$ 30 billion. The India mobile subscriber base is set to exceed 771
million connections by 2013, growing at a CAGR of 14.3 per cent in the same period from 452
million in 2009. This growth is poised to continue through the forecast period, and India is
expected to remain the world's second largest wireless market after China in terms of mobile
connections.

"The Indian mobile industry has now moved out of its hyper growth mode, but it will continue to
grow at double-digit rates for next three years as operators focus on rural parts of the country,"
said Madhusudan Gupta, senior research analyst at Gartner. "Growth will also be triggered by
increased adoption of value-added services, which are relevant to both rural and urban markets."

Mobile market penetration is projected to increase from 38.7 per cent in 2009 to 63.5 per cent in
2013, according to Gartner.

The much-awaited mobile number portability was launched on November 25, 2010 in Haryana
and will be available to more than 700 million subscribers from January 20, 2011 across the
country. As continued efforts of the Government to increase competition in the market and to
provide wider choice to customer, Mobile Number Portability will be an important step.

Exchange rate used: 1 USD = 45.05 INR (as on December 2010)

Related News

• National Broadband plan to connect 160m homes The Economic

Times January 20, 2011

• PM to flag off mobile number portability today The Economic Times January
20, 2011

• India plans to reserve airwaves for developing mobile tech The Economic
Times January 14, 2011

• Mobile handset market grows by 3.6% in Q3 Business Standard December

30, 2010

• New telecom gear norms by Feb: DoT The Times of India December 28, 2010

• Tejas Networks plans to invest Rs 100 cr in R&D next year The Hindu
Business Line December 27, 2010

• 18.98 million telecom subscribers added in October: Trai The Economic

Times December 27, 2010

• Airtel to activate Indo-China cable this week The Economic Times December
23, 2010
 • GSM telecom operators add 17.45 million new subscribers in Nov
2010 IBEF December 17, 2010

• Poynt Corp, TIL tie up The Times of India December 15, 2010

Analysis

Telecom industry analysis uncovers the fact that this industry has a huge business potentiality
and is going to be a booming industry. Telecom industry analysis also reveals that this industry
will provide an immense employment opportunity in the coming years.

Statistical report

Phoenix Center research revealed that in the coming years, there will be a healthy competition
among the providers of telecommunication services. At the same time, the price will be lower
and quality will be higher. The new telecommunications technologies will replace the traditional
telecom services. Statistical data also reveals that the telecommunications industry is going to be
a dynamic and booming industry in the near future. The telecom industry comprises of complex
network of services like telephones, mobile phones and internet services.

Telecom industry trends

Throughout the world, telecom industry are being controlled by private companies instead of
government monopolies. Traditional telecom technologies are also being replaced by modern
wireless technologies, specifically in case of mobile services. One of the major objectives of
telecom industry is to enhance the quality and speed of Internet technology.

These days, telecom industry is more concerned with texts and images (Internet technologies),
rather than voice(telephone service). Most of the research works are going on Internet
accessibility, specifically on data applications and broadband services. The other major division
of telecom industry is mobile network sector, where lots of innovative research works are going
on. Previously the traditional telephone calls used to earn the maximum revenues, but these days
mobile service is going to replace traditional telephone services.

Telecom industry analysis from the experts point of view

Telecom industry is a vast and diversified industry and needs a huge capital to invest. That is
why the competitors of this industry should be such that they can meet that demand. From the
investor's point of view, it can be said that they should be well aware of cash flow in this
industry.

World Telecom Industry

World telecom industry is an uprising industry, proceeding towards a goal of
achieving two third of the world's telecom connections. Over the past few years
information and communications technology has changed in a dramatic manner and
as a result of that world telecom industry is going to be a booming industry.
Substantial economic growth and mounting population enable the rapid growth of
this industry.

Research works associated with world telecommunication industry

A number of research works are being carried out all over the world to improve the quality and
speed of transmission. Research works are also done on the basis of the users' needs. The
objective of the research work is to provide quality and affordable service to the consumers.

Market potentiality of world telecommunication industry

The world telecommunications market is expected to rise at an 11 percent compound annual

growth rate at the end of year 2010. The leading telecom companies like AT&T, Vodafone,
Verizon, SBC Communications, Bell South, Qwest Communications are trying to take the
advantage of this growth. These companies are working on telecommunication fields like
broadband technologies, EDGE(Enhanced Data rates for Global Evolution) technologies, LAN-
WAN inter networking, optical networking, voice over Internet protocol, wireless data service
etc.

Economical aspect of telecommunication industry

World telecom industry is taking a crucial part of world economy. The total revenue earned from
this industry is 3 percent of the gross world products and is aiming at attaining more revenues.
One statistical report reveals that approximately 16.9% of the world population has access to the
Internet.

Present market scenario of world telecom industry

Over the last couple of years, world telecommunication industry has been consolidating by
allowing private organizations the opportunities to run their businesses with this industry. The
Government monopolies are now being privatized and consequently competition is developing.
Among all, the domestic and small business markets are the hardest.

China telecom industry

China telecom industry has an enormous business potentiality and is targeting

on the development and application of advanced technologies specifically on
wireless and broadband services. China telecom industry is rapidly prospering
towards the world's leading market in telecommunication industry and
consequently employment opportunities are also growing. Government of China is
also encouraging this industry by adopting technical support and expert services
from Canadian Aprel Laboratories for the development of wireless
telecommunication industry.

Recent developments of China telecom industry

China telecom industry is trying to issue 3G(third generation) mobile licenses. Only 12 countries
have issued '3G' mobile communications, which is a combination of wireless mobile technology
with data transmission capabilities. The three 3G standards comprise of WCDMA (Wideband
Code Division Multiple Access), TD-SCDMA(Time Division-Synchronous Code Division
Multiple Access) and CDMA 2000 (Code Division Multiple Access). TD-SCDMA can be
treated as one of the most advanced technologies for mobile operators.China telecommunication
industry is also going to enhance the Internet accessibility for the users throughout the world.

Leading telecommunication service providers of China telecom industry

A number of state run companies are primarily involved with China telecom industry. Some of
the leading providers of telecom services include China Telecom and China Netcom, who are
engaged in fixed line business activities. China Mobile and China Unicom are engaged with the
mobile sector of China telecom industry. Some minor companies include China Tie Tong, China
Satcom. China Government is also encouraging foreign operators to access the telecom industry.

Economic perspective of China telecom industry

China telecom sector is prospering rapidly. The growth rate of this industry from year 1997 to
2000 was about 20%. Out of China's overall telecom sector, the mobile operators have invested
an average of 25 billion US dollars in a year. With respect to the number of subscribers, China
possesses the world's