INDIAN TELECOM SECTOR

AN INDUSTRY ANALYSIS.

Tanmay

Jauhary

TELECOM SECTOR- INTRODUCTION

Most vibrant sector with highest growth rate more than 60 lakh customers are added every month Plethora of services Easier access/ availability Drastic reduction in tariff World class service

Major classes of Services

Fixed Mobile Copper, Optical Fibre, Wireless GSM and CDMA based

Narrow band Voice, Internet, Fax Broad band High speed Internet, Video

MOBILE TARIFFS IN INDIA ONE OF THE LOWEST

0.25 0.23 0.22 0.2 0.19 0.17 0.16 0.15 0.11 0.1 0.11 0.11 0.09

USD

0.05 0.05

0.05 0.04 0.03 0.02

Argentina

Belgium

Italy

France

Philippines

Malayasia

Thailand

Hong Kong

Pakistan

Taiwan

China

Brazil

India

UK

KEY POLICY INITIATIVES/MILESTONES

New

Economic Policy (1991) Telecom Policy 1994

Opening up of Telecom service sector (Mobile metros)

National

Telecom, key for development Inadequacy of public resource to meet demand Private sector to supplement Govt. Provide world class telecom service at affordable cost

TECHNOLOGY TREND

Optical fiber based wireline networks Wireless networks GSM,CDMA based mobile Next Generation Networks: Voice , Data, Video convergence Telecom networks increasingly software intensive

Issues to be addressed in the Indian Scenario

Unique Rural Scenario : low teledensity Need for Spectrum re-farming & re-allocation Lack of Content in Local Languages Network Security

Telephone connections in millions2008

35.997 1090.504 220.743 837.195
Africa
America

Asia
Europe

1744.815

Oceania

Mobile. 2699.270 M Fixed.1229.987 M Total. 3929.257 M Population 6563.69 M Teledensity. 60.02

MARKET STRUCTURE

Divided into 23 circles

4 metros

Jammu & Kashmir Himachal Pradesh Punjab Haryana Uttar Pradesh W North Eastern States

19 circles

Further divided into A, B and C category.

DELHI Rajasthan Uttar Pradesh E Bihar Gujarat Madhya Pradesh West Bengal

Division based on economic parameters and revenue potential

Each circle has a licenses, which are a saleable.

Maharashtra MUMBAI Andhra Pradesh Karnataka

Orissa

KOLKATA

METRO Circles
CHENNAI Tamil Nadu Kerala

A Circles B Circles C Circles

Source :COAI

CURRENT INDUSTRY STRUCTURE

Ministry of Communication & Information Technology Licensor Dept of Telecom

Unified License Operators Fixed Line Operators

National Long Distance Operators CDMA International Long Distance Operators 1800Mhz

Regulator

Telecom Regulatory Authority of India

Judiciary

Telecom Dispute Settlement Appellate Tribunal

Wireless Operators
GSM

FDI in telecom recently revised to 74%.

Government gets 15% of revenues from Unified Licensing

900 & 1800

TELECOM REGULATORY AUTHORITY OF INDIA

Setup in 1997 Protection of Consumer Interest Nurture Conditions for Growth of Telecom in India Major Activities

Reduced levies on Operators. Reduced upper limit in tariff (Local, STD & ISD) and other Inter-operators tariffs. Directives on number of network access service providers. Policy guidelines on new services like 3G, WiMAX, Internet Telephony, Radio Paging, VSAT, etc. Regular monitoring of Quality of Service parameters

MAJOR PLAYERS OF INDIAN TELECOM

INDUSTRY

The Top five companies, on the basis of Market Share as on 31st January, 2009 are: 1. Bharti Airtel Ltd. 2. Reliance Communications Ltd. 3. Vodafone Essar Ltd. 4. BSNL 5. Idea Cellular + Spice

Bottom five companies, on the basis of Market Share as on 31st January, 2009 are: 1. Aircel Cellular Ltd. + Dishnet 2. Mahanagar Telephone Nigam Ltd. (MTNL) 3. BPL Mobile Communications Ltd. 4. HFCL Infotel Ltd. 5. Shyam Telecom Ltd.

MARKET SHARE OF TELECOM COMPANIES AS ON JANUARY, 2009

PORTER FIVE FORCES MODEL

THREAT OF SUBSTITUTES- LOW

Some Substitutes:

VOIP (Skype, Messenger etc.) Online Chat

Email
Satellite phones

None of the above a major threat in current scenario, but a potential threat for near future.

THREAT OF NEW ENTRANTS- LOW

Declining Average Revenue Per User. Infrastructure tenancy costs. Brand pull exists to some extent for brands like

Airtel / Idea/ Vodafone.

Extremely high infrastructure setup costs Spectrum License cost- Lotteries, auctions. Incumbent Advantages: Established brand image, Reliability of network

POWER OF SUPPLIER- LOW

Large number of suppliers. Shared tower infrastructure. Limited pool of skilled managers and engineers especially those well versed in the latest technologies.

Medium cost of switching since changing their hardware would lead to additional cost in modifying the

architecture.

Overall influence on the industry - medium

BARGAINING POWER OF CUSTOMER- HIGH

Lack of differentiation among the service provider Cut throat competition Customer is price sensitive Low switching costs

Number portability to have negative impact

RIVALRY AMONG COMPETITORS- HIGH

High Exit Barriers High Fixed Cost 6-7 players in each region

3 out of 4 BIG, present in each region

Very less time to gain advantage by an

innovation (Eg. Caller tunes, life time card)

Price wars

BHARTI AIRTEL- THE MARKET LEADER

SWOT
STRENGTHS
Largest Telecom Player in India - ~80Mn, 22.6% Strategic Alliance with other stakeholders in Bharti Airtel include Sony-Ericsson, Nokia and Sing Tel Pan India Presence Strong Financials

WEAKNESS
Outsourcing of Core Systems Lack of emerging market investment opportunity

SWOT
OPPORTUNITIES

THREATS
India centric Major revenues from India Falling ARPU Intense Competition & Shortage of Bandwidth

Bharti Infratel Cutting Down cost in Rural area Match Box Strategy Scale of Penetration Current Tele-Density 30.6 is still low among developing countries Low Broadband Penetration, Rural Telephony

AIRTEL STRATEGY
MANTRA : Focus on Core Competencies and Outsource the rest!
Product Innovation

Pricing

Core Competencies

VAS

Marketing and Branding

STRATEGY

Airtel partnered with leading players in telecommunication players across the globe. It has managed to work with the best of domain specialists globally and emerge as a world class entity. Partnerships include operational contracts with vendors and strategic investors ranging from private equity investors to global telecom giants.

STRATEGIC PARTNERSHIPS/ SHAREHOLDERS TECHNOLOGY AND CAPITAL

Warburg Pincus a celebrated PE investor held a stake for a substantial period of time and was instrumental in providing Airtel support in its early stages. Vodafone was a strategic investor in Airtel. Temasek the Singapore based investor holds a considerable stake in it. Was also affiliated with Singapore Telecom.

OUTSOURCING DEALS IN 2004

Ericsson was given the mandate to provide, manage and maintain the equipment as well as provide quality assurance in Airtel IBM was given the mandate to handle the back office requirements of Airtels presence in India

OPERATIONAL STRATEGIES.

Higher emphasis on ARPU/min stark contrast with other operators who concentrate on ARPU only. Aim to become a one stop shop for all telecommunication services under the Bharti umbrella. Exploring opportunities in international markets. Hived off tower infrastructure into a separate entity.