Indian
Telecommunication
Sector
JULY 2013
Presentation Plan
1
Telecom Industry Overview
2
Telecom – Investment Attracting Sector
3
Regulatory Framework and Its Impact
4
Emerging Trends in Telecom Market
5
Major Players in Telecom Sector
6
Growth Avenues
7
Limitations and Concern Areas
Dr. Gajender Sharma
2
Presentation Plan
1
Telecom Industry Overview
2
Telecom – Investment Attracting Sector
3
Regulatory Framework and Its Impact
4
Emerging Trends in Telecom Market
5
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
3
Indian Telecom Industry
In the world :
• Second largest network ( Telephone users – fixed & mobile)
• It has the lowest call tariffs
• Third largest Internet user-base
• Cheapest mobile hand set
• Most affordable colour phone
• The fastest sale of mobile phones per week
Dr. Gajender Sharma
4
Telephony services (mobile and basic) and Internet services
dominate the Indian telecom services
The Indian telecom market generated revenues of approximately USD 20 billion in
2006–07. It registered a CAGR of approximately 22 percent from 2002–03 to 2006–
07. The CAGR from 2006–07 to 2009–14 is expected to stabilise at 21 percent.
Telecom Services – India
Revenues (USD billion)
Revenues of Indian Telecom Industry: (USD billion)
50
43
Registered an
annual growth of 33
percent in 2006–07
40
30
20
20
9
10
11
15
10
0
2002-03 2003-04 2004-05 2005-06 2006-07
…..
….
2009-10
The Indian telecom services can be divided into basic, mobile and Internet
services. The growth witnessed in the mobile services and Internet services
segments was higher as compared to basic services and radio paging services.
Dr. Gajender Sharma
5
Private players account for highest subscriber base growth in the
basic telephony services segment
Market Share* of Basic Services Segments in
India
Basic Services
WLL (F)
17%
 Basic services include fixed
wireline and wireless in local loop
(WLL-fixed).
 Fixed wireline services hold a
major market share of 83 percent
in basic services.
 BSNL and MTNL are market
leaders in this segment.
 Although,
government-owned
BSNL dominates the segment in
terms of subscriber base and
market share, private players
have registered a notable growth.
* In terms of Subscriber Base
Fixed
83%
Market Share* of Basic Service Operators in
India
100%
80%
80%
74%
60%
40%
9%
20%
8%
11%
18%
0%
Dr. Gajender Sharma
BSNL
MTNL
As of 31 March 2005
Other Private Players
As of 31 March 2006
6
New Telecom Policy: Facilitating
Privatization and Growth
• Achieve telecom coverage of all villages in the country and provide
reliable media to all exchanges by the year 2002.
• Provide Internet access to all district head quarters by the year 2000
• The policy envisions providing secure, reliable, affordable and high
quality converged telecommunication services anytime, anywhere
• Increase rural tele density from the current level of around 39 to 70 by
the year 2017 and 100 by the year 2020
• Broadband –“'Broadband For All”
• Convergence of Network, Services and Devices
• Consumer Focus - Achieve One Nation - Full Mobile Number
Portability and work towards One Nation - Free Roaming
Dr. Gajender Sharma
7
Broadband services to drive Internet penetration in India
Internet Subscribers
Market Share of Top Five Internet Service
Providers (as of quarter ending March 2007)
BSNL, 45.2%
Bharti Airtel,
6.8%
9.27
6.94
8
5.55
6
4.55
3.04
4
3.42
3.64
0.95
2
0.14
0.28
2006–07
2005–06
2004–05
2003–04
2003–03
2001–02
2000–01
1999–00
1998–99
0
1997–98
The emergence of private players and new technologies have provided a strong
impetus to the growth of Internet and broadband services. The quality and
penetration of these services have undergone changes, with significant
improvement in the telecom infrastructure. The Internet subscriber base
registered a CAGR of 60 percent for the period 1997–98 to 2006–14
Internet Subscribers (In million)
10
BSNL and MTNL caters to more than two-thirds of Internet subscribers in India.
India had 2.52 million broadband connections at the end of June 2007.
Private players are catching up fast due to increased penetration of Internet and
broadband services in India.
Reliance,
6.1%
Sify, 8.9%
Others, 14.0%
MTNL, 19.0%
The telecom market will experience high penetration of Internet services with the
support from government policies and introduction of novel technologies in
India.
Dr. Gajender Sharma
8
Presentation Plan
1
Telecom Industry Overview
Telecom Handset Market
2
Telecom – Investment Attracting Sector
3
Regulatory Framework and Its Impact
4
Emerging Trends in Telecom Market
5
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
9
Indian telecom handset market booming along with mobile
services industry

The Indian handset market grew at a phenomenal rate in 2006
with the sale of approximately 30–35 million handsets. It is
estimated that by 2011, sales of mobile handsets will reach
150 million units.
Competitive pricing has triggered the growth of coloured
handsets, which accounted for 65 percent of the market in
2006; whereas, the share of monochrome handsets has
declined to 35 percent.

Mobile phones are available at prices as low as USD 28–35.

Camera phones currently occupy 15 percent of the sales
Mobile Handsets Market in India
4,750
5,000
4,000
USD Million

3,231
3,000
2,000
1,610
1,966
1,000
0
2003–04
2004–05
2005–06
2006–07
volume.
The CDMA category is growing faster than the GSM
category. It captured 25 percent of the market volume in
2005–06 as against a 20.5 percent share in the
previous year.
Market Share of GSM and CDMA Handset
Manufacturers: 2006–07
Haier
1%
Huaw ei
1%
Others
7%
Overall, Nokia has a market share of 53 percent; it
dominates the GSM mobile handsets with a market
share of approximately 73 percent.
ZTE
4%
Samsung
6%
Sony Ericsson
6%
Nokia
53%
LG dominates in the CDMA handsets market with a
market share of 60 percent.
LG
11%
Motorola
11%
Dr. Gajender Sharma
10
Presentation Plan
1
Telecom Industry Overview
2
Telecom – Investment Attracting Sector
3
Regulatory Framework and Its Impact
4
Emerging Trends in Telecom Market
5
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
11
India: An Ideal Destination for Investments in Telecom Sector
 Skilled and competitive labour force
 Fifth largest telecom network in the world; second largest among emerging
economies after China
 On an average, about 6–7 million new users added per month, making India
the world’s fastest growing wireless services market
 Liberal Foreign Investment Regime–FDI limit increased from 49 percent to 74
percent; the rural telecom equipment market is also open to large
investments
 Among the countries offering the highest rates of return on investment
 The large untapped potential in India’s rural markets–1.9 percent teledensity
in rural markets as compared to the national level of 18 percent
 The government promoting telecom manufacturing by providing tax sops
and establishing telecom specific Special Economic Zones
Dr. Gajender Sharma
12
Increasing mobile subscriber numbers and low level of teledensity
offers large opportunities to Indian companies
Low teledensity (depicting
large untapped potential)
Subscribers (in million)
250
Telecom
Advantage
24
18.3
200
19.9 20
16
12.8
150
9.1
225.21
7.0
100
206
5.1
50
53
140.3
76
98.4
12
8
4
0
Teledensity (in percent)
Large number of additions
in telecom subscribers
0
2002–03
2003–04
2004–05
2005–06
Telecom Subscriber Base
2006–07 2007–08 (as
of June
2007)
Teledensity
Even though the Indian telecom industry has exceeded a subscriber base of
200 million, its teledensity is only 18 percent. Thus, the Indian market
provides telecom service providers with a large untapped potential due to the
country’s increasing population and its low teledensity.
Dr. Gajender Sharma
13
Presentation Plan
1
Telecom Industry Overview
2
Telecom – Investment Attracting Sector
3
Regulatory Framework and its Impact
4
Emerging Trends in Telecom Market
5
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
14
Presentation Plan
1
Telecom Industry Overview
2
Telecom – Investment Attracting Sector
3
Regulatory Framework and Its Impact
4
Emerging Trends in Telecom Market
5
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
15
FDI and other M&A activities increasing in number
Major trends in the telecom sector is increasing M&A activity, de-regulation of telecom policies and growing
interest of international investors.
Recent Deals in Telecom Sector
The Indian telecom industry has a 74 percent FDI limit in the
telecom services segment.
The GoI has permitted 100 percent FDI in manufacturing of
telecom equipment in India.
Vodafone purchased stake in Hutch
from Hong Kong's Hutchison
Telecom International for USD
11.08 billion.
FDI in Telecom Sector
Telekom Malaysia acquired a 49
percent stake in Spice
Communications for USD 179
million.
Maxis Communications acquired a
74 percent stake in Aircel for USD
1.08 billion.
Ericsson to design, plan, deploy and
manage Bharti Airtel network and
facilitate their expansion in the rural
areas, under a USD 2 billion
contract.
680
700
FDI (USD million)
Reliance Communications Limited has sold a five percent
equity share capital of its subsidiary Reliance Telecom
Infrastructure Limited to international investors across the
US, Europe and Asia. The deal was worth USD 337.5
million.
521
500
300
116
129
2003–04
2004–05
100
2005–06
2006–07
The Indian telecom industry has always attracted foreign
investors. In fact, the cumulative FDI inflow, during the August
1991 to March 2007 period, in the telecommunication sector
amounted to USD 3,892 million. It is the third largest sector to
attract FDI in India in the post-liberalisation era.
FDI calculation takes into account radio paging, cellular mobile
and basic telephone services in the telecommunication sector.
Dr. Gajender Sharma
16
AIRTEL: Sunil Bharti Mittal
Born
23
October
1957,
an
Indian
telecom
mogul, philanthropist and the founder, chairman and
Group CEO of Bharti Enterprises.
The US$ 8.3 billion turnover company runs India's
largest GSM-based mobile phone service and world's fifth
largest wireless company with over 190 million customers
across 19 countries in Asia and Africa.
He was awarded the Padma Bhushan, India's third highest
civilian honor.
Dr. Gajender Sharma
17
AIRTEL : facing rough weather
The $9-billion acquisition of Zain Africa transformed Airtel as the fifth largest mobile
operator in the world, with a footprint in 19 countries.
The bad news from Africa - both on costs and timelines - has come as a bigger
surprise owing to poor work culture, import constraints, logistical systems, and
Distribution and marketing networks are being overhauled.
Congested network and call drops have been a recurring problem in Africa.
Attempts to recoup losses comprise efforts to restructure planning, people,
streamlining process, better customer management and developing better
connectivity and logistics systems.
Dr. Gajender Sharma
18
VODAFONE HUTCH MERGER
Vodafone, based in the UK, was the world's largest mobile communications company
by revenue.Vodafone operated in Europe, the Middle East, Africa, Asia Pacific, and
the US..
Vodafone wasn't the only company eyeing HEL. The fast growth of the Indian mobile
market coupled with a relatively low penetration level made it a very lucrative market.
As GOI allowed only 74% of FDI into the sector, Vodafone signed a shareholder
agreement in 2007 with its Indian partner, Essar, according to which Vodafone would
hold a 52% and Essar would continue to hold a 33% stake.
Vodafone planned to bring world class branding to India, and launched the 3G
service in the Indian market. Rather than using the 3G services as a premium
product it wanted to take 3G to the rural areas as well.
The strengths of Vodafone include great connectivity, efficient value added
services, 3 G and Wi/ fi services and several facilities and plan and options for
telecom customers.
Dr. Gajender Sharma
19
Vodafone-Hutchison Tax Case
Vodafone was embroiled in a $2.5 billion tax dispute with the Indian Income Tax
Department over its purchase of Hutchison Essar Telecom services in April 2007.
It was being alleged by the Indian Tax authorities that the transaction involved
purchase of assets of an Indian Company, and therefore the transaction, or part
thereof was liable to be taxed in India.
The crux of the dispute had been whether or not the Indian Income Tax Department
has jurisdiction over the transaction. Vodafone had maintained from the outset that it
is not liable to pay tax in India; and even if tax were somehow payable, then it
should be Hutchison to bear the tax liability.
In January 2012, the Indian Supreme Court passed the judgement in favour of
Vodafone, saying that the Indian Income tax department had "no jurisdiction" to levy
tax on overseas transaction between companies incorporated outside India.
However, Indian government thinks otherwise.
Dr. Gajender Sharma
20
Presentation Plan
1
Telecom Industry Overview
2
Telecom – Investment Attracting Sector
3
Regulatory Framework and Its Impact
4
Emerging Trends in Telecom Market
5
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
21
Major Players in different segments of Indian telecom industry
Basic Services Operators
MOBILE SERVICES
GSM Services Operators
BSNL
Airtel
MTNL
Vodafone
Reliance
Idea
TTSL
Reliance
BSNL
Internet Services Operators
BSNL
CDMA Services Operators
MTNL
Reliance
Reliance
TTSL
TTSL
BSNL
Airtel
MTNL – Mahanagar Telecom Nigam Ltd.
TTSL – Tata Teleservices Ltd.
Dr. Gajender Sharma
BSNL – Bharat Sanchar Nigam Ltd.
22
Presentation Plan
1
Telecom Industry Overview
2
Telecom – Investment Attracting Sector
3
Regulatory Framework and its Impact
4
Emerging Trends in Telecom Market
5
Major Players in Telecom Sector
6
Growth Avenues
7
Limitations and Concern Areas
Dr. Gajender Sharma
23
India presents a host of opportunities for telecom companies
Rural
Telephony
Value-Added
Services
Infrastructure
Sharing
Managed
Services
Growth
Avenues
WiMax
3G
Virtual Private
Network
Enterprise
Telecom
Services
Virtual Private Network is a private data network
that provides connectivity within closed user groups via
public telecommunication infrastructure. Competition is
likely to heat up in the VPN segment as DoT has
relaxed the norms for private players.
To reduce their network deployment costs, many service providers are considering
infrastructure sharing offers the following advantages:






Improved service quality
Increased affordability for customers
Faster roll out of services in rural and remote areas
Significant reduction in initial set up costs
Increased environmental aesthetics
Lower operating costs for service providers
Enterprise Telecom Services includes key
services, such as voice over Internet protocol (VoIP),
dedicated telecom communication systems, IT
infrastructure enabled unified communication services,
etc. Telecom service providers are increasingly targeting
enterprises by providing dedicated services and is
expected to witness major developments in near future.
Managed services is another segment that is attracting telecom companies.
On account of the rapidly growing subscriber base, service providers find it difficult
to manage their infrastructure and network management operations. In such
cases, they completely or partially outsource their infrastructure or network
management operations.
Dr. Gajender Sharma
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CONSTRAINTS, HURDLES, AND CHALLENGES
IN THE GLOBAL AND INDIAN TELECOM SECTOR
Dr. Gajender Sharma
26
INDIAN TELECOM SECTOR: FINANCIAL CRUNCH
One of the most fragmented telecom market- 13 players competing
Firms face an unusual dilemma as they need to invest cash continuously in
spectrum and data capacity, but cash generation is limited because
EBITDA margins are shrinking.
EBITDA Margins in India – one of the lowest at 35%, as against 40% in
China and 54% in Indonesia respectively.
Wireless penetration is amongst the lowest in Asia pacific, where in
Malaysia, Indonesia, and Thailand the wireless penetration is above 100%,
but In India it stands at less than 80%
The ARPU is one of the lowest in Asia, with Japan, Australia, Malaysia,
and China well ahead in the race.
Recently, India's capex/revenue ratio has dropped to below 10% ,
(20% is the norm for telecom sector), which is low in the midst of 3G rollout,
INDIAN TELECOM SECTOR: FINANCIAL CRUNCH
Telecom Firms like Bharti Airtel, Reliance Communications, Aircel are saddled with
huge debts, and Indian companies have spent around $15 billion to buy 3G and
broadband wireless spectrum and must invest continuously to ensure a decent
return.
The telecom firms need to generate cash through several other avenues to keep
retiring debt and earmark funds for spectrum allocation. Also, look at a blend of cost
reduction to squeeze out cash from the business and equity sales either in
their operation or ancillary businesses to free up cash for investment.
The uncertainty over extension of licence and the pricing of spectrum are such
a big overhang, and therefore investment plans are on hold.
Most telecom firms like Aircel, RCOM are selling off excess capacity to other
rivals to generate funds and reduce the debt burden.
INDIAN TELECOM SECTOR: POSITIVE OUTLOOK
Although, bigger firms are struggling due to liquidity overhang, the smaller
companies like Uninor and MTS ARE financially strong operators - find it attractive
to buy out one of the larger operators (M&As) instead of going for a greenfield rollout
Companies, meanwhile, are looking for new growth avenues. Vodafone recently
started a mobile money transfer scheme called M-Pesa partnering with ICICI Bank in
the east.
India has about 867 million wireless subscribers of which about 83% are active. So
there are about 500 million people in India who still do not have a mobile phone.
Data-based services still form only about 15% of the overall ARPU compared to
more than 40% in developed countries. So there is clearly a huge opportunity still
left in India.
The government/ Telecom Commission endorsed raising the FDI cap in Indian
telcos to 100%. Though there are a few hurdles, it might attract foreign players.
The 2G spectrum scam
Involved politicians and government officials in India illegally
undercharging mobile telephony companies for frequency
allocation licenses, which they would then use to
create 2G subscriptions for cell phones.
The shortfall between the money collected and the money
that the law mandated to be collected is estimated to
be 1,766.45 billion (US$30 billion), as valued by
the Comptroller and Auditor General of India
Dr. Gajender Sharma
30
Politicians Accused
Raja: – Political party DMK, four times Member of Parliament, present
constituency Nilgiris, Tamil Nadu,
Allegation – In a joint investigation report prepared by Central Bureau of
Investigation (CBI) and Income Tax Department the agencies allege that A. Raja
could have received 30 billion (US$520 million) as bribe for bringing forward the
cut-off date for applications for spectrum from the initial 1 October 2007 to 25
September 2008
Pramod Mahajan: CBI decided to include the name of late Pramod Mahajan in a
separate column of the charge sheet to be filed by it soon against three cellular
companies and former officials in connection with alleged irregularities in
spectrum allocation during NDA regime causing a loss of Rs 5.08 billion to the
exchequer.
Dr. Gajender Sharma
31
Why RIL-Samsung 4G handset deal failed
Reliance Industries' (RIL's) negotiation with South Korean conglomerate
Samsung for developing handsets which can provide voice
on 4G technology have hit a hurdle, with the handset maker unwilling to
match the price demanded by RIL.
Sources revealed that Reliance Jio Infocomm, an RIL subsidiary, wants
the handset for Rs 5,000 a piece.
The Korean giant is unwilling to go below Rs 8,500 per handset, and that
too only if RIL agrees to buy over 3 million handsets. Without that
commitment, Samsung has quoted a price of Rs 11,000 per handset.
Dr. Gajender Sharma
32
Google Phone
Google phone may refer to:
• A phone running Google's Android OS
– One of the phones of the Google Nexus family:
• Google Ion, an HTC-manufactured Android developer smartphone,
released May 2009
• Nexus One, an HTC-manufactured smartphone, released January
2010
• Nexus S, Samsung-manufactured successor to the Nexus One,
released December 2010
• Galaxy Nexus, Samsung-manufactured successor to the Nexus S,
released November 2011
• Nexus 4, LG-manufactured successor to the Galaxy Nexus, released
November 2012
Dr. Gajender Sharma
33
Steven Paul "Steve" Jobs was an American entrepreneur and
inventor who was the co-founder, chairman, and CEO of Apple Inc.
Jobs also co-founded and served as chief executive of Pixar
Animation Studios; he became a member of the board of directors
of The Walt Disney Company in 2006, when Disney acquired Pixar.
Through Apple, he was widely recognized as pioneer of
the personal computer revolution and for his influential career in the
computer and consumer electronics fields, transforming "one
industry after another, from computers and smartphones to music
and movies...”
Steve Jobs revolutionized the Global telecom industry with
innovative mobile devices like I pod. I Phone, and I Pad offering
continuous entertainment, connectivity, mobility, portability options
Dr. Gajender Sharma
34
Apple Inc. v. Samsung Electronics Co., Ltd. was the first of a series of
ongoing
lawsuits
between
Apple
Inc.
and
Samsung
Electronics regarding the design of smartphones and tablet computers.
Apple began litigating against Samsung in patent infringement suits,
while Apple and Motorola Mobility were already engaged in a patent
war on several fronts.
Apple's multinational litigation over technology patents became known
as part of the mobile device patent wars: extensive litigation in fierce
competition in the global market for consumer mobile communications.
By August 2011, Apple and Samsung were litigating 19 ongoing cases in
nine countries. By July 2012, the two companies were still embroiled in
more than 50 lawsuits around the globe. While Apple won a ruling in its
favor in the U.S., Samsung won rulings in South Korea, Japan, and
the UK.
Dr. Gajender Sharma
35
Take away:
•Student will be able to understand the basic
nitty-gritty of telecom industry in India.
•Student will be able to understand the telecom
policy.
•Student will be able to understand various
concurrent issues related to telecom sector.
• Students will gain an insight concerning the
challenges and future prospects of the Indian
Telecom Industry
Dr. Gajender Sharma
36