History of Telecom Industry in India

8/2/2019 History of Telecom Industry in India

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History of telecom industry in India

The history of telephone services in India found its beginning when a 50-line manual telephoneexchange was commissioned in Kolkata in the year 1882 in less than five years after AlexanderGraham Bell invented the telephone. While India became independent in the year 1947, the

country had about 82,000 telephone connections, which slowly rose up to 3.05 million by theyear 1984. The telecom sector in India was a government monopoly until the year 1994 whenliberalization was gradually unrolled. For the first time, cellular services were launched in Indiain Kolkata in the year 1995.

An Overview of the Telecommunication Industry in India

Talking of telecommunications sector in India today, we can primarily identify two segmentsnamely Fixed Service Provider (FSPs) and Cellular Services. Some of the essential and basic

telecom services forming part of Indian telecom industry include telephone, radio, television andInternet. Telecom industry in the country lays a special emphasis on some of the advanced andthe latest technical innovations like GSM ( Global System for Mobile Communications), CDMA(Code Division Multiple Access), PMRTS (Public Mobile Radio Trunking Services), Fixed Lineand WLL (Wireless Local Loop ). Especially, India has a flourishing market in GSM mobileservice, while the number of subscribers is on rapid and dramatic increase. The Indiantelecommunications industry boasts as being one among the most rapidly growing chunks on theglobe. Experts around the world estimate that India holds the promise of emerging as the secondlargest telecom market of the world.

The Republic of India possesses a diversified communications system that links all parts of the

country by Internet, telephone, telegraph, radio, and television. Most of the telecommunicationsforms are as prevalent or as advanced as those in modern Western countries, and the systemincludes some of the most sophisticated technology in the world and constitutes a foundation forfurther development of a modern network. India has the world's second-largest mobile phoneusers with over 903 million as of January 2012. It has the world's third-largest Internet users withover 121 million as of December 2011. India has become the world's most competitive and oneof the fastest growing telecom markets.

The industry is expected to reach a size of 344,921 crore (US$68.81 billion) by 2012 at agrowth rate of over 26 per cent, and generate employment opportunities for about 10 millionpeople during the same period. According to analysts, the sector would create direct employmentfor 2.8 million people and for 7 million indirectly. The total revenue of the Indian telecom sectorgrew by 7% to 283,207 crore (US$56.5 billion) for 2010-11 financial year, while revenuesfrom telecom equipment segment stood at 117,039 crore (US$23.35 billion).

Figures published by the Telecom Regulatory Authority of India (TRAI), reveal that the numberof telecom connection subscribers in India reached 562.21 million in December 2009, marking a
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3.5 percent increase over the number 543.20 million reported in November 2009. This figureindicates that the average teledensity (number of telephones per 100 persons) has gone up to47.89.

On account of a dramatic increase in the earnings from mobile and landline connections, the

telecom industry in India made revenue of US$ 8.56 billion during the quarter ending onDecember 31, 2009 thereby witnessing a recovery from the economic downturn.

Business Monitor International has stated that at present, India is adding up about 8-10 millionmobile subscribers every succeeding month. Estimates have revealed that by June2012, almosthalf Indias population will be in possession of a mobile phone. This will result in about 612million mobile subscribers, making up a teledensity of about 51 per cent by the year 2012.

Over and above, a study undertaken by Nokia has brought out that the communications sectorwill grow as the single largest chunk of the Indias GDP making up about 15.4 per cent by theyear 2014.

Estimates made in February 2009 show that the Indian equipment market valued at US$ 24billion, while Nokia was glowing as the market leader reporting more than US$ 3.4 billionrevenues in 2008-09. Ericsson followed Nokia with revenue of about US$ 2.11 billion.

The latest reports published by Evalueserve state that the availability of the 3G spectrum hasgiven hopes of finding about 275 million Indian subscribers using 3G-enabled services. This willtake up the number of 3G-enabled handsets to reach near to 395 million by the end of 2013.

A Frost & Sullivan industry analyst has predicted that by the year 2012, revenues from fixed linesubscriptions in India will reach up to US$ 12.2 billion, while the revenue from mobile

connections will reach up to US$ 39.8 billion.In a significant step taken to boost up the auction of 3G spectrum, the Indian Government haspermitted prospective bidders to call for short-term funds from the domestic market in thecountry, while allowing refinancing out of external commercial borrowings (ECBs) within aperiod of 12 months. Estimates show that the government can mop up US$ 7.53 billion from theauction of 3G spectrum to be completed shortly. The reserve price has been fixed at US$ 753.74million.

BSNL, the state-managed telecom operator has introduced 3G services in more than 318 citiesbenefitting 856,000 subscribers. BSNL has been venturing to cross more than 400 cities in the

near future eventually rolling this service across 760 cities by September 2010. While the debateon 3G is seen continuing, TRAI has already started consulting on the next higher level oftelecom services. 4G or the fourth generation enables downloads faster than all the earlierversions.

Today, India is the largest market in the world adding up a dramatic number of about 20 millionmobile subscriber lines every month in an average. On the other hand, the number of landlines isfound gradually decreasing. At the end of the first quarter in 2010, we find that the overall


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telecom subscriber penetration has gone up by more than 52 %. Though this might occur as arelatively low volume compared with a number of other nations, this comes as a quantum leapnoting the figures recorded a few years back. Mumbai and Delhi (NCR) enjoy the status among afew other metro areas around the globe boasting of more than 25 m mobile subscribers in each ofthese regions. At present, The FDI cap in the telecom sector in India is 74 %. In a recent move,

UKs Vodafone Group has purchased a 52 % stake in Hutchison Essar, the fourth largest mobileservice provider in the country. Bharti Airtel has the credit of being the first Indian operator tocross a subscriber base of 50 million.

It is predicted that mobile number portability (MNP) will be available throughout India by thesecond quarter of 2010, initially in the cities of Chennai, Delhi, Kolkata and Mumbai, the fourmetros of India. Also, 3G (third generation) mobile services are found being introduced in all themajor cities across the nation. The country has auctioned three 3G spectrum slots to privatebidders. However, the number of subscribers for broadband connections is increasing at a slowpace.

The telecom industry has been divided into two major segments, that is, fixed and wirelesscellular services for this report. Besides, internet services, VAS, PMRTS and VSAT also havebeen discussed in brief in the report.

In todays information age, the telecommunication industry has a vital role to play. Consideredas the backbone of industrial and economic development, the industry has been aiding deliveryof voice and data services at rapidly increasing speeds, and thus, has been revolutionising humancommunication.

Although the Indian telecom industry is one of the fastest-growing industries in the world, thecurrent teledensity or telecom penetration is extremely low when compared with global

standards. Indias teledensity of 36.98% in FY09 is amongst the lowest in the world. Further, theurban teledensity is over 80%, while rural teledensity is less than 20%, and this gap is increasing.As majority of the population resides in rural areas, it is important that the government takessteps to improve rural teledensity. No doubt the government has taken certain policy initiatives,which include the creation of the Universal Service Obligation Fund, for improving ruraltelephony. These measures are expected to improve the rural tele-density and bridge the rural-urban gap in tele-density.

Introduction - Evolution

Indian telecom sector is more than 165 years old. Telecommunications was first introduced inIndia in 1851 when the first operational land lines were laid by the government near Kolkata(then Calcutta), although telephone services were formally introduced in India much later in1881. Further, in 1883, telephone services were merged with the postal system. In 1947, afterIndia attained independence, all foreign telecommunication companies were nationalised to formthe Posts, Telephone and Telegraph (PTT), a body that was governed by the Ministry ofCommunication. The Indian telecom sector was entirely under government ownership until1984, when the private sector was allowed in telecommunication equipment manufacturing only.The government concretised its earlier efforts towards developing R&D in the sector by setting


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up an autonomous bodyCentre for Development of Telematics (C-DOT) in 1984 to developstate-of-the-art telecommunication technology to meet the growing needs of the Indiantelecommunication network. The actual evolution of the industry started after the Governmentseparated the Department of Post and Telegraph in 1985 by setting up the Department of Postsand the Department of Telecommunications (DoT).

The entire evolution of the telecom industry can be classified into three distinct phases.

Phase I- Pre-Libralisation Era (1980-89) Phase II- Post Libralisation Era (1990-99) Phase III- Post 2000

Until the late 90s the Government of India held a monopoly on all types of communicationsasa result of the Telegraph Act of 1885. As mentioned earlier in the chapter, until the industry wasliberalised in the early nineties, it was a heavily government-controlled and small-sized market,Government policies have played a key role in shaping the structure and size of the Telecom

industry in India. As a result, the Indian telecom market is one of the most liberalised market inthe world with private participation in almost all of its segments. The New Telecom Policy(NTP-99) provided the much needed impetus to the growth of this industry and set the trend forlibralisation in the industry.


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Current Status

Globalisation has made telecommunication an integral part of the infrastructure of the Indianeconomy. The telecom sector in India has developed as a result of progressive regulatory regime.

According to the TRAI, the total gross revenue of the Indian telecom services industry was Rs1,524 bn in FY09 up from Rs 1,291 bn in FY08 registering a growth of 18.03% over FY08 and

its subscriber base grew by 43% over FY08 to touch 429.70 mn subscribers in FY09.


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The telecom sector in India experienced a rapid growth over the past decade on account of

regulatory libralisation, structural reforms and competition, making telecom one of the majorcatalysts in Indias growth story. However, much of this growth can be attributed to theunprecedented growth in mobile telephony as the number of mobile subscribers grew at anastounding rate from 10 million in 2002 to 392 million in 2009. Besides, the growth in theservice and IT and ITeS sector also increased the prominence of the telecom industry in India.Telecom has emerged as a key infrastructure for economic and consumer growth because of itsmultiplier effect and the fact that it is beneficial to trade in other industries. The contribution ofthe sector to GDP has been increasing gradually (its contribution in GDP has more than doubledto 2.83% in FY07 from 1.0% in FY92).

Telecom is one of the fastest-growing industries in India; on an average the industry added 8

million wireless subscribers every month in FY08. The government had set a target of 500million telecom connections by 2010. However, according to the TRAI, the total subscriber base(wireless and wireline) in the industry crossed the 500-mn-mark and reached 509.03 mn by theend of September 2009, which took India to the second position in terms of wireless network inthe world next only to China. Prior to liberalisation, the telecom sector was monopolised by thepublic sector and recorded marginal growth; in fact, during 1948-1998, the incrementalteledensity in the country was just 1.92%. However, the introduction of NTP99 accelerated thegrowth of the sector and the teledensity increased from 2.33 in 1999 to 36.98 in 2009; however,much of this growth was brought about by the NTP-99 policy changes such as migration fromfixed license fee to revenue sharing regime and cost-oriented telecom tariffs. From 2003 onwardsthe government has taken certain initiatives such as unified access licensing regime, reduced

access deficit, introduction of calling party pays (CPP) and revenue sharing regime in ADC thathas provided further impetus to the sector.

The Indian telecom industry is characterised with intense competition, and continuous pricewars. Currently, there are around a dozen telecom service providers who operate in the wired andwireless segment. The government has been periodically implementing suitable fiscal andpromotional policies to boost domestic demand and to create volumes for the industry.


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The Indian telecom industry has immense growth potential as the teledensity in the country isjust 36 as compared with 60 in the US, 102 in the UK and 58 in Canada. The wireless segmentgrowth has played a dominant role in taking the teledensity to the current levels. In the next fewyears, the industry is poised to grow further, in fact, it has already entered a consolidation phaseas foreign players are struggling to acquire a pie in this dynamic industry.

Role in Indias Development

Contribution to GDP

According to the UNCTAD, there is a direct correlation between the growth in mobileteledensity and the growth in GDP per capita in developing countries, which tend to have a highpercentage of rural population. The share of the telecom services industry in the total GDP hasbeen rising over the past few years (the telecom sector contribution in GDP went up from 2.52%in FY05 to 2.83% in FY07).

Employment

The Indian telecommunication industry employs over 400,000 direct employees and about 85%of these employees are from government-owned companies. The ratio of number of subscribers


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to employees, an indication of efficiency and profitability, is much higher for private companiesthan for government companies.

Foreign Direct Investment (FDI)

Foreign direct investment has been one of the major contributors in the growth of the Indianeconomy, and therefore, the need for higher FDI is felt across sectors in the Indian economy. Thetelecom sector has played a crucial role in attracting FDI in India. The share of telecom sector inthe total FDI inflows in India has gone up to 10% in FY09 as compared with just 3% in FY05.

The telecom sector requires huge investments for its expansion as it is capital-intensive and FDIplays a vital role in meeting the fund requirements for expansion of the telecom sector. Telecomaccounts for almost 10% of the total FDI inflows in the country and has been the third-largestsector to attract FDI in India in the post-liberalisation era


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The Indian telecom industry has been an attractive avenue for foreign investors over the years.As per DIPP figures, the cumulative FDI inflow during August 1991 to June 2009 period, in thetelecommunication sector amounted to US$ 113 bn. FDI calculation takes into account radiopaging, cellular mobile and basic telephone services in the telecommunication sector.

In the 2004-05 Budget, the government raised the FDI limit from 49% to 74% in the telecomservices segment subject to retention of local management control. According to the new norms,26% share out of the 74% should be held by an Indian company or an Indian citizen with Indianmanagement. Further, 100% FDI is permitted in telecom manufacturing, category I infrastructureproviders, ISPs without gateway, call centres and IT-enabled services. Further, direct or indirectFDI up to 74% is permitted subject to licensing and security requirements for ISPs withgateways, radio paging operators and category II infrastructure providers.

The relaxation in FDI norms has attracted many foreign telecom majors to the sector. Thepresence of foreign players has not only encouraged faster infrastructure development andupgradation but also has opened up the domestic industry to foreign competition. Since 2004,

there has been a large inflow of FDI in the sector. During 2004-05 and 2005-06, a period duringwhich the FDI norms were relaxed, the FDI inflow grew by an astounding 300% to US$ 624 mnin 2005-06 from merely US$ 125 mn in 2004-05. The inflow of FDI has provided tremendousimpetus to the sector in the past few years and the attractiveness of the sector has kept the FDIinflows growing steadily. During FY09 the FDI in the telecom sector at US$ 2,558 mn was103% higher than that seen in FY08 at US$ 1,261 mn. Further, the FDI in the sector has alreadyreached US$ 2010 mn for a six month period of FY10 (Apr-Sep 09) and is expected to surpassthe total FDI for FY09.

The governments liberalised FDI policies have resulted in several foreign companies enteringinto the Indian markets. The influx of foreign players in the Indian telecom industry has led to

capacity creation, and better infrastructure, which in turn has bettered the network quality. Therise in FDI has also enabled technology transfer, market access and has improved organisationalskills; going forward, FDI could be used for providing telecom services to rural areas, whereteledensity is still very low.

The change in FDI policy that has raised the FDI limit from 49% to 74% for the sector has madeit more attractive for foreign players. In the long run the growth prospects of telecom players thathave foreign partners will improve and other players will get new avenues to raise capital.

Growth of IT-ITeS and Financial Sector

India has entered the league of countries with the most-advanced telecommunicationinfrastructure after the industry was deregulated. Furthermore, deregulation has stimulatedIndias economic growth through industry growth and through rise in investments. It is evidentthat a well-developed communication sector improves access to social networks, lowerstransaction costs, increases economic opportunities, widens markets, and provides better accessto information, healthcare and educational services. The growth in Indian telecom sector hasbeen concomitant with overall growth in GDP, government revenue, employment et al. Besides,


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telecommunication has increased efficiency, reduced transaction costs, attracted investments andhas created new opportunities for business and employment.

The NTP-99 was particularly helpful for the ITeS-BPO industry as it ended the governmentmonopoly in international calling by introducing IP telephony. After the introduction of IP

telephony, there was rapid growth in the number of data processing centres andinbound/outbound call centres, which ultimately led to the outsourcing revolution in India.

The telecom sector has been instrumental in creating jobs for a vast pool of talented andknowledge professionals in the IT and ITeS-BPO industry, which thrives on reliabletelecommunication infrastructure. India has become an important outsourcing destination for theworld and the boom in this sector also has transformed Indias economic dynamics. Theevolution of telecom sector has brought about a revolutionary change in the way some businessesoperate.

Another beneficiary of the telecom revolution is the financial services industry, which has been

on a growth trajectory. The progress and quality of the financial sector has been a key factor thathas driven the pace and diversity of the real economy. India has an extensive and well-developedfinancial sector with wide and sophisticated banking network. Banking in India has becomeservice-oriented, and has matured greatly from the days of walk-in customers to the presentsituation when banks have migrated to a 24-hour banking platform to attract customers; however,this disintermediation in the business has led banks to be extremely prudent in terms of theirinternal operations and has led them to adopt newer products and delivery channels. Further,with introduction of internet & mobile banking the long ques at the banks are slowly becoming athing of the past.

Both the financial and the IT-ITeS segments rely on good domestic as well as international

network connectivity; therefore, there is a need for a sound telecommunication network.Factors Facilitating Growth of the Sector

The phenomenal growth in the Indian telecom industry was brought about by the wirelessrevolution that began in the nineties. Besides this, the following factors also aided the growth ofthe industry.

Libralisation

The relaxation of telecom regulations has played a major role in the development of the Indian

telecom industry. The liberalisation policies of 1991 and the consequent influx of private playershave led the industry on a high growth trajectory and have increased the level of competition.Post-liberalisation, the telecom industry has received more investments and has implementedhigher technology.

Increasing Affordability of Handsets


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The phenomenal growth in the Indian telecom industry was predominantly aided by the meteoricrise in wireless subscribers, which encouraged mobile handset manufacturers to enter the marketand to cater to the growing demand. Further, the manufacturers introduced lower-priced handsetswith add-on facilities to cater to the increasing number of subscribers from different strata of thesociety. Now even entry-level handsets come with features like coloured display and FM radio.

Thus, the falling handset prices and the add-on features have triggered growth of the Indiantelecom industry.

Prepaid Cards Bring in More Subscribers

In the late nineties, India was introduced to prepaid cards, which was yet another milestone forthe wireless sector. Prepaid cards lured more subscribers into the industry besides lowering thecredit risk of service providers due to its upfront payment concept. Prepaid cards were quite aphenomenon among first-time users who wanted to control their bills and students who hadlimited resources but greater need to be connected. Pre-paid cards greatly helped the cellularmarket to grow rapidly and cater to the untapped market. Further, the introduction of innovative

schemes like recharge coupons of smaller denominations and life time incoming free cards hasled to an exponential growth in the subscriber base.

Introduction of Calling Party Pays (CPP)

The CPP regime was introduced in India in 2003 and under this regime, the calling party whoinitiated the call was to bear the entire cost of the call. This regime came to be applicable formobile to mobile calls as well as fixed line to mobile calls. So far India had followed theReceiving Party Pays (RPP) system where the subscriber used to pay for incoming calls fromboth mobile as well as fixedline networks. Shifting to the CPP system has greatly fuelled thesubscriber growth in the sector.

Changing Demographic Profile

The changing demographic profile of India has also played an important role in subscribergrowth. The changed profile is characterised by a large young population, a burgeoning middleclass with growing disposable income, urbanisation, increasing literacy levels and higheradaptability to technology. These new features have multiplied the need to be connected alwaysand to own a wireless phone and therefore, in present times mobiles are perceived as a utilityrather than a luxury.

Increased Competition & Declining Tariffs

Liberalisation of the telecom industry has fuelled intense competition, especially in the cellularsegment. The ever-increasing competition has led to high growth of subscribers and has putpressure on tariffs, which have seen a sharp drop over the years. When the cellular phones wereintroduced, call rates were at a peak of Rs 16 per minute and there were charges for incomingcalls too. Today, however, incoming calls are no longer charged and outgoing calls are chargedat less than a rupee per minute. Thus, the tariff war has come a long way indeed. Increasedcompetition and the subsequent tariff war has acted as a major catalyst for attracting more


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subscribers. Apart from these major growth drivers, an improved network coverage, entry ofCDMA players, growth of value-added services (VAS), advancement in technology, andgrowing data services have also driven the growth of the industry.

Outlook

The telecom industry in India has experienced exponential growth over the past few years andhas been an important contributor to economic growth; however, the cut-throat competition andintense tariff wars have had a negative impact on the revenue of players. Despite the challenges,the Indian telecom industry will thrive because of the immense potential in terms of new users.India is one of the most-attractive telecom markets because it is still one of the lowest penetratedmarkets. The government is keen on developing rural telecom infrastructure and is also set to rollout next generation or 3G services in the country. Operators are on an expansion mode and areinvesting heavily on telecom infrastructure. Foreign telecom companies are acquiringconsiderable stakes in Indian companies. Burgeoning middle class and increasing spendingpower, the governments thrust on increasing rural telecom coverage, favourable investment

climate and positive reforms will ensure that Indias high potential is indeed realised.

A Study of Value-Added Services Market in the country

At present, mobile value-added services (MVAS) in India alone accounts for about 18 per cent ofthe revenue made by the operators, while a study by Stanford University and consulting firmBDA has valued the Indian MVAS at US$ 2.74 billion.

In a measure to take up the revenue ensuing from add-on services, Bharti Airtel, a leading

telecom service provider in India has recently launched Airtel App Central, offering over 1,250applications across 25 categories covering games, books and social networking through itsapplications store. The venture is to make revenue by selling music, information andconnectivity. Subscribers owning any one of the 550 specified mobile models can log on to thisportal through their mobile browser and browse through more than 1,200 apps available at thestore. Once they download an app, the amount is deducted from their prepaid balance or added topost paid bill as appropriate. This innovative venture by Bharti Airtel has given a platform fordevelopers to reach out about 120 million customers subscribing to the Airtel network. RelianceCommunications is fervently working in these similar lines.

Major Investments in the sector

The thriving domestic telecom market in the country has been vigorously attracting enormousamounts of investment in the sector which is most likely to shoot up once new players enter thescene to launch new services. Telenor, a Norway-based telecom operator has purchased anadditional 7 per cent in Unitech Wireless paying a little more than US$ 430.70 million. Atpresent, Telenor holds about 67.25 per cent. During last year, the firm had purchased a 60 percent stake paying out US$ 1.23 billion.


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The Indian government has recently permitted the foreign direct investment proposal submittedby the Federal Agency for State Property Management of the Russian Federation in which thefirm has come forward to buy 20 per cent stake in telecom service provider Sistema-Shyam in adeal worth US$ 660.1 million.

In an yet another important move, Tata Teleservices has decided to invest an additional US$ 1billion in Tata DoCoMo, the GSM service recently launched by the firm. The firm has alreadymade an investment of US$ 2 billion for the GSM services during its launch in June 2009.

Reliance Infratel, the tower subsidiary segment of Reliance Communications (RCom), istargeting to complete the installing of 56,596 telecom towers by financial year 2010, taking upthe total number of towers to 100,000.

BSNL, Indias leader in telecom services in terms of revenues has decided to invest about US$1.16 billion in its WiMax project. Vodafone Essar has stated its plans to invest US$ 6 billion incourse of the next three years in a significant measure to take up the number of its mobile

subscribers from 40 million at present to more than 100 million.Telecom Equipment Manufacturing

Global experts have revealed that Indias telecom equipment manufacturing sector is turning oneamong the largest around the globe. Today, the mobile phone production in India has grown at aCAGR of 28.3 per cent from 2006 to 2011, delivering 107 million handsets. Over and above, thetotal revenue from this sector is estimated to grow at a CAGR of 26.6 per cent to touch US$ 13.6billion.

A rapidly increasing number of telecom firms have established their manufacturing facilities in

the nation during the recent past for the production of mobile phones and a range of othertelecom equipment to meet the demands of Indias fast growing telecom market and exports.Nokias facility, situated in a Special Economic Zone (SEZ) at Sriperumbudur near Chennai, isinto the manufacturing of mobile handsets and network infrastructure equipments including basestations. On an average, Nokias plant manufactures about 8 m handsets a month. By virtue of itsadded advantages, this zone located near Chennai is attracting a number of other reputed telecomequipment manufacturers who are already here or into the process of establishing theirproduction facilities. Some of the reputed firms working from this base include AspocompGroup specializing in HDI printed circuit boards; Perlos manufacturing handsetmechanics/mouldings; Salcomp producing mobile phone chargers; Motorola and Foxconnspecializing in mobile handsets; Flextronics enjoying a range of interests covering mobilehandsets, base stations and other electronic items; Sanmina-SCI manufacturing networkcomponents; and Jabil, Wintek and Laird specializing in the manufacture of antennas, batterypacks and EMI shielding products. Elcoteq has established its telecom plant near Bangalore andis manufacturing mobile handsets along with a number of similar firms. The mobile handsetplant of Samsung Electronics is situated in Gurgaon, near Delhi. Alcatel and Ericsson haveestablished their plants to manufacture base station and mobile switching equipment in RaeBareli and Jaipur respectively. In addition, the facilities of BPL Telecom that manufactures GSMphones and the manufacturing unit of LG Electronics in Pune that produces GSM phones are


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famous among many others. Xenitis Group is setting up a mobile phone manufacturing plantnear Kolkata.

Mobile handsets alone make up about 26 % of the total telecom equipment industry of India. Thecarrier equipment business in the country held the major share, while the enterprise equipment

segment has grabbed the remaining 14%.Rural Telephony in India

In its rural areas, India has already seen about 80 million fixed and Wireless in Local Loop(WLL) connections in addition to nearly 600,000 Village Public Telephones (VPT) therebyalready covering more than 95 per cent of the villages in the country by the VPTs. The country ismaking use of Universal Service Obligation (USO) subsidy support scheme for sharing wirelessinfrastructure in rural areas with a target of about 18,000 towers by the end of 2010. RelianceMobiles network in India has already covered about 450,000 villages and 15,000 towns acrossthe nation. The country envisages a phenomenal subscriber base of about 650 million subscribers

by the year 2012.Policy Initiatives

The India government has taken a number of significant proactive initiatives to encourage therapid growth of the telecom industry in the country. In a historic move, the country has allowed100 per cent foreign direct investment (FDI) in the telecom equipment manufacturing segmentthrough the automatic route. In addition, the FDI ceiling in telecom services has been increasedto 74 per cent. Some of the other notable measures by the government include launching of aunified access licensing regime for the telecom services industry on a pan-India basis andextending the mobile number portability in the nation in a phased manner, starting from the

fourth quarter of 2008.The Bharat Nirman program launched by the government is targeting to connect the remaining66,822 uncovered villages within the very near future. The Department of Telecommunications(DoT) has invited foreign telecom companies to bid for 3G spectrum however without partneringwith any of the Indian companies. It is stated that after winning a bid, they will be required toapply for unified access service license (UASL) before partnering with an Indian firm incompliance with the FDI regulations.

The Impact of Telecom Industry in India on Indian Economy

The telecom industry in India has witnessed a phenomenal and manifold growth over the recentyears. In the country, personalized telecom access has become an essential necessity of life for agrowing number of people. The telecom sector in India holds unlimited potential talking offuture growth. In the nation, both Public as well as private firms are vigorously enhancing theirtechnologies in a venture to take the telecom industry in the country to a much higherdevelopment. In addition to this, the manufacturers of mobile handsets are significantlycontributing to the telecom industry in the country and the economy of India.


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Telecom industry plays a major role in contributing to the Indian economy. As a highlyencouraging factor, the Indian government is also introducing some highly beneficial andeffective telecom policies and regulative measures from time to time for the growth ofinfrastructure connected to this industry. Owing to these measures, a large number ofmultinational telecommunication leaders are pouring into the nation and expressing their interest

to invest in the telecom industry in India.The Prospective Future Ahead

The target set by the Indian government for the 11th Plan period (2007-12) is to achieve 600million phone connections making an investment of about US$ 73 billion. In addition to thebasic telephone service, there is a rapidly widening potential for a range of other value-addedservices in the country.

The report published by CII Ernst & Young titled India 2012: Telecom growth continues haspredicted that the revenue from Indias telecom services industry will reach US$ 54 billion by

the year 2012 from US$ 31 billion recorded in 2008.The Indian Telecom Sector-Going into 2012 This sector has shown tremendous growth as well as

potential. Let's find out what future has in store for the Indian telecom industry

India has emerged as one of the youngest and fastest growing economies in the world today. Oneof the sectors that has shown the signs of profitability and contributed significantly to thecountry's economy is the telecom industry. In fact, the Indian telecom market has gainedrecognition as one of the most lucrative markets globally. The vast rural market holds a hugepotential to drive the future growth of the telecom companies. Further, the government'sinitiatives for increasing the telecom connectivity in rural areas, are also likely to aid the telecomservice providers to extend their services in the unconnected rural areas.

Customer Centricity

Telecommunications companies recognize that becoming customer centric is key to their longterm competitive advantage, as many players offer similar features. Customer centricity dependson having a single view of the customer data that gives clear insight into the customer behavior,purchasing patterns, and segmentation. Telecom organizations need access to data that isaccurate, reusable, and productive, so that they can create a holistic, real-time view of theircustomers.

Opportunities

With the arrival of 3G, various operators in India are particular about providing faster and morerobust Internet, better access of data services including e-commerce, social networking, audio-video conferencing, and many other broadband applications with very high speed. Thedeployment of 3G services is also likely to help the emergence of new VAS. The demand forvalue added services is likely to surge given that 'Gen Y' are more inclined to use thesmartphones and adopt the VAS services. Moreover, with the implementation of mobile number


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portability, the service providers need to focus more on developing VAS as a servicedifferentiator to retain their existing customers besides attracting the new ones.

Knowledge is Power

Most telecommunications companies face 3 significant challenges: Increasing responsiveness tothe industry convergence and consolidation; improving customer acquisition and retention; and,effectively managing within the regulatory environment. Addressing these challenges requiresclean, consistent, and accurate data integrated from disparate sources across the enterprise,including network, product, ordering, provisioning, equipment, customer, financial and billingsystems.

Convergence, Consolidation, and Competition

Today, numerous industry challenges are forcing telecom companies to streamline operationsand increase competitive agility. These challenges include:

Convergence of Services: Telecom companies are bundling broadband, voice, wireless,video and other emerging technologies together, as well as a variety of value addedcontent, in an effort to remain competitive, offer seamless services and attract morecustomers.

Industry Consolidation: Ongoing mergers and acquisitions have resulted in duplicatesystems and applications across the organization, which have made it difficult to integratedata, realize cost benefits and capitalize on new revenue opportunities.

Increased Competition and Diminishing Revenue Streams: With new players enteringthe market, telecommunications companies are competing strongly and selling productsand services beyond their core offerings and at much cheaper prices. This is resulting in

less revenue from traditional sources, more pressure on profit margins, and an urgency tofind new revenue streams by investing in new technologies such as VoIP or fixed/mobileconvergence.

To combat these challenges and improve operational efficiency, telecom organizations areinvesting in new IT applications that support product and service bundles, enhancing or replacingtheir existing operational support systems (OSS) and business support systems (BSS),consolidating redundant systems, implementing automated service provisioning and customerself service, etc.

Indian Telecom Sectors and Union Budget 2012

The telecom market of India is still on the phase of expansion and attractive to operators, passiveinfrastructure providers, equipment vendors, OEMs and other related industries. Telecomindustry today has become as important to the economy as another basic need for people.Fewoperators and manufactures have come forward and shared the post budget reaction and we havesummed it up.


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While many systemic elements have been set right in the 2012-13 Union budget, however thetelecom industry continues to face numerous challenges. Increase in service tax from 10% to12% would increase cost of ownership of a mobile phone. The telecom sector is alreadyburdened with multiple and high tax levies which account for 30% of the telecom servicesrevenue. The rise in Service Tax from 10% to 12% will increase cost of services to customers

and also impact the P&L of telecom companies. As a highly taxed industry, this will certainlyhave a further impact on the consumer. We see proposals on mobile based fertilizer subsidytracking and heightened IT enablement as factors that will as opportunities to drive the growth ofICT. Additionally, FMs recommendation for gap funding of telecom towers, cables and opticfibres should lead to reduction in cost of capital for telecom infrastructure. Reduction on dutieson mobile parts should enhance affordability and stimulate demand for mobile services acrossthe country. This becomes all the more significant for CDMA based mobile services which to alarge extent services the telecom needs of customers who are at the bottom of the pyramid.

From a global perspective, the telecom industry in India continues to attract the highest tax rateof 23%. Looking in AGR terms, the telecom industry generates revenues of approx. Rs. 122,000

crores, out of which Rs. 28,000 crores is the approx. outflow to the exchequer. It would havebeen good, if this could have been rationalized. The telecom industry is clearly getting squeezedon account of such outflows and what makes the situation all the more difficult is the hesitationof banks to lend money to operators.

All this naturally has a deep impact on the roll out of voice and data services for the commonman, specially in the rural areas. Equally significant is the fact that broadband penetration inIndia stands at just 1% as against the wireless teledensity of 74%. With the national broadbandplan envisaging 160 million broadband connections including 60 million wireless broadbandconnections by the year 2014, It would have been good, if this growth path would have got somesupport through easing of taxes on internet and broadband services. Given this overall context, ifthe Indian telecom industry is declared as an infrastructure industry that too would immenselybenefit the entire ecosystem.

The proposed full exemption on mobile phone part may further make the smartphone affordableto larger section of the masses and basis the direct taxes, the increase in disposal income willfurther enhance the penetration of smartphones. The budget is expected to stimulate growth foragriculture, banking & m-payments industry with development of tier II, III markets. This will inturn enhance the adoption of mobility contributing to the overall growth of the economy.Introduction of a constitutional amendment for GST is also a positive development.

VGF funding is likely to promote laying of fixed networks, which is important for developmentof high-bandwidth connectivity. Also, VGF funding could provide impetus to development ofnew telecom towers, which has witnessed some slowdown in recent months. The budgetinitiative should have greater impact on expansion of telecommunications in rural areas, whichhas lagged in contrast to the growth witnessed in urban areas. Nevertheless, eligibility andimplementation of VGF funding remain to be seen.

Exemption on customs duty on parts of memory card for mobile phones is a positive fordomestic manufacturing of these memory cards.


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Conclusion

The success of the telecommunications sector had been limited to the urban areas till now.

Conventionally, voice services have been the key driver for the development of the sector, andthe telecom operators will also benefit from the introduction of 3G services in the long term.While broadband connectivity and mobile VAS services are likely to open up newer markets,implementation of new technologies and applications by the telecom players will ensurecomplete efficiency in the business operations.

If past trend were any guide, it would be reasonable to hope that by 2020 India would

complete transition into digital switching and transmission, VoIP, broadband and 3G.

Though there would be always a small niche market in India, which would catch up with

the cutting age of the technology, consolidation and expansion of evolving technologies

across the length and the breadth of the country will follow with a lag.

Future vision of telecom is a vision of IT. Telecom will be the springboard of future

expansion of IT heralding in an information society. ICT will spread among the masses

and will spur innovation, entrepreneurship and growth. An expanding domestic market

will deepen the synergy between the domestic and the export market and strengthen

Indias presence in the high-value segment of the global trade and investment. ICT

benefits will spread among all, the rich and the poor, the young and the old, the men

and the women, the organized and the unorganized and the government and the

governed.

History of Telecom Industry in India

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