Indian telecom industry past, present & future

Indian Telecom Industry: Past, Present & Future

PGDTM

REPORT

INDIAN TELECOM

INDUSTRY:

PAST, PRESENT &

FUTURE

Prepared by-

Reeha Paul

PGDTM, IISWBM.


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CONTENTS

SL. NO. TOPICS

1 Introduction 1

2 Flashback (1850-1990) 2

3 Till Date (1990-2013) 3 Telephony 3

Data Service 4

Broadcasting 5

Mobile Communication 5

Spectrum Allocation 6

National Telecom Policy 2012 9

4 Path Ahead (Vision 2020) 10

5 Conclusion 12


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INTRODUCTION

Since time immemorial the concept of communication has been there in this universe. The only

thing that is in constant phase of transformation since ages is the mode of communication. As

the human voice is limited by distance, the need for telecommunication intrigued us. The

history of mankind has shown that there has always been some form of telecommunication.

Derived from French dictionary, the term, ‘telecommunication’ means 'communication at

distance' through signals of varied nature coming from a transmitter to a receiver. In ancient

days, the most common way of producing a signal to communicate with distant areas was by

producing audio signal by beating drums or whistling etc. or by creating visual signals with fire

or smoke etc. As time passed by, human beings learnt to communicate by sending handwritten

messages via pigeons or humans. For centuries, people used to communicate to distant people

through these channels. But all these modes of telecommunication were not secured, reliable

and convenient.

People then started looking for direct and reliable communication channels and from there

experiments on communication with the use of electricity started. The foundation stone of such

experiments was established in about 1726 and following the footsteps of these experiments,

finally in 1876 Alexander Graham Bell propounded the concept of conventional telephone

which is now in use worldwide and the first telephone exchanges for public use came up in the

western world in 1878.

Since then, the term ‘telecommunication’ got a technical definition: “Telecommunication is a

communication at a distance by technological means, particularly through electrical signals or

electromagnetic waves.”


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FLASHBACK (1850-1990)

Coming into Indian telecom scenario, telecommunication in India started with the introduction

of telegraph. The Indian postal and telecom sectors are one of the world’s oldest. In 1850, the

first experimental electric telegraph line was started between Calcutta and Diamond Harbour.

In 1851, it was opened for the use of the British East India Company. The Telegraph line opened

on 5th November 1850 marked the beginning of telecommunication in India. In 1881 the Govt.

of India granted permission to The Oriental Telephone Company Ltd. of England to set up

telephone exchanges at Calcutta, Bombay, Madras, Karachi and Ahmedabad and Indian

Telegraph Act of 1885 was passed. After that this industry experienced a lot of developments in

technology and some of the significant milestones are as follows:

Till 1902 – Cable telegraph

1902 – First wireless telegraph station established between Sagar Island and Diamond Harbour.

1905 – A wireless telegraph system was established with Port Blair.

1907 – First Central Battery of telephones introduced in Kanpur.

1913–1914 – First Automatic Exchange installed in Shimla.

1927 – Radio-telegraph system between the UK and India, with Imperial Wireless Chain beam

stations at Khadki and Daund.

1933 – Radiotelephone system inaugurated between the UK and India.

1953 – 12 channel carrier system introduced.

1960 – First subscriber trunk dialing route commissioned between Lucknow and Kanpur.

1975 – First PCM system commissioned between Mumbai City and Andheri telephone

exchanges.

1976 – First digital microwave junction.

1979 – First optical fiber system for local junction commissioned at Pune.


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1980 – First satellite earth station for domestic communications established at Secunderabad,

U.P.

1983 – First analogue Stored Programme Control exchange for trunk lines commissioned at

Mumbai.

1984 – C-DOT established for indigenous development and production of digital exchanges.

1985 – Post and Telegraph Dept. was bifurcated and telecommunication came under Dept. of

Telecom (DoT).

1986 – MTNL was formed to take up the Telecom Operation in the Metro areas of Delhi &

Bombay.

TILL DATE (1990-2013)

The demand for telephones was ever increasing and in 1990s Indian government was under

increasing pressure to open up the telecom sector for private investment as a part of

Liberalisation-Privatisation-Globalisation policies that the government had to accept to

overcome the severe fiscal crisis and resultant balance of payments issue in 1991.

Modernization came in Indian telecom industry on 15th August, 1995 when for the first time

mobile telephone service started in India on non-commercial basis along with internet service

in Mumbai, Delhi, Calcutta, Chennai and Pune. Prior to this, National Telecom Policy (NTP) 1994

was implemented to allow private participation in telecom service field and Universal Service

Obligation. Then in 1997, the Govt. of India set up TRAI (Telecom Regulatory Authority of India)

which reduced the interference of Government in deciding tariffs and policy making. In 2000,

another governing body, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) was

set up through an amendment of the TRAI Act, 1997. This was done to release TRAI from

adjudicatory and dispute settlement functions in order to strengthen the regulatory framework.

In the same year, Department of Telecommunication Services (DTS) came out as a wing of DoT

which later became popular as Bharat Sanchar Nigam Limited (BSNL). In April 2002, the

government decided to cut its stake of 53% to 26% in VSNL and opened the doors for sale to

private enterprises and then TATA Group took 25% stake in VSNL. This was the gateway in

Indian telecom market for the foreign investors. Today, Indian telecom sector is highly dynamic,

fast growing and multi-operator based. In today’s telecom sector, there are three major

divisions:

Telephony: This telephony service can again be classified into two sectors:

a) Fixed Line Telephony (PSTN): Until the implementation of the New Telecom Policy

1999, only the Government-owned BSNL and MTNL were allowed to provide land-line


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phone services through copper wire in India with MTNL operating in Delhi and

Mumbai and BSNL servicing all other areas of the country. Due to the rapid growth of

the cellular phone industry in India, landlines started facing stiff competition from

cellular operators. This has forced land-line service providers to become more efficient

and improve their quality of service. But owing to the reliability and stability of

landline services, landline connections are still in high demand and today India has

over 31 million landline customers. Moreover, today, this landline network is being

largely influenced by the optic fiber revolution.

b) Mobile Telephony (PLMN): The revolution of mobile telephony began in August, 1995

in India when the first mobile voice call was made by the then Chief Minister of West

Bengal, Shri Jyoti Basu to the then Union Telecom Minister, Sukhram. Mobile

telephony is the convenient platform for both voice and data service although fixed

line telephony offers internet access but at a very low speed as low as 56 kbps which is

commonly known as dial-up internet connection.

Data Service: At the advent of internet service in 1995 in India, the concept of data service

also appeared in the scenario. Mobile service started with first generation service (1G)

followed by second generation (2G), third generation (3G) and finally after 16 long years,

Kolkata, West Bengal again got the opportunity to experience the fourth generation (4G)

service for the first time in the nation in June 2012. With a subscriber base of more than

929 million, the mobile telecommunications system in India is the second largest in the

world and it was thrown open to private players in the 1990s. GSM was comfortably

maintaining its position as the dominant mobile technology with 80% of the mobile

subscriber market, but CDMA seemed to have stabilized its market share at 20% for the

time being. Till May 2012 the country had 929 million mobile subscribers, up from 350

million just 40 months earlier. The mobile market was continuing to expand at an annual

rate in excess of 40% coming into 2010. Starting with 56 kbps speed, in 2004, Govt. of India

formulated its broadband policy which defined broadband with download speed of 256

kbps or above. From 2005 onward, the growth of the broadband sector accelerated, but

remained below the growth estimation due to various issues. This bottleneck was removed

in 2010 when the government auctioned 3G spectrum followed by an equally high profile

auction of 4G spectrum that sets the scene for a competitive and invigorated wireless

broadband market. India has the world's third largest number of Internet users with over

121 million users (59% of whom only access the Internet via mobile devices) in December

2011. The number of broadband subscribers at the end of May 2013 was 15.13 million.


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Broadcasting: Television broadcasting began in India in 1959 by Doordarshan, a state run

medium of communication, and had slow expansion for more than two decades . The policy

reforms of the government in 1990s attracted private initiatives in this sector, and since

then, satellite television has increasingly shaped popular culture and Indian society.

However, still, only the government owned Doordarshan has the license for terrestrial

television broadcast. Private companies reach the public using satellite channels; both cable

television as well as DTH has obtained a wide subscriber base in India. In 2012, India had

about 148 million TV homes of which 126 million has access to cable and satellite services .

Mobile communication

According to official data, India has 736,654 base transceiver stations (BTSs) including 2G (GSM

& CDMA) 3G and 4G as of November 2012 out of which 96,212 BTSs provide 3G mobile and

data services. The territory of India has been divided into 23 telecom circles and these 23

circles covers 640 districts of India. Reports say that out of these 640 districts, 3G service

coverage is there in 610 districts of India.

In a precise way, Indian telecom sector has faced significant technological changes, mainly in

data services in the last decade. Starting with GPRS and now moving ahead with 4G service,

here is a brief description of the technological advancement in data service:

a) GPRS: Refers to a service on the 2G network that provides basic data up to 56kbps (similar

to dial-up speeds).


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b) EDGE: It is a 2.5G technology. An enhancement of the 2G technology which provides higher

data transfer rates compared to GPRS (the default on 2G).The speeds can go up to 144 Kbps .

c) 3G: 3G technology provides faster / higher data transfer rates compared to the 2G network

(EDGE & GPRS).This technology theoretically can offer speeds between 1-21 Mbps.

d) 4G: This technology rides on LTE (Long Term Evolution) platform and is the latest in the

world of mobile data transfer. It is the next generation of mobile communications. Currently it

is the most advanced radio access technology available. Theoretical data downlink speeds

range between 2-100 Mbps.

Cumulative Annual Growth rate (CAGR) of broadband during the five-year period between 2005

and 2010 was about 117 per cent. The number of mobile internet users increased rapidly from

2009 onwards and there were about 274 million mobile users at the end of September 2010,

with a majority using 2G mobile networks. Mobile internet subscriptions as reported by the

TRAI in March 2011 increased to 381 million. But there are some major issues that Indian

telecom market is facing:

Decline in Average Revenue Per User (ARPU) and

Allocation of spectrum band

Spectrum allocation

2G : GSM 900 MHz, GSM 1800 MHz

3G : UMTS 2100 MHz

4G : TD-LTE 2300 MHz

There are total of 12 telecom operators working in Indian telecom market: BSNL, MTNL, Bharti

Airtel, Vodafone, Idea Cellular, MTS, Virgin Mobile, Loop Mobile, Uninor, Aircel, Tata Docomo

and Reliance. These operators either operate on 900 or 1800 MHz for 2G and depending on

the bandwidth, they need to redesign their coverage area which sometimes results in customer

churn. Besides this, there are many other issues due to which ARPU is decreasing whereas

demand for Value Added Service (VAS) is increasing. This demand has lead to a shift from circuit

switching to the rise of packet based switching which is popularly known as Next Generation

Networking (NGN). It provides telecommunication services and makes use of multiple

broadband, quality of service-enabled transport technologies in which service-related functions

are independent from underlying transport-related technologies. It offers unrestricted access


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by users to different service providers. It supports generalized mobility which will allow

consistent and ubiquitous provision of services to users.

The total revenue in the telecom service sector was Rs. 86720 crore (US$13.3 billion) in 2005–

06 as against Rs. 71674 crore (US$11.0 billion) in 2004–2005, registering a growth of 21% with

estimated revenue of financial year 2011 of Rs. 835 crore (US$130 million). The total

investment in the telecom services sector reached Rs. 200660 crore (US$30.7 billion) in 2005–

06, up from Rs. 178831 crore (US$27.4 billion) in the previous fiscal year. Telecommunication is

the lifeline of the rapidly growing Information Technology industry. Internet subscriber base has

risen to more than a 121 million in 2011 out of which 11.47 million were broadband

connections.

Mobile communications in India has grown immensely during the last couple of years by adding

up to 20 million new subscribers per month, but the influx of new mobile subscribers dropped

to 5-7 million per month during the later part of 2011. The explosive growth has resulted in a

mobile customer base of 870 million (Oct 2011), translating into a mobile penetration of 73%.

However, it varies considerably between urban and rural areas with a mobile penetration of

160% and 36% respectively. The ARPU is around EUR 2-3 per month, and call charges are

around Rs. 0.9-1.5 per minute. The Indian mobile operators have access to 10-15 MHz

(downlink) of which 5 MHz is 3G spectrum, but it differs between service areas and operators.

Although 3G licenses were auctioned in 2010 and networks have been deployed the growth of

3G has so far been limited. India had about 12 million 3G subscribers’ by the end of 2011,

representing 1.5% of the total mobile subscribers. The slow start for 3G can be explained by the

incapability to afford 3G compatible handsets and smartphones. The Indian authorities

allocated three 3G licenses with 5 MHz per license in most service areas. But given that there

are at least six 2G operators in most service areas the major operators have entered into


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roaming agreement, so called intra circle roaming (ICR) agreements with the holder of 3G

licenses, in order to be able to provide 3G services nationwide. But DoT has questioned the

roaming agreements which initiated legal processes by the end of 2011. On back of a limited

availability of fixed broadband, with a penetration of 1.1%, 2G data with GPRS and EDGE have

been the primarily carriers for mobile data. But given that non-voice revenues generates 15% of

total mobile revenues, of which SMS makes up around 50%, the revenue stream from the

estimated 347 m mobile internet users have so far been limited.

Given the high mobile penetration in urban areas in India the major growth opportunities are in

rural areas. This requires extension of networks in order to extend coverage and capacity calling

for more CAPEX. The slow start for 3G indicates that India is lagging behind within mobile data.

But with a limited availability of fixed broadband mobile is set to be the primary vehicle for

digital access and applications. This analysis shows that 5 MHz can support the first stage for

mobile broadband and mobile internet. But in order to provide sufficient capacity for

supporting smartphones as well as dongles driving considerably higher data volumes, the

availability of more spectrum are required. The high gearing level for the Indian operators in

combination with extensive CAPEX requirements and high prices for spectrum will be

challenging for the companies. Ultimately, the willingness for the Indian consumers to pay for

mobile data will be pivotal for how this will play out. Although CAPEX in relation to sales have

come down for the Indian operators they are facing lower growth as the mobile voice market is

maturing, and they are experiencing high cost for capital as their financial flexibility are

impacted by the financial turmoil. The improvement in the effectiveness of total spectrum

utilization has been over a trillion times in the last 90 years, and a million times in the last 45

years. Of the million times improvement in the last 45 years, roughly 25 times were the result

of being able to use more spectrum, 5 times can be attributed to the ability to divide the radio

spectrum into narrower slices — frequency division. Modulation techniques like frequency

multiplexing, time division multiplexing and various other approaches to spread spectrum can

take credit for another 5 times or so. The remaining sixteen hundred times improvement was

the result of confining the area used for individual conversations to smaller areas, what is called

spectrum re-use. Hence it is the use of small cell that accounts for the largest improvement of

capacity. The increase of spectrum accounts for just 25 times of the 1 million improvements but

it is the bandwidth that is the raw material and makes it possible to exploit the benefits of the

other types of development. The operators can use the same type of modulation, radio

technology and deployment strategy but it is the amount of bandwidth that makes a clear

difference. We can also identify differences between operators and their different options

when it comes to the network deployment approaches. Network and spectrum sharing (like


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3GIS and Net4Mobility) enables both higher cost efficiency (site re-use) and the possibility to

offer higher data rates.

The implementation of the National Telecom Policy 2012 is a positive step in this scenario.

National Telecom Policy 2012

• Increase rural teledensity from the current level of around 39 to 70 by the year 2017 and 100

by the year 2020

• Repositioning of Mobile phone- as an instrument of empowerment

• Broadband –“'Broadband for All” at a minimum download speed of 2 Mbps

• Domestic Manufacturing- Making India a global hub

• Convergence of Network, Services and Devices

• Liberalization of Spectrum- any Service in any Technology

• Simplification of licensing regime- Unified Licensing, delinking of Spectrum from License,

Online real time submission and processing

• Consumer Focus - Achieve One Nation - Full Mobile Number Portability and work towards

One Nation - Free Roaming

• Resale of Services

• Voice over Internet Protocol

• Cloud Computing, Next Generation Network including IPV6


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Today the Indian telecommunication network comprises of around 621 million connections

which credit it as the world’s third largest network and second largest wireless network. The

Subscriber Base has increased exponentially registering a growth of 2.36% over the previous

quarter as against 4.69% during the same quarter of June 2011. This reflects the growth of

25.39% over the same quarter of last year. The overall teledensity of country’s telecom sector

has reached 75.48 as on 30th September, 2011. Subscription in urban and rural areas also has

shown growth from 587.94 million to 601.72 million and 298.05 million to 305.51 million

respectively. The share of rural areas in total subscription has been around 33.49% at the end

of June 2011 and the share of urban area has been 63.52%. The total revenue of the telecom

service sector went up with a growth of 8.69%. Public sector contribution to the revenue was

20.37 % and private sector contributed 79.63%.

PATH AHEAD (Vision 2020)

As the world is living in a technology-driven era, the dynamics of telecom industry will be

changing very significantly in the near future. The evolution of disruptive technology that is the

six technology trends: huge data accumulation, cloud computing, mobility, embedded systems

in the devices, social media networking and augmented reality is likely to change the entire

scenario of the telecom world. Though all the other business sectors will be highly influenced

by these six technology trends but telecom industry is predominant over these technologies.

Telecom industry is a very interesting and hyper active sector that acts as a horizontal enabler

as well as a vertical user end.


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So in this competitive ecosystem, besides the uptake of disruptive technologies in the telecom

sector, this industry will also face huge investment as stakeholder to cater the needs and

demands of other sectors. Very soon, the trend will come when everyone will have to fulfill the

changed demand patterns from all verticals which will keep on increasing due to high influence

of disruptive technologies. Moving more towards the future, the industry will witness more

development where there will be the convergence of these six technology trends. All will come

together to build a cost-efficient solution.

The DoT will encourage telecom service providers to share their infrastructure. The telecom

industry and the Government need to work together to attract investments and exploit

advances in technology. With the success in voice-connectivity being carried forward to data

and emerging technologies including cloud computing, the government is targeting broadband

connectivity from 15 million currently to over 600 million in 2020.

On the back of the ongoing investments into infrastructure, the country is projected to witness

high penetration of internet, broadband, and mobile subscribers in the near future. Various

policy initiatives by the Indian government have led to a complete transformation of the

industry in the last decade. It has achieved a phenomenal growth during the last few years and

is poised to grow further.


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CONCLUSION

Increasing demand for smart phones and availability of high speed networks, such as 3G and 4G

services, has resulted in the rapid growth of the Indian market, besides offering immense

opportunities to players involved in the business. The RNCOS’ research study, ‘Indian Mobile

Gaming Market Forecast to 2017’ estimated the market to reach Rs 18.5 billion (US$ 302.28

million) in 2017 and grow at a CAGR of nearly 24 per cent during the period 2013–2017.

As the subscriber base is increasing exponentially demand for additional spectrum is also

increasing by mobile operators. To serve the need department of telecommunication has to

evolve its guidelines for the allotment of extra spectrum and this allotment has to be done on

certain justifications and criteria such as demographic characteristics, average traffic per

subscriber, and number of base stations at a particular location. Being a scarce resource, its

equal allotment for systems using different technologies can be the solution. Government

should try to create a policy for a flexible and technological neutral regime to allow new

technologies have equal access to the spectrum. It should also enable market mechanism to

promote efficient use of spectrum. The government must permit public and private users to

trade spectrum to allow new users to access spectrum and to provide them option to move to

another frequency bands if possible. The government must make the allotment procedure

more transparent and opened so that this scarce resource can be put to the optimal use.

Indian telecom industry past, present & future

Technology

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