Indian

Telecommunication

Sector

JULY 2013

2

Presentation Plan

1

5

Telecom Industry Overview

Emerging Trends in Telecom Market

3 Regulatory Framework and Its Impact

4

Telecom – Investment Attracting Sector2

Major Players in Telecom Sector

6 Growth Avenues

Dr. Gajender Sharma

7 Limitations and Concern Areas

3

Presentation Plan

1

5

Telecom Industry Overview

Emerging Trends in Telecom Market

3 Regulatory Framework and Its Impact

4

Telecom – Investment Attracting Sector2

Major Players in Telecom Sector

6 Growth Avenues

Dr. Gajender Sharma

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 Sharma4

5

9 10 1115

20

43

0

10

20

30

40

50

2002-03 2003-04 2004-05 2005-06 2006-07 ….. …. 2009-10

Reve

nues

(USD

billio

n)

Revenues of Indian Telecom Industry: (USD billion)

Telecom Services – India

Internet

Mobile ServicesBasic

Services

PMRTS

VSATsGMPCS

Radio

Paging

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.

Registered an annual growth of 33 percent in 2006–07

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.

Telephony services (mobile and basic) and Internet services dominate the Indian telecom services

Dr. Gajender Sharma

6

Private players account for highest subscriber base growth in the basic telephony services segment

Basic Services

80%

9% 11%

74%

8%18%

0%

20%

40%

60%

80%

100%

BSNL MTNL Other Private Players

As of 31 March 2005 As of 31 March 2006

Market Share* of Basic Service Operators in India

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.

WLL (F)17%

Fixed83%

Market Share* of Basic Services Segments in India

* In terms of Subscriber Base

Dr. Gajender Sharma

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 Sharma7

8

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

Others, 14.0%

MTNL, 19.0%

BSNL, 45.2%

Bharti Airtel, 6.8%

Reliance, 6.1%

Sify, 8.9%

Market Share of Top Five Internet Service Providers (as of quarter ending March 2007)

0.14 0.280.95

3.043.42 3.64

4.55

5.55

6.94

9.27

0

2

4

6

8

10

1997

–98

1998

–99

1999

–00

2000

–01

2001

–02

2003

–03

2003

–04

2004

–05

2005

–06

2006

–07

Inte

rnet

Sub

scrib

ers

(In

milli

on)

Internet Subscribers

BSNL and MTNL caters to more than two-thirds of Internet subscribers in India.

Private players are catching up fast due to increased penetration of Internet and

broadband services in India.

The telecom market will experience high penetration of Internet services with the

support from government policies and introduction of novel technologies in

India.

Broadband services to drive Internet penetration in India

India had 2.52 million broadband connections at the end of June 2007.

Dr. Gajender Sharma

9

Presentation Plan

1

5

Telecom Industry Overview

Emerging Trends in Telecom Market

3 Regulatory Framework and Its Impact

4

Telecom – Investment Attracting Sector2

Major Players in Telecom Sector

6 Growth Avenues

Telecom Handset Market

Dr. Gajender Sharma

10

Indian telecom handset market booming along with mobile services industry

1,6101,966

3,231

4,750

0

1,000

2,000

3,000

4,000

5,000

2003–04 2004–05 2005–06 2006–07

US

D M

illion

Mobile Handsets Market in India 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

volume.

ZTE4%

Nokia 53%

Motorola 11%

LG11%

Sony Ericsson 6%

Huaw ei1%Haier

1%

Samsung 6%

Others7%

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

Overall, Nokia has a market share of 53 percent; it

dominates the GSM mobile handsets with a market

share of approximately 73 percent.

LG dominates in the CDMA handsets market with a

market share of 60 percent.

Dr. Gajender Sharma

11

Presentation Plan

1

5

Telecom Industry Overview

Emerging Trends in Telecom Market

3 Regulatory Framework and Its Impact

4

Telecom – Investment Attracting Sector2

Major Players in Telecom Sector

6 Growth Avenues

Dr. Gajender Sharma

12

Skilled and competitive labour forceFifth largest telecom network in the world; second largest among emerging

economies after ChinaOn an average, about 6–7 million new users added per month, making India

the world’s fastest growing wireless services marketLiberal Foreign Investment Regime–FDI limit increased from 49 percent to 74

percent; the rural telecom equipment market is also open to large

investmentsAmong the countries offering the highest rates of return on investmentThe large untapped potential in India’s rural markets–1.9 percent teledensity

in rural markets as compared to the national level of 18 percentThe government promoting telecom manufacturing by providing tax sops

and establishing telecom specific Special Economic Zones

India: An Ideal Destination for Investments in Telecom Sector

Dr. Gajender Sharma

13

225.21206

140.398.4

7653

19.9

5.17.0

9.112.8

18.3

0

50

100

150

200

250

2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 (asof June2007)

Sub

scrib

ers

(in m

illion

)

0

4

8

12

16

20

24

Tel

eden

sity

(in

per

cent

)

Telecom Subscriber Base Teledensity

Increasing mobile subscriber numbers and low level of teledensity offers large opportunities to Indian companies

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.

Large number of additions in telecom subscribers

Low teledensity (depicting large untapped potential)

TelecomAdvantage

Dr. Gajender Sharma

14

Presentation Plan

1

5

Telecom Industry Overview

Emerging Trends in Telecom Market

3 Regulatory Framework and its Impact

4

Telecom – Investment Attracting Sector2

Major Players in Telecom Sector

6 Growth Avenues

Dr. Gajender Sharma

15

Presentation Plan

1

5

Telecom Industry Overview

Emerging Trends in Telecom Market

3 Regulatory Framework and Its Impact

4

Telecom – Investment Attracting Sector2

Major Players in Telecom Sector

6 Growth Avenues

Dr. Gajender Sharma

16

Vodafone purchased stake in Hutch from Hong Kong's Hutchison Telecom International for USD 11.08 billion.

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.

116 129

680

521

100

300

500

700

2003–04 2004–05 2005–06 2006–07

FD

I (U

SD

milli

on)

Recent Deals in Telecom Sector

FDI in Telecom Sector

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.

FDI and other M&A activities increasing in number

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.

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.

Major trends in the telecom sector is increasing M&A activity, de-regulation of telecom policies and growing interest of international investors.

Dr. Gajender Sharma

Dr. Gajender Sharma17

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.

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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.

AIRTEL : facing rough weather

Dr. Gajender Sharma

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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.

VODAFONE HUTCH MERGER

Dr. Gajender Sharma

Dr. Gajender Sharma20

Vodafone-Hutchison Tax CaseVodafone 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.

21

Presentation Plan

1

5

Telecom Industry Overview

Emerging Trends in Telecom Market

3 Regulatory Framework and Its Impact

4

Telecom – Investment Attracting Sector2

Major Players in Telecom Sector

6 Growth Avenues

Dr. Gajender Sharma

22

Basic Services Operators

BSNL

MTNL

Major Players in different segments of Indian telecom industry

Reliance

TTSL

GSM Services Operators

Airtel

Vodafone

Idea

Reliance

TTSL

BSNL

CDMA Services Operators

Reliance

Internet Services Operators

BSNL

MTNL

Reliance

TTSL

BSNL

Airtel

TTSL – Tata Teleservices Ltd.

MOBILE SERVICES

BSNL – Bharat Sanchar Nigam Ltd.

MTNL – Mahanagar Telecom Nigam Ltd. Dr. Gajender Sharma

23

Presentation Plan

1

5

Telecom Industry Overview

Emerging Trends in Telecom Market

3 Regulatory Framework and its Impact

4

Telecom – Investment Attracting Sector2

Major Players in Telecom Sector

6 Growth Avenues

Dr. Gajender Sharma

7 Limitations and Concern Areas

24

India presents a host of opportunities for telecom companies

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

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.

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.

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.

Growth AvenuesGrowth

Avenues

Infrastructure Sharing Managed

Services

Virtual Private Network

Enterprise Telecom Services3G

WiMax

Value-Added Services

Rural Telephony

Dr. Gajender Sharma

Dr. Gajender Sharma26

CONSTRAINTS, HURDLES, AND CHALLENGES

IN THE GLOBAL AND INDIAN TELECOM SECTOR

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.

Dr. Gajender Sharma30

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 Sharma31

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 Sharma32

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. 

Google PhoneGoogle 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 Sharma33

Dr. Gajender Sharma34

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 Sharma35

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 Sharma36

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