Telecom Industry – An Overview

1.    Industry Details

1.1    Telecom Operators

The overall tele-density in India rose to 34.50% in Jan 2009. The telecom industry in India is broadly divided into three core segments namely

i) fixed phone service

ii) mobile phone service

iii) broadband and internet service.

Fixed Line Phones: India had a total of 37.25 million fixed line subscribers by October 2009. BSNL and MTNL, two major PSUs, are major players in the fixed line telephone market, given their historical presence. But recently private players like Reliance, Tata Teleservices, Airtel have also started  providing the fixed phone connections, primarily in urban areas.

Mobile Phones: India has been divided into 19 business regions and four large city service regions in the mobile market, and to service the, 78 licenses have been issued to 22 companies. Currently, there are over 140 GSM and CDMA operators in India. There were 488.4 million mobile phone subscribers in India by October 2009. Airtel, Reliance, Tata Teleservices, Vodaphone are the major private companies and BSNL, MTNL are the major PSUs providing mobile phone services in India

Broadband and Internet: In 1998, the Indian government announced an open-door policy for Internet, and now more than 400 operators have got the ISP license.
 
1.2    Telecom Infrastructure

Infrastructure is a substantial business component in the telecom industry. The telecom infrastructure is divided into three major areas namely

1.    Passive Infrastructure like tower, antenna mounting structure, power supply, battery bank, inverters etc.

2.    Backhaul which is basically the network consisting of the intermediate links between the core network and various sub-networks


3.    Active infrastructure like base tower station, microwave radio equipment, switches, antenna, transceiver for processing and transmission

In India, the big telecom operators have their own infrastructure subsidiaries like Bharti Infratel Limited from Airtel, Reliance Infratel Limited from Reliance, Wireless TT Infoservices Limited from Tata Teleservices, Indus Tower Limited (joint venture of Airtel, Vodafone and Idea). But recently independent tower infrastructure companies like GTL Infrastructure, Essar Telecom Infrastrucuter, Xcel Telecom and Aster Infrastructure have also entered the telecom infrastructure market to provide services to the new operators, who are averse to incurring huge initial costs in setting up the infrastructure.

1.3    Telecom Revenues

Though India has huge mobile phone coverage, the average revenue per user (ARPU) is one of the lowest in the world. The average blended ARPU in India is around $5, even below a good numbers of African countries. Of this, 22% to 27% is rental revenue and 55% to 60% is the voice revenue. The revenue from VAS is just around 7% and within this, the SMS revenue is 55% and the digital music download revenue is 35%.

2.    Trends

2.1    Technology

In India, the current telecom operators operate on GSM or CDMA technologies which are basically 2G technologies. There is also GPRS technology (2.5G technology) deployed only for data transfer currently in India. But India will soon adopt the 3G technology (Indian government is in the process of inviting bids for 3G spectrum) and WiMAX, CDMA 2000, UMTS (Universal Mobile Telecommunication System), HSPA (High Speed Packet Access) seems to be popular in the 3G space. These technologies will give a significant improvement on the download speed compared to the current one. For example, the WiMAX technology provides 70 Mbps of download speed. The 4G technology like LTE, which gives 160 Mbps of download speed is still in the R&D stage and is expected to be deployed in India around 2012-2013.

2.2    Infrastructure

The telecom infrastructure business needs the economies of scale for survival due to its high fixed cost and low variable cost model. Due to this factor, more and more operators are opting for renting/ sharing of third party infrastructure instead of purchasing and managing their own. This also helps new operators to roll out services in new geographies within a short time period. Besides there are acquisitions and mergers happening in this arena apart from a substantial consolidation of devices and development of multi-service devices to integrate various functionalities in a single device .

2.3    Revenue

With the increase in tele-density, India is reaching a saturation point in terms of increasing revenues by just having more and more subscriber. The next big revenue push is expected to come from MVAS (mobile value added services). With the introduction of 3G and 4G technologies, MVAS is expected to grow at a CAGR of 40% to 50%.  Mobile TV, full motion video, wireless teleconferencing, multi player online, among others, are expected to be revenue earners in the next generation MVAS applications besides traditional applications like ringtones, video clips, info services etc

2.4    Others

Two other very important trends in the Indian telecom industry are the adoption of phones with multiple SIM cards and mobile number portability. With cheap new connections and a huge chunk of pre-paid customers  (which logically implies they need to pay only if they use), Indian consumers prefer phones with multiple SIM cards to get the benefits of schemes from multiple operators
Though till now mobile number portability is not operational in India, the government  plans to introduce it very soon, which will, in turn increase competition among the operators

3.    Challenges

The Indian telecom market has two major categories of markets and the operators have different challenges in each of them.
The metro cities and the urban markets are quite saturated in terms of tele-density. So there is very little scope in terms of new customer acquisition in this market and that’s why the operators are trying to focus more and more value added services (VAS) to add to their revenues.

In the rural markets, though, there is a huge potential customer base, a lack of proper telecom infrastructure, power shortage, lack of trained manpower are the challenges which to the companies have to contend with.  Additionally, due to lower purchasing power, the ARPU is pretty much low in the rural market, which acts as a disincentive to the operators.

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