impact of recession on telecom

8/7/2019 IMPACT OF RECESSION ON TELECOM

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ISHAN INSTITUTE OF MANAGEMENT &TECHNOLOGY ISHAN INSTITUTE OF MANAGEMENT &TECHNOLOGY ISHAN INSTITUTE OF MANAGEMENT &TECHNOLOGY ISHAN INSTITUTE OF MANAGEMENT &TECHNOLOGY

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ACKNOWLEDGEMENT

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INTRODUCTION

Exactly ten years ago, Jyoti Basu in Calcutta called Sukh Ram in Delhi in what was the first mobile phone call in India. Brick sized cell phones used to cost Rs. 45,000 and each callcosted Rs. 16.5/minute. Back then, cell phone was a status symbol. Today, there are over 60million mobile connections in India (expected to double in number in next 12 months). Alocal call costs around less than Rs 1/min and a cell phone can be purchased for less than Rs.2000.

TELECOM SECTOR: A GLOBAL SCENARIO

The Indian telecom market has been displaying sustained high growth rates. Riding onexpectations of overall high economic growth and consequent rising income levels, it offersan unprecedented opportunity for foreign investment. A combination of factors is drivinggrowth in the telecom market, promising rich returns on investments.

India is the fourth largest telecom market in Asia after China, Japan and South Korea.

The Indian telecom network is the eighth largest in the world and the second largestamong emerging economies.

The Indian telecom market size of over US $ 8 billion is expected to increase three foldby 2012. The expansion of the telecom industry in India has been fuelled by a massivegrowth in mobile phone users, which has reached a level of 10 million users in December2002, an increase of nearly 100 per cent in 2002.

This exponential growth of mobile telephony can be attributed to the introduction of digital cellular technology and decrease in tariffs due to competitive pressures. For thefirst time in India, the growth of cellular subscriber base has exceeded the fixed linesubscriber base. However, cellular penetration is still 1 per cent as compared to worldaverage of around 16 per cent.

INDIAN TELECOM SECTOR

Indian Telecom sector, like any other industrial sector in the country, has gone through manyphases of growth and diversification. Starting from telegraphic and telephonic systems in the

19th century, the field of telephonic communication has now expanded to make use of advanced technologies like GSM, CDMA, and WLL to the great 3G Technology in mobilephones. Day by day, both the Public Players and the Private Players are putting in theirresources and efforts to improve the telecommunication technology so as to give themaximum to their customers.

The Indian telecom sector can be broadly classified into Fixed Line Telephony andmobile telephony. The major players of the telecom sector are experiencing a fiercecompetition in both the segments.

The major players like BSNL, MTNL, VSNL in the fixed line and Airtel, Vodafone

(Hutch), Idea, Tata, Reliance in the mobile segment are coming up with new tariffs anddiscount schemes to gain the competitive advantage.



The Public Players and the Private Players share the fixed line and the mobile segments.

Currently the Public Players have more than 60% of the market share.

DEMOGRAPHIC CHARACTERS :--

According to the Vision 2020 document of the Planning Commission of India, thecountry will witness continued urbanization. The urban population is expected to rise from 28per cent to 40 per cent of total population by 2020.

Future growth is likely to be concentrated in and around 60 to 70 large cities having apopulation of one million or more. This profile of concentrated urban population willfacilitate customized telecom offerings from operators .

MARKET-SIZE, PLAYERS AND TRENDS:-

Both fixed line and mobile segments serve the basic needs of local calls, long distance callsand the international calls, with the provision of broadband services in the fixed line segmentand GPRS in the mobile arena. Traditional telephones have been replaced by the codeless andthe wireless instruments.

Mobile phone providers have also come up with GPRS- enabled multimedia messaging,Internet surfing, and mobile- commerce.

The much-awaited 3G mobile technology has entered in the Indian telecom market.

The GSM, CDMA, WLL service providers are all upgrading them to provide 3G mobileservices.

Radio services have also been incorporated in the mobile handsets, along with otherapplications like high storage memory, multimedia applications, multimedia games, MP3Players, video generators, Camera's, etc. The value added services provided by the mobileservice operators contribute more than 10% of the total revenue.

The 2009 budget has brought further relief to the customers with the reduction in thetariffs, both local and long distance, and with slashing down the roaming rentals. This islikely to lead to even more people going for cellular services and more and more use of thevalue added services.

However, landline telephony is likely to remain popular, too, in the foreseeable future.MTNL, the largest landline service provider, has recently taken some bold initiatives to retainits market share and, if possible, expand it.

OPPORTUNITIES:-

India offers an unprecedented opportunity for telecom service operators, infrastructurevendors, manufacturers and associated services companies. A host of factors are contributing

to enlarged opportunities for growth and investment in telecom:



an expanding Indian economy with increased focus on the services sector

population mix moving favourably towards a younger age profile

urbanization with increasing incomes

Investors can look to capture the gains of the Indian telecom boom and diversify theiroperations outside developed economies that are marked by saturated telecom markets andlower GDP growth rates. COMPETITIVE LANDSCAPE:-

Demand is driven by technological innovation and by growth in business activity. Theprofitability of individual companies depends on efficient operations and good marketing.

Large companies have big economies of scale in providing a highly automated service tolarge numbers of customers, and have the financial resources required to build and maintain alarge network.

Smaller companies can compete effectively only in small markets or by providingspecialty services

RESEARCH INDUSTRY GROWTH RATING1:-

The First Research Industry Growth Rating reflects the expected industry growth relative toother industries:--:

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scenario in rural India. The minister also confirmed that the process of allotment of spectrum

for 3G will be completed by January 2009.

The minister was speaking at the curtain raiser for India Telecom 2008, scheduled from 11 to

13 December with the theme of “Connecting Rural India”. The event is being organised by

the department of telecommunication in partnership with Federation of Indian Chambers of

Commerce and Industry (FICCI). In his keynote address, the minister of state for

communications and IT, Jyotiraditya Scindia, asked for special emphasis on manufacturing

and R&D and new business models to achieve the main objective of higher rural teledensity.

Indian telecom sector, which has so far remained untouched by the slump in the global

economy, could see the growth rates slowing down by the end of the year. Thanks tohouseholds postponing spending, the growth rate of mobile handsets could fall by as much as

50 per cent and also see a decline in new subscriber additions compared with 10 million new

subscribers a month at present.

According to Mr Prashant Singhal, telecom industry leader at Ernst & Young, the handset

sales growth in 2009 is expected to be in the region of 13-15 per cent, down from 26 per cent

last year.

“Yes, the Indian telecom industry has been impacted to some extent by the current global

slowdown. In the current economic environment, many corporates are re-negotiating the rates

they pay to telecom operators. Though subscriber numbers are still growing at well over 10

million a month, revenues are not rising commensurately. Also, it will be a challenging

market for mid- to high-end handset makers this year. In high-end phones, sales will be

defined more by need rather than desire of the user.”

While most operators claim that the telecom growth story is intact for another 3-4 years, theyprivately admit that the liquidity crunch may have an impact in 2010. “Most of the growth in

mobile usage is coming from non-urban areas driven by a large population of employed

youngsters. However, if the liquidity crunch continues then these youngsters may not find

employment easily, which in turn will impact their expenditure on communications services,”

says a Mumbai-based multinational GSM operator.

Though the industry is not losing sleep yet, they are undertaking cost-cutting measures such

as infrastructure sharing and internal restructuring. “Reflecting its proactive approach,



Ericsson has had a cost reduction programme in place since 2008 which well exceeded set

targets. The present economic condition is helping us drive better focus across the various

teams and functions internally. Conscious decisions are being taken to curb costs by

increasing the use of Web effectively - through webinars and Web conferences, thus

seamlessly connecting across geographies and different time zones. However, we expect the

telecom scenario in India to be in growth mode for the next few years,” says Mr P. Balaji,

Vice-President (Marketing & Strategy), Ericsson India.

However, some of the players completely rule out any impact on telecom.

“Look at it from the customers’ perspective — slowdown or not, they need a communication

device under all circumstances; to share their thoughts, worries, good news or even for a

general discussion. So, the demand for telecom services remains strong, and that is evident in

the strong growth that the sector continues to enjoy. In fact, telecom usage in innovative ways

is actually increasing through the long-drawn recession, as it becomes a cost-effective

alternative to business expenses such as travel and lodging, etc,” says a spokesperson for Tata

Teleservices.

But Mr Singhal sounds cautious. “This is a time for telecom operators to take a close look at

their internal structure. In the last couple of years of sharp growth, large operators have addedbetween 3,000 and 7,000 new employees. This is an opportunity for such operators to look to

achieve a greater level of efficiency in their operations.”

Market watchers point out that the onus will be on the new government to launch next

generation reforms in the telecom sector to sustain the growth story. “A large number of

policy initiatives, which could have helped the industry to overcome the current economic

crisis, are awaiting Government approval. There should not be any more regulatory

uncertainties,” says a Delhi-based telecom player.



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Suggestions

• Introducing quality customer service• Timely updation of tariffs• Providing new value added service to corporate customers• Developing franchisee level strategies

impact of recession on telecom

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