report on telecom service provider

8/9/2019 Report on Telecom Service Provider

1/91

A PROJECTON

TELECOM SERVICE PROVIDER INDUSTRY

SUBMITTED IN PARTIAL FULFILMENT OF THE

REQUIREMENT OF MASTER OF BUSINESS ADMINISTRATIONDISTANCE EDUCATION

GURU JAMBHESHWAR UNIVERSITY OF SCIENCE & TECHNOLOGY,HISAR

RESEARCH SUPERVISOR: - SUBMITTED BY:-

PROF.KESHAV SHARMA HEMANT PAL SINGHJK BUSINESS SCHOOL ENROLLMENTNO.JKBS083193

SPECIALIZATION- MARKETING

SESSION 2008 -10

DIRECTORATE OF DISTANCE EDUCATIONGURU JAMBHESHWAR UNIVERSITY OF

SCIENCE & TECHNOLOGY, HISAR


2/91

DECLARATION

This is to declare that this report on The Telecommunications

Service provider industry has been made for the partial

fulfillment of the course: Post Graduate Program in Business

Management Term IV of Batch 2008-2010 by me.

The work was undertaken by only me. The contents of thereport have been done only by me and the views contained

there in have been discussed and deliberated in full. I take

responsibility of the contents and agree to go through the

review process.

Hemant Pal Singh

JKBS 083193


3/91

ACKNOWLEDGEMENT

At the successful completion of my project, I would like to expressmy sincere gratitude to all the people without whose support thisproject would not be completed.

At the onset, I would like to thank my institute J K Business Schoolfor giving me the opportunity to undergo this research project.

I would also like to acknowledge the constant help andencouragement of my project guide Prof. Keshav Sharma, who has

given his valuable suggestions and expert guidance and support.I would also like to thank all those who have directly or indirectlyhelped me in the preparation of this report.

Hemant Pal SinghJKBS083193


4/91

CERTIFICATEThis is to certify that Mr. Hemant Pal Singh, Enrollment No.

JKBS083193 has proceeded under by supervision his

Research project Report on Study of Telecom service

provider industry in the specialization area Marketing.

The work embodied in this report is original and is of the

standard expected of an PGDBM student and has not been

submitted in part or full to this or any other university for the

award of any degree or diploma. He has completed all

requirements of guidelines for Research Project Report and the

work is fit for evaluation.

Signature of Supervisor/Guide (with SEAL)

NAME : Mr. Keshav Sharma

DESIGNATION : Asst. Professor Marketing

ORGANIZATION : J K Business School

Forwarded by Head/Director of Study Centre

(With signature, Name & Seal)


5/91

TABLE OF CONTENTS

CHAPTER

1. INTRODUCTION

2. REVIEW OF LITERATURE

3. INDIAN OVERVIEW

4. INDUSTRY STRUCTURE

5. GOVERNMENT POLICY ANALYSIS

6. ECONOMIC FACTORS AND ITS IMPLICATIONS

7. ANALYTICAL FRAMEWORK

8. COMPANY ANALYSIS

9. TREND AND FORECAST

10. BIBLIOGRAPHY

11. QUESTIONNAIRE


6/91

CHAPTER 1

INTRODUCTION


7/91

1.1 HISTORY OF TELECOMMUNICATION INDUSTRY

The history of telecommunication industry started with the first public demonstrationof Morses electric telegraph, Baltimore to Washington in 1844. In 1876 Alexander Graham Bell filed his patent application and the first telephone patent was issued tohim on 7 th of March.

In 1913, telegraph was popular way of communication. AT&T commits to dispose itstelegraph stocks and agreed to provide long distance connection to independencetelephone system.

In 1956, the final judgment limited the Bell System to Common Carrier Communications and Government projects but preserving the long-standingrelationships between the manufacturing, researches and operating arms of the BellSystem. In this judgment AT&T retained bell laboratories and Western ElectricCompany. This final judgment brought to a close the justice departments seven year-old antitrust suit against AT&T and Western Electric which sought separation of the Bell Systems Manufacturing from its operating and research functions. AT&Twas still controlling the telecommunication industry.

In 1982 , AT&T was requested to divestiture its stock ownership in Western Electric;termination of exclusive relationship between AT&T and Western Electric; divestitureby Western Electric of its fifty percent interest in Bell Telephone Laboratories, AT&Ts telecommunication research and development facility, is a jointly owned subsidiaryin which AT&T and Western Electric each own 50% of the stock; separation of telephone manufacturing from provision of telephone service and the compulsory

licensing of patents owned by AT&T on a non-discriminatory basis.

It was telecommunication act of 1996 that true competition was allowed. The act of 1996 opened the market to all competitors. AT&T being the first telecommunicationcompany paved the road for the telecommunication industry as well as set the policyand standards for others to follow.

Beginning of telecommunication in India

1851 First operational land lines were laid by the government near Calcutta

1881 Telephone services introduced in India

1883 Merger with postal system

1923 Formation of Indian radio Telegraph Company


8/91

1932 Merger of ETC and IRT into Indian Radio and Cable CommunicationCompany

1947 Nationalization of all foreign telecommunication companies to form theposts, telephone and telegraph, a monopoly run by the governments ministryof communications

1985 Department of telecommunication established , an exclusive provider of domestic and long-distance services that would be its own regulator

1986 Conversion of dot into two wholly government owned companies theVSNL for international telecommunication and MTNL for services inmetropolitan areas

1997 Telecom regulatory authority created

Telecommunication is important not only because of its role in bringing the benefitsof communication to every corner of India but also in serving the new policyobjectives of improving the global competitiveness of the Indian economy andstimulating and attracting foreign direct investment.

Indian Telecom industry is one of the fastest growing telecom markets in the world.

In telecom industry, service providers are the main drivers; whereas equipmentmanufacturers are witnessing growth and decline in successive quarters as sales isdependent on order undertaken by the companies.


9/91

CHAPTER 2

REVIEW OFLITERATURE


10/91

REVIEW OF LITERATURE

Girija (1998), in its article Socioeconomic Implications of Telecommunications Liberalization: India in the International Context says that Telecommunicationsrestructuring have evolved differently in Asia and Latin America. While Asiangovernments have moved cautiously in bringing changes to the sector, Latin

American nations have implemented radical ownership and market transformations.The Indian telecommunications reform falls in between these two general regionaltrends. The choice of a high component of competition, increased private

participation, and no privatization of the national carrier set conditions that will trigger unique socioeconomic effects. This article identifies and highlights the likelyimplications of the Indian reform on key economic and social issues, such as thecost of services, cross-subsidies, network interconnection, private investments,universal services, employment, and the possible rise of an information-intensiveeconomy. It does so by comparing and contrasting the Indian experience withdominant reform strategies elsewhere in the developing world.

T.H. Chaudhary (1999) discusses how Telecom reform, or demonopolization, inIndia has been bungled. Shaped by legislation dating back to the colonial era andpost Second World War socialist policies, by the mid-1980s India realized that itspoor telecommunications infrastructure and service needed reform. At the heart of the problem lay the monopoly by the governments Department of Telecommunications (DOT) in equipment, networks and services. The NationalTelecom Policy 1994 spelt out decent objectives for reform but tragically itsimplementation was entrusted to the DOT. This created an untenable situation inwhich the DOT became policymaker, licenser, regulator, operator and also arbitrator in disputes between itself and licensed competitors. He discusses the question: Whydid India get it so wrong? and What India should do now?
http://web.ebscohost.com/ehost/viewarticle?data=dGJyMPPp44rp2%2FdV0%2Bnjisfk5Ie46bBMtamzSLak63nn5Kx95uXxjL6prUqzpbBIrq%2BeUbinsVKzrp5Zy5zyit%2Fk8Xnh6ueH7N%2FiVa%2But0uyrLBPt62khN%2Fk5VXj5KR84LPgi%2Bac8nnls79mpNfsVbWmtEyzraR%2B7ejrefKz5I3q4vJ99uoA&hid=101http://web.ebscohost.com/ehost/viewarticle?data=dGJyMPPp44rp2%2FdV0%2Bnjisfk5Ie46bBMtamzSLak63nn5Kx95uXxjL6prUqzpbBIrq%2BeUbinsVKzrp5Zy5zyit%2Fk8Xnh6ueH7N%2FiVa%2But0uyrLBPt62khN%2Fk5VXj5KR84LPgi%2Bac8nnls79mpNfsVbWmtEyzraR%2B7ejrefKz5I3q4vJ99uoA&hid=101http://web.ebscohost.com/ehost/viewarticle?data=dGJyMPPp44rp2%2FdV0%2Bnjisfk5Ie46bBMtamzSLak63nn5Kx95uXxjL6prUqzpbBIrq%2BeUbinsVKzrp5Zy5zyit%2Fk8Xnh6ueH7N%2FiVa%2But0uyrLBPt62khN%2Fk5VXj5KR84LPgi%2Bac8nnls79mpNfsVbWmtEyzraR%2B7ejrefKz5I3q4vJ99uoA&hid=101http://web.ebscohost.com/ehost/viewarticle?data=dGJyMPPp44rp2%2FdV0%2Bnjisfk5Ie46bBMtamzSLak63nn5Kx95uXxjL6prUqzpbBIrq%2BeUbinsVKzrp5Zy5zyit%2Fk8Xnh6ueH7N%2FiVa%2But0uyrLBPt62khN%2Fk5VXj5KR84LPgi%2Bac8nnls79mpNfsVbWmtEyzraR%2B7ejrefKz5I3q4vJ99uoA&hid=101


11/91

Anand (1999), in his article named India's economic policy reforms says that Indiawas embarked on economic reforms in July 1991, in the wake of a balance of

payments crisis. In this article, an attempt is made to review two books and a set of World Bank reports concerning the progress of these reforms. Issues concerningeconomic policy, impact of the reforms on poverty, sectoral issues relating toagriculture, industry and infrastructure are briefly discussed. As reforms enter a moredifficult phase, several challenges remain. Some of this fall under the economicagenda'' of measures needed to maintain economic growth; others can be termedthe development agenda'' - of improving human development. Progress with regardto the former is not sufficient to produce results concerning the latter.

Bhattacharya (2000) constructs a vision of the Indian telecommunication sector for the year 2020. The paper aims at isolating agents of change based on internationalexperiences and situates India in the development continuum. The agents of changehave been broadly categorized into economic structure, competition policy andtechnology.

Das (2000), in her paper described the Liberalisation of the Indiantelecommunications services which started in mid nineties with no change in theexisting public monopoly structure, entirely controlled by Department of Telecommunications (DoT). In order to evaluate any proposed industry structure, it isessential to analyse the production technology of DoT so as to determine therationale of liberalisation and sustainability of competition. Accordingly, theresearcher estimates a frontier multi-product cost function for DoT, where the cost

function has been duly modified to account for the production technology of a publicmonopoly. The study finds that although DoT displays high allocation inefficiency, itis still a natural monopoly with very high degree of sub additively of cost of production. This study implies that the choice of any reform policy should consider the trade-off between the loss of scale and scope economies and cost saving fromthe reduction in inefficiency of the incumbent monopoly in the event of competition.

Rao (2000), in her article named Internet service providers in India, provides abroad view of the role of an Internet service provider (ISP) and the factors to beconsidered before entering the ISP market. Describes the Internet/ISP scene withinIndia and discusses the configuration of local, regional and national level ISPs, andthe supporting infrastructure. She also identifies the various success factors. Theglobal Internet scenario is discussed regarding the phases of the Internet in India,i.e. pre and post commercialization. The main players are described: ERNET,NICNET, STPI, VSNL, MTNL, Satyam Infoway and Bharti-BT. The financial andlegal implications are highlighted in the Indian context. Many companies entered thenascent ISP business in India due to deregulation. Building local content,foreknowledge of new Internet technologies, connecting issues, competitiveness,etc. would help in their sustainability. She concludes that though many companies

entered the nascent ISP businesses in India due to deregulation, many of them areunlikely to survive in the longer term.


12/91

Vrmani (2000) estimates the contribution of telecommunication (or telecom) servicesto aggregate economic growth in India. Estimated contribution is distinguishedbetween public and private sectors to highlight the impact of telecom privatization oneconomic growth. Knowledge of policy determinants of demand of telecom servicesis shown to be essential to enhance growth contribution of telecom services. Using arecent sample survey data from Karnataka State in South India, price and incomedeterminants of demand for telecom services are estimated by capacity of telephone

exchanges Estimation results offer evidence for significant negative own priceelasticity and positive income elasticity of demand for telecom services.

Narinder (2004), in his article Enhancing Developmental Opportunities byPromoting ICT Use: Vision for Rural India talks about the foremost benefits of Information and Communication Technologies (ICTs) in developing countries thatcan be helpful in improving governance including public safety and eradication of illiteracy. The benefits of ICTs have not reached the masses in India due to lack of

ICT infrastructure, particularly in rural areas, where two-third of the population of thecountry lives. Even in cities and suburban areas, use of ICTs is not popular due tolack of awareness to its use, computer illiteracy, and absence of practicalapplications. India is the largest country in South Asia, with a population of over onebillion people and its telecom sector is presently experiencing fast growth phases.However telephony penetration in villages is less than two percent of the ruralpopulation and about 15 percent of the villages are still without any telephonyservice. Universal access to ICTs in rural areas has been planned and is beingimplemented through Public Tele Info Centers having voice data and video, asmajority of villagers in India cannot afford a separate home connection. Illiteracy inrural areas is as high as 40 percent and in some tribal belts hardly about 20 percentpeople are literate. There are 35 million children in age group of 611 years, who areout of school and one out of four drops out during primary classes. Education andtraining, therefore, must be given the top priority if advantages of ICTs are to beharnessed. Indian economy is agriculture based and employs maximum workforce.Improvement in agriculture productivity can help in reducing rural poverty. Adoptionof ICT in agriculture will play an increasingly important role in crop production andnatural resource management. The other critical factor is technological challengesfor universal access to ICTs to bring down the network access cost.

Nikam, Ganesh, Tamizhchelvan (2004), analyses that changing face of India inbridging the digital device. He reiterated - India lives in villages said the Father of the Nation, Mahatma Gandhi. With 1,000 million people and 180 million households,India is one of the biggest growing economies in the world. With the advent of theInformation, Communication and Technology (ICT) revolution, India and its villagesare slowly but steadily getting connected to the cities of the nation and the worldbeyond. Owing to the late Rajiv Gandhi, India is now a powerful knowledge

economy, and though India may have been slow to start, it certainly has caught upwith the West and is ahead in important respects. The Government, the corporatesector, NGOs and educational institutions have supported rural development by


13/91

encouraging digital libraries, e-business, e-learning and e-governance. The aim of this paper is to touch upon and highlight some of the areas where, by using ICT, themasses have been reached in this way. A follow-up paper will outline collections of significant cultural material which, once national IT strategies are fully achieved,could form part of a digitally preserved national heritage collection.

Dey (2004), in her article talks about the discussions between the FederalCommunications Commission (FCC) and communications policy makers andregulators in other countries and how they have gleaned several clusters of issueswhere further research would directly benefit them. Recently, there have been twonotable shifts. First, as the acceptance of the competition model over the monopolymodel for telecommunications markets takes deep effect in regulators all over theworld, questions regarding process and procedure for regulation are becoming ever more urgent. This paper discusses current questions regarding decision making,enforcement, and understanding consumer issues that arise often in the FCC's

discussions with other regulators. Second, technological change is potentiallyshifting market definitions. In the FCC's discussion with other regulators over the lasttwo years, the overlap of wireline telecom, wireless telecom and cable television hasbecome more pronounced.

Singh (2005), in his article The role of technology in the emergence of theinformation society in India describes the role that information and communicationtechnologies are playing for Indian society to educate them formally or informallywhich is ultimately helping India to emerge as an information society. Though Indiahas a huge population, the illiteracy rate is also huge in this country. The paper hastaken an approach to find the historical situation and present the prevailing scenarioas well as the change that are taking place with the application of ICT to theadvantage of the society in different areas including daily life. India is making all outefforts to be counted among the developed nations of the world. The article alsodescribes the considerable attention India is taking for application of technology,development of infrastructure and human resource for meeting national needs.Basically India is building an information society. Technology has helped society tocut across the traditional boundaries for getting converted into an emerginginformation society. The study concludes that The Indian software and servicesindustry has significantly helped to boost the Indian economy. In IT-enabled servicestoo, India has been clearly perceived to be the dominant hub. The Indian softwaresector is being recognized as the single largest contributor to incremental marketcapitalization in India but the sector is still small in terms of contribution to GDP,especially when compared to other large sectors in the economy like agriculture andmanufacturing. Similarly, the telecommunication sector has contributed a lot but stillhas a considerable way to go. The paper also enforces that comparisons of Indiastelecommunication statistics with those of developed and other emerging economies

show that the country is still far behind its contemporaries.


14/91

Mr. Banka (2006) gives an overview of the mergers and acquisitions in thetelecommunication industry. According to him Governments decision to raise theforeign investment limit to 74% is expected to spur fresh rounds of mergers andtakeovers in India. He foresees a sector that represents humongous opportunitywaiting to be tapped by Indian and foreign conglomerates.

Thomas (2007), in his article describes the contribution made bytelecommunications in India by the state and civil society to public service, this articleaims to identify the states initial reluctance to recognize telecommunicationsprovision as a basic need as against the robust tradition of public service aligned tothe postal services and finds hope in the renewal of public servicetelecommunications via the Right to Information movement. The article follows themethodology of studying the history of telecommunications approach that isconversant with the political economy tradition. It uses archival sources, personalcorrespondence, and published information as its research material. The findings of

the paper suggests that public service in telecommunication is a relatively newconcept in the annals of Indian telecommunications and that a de-regulatedenvironment along with the Right to Information movement holds significant hope for making public service telecommunications a real alternative. The article provides areflexive, critical account of public service telecommunications in India and suggeststhat it can be strengthened by learning gained from the continual renewal of publicservice ideals and action by the postal services and a people-based demand modellinked to the Right to Information Movement. All studies done by the researcher suggests that the right to information movement has contributed to the revitalisationof participatory democracy in India and to a strengthening of public servicetelecommunications.

Cygnus Business Consulting & Research Pvt. Ltd. (2008), in its QuarterlyPerformance Analysis of Companies (April-June 2008) has analysed the Indiantelecom industry in the awake of recent global recession and its overall impact on theIndian economy. The analysis is done in the background of wake of global recessionand rising inflation. Cygnus estimates, the Indian telecom industry is expected tomaintain the growth trajectory in the next quarter as well. With almost 5-6msubscribers are being added every month, and the country is witnessing wildmomentum in the telecom industry.

Maheshwari (July-September 2008), in her report analysed the Indian telecomindustry and ascertain that Indian telecommunications has been zooming up thegrowth curve at an mounting pace, and India is has surpassed US to become thesecond largest wireless network in the world. This growing subscriber base isbasically created by tapping into rural India, which is an emerging market for theindustry. The estimate for the next five to ten years is that the rural market will form40 % of the subscriber base. The study has analysed the human resourcemanagement process of the industry, and specially the latest trends of recruitment of this massively growing industry.


15/91

Anderson (2008), in his single executive interview titled Developing a route tomarket strategy for mobile communications in rural India An interview with GurdeepSingh, Operations Director, Uttar Pradesh, Hutch India suggests that managersneed to go beyond traditional approaches to serving the poor, and innovate by takinginto account the unique institutional context of developing markets. His practicalimplication says that the experience of Vodafone Essar in India provides someimportant lessons for mobile network operators (MNOs) and other firms in other developing markets who are hoping to serve the rural poor: Vodafone hasrecognized the value of corporate and non-corporate partners. The company hasproactively established relationships with individual entrepreneurs, and has providedhas provided development support to other partners such as distributors. Thecompany has recognized the value of leveraging existing local institutions, and hasseen gaps in local infrastructure or missing services as potential opportunities rather than barriers to growth. The company has seen the rural market as an opportunity not just an obligation to be served because of universal service obligations. Also this

article demonstrates that MNOs can deliver availability and affordability to achieveincreased individual or household penetration through business model innovation.

Mani (2008) addresses a number of issues arising from the growth of telecomservices in India since the mid-1990s. It also discusses a number of spillover effectsfor the rest of the economy and one of the more important effects is the potential todevelop a major manufacturing hub in the country for telecom equipment and for downstream industries such as semiconductor devices. The telecom industry in India

could slowly become an example of the service sector acting as a fillip to the growthof the manufacturing sector. A beginning towards this has been made. The formationof a Telecom Equipment Export Forum and the announcement of the IndianSemiconductor Policy 2007 are steps in this direction. Success crucially depends onthe response of the private sector to these incentives. Given the importance that aregulatory agency can play in this crafting, no effort should be lost in strengtheningthe powers of the TRAI. The benefits to the Indian economy from having both astrong services and manufacturing segments in the telecom sector cannot beundermined.

Narayana (2008) estimates the contribution of telecommunication (or telecom)services to aggregate economic growth in India. Estimated contribution isdistinguished between public and private sectors to highlight the impact of telecomprivatization on economic growth. Knowledge of policy determinants of demand of telecom services is shown to be essential to enhance growth contribution of telecomservices. Using a recent sample survey data from Karnataka State in South India,price and income determinants of demand for telecom services are estimated bycapacity of telephone exchanges. Estimation results offer evidence for significantnegative own price elasticity and positive income elasticity of demand for telecomservices.


16/91

Sharma (2009) deals with the major challenges faced by Indias telecom equipmentmanufacturing sector, which lags behind telecom services. Only 35% of the totaldemand for telecom equipment in the country is met by domestic production. This isnot favourable to long-term sustained growth of the telecom sector. The country isalso far behind in R&D spending when compared to other leading countries. Indianeeds to see an increase in R&D investment, industry-academia-governmentpartnership, better quality doctoral education and incentives to entrepreneurs for start-ups in telecom equipment manufacturing. In 2006-07, 65% of the totalconsumption of equipment was met through imports. This trend has far-reachingimplications for the economy and should not be allowed to continue for long. In acountry like India which has a problem of massive unemployment, the manufacturingsector should be promoted to create more employment opportunities.

Shah (February, 2009), has analysed Indian telecom industry and studied the sector keeping in mind three companies; namely Bharti, R.Comm and idea in thebackground of recent global meltdown. The study suggests that though there is nosign of slowdown in this sector, but surely a strong turmoil is going on in the industry.The study states that the sector is fairly immune from the current economic downturn& does provide a good defensive bet in medium term. With the help of newer technologies, wireless penetration is expected to increase in the near future, which isbasically fuelling the growth of the sector. While the 3G / Broadband adoption wouldensure long term growth momentum, the article has thoroughly investigated aboutthe intense competitive scenario, pricing pressure, high capital intensity & substantial

regulatory uncertainties currently faced by the industry. The article has alsodescribed the cause of being relatively safe of this industry. The causes described byShah are increasing rural coverage, rising affordability, declininghandset/subscription costs, substantially low tariffs & established brand/distribution.However, the study also cautions the telecom industry that a steeper economicslowdown could start impacting the subscriber usage patterns as well as operator capital investments & thereby could substantially restrict revenue growth rates goingforward.


17/91

CHAPTER 3

INDIANOVERVIEW


18/91

3.1 INTRODUCTION

Today the Indian telecommunications network with over 375 Million subscribers issecond largest network in the world after China. India is also the fastest growingtelecom market in the world with an addition of 9- 10 million monthly subscribers.The tele-density of the Country has increased from 18% in 2006 to 33% inDecember 2008, showing a stupendous annual growth of about 50%, one of the

highest in any sector of the Indian Economy. The Department of Telecommunications has been able to provide state of the art world-classinfrastructure at globally competitive tariffs and reduce the digital divide by extendingconnectivity to the unconnected areas. India has emerged as a major base for thetelecom industry worldwide. Thus Indian telecom sector has come a long way inachieving its dream of providing affordable and effective communication facilities toIndian citizens. As a result common man today has access to this most neededfacility. The reform measures coupled with the proactive policies of the Departmentof

Telecommunications have resulted in an unprecedented growth of the telecomsector.

The thrust areas presently are:

1. 1.Building a modern and efficient infrastructure ensuring greater competitiveenvironment

2. With equal opportunities and level playing field for all stakeholders.3. Strengthening research and development for manufacturing, value added

services.

4. Efficient and transparent spectrum management5. To accelerate broadband penetration6. Universal service to all uncovered areas including rural areas.7. Enabling Indian telecom companies to become global players.

Recent things to watch in Indian telecom sector are:

1. 3G and BWA auctions2. MVNO

3. Mobile Number Portability4. New Policy for Value Added Services5. Market dynamics once the recently licensed new telecom operators start

rolling out


19/91

6. Services.7. Increased thrust on telecom equipment manufacturing and exports.8. Reduction in Mobile Termination Charges as the cost per line has

substantially reduced9. Due to technological advancement and increase in traffic.

India's telecom sector has shown massive upsurge in the recent years in all respectsof industrial growth. From the status of state monopoly with very limited growth, ithas grown in to the level of an industry. Telephone, whether fixed landline or mobile,is an essential necessity for the people of India. This changing phase was possiblewith the economic development that followed the process of structuring the economyin the capitalistic pattern. Removal of restrictions on foreign capital investment andindustrial de-licensing resulted in fast growth of this sector. At present the country'stelecom industry has achieved a growth rate of 14 per cent. Till 2000, though cellular phone companies were present, fixed landlines were popular in most parts of thecountry, with government of India setting up the Telecom Regulatory Authority of

India, and measures to allow new players country, the featured products in thesegment came in to prominence. Today the industry offers services such as fixedlandlines, WLL, GSM mobiles, CDMA and IP services to customers. Increasingcompetition among players allowed the prices drastically down by making the mobilefacility accessible to the urban middle class population, and to a great extend in therural areas. Even for small shopkeepers and factory workers a phone connection isnot an unreachable luxury. Major players in the sector are BSNL, MTNL, BhartiTeleservices, Vodafone Essar, BPL, Tata, Idea, etc. With the growth of telecomservices, telecom equipment and accessories manufacturing has also grown in a big

way.Indian Telecom sector, like any other industrial sector in the country, has gonethrough many phases of growth and diversification. Starting from telegraphic andtelephonic systems in the 19th century, the field of telephonic communication hasnow expanded to make use of advanced technologies like GSM, CDMA, and WLL tothe great 3G Technology in mobile phones. Day by day, both the Public Players andthe Private Players are putting in their resources and efforts to improve thetelecommunication technology so as to give the maximum to their customers.

3.2 TELECOM SUBSCRIBER BASE IN INDIAIndian telecommunication Industry is one of the fastest growing telecom market inthe world. The mobile sector has grown from around 10 million subscribers in 2002to reach 150 million by early 2007 registering an average growth of over 90%. Thetwo major reasons that have fuelled this growth are low tariffs coupled with fallinghandset prices.

Surprisingly, CDMA market has increased it market share upto 30% thanks toReliance Communication. However, across the globe, CDMA has been loosing out

numbers to popular GSM technology, contrary to the scenario in India.The other reason that has tremendously helped the telecom Industry is theregulatory changes and reforms that have been pushed for last 10 years by


20/91

successive Indian governments. According to Telecom Regulatory Authority of India(TRAI) the rate of market expansion would increase with further regulatory andstructural reforms.Even though the fixed line market share has been dropping consistently, the overall(fixed and mobile) subscribers have risen to more than 200 million by first quarter of 2007 . The telecom reforms have allowed the foreign telecommunication companiesto enter Indian market which has still got huge potential. International telecom

companies like Vodafone have made entry into Indian market in a big way.Currently the Indian Telecommunication market is valued at around $100 billion(Rupees 400,000 crore). Two telecom players dominate this market - Bharti Airtelwith 27% market share and Reliance Communication with 20% along with other players like BSNL (Bharat Sanchar Nigam Limited) and AT&T. One segment of themarket that has been puzzling is broadband Internet. Despite the manner in whichthe countrys Internet market has been booming, Indias move into high-speedbroadband Internet access has been distinctly slow. And, while there appears to beconsiderable enthusiasm amongst the population for the Internet itself, this has not

been reflected in broadband subscription numbers. In 2006 India witnessed a goodsurge in broadband users with the total subscriber base in the country expanding byalmost 200% to just over 2 million by years end . Despite this surge, broadbandservices still account for only 25% of the total Internet subscriber base, still in itself comparatively low. So, if 70% of total population is rural, the scope for growth in thisIndustry is unprecedented

The Ministry of Communications and Information Technology (MCIT) is has veryaggressive plans to increase the pace of growth, targeting 250 million telephonesubscribers by end-2007 and 500 million by 2010. Most of the expansion in

subscribers is set to occur in rural India. Indias rural telephone density has beenlanguishing at around 1.9%. The subscriber addition rate has been strong in the last12 months but the regulatory developments will increase competition and thus curtailthe long-term growth rates of individual companies. The savings through the settingof tower companies will partly go towards the higher capex and opex costs frommore stringent spectrum allocation norms for the incumbents.

The Telecommunications sector has been consistently adding more than 7 millionsubscribers for the last 6 months, a very healthy net addition rate infact. All theprivate operators GSM as well as the CDMA operators have been very consistent intheir performance. The sector provides very strong revenue as well as earningsvisibility over the next 12 months. However the recent regulatory developments areseem to be negative for the telecom companies as it will increase the number operators per circle which will intensify competition.

3.3 GENERAL ENVIRONMENT IN THE TELECOM SECTOR

The year 2007-08 also witnessed a phenomenal growth in the subscriber base for mobile services which includes subscribers of WLL (F), thus building on the growthtrend in subscriber base experienced since mid-1990s. As per the data available onCTIA (International Association for the wireless Telecommunications Industry)website, India has become second largest wireless network in the world after Chinaby overtaking USA.


21/91

3.3.1 Wireline Subscriber

The subscriber base of Wireline services as on 31st March 2008 was 39.42 millionas compared to 40.75 million subscribers on 31 st March, 2007 registering a decreaseof 1.33 million subscribers during the year 2007-08. Out of the 39.42 million wirelinesubscribers, 27.78 million are Urban wireline subscribers and 11.64 million RuralSubscribers.

Figure: 3 .1 Wireline Subscriber

3.3.2 Wireless Subscriber

The wireless subscriber crossed the 261 million subscriber mark at the end of thefinancial year in comparison to the subscriber base of 165.11 million at the end of March, 2007. It added 95.9 million subscribers in the financial year 2007-08registering an annual growth rate of about 58.12%. The total subscriber base of

wireless services has grown from 33.69 million in March, 04 to 261.07 million inMarch, 08.

Figure: 3 .2 Wireless Subscriber

3.3.3 Internet Subscriber

The Internet subscriber base in the country as of 31 st March 2008 stood at 11.09million as compared to 9.27 million during the previous year, registering an annualgrowth rate of about 19.63%.

Figure: 3.3 Internet Subscriber


22/91

3.3.4 Broadband Subscriber

The total Broadband subscriber base has reached 3.87 million by the end of March,2008 as compared to 2.34 million by the end of March 2007 thereby registering a netaddition of 1.56 million broadband subscribers during the financial year 2007-08.

Figure: 3.4 Broadband Subscribers

3.4 REVIEW OF BASIC SERVICES

As on 31st March 2008, wireline connections are being provided by 5 licensedprivate operator groups in addition to the incumbent BSNL and MTNL. The list of Service Providers providing wireline services along with their area of operation isgiven in the table below. The subscriber base of basic services (Wireline) recorded adecrease of 3.28% in 2007-08 over the previous year. In comparison, the privateBSOs, recorded an annual increase of 43.14% in the subscriber base during theyear 2007-08. As on 31st March 2008, the incumbents BSNL and MTNL had 80%and 9% market share respectively in the subscriber base, while all the five privateBSOs had only 11% of the total subscriber base. During the previous year, at theend of March 2007, the market share of the BSNL and MTNL was 83% and 9%

respectively, while the share of all the private operators taken together was 8%.Thus the market share in terms of subscriber base of the incumbents BSNL andMTNL has slightly decreased, whereas the market share of private BSOs hasincreased by 3%. The 5 private BSOs have added 8.96 lakhs new Direct ExchangeLines (DELs). However, BSNL has recorded a reduction of 21.86 lakhs DELs,whereas MTNL has also registered an annual decline of 0.47 Lakhs DELs. ThusPrivate operators have contributed to provide most of the new additions in DELs.The total subscriber base however has been recorded an annual decline of 13.37lakhs DELs in comparison to previous year.

Table 3 .1 Companies and No. of Circles covered


23/91

3.4.1 Review of Wireless (GSM and CDMA) Services

The Wireless Industry crossed 261 million-subscribers mark at the end of thefinancial year 2007-08. This total subscribers base of 261.07 million comprise of 192.7 million GSM and 68.37 million CDMA subscribers. During the financial year 2007-08 around 95.96 million subscribers were added with a growth rate of 58.12%as compared to 67.17% growth during the year 2006-07. The growth of subscriber base of Wireless (including GSM and CDMA) Services from March 2004 to March2008 is depicted in Figure 1.10 The subscriber base & market share of differentmobile operators as on March 2008 is displayed in Figure . In the wireless segment,GSM services has reached the 192.70 million subscriber mark at the end of financialyear 2007-08, as compared to 120.47 million during the previous year. It addedaround 72.23 million subscribers during the year, registering an annual growth of 59.96%. In terms of subscriber base and market share of GSM services, M/s Bhartiwith 61.98 million subscriber base remains the largest GSM operator followed by M/sVodafone, M/s BSNL, and M/s Idea with subscriber base of 44.13 million, 36.21million and 24.00 million respectively. The market share of different GSM operators

as on March 2008 is displayed in Figure 1.12. In Cellular CDMA services, in terms of subscriber base and market share, M/s Reliance Infocom with 38.78 millionsubscriber base remains the largest CDMA operator followed by M/s Tata and M/sBSNL with subscriber base of 24.33 million, and 4.58 million respectively.

Figure: 3.5 Market share of wireless service providers (as on 31 st March 2008)


24/91

Figure: 3.6 Subscriber growth of wireless services (GSM and CDMA)

Public and Private Sector Contribution in the Growth of Fixed and MobileServices

Before opening up of the Telecom Sector for the private players, growth in telecomservices was primarily driven by public sector monopoly, showing very marginal

growth, as the incremental tele-density between 1948 and 1998, a 50 year period,was only 1.92%. Telecommunication development in the initial stage of the reformsprocess beginning with NTP94 started at a slow pace, but accelerated later on


25/91

under NTP99, which provided for migration from fixed license fee to revenue shareregime. Cost-oriented Telecom tariffs were also introduced by TRAI in 1999.

From 2003 onwards, as a result of certain pragmatic decisions by the Governmentand the Regulator, viz., introduction of Calling Party Pay (CPP) regime, Unified

Access licensing regime, lowering of access deficit coupled with introduction of revenue share regime in ADC triggered further growth. The policy and regulatoryregime established by the Government and the Regulator has led to speedy growthof subscriber base of the incumbent Public Sector Undertakings as well as that of theprivate sector operators.

During the period 1998-2008, the absolute growth in subscriber base of PSUoperators was 61.7 million comprising of 19.5 million fixed subscribers and 42.2million mobile subscribers. The PSU Operators have shown remarkable growth inthe competitive environment, while in the pre-reform non-competitive environment,their performance was slow. Figure 1.15 shows growth in subscriber base of PSUOperators. Private operators have also shown remarkable growth in a highly

competitive environment. The overall growth in the subscriber base of privateoperators during 1998-2008 was 220.94 million comprising of 9.81 million fixedsubscribers and 211.13 million mobile subscribers. Private operators havecontributed very largely to post 1998 growth primarily in mobile services due to theobvious cost and fast deployment advantages. The Figure shows the growth insubscriber base of private operator. It may be seen from the two graphs at Figureand Figure that in comparison to Private Sector, the growth of subscriber base of PSUs have been very low during the last five years.

Figure: 3.7 PSU Operators Subscriber Base

Figure: 3.8 Private Operators Subscribers Base


26/91

3.4.2 Public Mobile Radio Trunked Services

Public Mobile Radio Trunked Service (PMRTS) was opened for private sector in theyear 1995. As on 31 st March 2007, PMRTS is being provided by 12 operators. Thesubscriber base of PMRTS has recorded a growth rate of 15.04% during 2007-08over the previous year. Its subscriber base increased from 31501 at the end of March 2007 to 36240 at the end of March 2008.

3.4.3 Internet Services

TRAI is constantly monitoring the growth of the Internet and Broadband services inthe country by way of Performance Monitoring Reports being submitted by InternetService Providers (ISP). Issues raised by ISPs, from time to time, were successfullyresolved by TRAI to create conducive environment and to encourage the growth of the service during the financial year. Total 138 ISPs reported data to TRAI, whichindicates 11.09 million Internet Subscribers at the end of 31st March 2008. Therewas an increase of 19.63% in the subscribers base as compared to March 2007.

The distribution of Internet Subscribers among Govt. ISPs & Private ISPs as on 31stMarch 2008 is at Figure 1.17. The market share of top eight Internet ServiceProviders (ISPs), including BSNL, in terms of subscriber base as on 31st March2008 is at Figure 1.18. The BSNL has maximum of 50.82% of total internetsubscriber base. Among PSUs owned ISPs, M/s BSNL and M/s MTNL have reporteda subscriber base of 5.64 Million and 1.89 Million respectively. Amongst the PrivateSector ISPs M/s Bharti Airtel Limited has a subscriber base of 0.81 Million and stoodthird overall.

Figure: 3.9 Share of pubic and private sector IPS (in lakhs)

3.4.4 Broadband

The number of Broadband subscribers (with a download speed of 256 kbps or more)was 3.87 Million on 31st March 2008 as compared to 2.34 Million subscribers on31st March 2007 registering an annual growth of 65.38%. The distribution of Broadband subscrib ers among Government ISPs and Private ISPs as on 31st March

2008 is as below:

Table: 3 .2 Number of broadband subscribers


27/91

3.4.5 Internet TelephonyOn the recommendation of TRAI, Government issued the guidelines on 24th August2007 for further opening of Internet Telephony by permitting all ISPs signing new ISPLicense to provide Internet Telephony. The restrictions on devices being used for Internet Telephony have also been removed. As on 29th February 2008, DOT hasgiven permission to 149 ISPs (Category A 56; Category B 64; and Category C

29) to offer Internet Telephony services. At the end of 31st March 2008 30 ISPshave reported the provisioning of Internet Telephony Services. The total minutes of usage of internet telephony are 115 million at the end of 31st March 2008.

3.5 PERFORMANCE OF TELECOM EQUIPMENT MANUFACTURING SECTOR

As a result of Government policy, progress has been achieved in the manufacturingof telecom equipment in the country. There is a significant telecom equipment-manufacturing base in the country and there has been steady growth of themanufacturing sector during the past few years. The figures for production andexport of telecom equipment are shown in table given below:

Table: 3.3 Year wise production and export of telecom equipment-manufacturing sector

(Rs. in crore)

Year Production Export

2002-03 14400 402

2003-04 14000 250

2004-05 16090 400

2005-06 17833 1500

2006-07 23656 1898

(Source: www.dot.gov.in)

Rising demand for a wide range of telecom equipment, particularly in the area of mobile telecommunication, has provided excellent opportunities to domestic andforeign investors in the manufacturing sector. The last two years saw manyrenowned telecom companies setting up their manufacturing base in India. Ericssonset up GSM Radio Base Station Manufacturing facility in Jaipur. Elcoteq set uphandset manufacturing facilities in Bangalore. Nokia and Nokia Siemens Networks


28/91

have set up their manufacturing plant in Chennai. LG Electronics set up plant of manufacturing GSM mobile phones near Pune.

Ericsson launched their R&D Centre in Chennai. Flextronics set up an SEZ inChennai. Other major companies like Foxconn, Aspcom, Solectron etc have decidedto set up their manufacturing bases in India.

The Government has already set up Telecom Equipment and Services Export

Promotion Council and Telecom Testing and Security Certification Centre (TETC). Alarge number of companies like Alcatel, Cisco have also shown interest in setting uptheir R&D centers in India. With above initiatives India is expected to be amanufacturing hub for the telecom equipment.

3.6 TARGETS SET BY THE GOVERNMENT

1. Network expansiona. 500 million connections by the year 2010b. Provision of mobile coverage of 90% geographical area by 2010

2. Rural telephonya. One phone per two rural households by 2010 (about 80 million rural

connections)b. Reduce urban-rural digital divide from present 25:1 to 5:1 by 2010

3. Broadband a. Broadband with minimum speed of 1 mbpsb. Broadband coverage for all secondary & higher secondary schools and

public health care centres by the end of year 2008c. Broadband coverage for all Grampanchayats by the year 2010

4. Infrastructure Sharing a. USO subsidy support scheme for shared wireless infrastructure in rural

areas with about 18,000 towers by 2010b. Increase sharing in urban areas to 70% by 2010

5. Introduction of Spread of IPTV and Mobile TV a. IPTV in 600 towns by 2010

6. Manufacturinga. Making India a hub for telecom manufacturing by facilitating more and

more telecom specific SEZsb. Quadrupling production in 2010c. Achieving exports of 6 times from present level of 0.5 billion in 2010

7. Research & Development a. Pre-eminence of India as a technology solution provider b. Comprehensive security infrastructure for telecom networkc. Tested infrastructure for enabling interoperability in Next Generation

Network

d. Doubling the telecom equipment R&D by 2010 from present level of 15%

8. International Bandwidth


29/91

a. Facilitating availability of adequate international bandwidth atcompetitive prices to drive ITES sector at faster growth

Table: 3.4 Indian Telecommunications at a glance

( As on 30 th September 2008)

Rank in world in network size 3 rd

Teledensity (per hundred populations) 30.64

Telephone connection (In millions)

Fixed 38.35

Mobile 315.31

Total 353.66

Village Public Telephones 5.6 lakh

Foreign Direct Investment (in million) (from

January 2000 till August 2008)

182042 million

Licenses issued

Basic 2

CMTS 60

UAS 224

Infrastructure Provider I 177

ISP (Internet) 382

ISP with Telephony (Broadband) 125

National Long distance 24

International Long Distance 19

Indian telecommunication Industry is one of the fastest growing telecom markets inthe world. The mobile sector has grown from around 10 million subscribers in 2002to reach 150 million by early 2007 registering an average growth of over 90% y-o-y.The two major reasons that have fuelled this growth are low tariffs coupled withfalling handset-prices. Surprisingly, CDMA market has increased it market shareupto 30% thanks to Reliance Communication. However, across the globe, CDMAhas been losing out numbers to popular GSM technology, contrary to the scenario inIndia. The other reason that has tremendously helped the telecom Industry is theregulatory changes and reforms that have been pushed for last 10 years bysuccessive Indian governments. According to Telecom Regulatory Authority of India(TRAI) the rate of market expansion would increase with further regulatory andstructural reforms. Even though the fixed line market share has been droppingconsistently, the overall (fixed and mobile) subscribers have risen to more than 200


30/91

million by first quarter of 2007. The telecom reforms have allowed the foreigntelecommunication companies to enter Indian market which has still got hugepotential.

International telecom companies like Vodafone have made entry into Indian marketin a big way. Currently the Indian Telecommunication market is valued at around $100 billion (Rupees 400,000 crore). Two telecom players dominate this market -Bharti Airtel with 27% market share and Reliance Communication with 20% along with other players like BSNL (Bharat Sanchar Nigam Limited) and AT&T. Onesegment of the market that has been puzzling is broadband Internet. Despite themanner in which the countrys Internet market has been booming, Indias move intohigh-speed broadband Internet access has been distinctly slow. And, while thereappears to be considerable enthusiasm amongst the population for the Internet itself,this has not been reflected in broadband subscription numbers. In 2006 Indiawitnessed a good surge in broadband users with the total subscriber base in thecountry expanding by almost 200% to just over 2 million by years end . Despite this

surge, broadband penetration in India still remains around only 0.2%; broadbandservices still account for only 25% of the total Internet subscriber base, still in itself comparatively low.

The Ministry of Communications and Information Technology (MCIT) is has veryaggressive plans to increase the pace of growth, targeting 250 million telephonesubscribers by end-2007 and 500 million by 2010. Most of the expansion insubscribers is set to occur in rural India. Indias rural telephone density has beenlanguishing at around 1.9%; So, if 70% of total population is rural, the scope for growth in this Industry is unprecedented.

CHAPTER 4


31/91

INDUSTRY

STRUCTURE

4.1 INTRODUCTIONThe telecom industry is one of the prime contributors to India's GDP. The oncemonopolistic market is today, highly competitive. This has necessitated the growth of India telecom infrastructure.

From the time of the British Rule, the Telecom Industry was under the strictsupervision of the government. The trend continued even after independence untilthe late 1990s when the following initiatives were taken up by the government:

* The telecom sector was opened up for private investment as a part of liberalization-privatization-globalization policies

* On 1st October, 2000 the Government corporatized its operations wing under

the name of Bharat Sanchar Nigam Limited (BSNL)* The criteria for private companies for entering the telecom sector were relaxed


32/91

What followed was a rapid development of the market for mobile phones and alliedinnovations, hence bringing about a new era in the telecom sector in India.

4.2 INDIA TELECOM INFRASTRUCTURE

The telecom services have been recognized the world-over as an important tool for socio-economic development for a nation. It is one of the prime support servicesneeded for rapid growth and modernization of various sectors of the economy.Driven by various policy initiatives, the Indian telecom sector witnessed a completetransformation in the last decade. It has achieved a phenomenal growth during thelast few years and is poised to take a big leap in the future also.

4.2.1 India telecom infrastructure present status

The government of India believes that for rapid economic development backed bysocial welfare, the telecom infrastructure in India needs to be uplifted. Thisnecessitates the formulation of a comprehensive telecom policy that visualizes thefuture of the Indian telecom market. By the beginning of 2007, the telecom networkin India consisted of 48 million fixed-line connections. Nowadays, a vast majority of the population has access to telephone services. The highly competitive environmenthas ensured low pricing of goods and services that caters to the weaker sections of the society. Moreover, the enhancement of India telecom infrastructure has alsowidened the scope of the telecom sector to other allied ventures like mobile services,Internet, cable TV services, E-Commerce, and other forms of InformationTechnology (IT).

The Indian Telecommunications network with 353 million connections (as on

September 2008) is the third largest in the world. The sector is growing at a speed of 46-50% during the recent years. This rapid growth is possible due to variousproactive and positive decisions of the Government and contribution of both by thepublic and the private sectors. The rapid strides in the telecom sector have beenfacilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services tothe Indian consumers at affordable prices

In terms of long distance calls, India telecom infrastructure has made remarkableprogress. Latest technologies, like use of fibre-optic cables has enhanced call-clarity

and reduced call-costs to a large extent. The present telecom and mobile-phoneservice providers in India, apart from BSNL include Vodafone Essar, RelianceCommunications, Bharti Airtel, Idea, Tata Indicom, and a few others.

India has proven its dominance as a technology solution provider. Efforts are beingcontinuously made to develop affordable technology for masses, as alsocomprehensive security infrastructure for telecom network. Research is on for thepreparation of tested infrastructure for enabling interoperability in Next GenerationNetwork. It is expected that the telecom equipment R & D shall be doubled by 2010from present level of 15%. Modern technologies inductions are being promoted. Pilotprojects on the existing and emerging technologies have been undertaken includingWiMax, 3G etc. Emphasis is being given to technologies having potential to improverural connectivity. 3G and Broadband Wireless Access (BWA) policies have since


33/91

been issued. Also to improve the R&D infrastructure in the telecom sector and bridgethe digital divide, cellular operators, top academic institutes and the Government of India together set up the Telecom Centres of Excellence (COEs).

4.3 MAJOR SEGEMENTS

4.3.1 Basic Services

Basic Services in the public sector, like BSNL and MTNL together account for 99percent of the 28 million connections. The total revenue in FY2001, for these twoentities combined was INR 287 billion. The telecommunication network of the BSNL -MTNL combine is one of the largest in Asia, with a capacity of 35 million lines and28.4 million working connections. Switching capacity during FY2000 increased byover 40 percent. In the period from April-December 2000, 4.9 million new fixed lineconnections were provided representing a growth rate of 29.8 per cent over thecorresponding period last year. As of June 2000, USD 57.5 million FDI has beeninvested in the basic services sector. The total number telephone lines is expected to

go up to 75 million by the year 2005, and assuming average revenue per user (APRU) of INR 10000 per line, the total revenue is expected to rise to INR 750 billionby 2005, translating into an CAGR of around 25 per cent. Until 1994, DoT, nowBSNL, was the sole fixed service provider (FSP) in India except Mumbai and Delhiwhere services were provided by MTNL. In 1994, the Government of India (GOI)allowed private participation in provision of fixed services. For the provision of basicservices, NTP 94 divided the country into, 21 basic telecom circles to be serviced byBSNL and one other private sector operator. But in Delhi and Mumbai, the publicsector provider would be MTNL and one private operator. NTP 99 took this processfurther and allowed upto four private operators to compete in each circle and recentlyTRAI allowed unlimited competition in each circle In addition, existing cellular providers have been granted permission to operate fixed services using their GSMinfrastructure.

The first round of bidding for basic and cellular services licenses mopped up anastonishing INR 1290 billion as license fees in 1994. Subsequently it turned out thatthese amounts were too ambitious, and would possibly lead to bankruptcy.Therefore, under NTP 99 guidelines, the fixed license fee arrangement was replacedby a revenue sharing regime. The fee structure as it stands now has three

components: a fixed entrance fee of anything between INR 10 million to INR 1.15billion, a revenue share of 8 to 10 percent and a fee for R&D.

Pre-NTP 99 licensees have to clear their license fee dues before moving on to therevenue sharing regime. The private sector hasnt shown the level of interest in basictelephony that was anticipated. Table 2 below shows the various private players indifferent circles. Of the 13 projects for which Letters of Intent (LoIs) had beenissued, license agreements have been signed only in the case of 6 projects.Licenses have been issued to: Bharti Telenet (for the state of Madhya Pradesh);Tata Teleservices (for the state of Andhra Pradesh); Reliance Telecom (for the state

of Gujarat); Essar Comvision (for the state of Punjab); Hughes Ispat (for Maharashtra); and Shyam Telelink (for Rajasthan). These six licensees have to paylicense fees USD 650 million to the GOI over the next 15 years.


34/91

In a recent policy announcement, guidelines were issued by the DOT in January2001, to permit basic operators to provide limited mobility services (using CDMAtechnology for wireless in local loop), within a short distance charging area (SDCA),e.g. a district. In response to this guideline, fourth round of bidding received 80 bidsfor the remaining 15 circles, from private operators, including existing cellular operators. The same companies which have bid for basic licenses are likely to bid for other segments NLD and ISD. The relatively high bids again threaten their financial

viability, and often make projects un-bankable.4.3.2 National Long Distance (NLD) Services

According to TRAI, NLD represents telecom services within the country but outsidethe local area of an exchange system. This sector was liberalized in 2000 and theDoT has since awarded preliminary approval (LoIs) to Reliance Infocomm and BhartiTelesonic. MTNL plans to enter the long-distance telephone business along withRailtel, a subsidiary of the Indian Railways and a third partner. VSNL too hasshowed interest in entering this segment of the market in anticipation of a definite

end to its monopoly over ISD services by April 2002.Guidelines for entry in this sector, issued by TRAI, restrict entry to those, with aminimum paid-up capital at INR 2.5 billion and combined net worth of INR 25 billion.The guidelines also require that, NLD operators with national license to carry inter-circle traffic enter into agreements with respective FSPs, for carrying intra-circletraffic. This can restrict the NLD market to inter-circle market for a pure long-distanceplayer.

According to TRAI estimates, the NLD market size, in FY99, was 26 billion minutes,

with revenues of INR 124 billion (including revenue from the domestic carriage of ISD which is estimated at INR 21 billion). Inter-circle calls accounted for 25 per centof the 26 billion minutes traffic and 54 per cent of the INR 124 billion revenue inFY99. Thus, the addressable market for NLD operators is roughly 50 per cent of thetotal long distance market.

4.3.3 International Subscriber Dialing (ISD)

The segment was monopolized by VSNL whose revenue from the ISD services wasINR 68 billion in FY2001. ISD call charges have been reduced by 23 per cent in May1999, and further 17 per cent in October 2000, as a part of tariff rationalizationinitiated by TRAI. The government has invited overseas companies to offer international calling services. But the current situation is entirely different.

Tele-density per hundred populations has grown from 7.08 in March 2004 to 8.95 inMarch 2005 and to a level of 12.74 in March 2006. Fully automatic InternationalSubscriber Dialing (ISD) service is available to almost all the countries. The totalnumber of stations connected to National Subscriber Dialing (NSD) is over 31,686.

The growth in rural demand has outstripped urban demand with telecom penetrationin villages increasing in multiples. Higher telecom dispersal is indicative of reducedeconomic disparities, experts point out.


35/91

4.3.4 Cellular Mobile Services

The cellular sector is the fastest growing segment within the Indian telecom services.The billed revenue during FY2001 was INR 38.7 billion. After a slow start, this sector registered an annual growth rate of more than 70 per cent in FY2000 and FY2001and is expected to grow at the same rate for FY2002. Similar to basic services,under NTP 94 each service area for cellular mobile services was to be serviced bytwo operators with the difference that both were to be private operators. A 10-year license period was provided, with DoT reserving the right to enter the market at afuture date. In addition direct interconnection between different private serviceproviders (basic, cellular and 'Value Added Services') in the same service area wasnot permitted as such interconnection had to pass through DoTs and MTNLsnetwork.

Bids for cellular services were initially invited for the four metros and servicecommenced in August 1995. In 1996, cellular telephone services were opened for 18telecom circles. The licenses for different circles (two each per circle) were priced

by public auction. But NTP 99 altered the competitive structure of the industry andchanged the duopoly to unlimited competition in each circle.

A staggering 15.4 million mobile lines were activated in India during January,according to the latest statistics from the Telecom Regulatory Authority of India(TRAI).

4.4 CONCLUSION

Economic reforms and liberalization have driven telecom sector through several

transmission channels of which these three categories are of major significance.Indian Telecom Sector is going under a huge technical change. It is attracting a lot of investors, and thus the industry dynamics is changing rapidly. The telecom sector requires a high investment and the market is also very competitive. The industry isforced to change under the influence of international force, experience, technologyand competition.

CHAPTER 5


36/91

GOVERNMENT

POLICY ANALYSIS

5.1 INTRODUCTION

As the sector is open for both private and public players there are huge number of players in the market which requires a proper picturing of rules and regulation to playa fair game. India has been very strong in case of rules and regulation; it has created

body like DOT, TRAI, DTS who takes care of the rules and regulation. Apart fromthem it keeps issuing policy and act which checks the events happening in theindustry. The government has been issuing policy like Broadband Policy 2004, newtelecom policy1999, National Telecom Policy 1994. There are more agencies likeITU, TDSA, TCIL, ICSIL, and MCOCA, which helped it regulating their work. Withincreasing number of players in market the government and its agencies have tofunction more carefully.

5.2 GOVERNMENT REGULATION

5.1.1 Department of Telecommunications


37/91

Until October 2000, the Department of Telecommunication (DOT) was the authorityin granting licences and service provision. It also operated domestic basic telephoneservices throughout India. The policy making functions and the service providingfunction were segregated into two different entities during 2000.The two serviceproviding department of telecom sector were corporatized-the department of telecomservice and the department of telecom operation . The state owned corporationBSNL took over all service providing functions of these two departments.

5.1.2 National telecom policy, 1994

The new economic policy adopted by the Government aims at improving India'scompetitiveness in the global market and rapid growth of exports. Another element of the new economic policy is attracting foreign direct investment and stimulatingdomestic investment. Telecommunication services of world class quality arenecessary for the success of this policy. It is, therefore, necessary to give the highestpriority to the development of telecom services in the country.

Objective

a. The focus of the Telecom Policy shall be telecommunication for all andtelecommunication within the reach of all. This means ensuring the availabilityof telephone on demand as early as possible.

b. Another objective will be to achieve universal service covering all villages asearly as possible.

c. The quality of telecom services should be of world standard. Removal of consumer complaints, dispute resolution and public interface will receive

special attention. The objective will also be to provide widest permissiblerange of services to meet the customer's demand at reasonable prices.

d. Taking into account India's size and development, it is necessary to ensurethat India emerges as a major manufacturing base and major exporter of telecom equipment.

5.1.3 The Telecom Regulatory Authority Of India Act, 1997

Powers & functions of the TRAI

A. Recommend the need and timing for introduction of new service provider;

B. Recommend the terms and conditions of license to a service provider;

C. Ensure technical compatibility and effective inter-connection between differentservice providers;

D. Regulate arrangement amongst service providers of sharing their revenuederived from providing telecommunication services;


38/91

E. Ensure compliance of terms and conditions of license;

F. Recommend revocation of license for non-compliance of terms and conditionsof license;

G. Lay down and ensure the time period for providing local and longdistance circuits of telecommunication between different service

providers;

H. Facilitate competition and promote efficiency in the operation of telecommunication services so as to facilitate growth in such services;

I. Protect the interest of the consumers of telecommunication service;

J. Monitor the quality of service and conduct the periodical survey of suchprovided by the service providers;

K. Inspect the equipment used in the network and recommend the type of equipment to be used by the service providers;

L. Maintain register of interconnect agreements and of all such other matters asmay be provided in the regulations;

M. Keep register maintained under clause (l) open for inspection to any member of public on payment of such fee and compliance of such other requirementsas may be provided in the regulations;

N. Settle disputes between service providers;

O. Render advice to the Central Government in the matters relating to thedevelopment of telecommunication technology and any other matter relatableto telecommunication industry in general;

P. Levy fees and other charges at such rates and in respect of such services asmay be determined by regulations;

Q. Ensure effective compliance of universal service obligations;

R. Perform such other functions including such administrative and financialfunctions as may be entrusted to it by the Central Government or as may benecessary to carry out the provisions of this Act.

5.1.4 New telecom policy, 1999

Objectives and targets of the new telecom policy, 1999

1. Access to telecommunications is of utmost importance for achievement of thecountry's social and economic goals. Availability of affordable and effective


39/91

communications for the citizens is at the core of the vision and goal of thetelecom policy.

2. Strive to provide a balance between the provision of universal service to alluncovered areas, including the rural areas, and the provision of high-levelservices capable of meeting the needs of the country's economy

3. Encourage development of telecommunication facilities in remote, hilly andtribal areas of the country.

4. Create a modern and efficient telecommunications infrastructure taking intoaccount the convergence of IT, media, telecom and consumer electronics andthereby propel India into becoming an IT superpower

5. Convert PCO's, wherever justified, into Public Teleinfo centers havingmultimedia capability like ISDN services, remote database access,government and community information systems etc.

6. Transform in a time bound manner, the telecommunications sector to agreater competitive environment in both urban and rural areas providing equalopportunities and level playing field for all players

7. Strengthen research and development efforts in the country and provide animpetus to build world-class manufacturing capabilities

8. Achieve efficiency and transparency in spectrum management

9. Protect defense and security interests of the country

10.Enable Indian Telecom Companies to become truly global players

5.1.5 Broadband Policy, 2004

Preamble

Recognizing the potential of ubiquitous Broadband service in growth of GDP andenhancement in quality of life through societal applications including tele-education,tele-medicine, e-governance, entertainment as well as employment generation byway of high speed access to information and web-based communication,Government have finalized a policy to accelerate the growth of Broadband services.

Demand for Broadband is primarily conditioned and driven by Internet and PCpenetration. It is recognized that the current level of Internet and Broadband accessin the country is low as compared to many Asian countries. Penetration of


40/91

Broadband, Internet and Personal Computer (PC) in the country was 0.02%, 0.4%and 0.8% respectively at the end of December, 2003. Currently, high speed Internetaccess is available at various speeds from 64 kilobits per second (kbps) onwardsand presently an always-on high speed Internet access at 128 kbps is considered asBroadband'. There are no uniform standards for Broadband connectivity and variouscountries follow various standards.

5.1.6 Administration and Control on Telecom Industry

The Telecom Commission, set up in April 1989, has the administrative and financialpowers of the Government of India to deal with various aspects of telecommunications.

The Commission and the Department of Telecommunications (DOT) areresponsible, inter alia , for policy formulation, licensing, wireless spectrummanagement, administrative monitoring and control of the Public Sector Undertakings (PSUs) engaged in telecommunication services, research anddevelopment, standardization/validation of equipment. In addition to the TelecomCommission, other Government organizations engaged in the telecom sector (as a part of DOT) are the Centre for Development of Telematics (CDOT),the Telecom Engineering Centre (TEC) and the Wireless Planning andCoordination (WPC) wing.

CDOT was established in 1984 with the objective of developing a new generation of digital switching items. It has developed a wide range of switching andtransmission products both for rural and urban applications. TEC is devoted toproduct validation and standardization for user agencies. It also provides technical

and engineering support to the Telecom Commission and the field units. TheWireless Planning and Coordination wing deals with the policies of Spectrummanagement, licensing, frequency assignments, international coordination for spectrum management and administration of the Indian Wireless Telegraphy Act,1933. In order to administer the use of radio frequencies, the licenses/renewals for use of wireless equipment and the frequencies are authorized by WPC. The licensesare granted for specific periods on payment of prescribed license fees and royalty inadvance and are renewed after expiry of the validity periods.

5.1.7 Telecom Reforms

As a part of the continuing process of telecom reforms and in pursuance of the NewTelecom Policy 1999 (NTP-99), the Department of Telecom Services (DTS) and theDepartment of Telecom Operations (DTO) were carved out from DOT in October 1999 for providing telecommunication services in the country. DTS and DTO werefinally corporatized into a wholly owned Government Company namely, the BharatSanchar Nigam Limited (BSNL) (incorporated on 15 September 2000) and their business was transferred to this Company with effect from 1 October 2000. Thecreation of BSNL was expected to provide a level playing field in all areas of telecomservices, between Government operators and private operators.

5.1.8 Regulatory Control


41/91

The entry of private service providers in 1992 brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was thusestablished with effect from 20 February 1997 by an Act of Parliament, called theTelecom Regulatory Authority of India Act, 1997, to regulate telecom services,including fixation/revision of tariffs for telecom services, which were earlier vested inthe Central Government. The TRAI Act was amended by an ordinance, effectivefrom 24 January 2000, establishing a Telecommunications Dispute Settlement and

Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functionsfrom TRAI. TDSAT was set up to adjudicate any dispute between a licensor and alicensee, between two or more service providers, between a service provider and agroup of consumers, and to hear and dispose of appeals against any direction,decision or order of TRAI.

5.1.9 Other Government Organizations in the Telecom Sector

Besides MTNL and BSNL, other public sector undertakings in the telecom sector areITI Limited (ITI), Telecommunications Consultants India Limited (TCIL), Intelligent

Communication Systems India Limited (ICSIL) and Millennium Telecom Limited(MTL). ITI Limited was formed in 1948 for manufacturing a wide range of equipment, which included electronic switching equipment, transmissionequipment and telephone instruments of various types. TCIL was established in1978 for providing know-how in all fields of telecommunications at the global level.The core competence of TCIL is in communications network projects, softwaresupport, switching and transmission systems, cellular services, ruraltelecommunications and optical fiber based backbone network. ICSIL wasestablished in April 1987 for manufacturing computer based communicationsystems and equipment. It also provides engineering, technical and managementconsultancy services for computers and communication systems in India andabroad. MTNL was established in February 2000 as a wholly owned subsidiaryof MTNL for providing internet services in the country. It is pursuing theestablishment of broadband internet access for the corporate segment and Voiceover Internet Protocol (VOIP) telephony services throughout India with the use of relevant technologies like Very Small Aperture Terminals (VSATs).

5.1.10 Regulatory and policy issue of telecom industry

Indian telecom sector is witnessing an unprecedented growth of its time. The sameis expected to increase in future as well. This is necessitating action on the fronts of infrastructure development and suitable legislative and regulatory reforms in the fieldof Information and Communication Technology (ICT) at large. Convergence laws inIndia are in the process of formulation and so are policy related matters. Though theCommunication Convergence Bill, 2001 has been formulated, it seems not to havebeen notified yet. The Bill is intended to promote, facilitate and develop in an orderlymanner the carriage and content of communications (including broadcasting,telecommunications and multimedia), for the establishment of an autonomousCommission to regulate carriage of all forms of communications, for establishment of an Appellate Tribunal and to provide for matters connected therewith or incidentalthereto, to facilitate development of a national infrastructure for an information basedsociety, and to enable access thereto, to provide a choice of services to the people


42/91

with a view to promoting plurality of news, views and information, to establish aregulatory framework for carriage and content of communications in the scenario of convergence of telecommunications, broadcasting, data-communication, multimediaand other related technologies and services, to provide for the powers, proceduresand functions of a single regulatory and licensing authority and of the AppellateTribunal, etc.

5.1.11 Norms for M&A Between Telecommunication Companies

The government has revised norms and regulations for merging & acquisition (M&A)between telecommunication companies within a same circle. Declaring theguidelines and regulations, the Department of Telecommunication (DoT) said thatprior approval for merger of telecommunication companies is necessary. It isemphasize that the total market share after merging should not exceed to more than40% in terms of both subscriber base and revenue. Prior it was held at 67 per cent. Ithas been made clear that no merger would be allowed unless and until there are

minimum four service providers left after such merging process.The government's revised norms and regulations concerning to merger hastightened the merging and acquisitions between telecommunication companies inthe circle. From now consolidation between telecommunication companies withinsame circle would have means facing difficulty and high cost also. Idea has recentlyacquired license only for 9 circles. Therefore, it is not possible for an existinglicensee to get the Idea in these nine circles. Similarly other licensees if they want tosell, needs to search for some other suitor which should be outside the purview of group of licensed operators in their circles. This new step from the government sidehas opened up a new gateway for new players, which would have till now facing lotsof troubles in absence of any license.

The new government regulations are more stringent and left less room for air topass. Less flexibility is allowed while designing all four phases - for any merging preconsent of government is required to take, the market share of merging entitybeyond which any merging will not be allowed, has been brought down from 67% to40%, before contemplating any merging process it is imperative that the license mustgo from through 3 years of operation and last the merged entity is required to payextra amount for every spectrum.

The new norms issued are somewhere deviated from the TRAI's regulations. TheTRAI had ruled out merging and acquisition procedure unless and until rolloutrecommendations were not full filled. But in the revised guidelines issued bygovernment for merging process, nothing has been mention in respect of rolloutobligations. It is kept silent for it. Now a clause has been inserted which have madelicense operation of three years obligatory. In new guidelines issued by thegovernment 'acquisition' word has been dropped. The removal in the recent issuedguidelines will somewhere create ambiguity to the extent that it will not be clear aswhether these norms are specifically for merger or acquisition.


43/91

The regulations are looking as a pill of relief for new entrants. As now they can bringstrategic investors, which means they can sell maximum 74% stake to all those newglobal companies or domestic entities which are keen to make entry into the India'sfastest growing telecommunication sector. Earlier existing telecommunication playerspurchased new entrants for reducing spectrum crunch. But now all new entrants whohave received license in recent years can be merged or purchased by others onlyafter January 2011.

The new issued guideline also makes it clear that merger of licenses shall berestricted to the same service area. It means if an operator has its services only ineastern regions it can't undergone into merging process with another telecommunication company who is offering services only in Himachal Pradesh andPunjab. Further it clears that no buoyant or merging process can be taken placeamong top 3 service providers. It makes clear that as long as these new norms areinto operation, Vodafone can never be able to purchase Bharti or Reliance and vice

versa, nor can ever the Idea Cellular purchase Vodafone. However, such bigcompanies- Reliance, Bharti, Vodafone, and Idea Cellular can purchase smallplayers like Spice.

The DoT also explicitly mentioned out that the spectrum transfer charges are neededto be pay in case of any merging between existing telecommunication companies.The amount which will be paid is decided by government. However, if number of service providers falls below 4 in circle during process then no merging will take

place.

The government's motto behind issuing new principles and guidelines is to ensurethat one of the fastest growing telecommunication sectors in near future willcontinually to have more than 8 operators in circles. This step in turns bolsterscompetition and helps in earning more bucks. It will also lead to optimum utilizationof resources.

5.2. IMPORTANT REGULATIONS AND THEIR IMPACT ONTHE INDIAN TELECOM INDUSTRY

5.2.1 Unified Access Service License Regime (UASL)

Unified licensing marked the end of the license regime in the Indian telecom industry.It helped in aligning convergent technologies and services. The establishment of theUnified Access Licensing Regime (2003) eliminated the need for different licensesfor different services. Players are now allowed to offer both mobile and fixed-lineservices under a single license after paying an additional entry fee. This does not


44/91

take into account national and international long-distance services and Internetaccess services.

5.2.2 Access Deficit Charges (ADC)

ADC makes it mandatory for a service provider at the callers end to share a percent

of the revenue earned with the service provider at the receivers end in long-distancetelephony. This subsidises the infrastructure costs of the service provider enablingaccess at receivers end, especially because rental for fixed-line services is low.Revision in the ADC regime is expected to be followed by further tariff reduction intelecom services.

Figure: 5 .1 Year wise cellular tariff and no. of subscribers

We saw various agencies and acts passed by Indian government to regulate theindustry

report on telecom service provider

Documents