telecom ind

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India's teledensity has improved fromunder 4% in March 2001 to around 76%by the end of March 2012. Cellulartelephony continues to be the fastestgrowing segment in the Indian telecomindustry. The mobile subscriber base(GSM and CDMA combined) has grownfrom under 2 m at the end of FY00 totouch 919 m at the end of March 2012(average annual growth of nearly 64%during this 12 year period). Tariffreduction and decline in handset costshas helped the segment to gain in scale.The cellular segment is playing animportant role in the industry by makingitself available in the rural and semiurban areas where teledensity is thelowest.

The fixed line segment continues todecline in terms of the subscriber base. Ithas declined to 32.17 m subscribers inMarch 2012 from 34.73 m in March 2011.The decline was mainly due tosubstitution of landlines with mobilephones.

As far as broadband connections (>=256kbps) are concerned, India currently hasa subscriber base of 13.8 m. Broadbandpenetration received a boost from theauction of broadband spectrum. The

network providers have stated that theywould be looking at boosting thecontribution of data to their revenues.This bodes well for the future ofbroadband services.

Key Points

Supply Intense competition has resulted in prompt service to the subscribers.Demand Given the low tariff environment and relatively low rural and semi urban

penetration levels, demand will continue to remain higher in the foreseeable

future across all the segments.Barriers to entry High capital investments, well-established players who have a nationwide

network, license fee, continuously evolving technology and lowest tariffs inthe world.

Bargaining powerof suppliers Improved competitive scenario and commoditisation of telecom services


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has led to reduced bargaining power for services providers. Bargaining powerof customers A wide variety of choices available to customers both in fixed as well asmobile telephony has resulted in increased bargaining power for the

customers.Competition Competition has intensified with the entry of new cellular players in circles.

Reduced tariffs have hurt all operators.TOP

Financial Year '12

FY12 saw the continuance of growth for the Indian telecom market, which witnessed a 12%YoY increase in its subscriber base during the 12-month period. At the end of March 2012, the

countrys total telecom subscriber base (fixed plus mobile) stood at about 951 m. The tele -

density level stood at about 76% by the end of the fiscal.

Data source: Trai, Company Data Data source: Trai, Company DataGrowth remained robust in the GSM mobile space. GSM added 115 m subscribers during the

year. After a robust 46% YoY increase in subscriptions during FY11, the growth in GSMindustry has slowed down to 17% YoY in FY12. The year saw the apex court of the countrycancelling the disputed 2G licenses that were issued in 2008. The cancellation caused the exit

of Etisalat and Batelco from the sector.

During FY12, India's mobile subscriber base grew by 13% YoY, from 812 m to 919 m, while thefixed subscriber base declined by about 7%, from 34.73 m to about 32.71 m.

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Prospects

As far as the fixed line business goes, the low penetration levels in the country and theincreasing demand for data based services such as the Internet will act as major catalysts inthe growth of this segment. However, the growth would be mitigated by increasing substitutionof landlines by mobile phone. The PSUs will however continue to retain their dominant position.This is on account of high capital investments required in setting up a nationwide network. As a

result, the private sector players will have to rely on key business centers and pockets of highurbanisation for their growth.

Increasing choice and one of the lowest tariffs in the world have made the cellular services inIndia an attractive proposition for the average consumer. The penetration levels in urban areashave already crossed 100%. Therefore the main driver for future growth would be the ruralareas where tele-density is around 39.22%.
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During FY12, a number of things were carried out. The Supreme Court cancelled the 2Glicensesthat were issued in 2008 by the erstwhile telecom minister. The Court also directed theregulator to formulate new rules for auctioning the spectrum and cancelled licenses. Theregulator, TRAI has come up with regulations which price the 2G spectrum at sky high prices.The operators have vehemently opposed the pricing which they state will strain their stretchedbalance sheets further.

The cancellation of the licenses and subsequentTRAI's proposals on pricingof the newspectrum prompted the exit of 2 foreign operators from the country. The other operators toohave revisited their investment plans in India. However, the regulator is optimistic that foreignoperators would still participate in the upcoming 2G auction.

The operators continued to operate on thin margins during FY12. Due to intense competition,tariffs continue to remain low. At the same time rising operating costs will force operatingmargins to continue remaining depressed during the current fiscal as well. At the same time,operators are likely to see their balance sheets come under pressure as well. Most operatorshave taken huge loans to fund their 3G spectrum obligations. Now they would have to raisemore funds to fund the 2G spectrum licenses. With such low margins and high debt to equityratios, banks have been skeptical about lending further to the telecom companies. As a result,

most of them are exploring other options of raising funds including listing of unlistedsubsidiaries.

In a latest move, operators have cut tariffs on the premium 3G services. Most of them havestated that the decline in tariffs would be offset by increase in volumes which would help boost3G revenues. Indian consumers are known to be highly sensitive to price decrease andtherefore this move to cut prices is expected to drive growth for 3G in the coming years.However, if the operators go for predatory pricing, like they did for 2G, then it would harm thefundamentals of the sector by forcing companies to cut margins further. While tariff increase onthe 2G side will have to happen eventually, it remains to be seen if all operators would makethis move in the current fiscal or not.
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