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INDUSTRIAL ANALYSIS OF TELECOM

TELECOM

CONTENTS

1. INTRODUSTION……………………………………………….2

2. HISTORY………………………………………………………..2

3. SWOT ANALYSIS……………………………………………...3

4. PAST PERFORMANCE……………………………………….5

5. PRESENT PERFORMANCE……………………………………………….8

6. CONCLUSIONS……………………………………………….12

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INDUSTRIAL ANALYSIS OF TELECOM

INTRODUCTION!

All industry is a group of firms that have similar technological structure of production and produce similar products or services. Companies are distinctly classified to give a clear picture about their manufacturing process and products or services.

Industries can be classified on the basis of the business cycle, that means, according to their reactions to the different phases of the business cycle. They are classified into growth, cycle, and defensive cyclical growth industry.

HISTORY

The history of Indian telecom can be started with the introduction of telegraph. The Indian postal and telecom sectors are one of the worlds oldest. In 1850, the first experimental electric telegraph line was started between Calcutta and Diamond Harbour. In 1851, it was opened for the use of the British East India Company. The Posts and Telegraphs department occupied a small corner of the Public Works Department, at that time.

FURTHER DEVELOPMENTS AND MILESTONES

• Pre-1902 – Cable telegraph• 1902 – First wireless telegraph station established between Sagar

Island and Sandhead.

• 1907 – First Central Battery of telephones introduced in Kanpur.

• 1913–1914 – First Automatic Exchange installed in Shimla.

• 1927 – Radio-telegraph system between the UK and India, with Imperial Wireless Chain beam stations at Khadki and Daund. Inaugurated by Lord Irwin on 23 July by exchanging greetings with King George V.

• 1933 – Radiotelephone system inaugurated between the UK and India.

• 1953 – 12 channel carrier system introduced.

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INDUSTRIAL ANALYSIS OF TELECOM

• 1960 – First subscriber trunk di0alling route commissioned between Lucknow and Kanpur.

• 1975 – First PCM system commissioned between Mumbai City and Andheri telephone exchanges.

• 1976 – First digital microwave junction.

• 1979 – First optical fibre system for local junction commissioned at Pune.

• 1980 – First satellite earth station for domestic communications established at Sikandarabad, [[Uttar Pradesh|U.P.] Noida Sector 62SCMS ].

• 1983 – First analogue Stored Programme Control exchange for trunk lines commissioned at Mumbai.

• 1984 – C-DOT established for indigenous development and production of digital exchanges.

• 1995 – First mobile telephone service started on non-commercial basis on 15 August 1995 in Delhi.

• 1995 – Internet Introduced in India starting with laxmi nagar delhion 15 August 1995

TELECOM IN INDIA

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

Over the past 10 years, India has registered the fastest growth among major democracies, having grown at over 7 per cent in four years during the 1990s. It represents the fourth largest economy in terms of Purchasing Power Parity. According to a recent Goldman Sachs report, over the next fifty years, Brazil, Russia, India and China - the BRIC economies- could become a much larger force in the world economy. It reports, “India could emerge as the world’s third largest economy and of these four countries; India has the potential to show the fastest growth over the next 30 to 50 years”. The report also states that, “Rising incomes may also see these economies move through the ‘sweet spot’ of growth for different kinds of products, as local spending patterns change. This could be an

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INDUSTRIAL ANALYSIS OF TELECOM

important determinant of demand and pricing patterns for a range of commodities”. The share of the services sector as a percentage of total GDP is also predicted to rise from the current 46 per cent to about 60 per cent by 2020.

Population projections from the Planning Commission of India suggest that the share of the working age population (15-64 years) in total population will grow from the current 59 per cent to about 65 per cent, translating into 882 million by year 2020.According to the Vision 2020 document for the Planning Commission of India, the country will witness continued urbanization. The urban population is expected to rise from 28 per 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, each having a population of one million or more.Over the years, spending power has steadily increased in India. Between 1995 and 2002, nearly 100 million people became part of the consuming and rich classes. Over the next five years, 180 million people are expected to move into the consuming and very rich classes. On an average, 30-40 million people are joining the middle class every year, representing huge consumption spending in terms of the demand for mobile phones, televisions, scooters, cars, credit goods and a consumption pattern associated with rising incomes.

SWOT ANALYSISStrengths

• Strong mobile growth(around 10%) , with latest technology being offered at faster pace

• An attractive business environment witnessed by number of foreign players entering Indian market

• A vast untapped rural population which needs telecom services at their fingertips

Weaknesses • Wireless business segment is growing faster than wire line and more demand

is coming for pre-paid services• The falling SIM card, lower tariff plan led to lower APRU• Delayed implementation of key policies because of dispute among TRAI,

telecom ministry

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INDUSTRIAL ANALYSIS OF TELECOM

Opportunities • All of the providers are keen to provide more content which provides great

opportunity for content providers• Regulator has recommended that foreign player can participate without any

local partner• The government will cut the license fee by 33% for those operators which has

over 95% residential coverage

Threats • 3 G spectrum charges are more and which will have negative impact on

demand for licenses• Due to price war , APRU is falling and further deterioration will lead to

significant declinein top line growth

• Capacity constraint may hamper the expected growth in Mobile segment• MNP will become reality in 2010, it will add further pressure to operator to

retain the Existing customer

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INDUSTRIAL ANALYSIS OF TELECOM

THE INDIAN TELECOM SERVICESPERFORMANCE INDICATORS

April – June, 2013

1. The number of telephone subscribers in India increased from 898.02 million at the end of Mar-13 to 903.09 million at the end of Jun-13, registering a growth of 0.56% over the previous quarter. This reflects year-on-year (Y-O-Y) negative growth of 6.47% over the same quarter of last year. The overall Tele-density in India slightly increased from 73.32 as on 31st March, 2013 to 73.50 as on 30th June, 2013.

Trends in Telephone subscribers and Teledensity in India

2. Subscription in Urban Areas decreased from 548.80 million at the end of Mar-13 to 545.48 million at the end of Jun-13, and Urban Teledensity also declined from 146.96 to 145.35. Whereas, Rural subscription increased from 349.22 million to 357.61 million, and Rural Teledensity also increased from 41.02 to 41.90. Share of subscription in Rural areas out of total subscription increased from 38.89% at the end of Mar-13 to 39.60% at the end of Jun-13.

Composition of Telephone Subscribers

3. With a net addition of 5.56 million subscribers during the quarter, total wireless(GSM+CDMA) subscriber base increased from 867.80 million at the end of Mar-13 to 873.36 million at the end of Jun-13, registering a growth rate of 0.64% over the previous quarter. The year-on-year (Y-O-Y) growth rate of Wireless subscribers for Jun-13 is -6.50%. Wireless Teledensity increased from 70.85 at the end of Mar-13 to 71.08 at the end of Jun-13.

4. Wireline subscriber base further declined from 30.21 million at the end of Mar-13 to 29.73 million at the end of Jun-13, registering a decline rate of 1.61%. Wireline Teledensity declined from 2.47 at the end of Mar-13 to 2.42 at the end of Jun-13.

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INDUSTRIAL ANALYSIS OF TELECOM

5. Number of subscribers who accessed internet by mobile devices is 176.50 million during QE Jun-13. 6. Number of internet subscribers (except internet access by mobile devices) increased from 21.61 million at the end of Mar-13 to 21.89 million at the end of Jun-13, registering a quarterly growth rate of 1.30%.

7. Number of Broadband subscribers (except broadband access by mobile devices) increased from 15.05 million at the end of Mar-13 to 15.20 million at the end of Jun-13, registering a quarterly growth of 0.98% and Y-O-Y growth of 4.32%.

8. Number of Narrowband subscribers (except internet access by mobile devices) increased from 6.56 million at the end of Mar-13 to 6.69 million at the end of Jun-13, registering a quarterly growth of 1.98%

Composition of internet subscription

9. Monthly Average Revenue Per User (ARPU) for GSM service increased by 6.14%, from `105 in QE Mar-13 to `111 in QE Jun-13, with Y-O-Y increase of 16.73%.

10. On an all India average, the overall MOU per subscriber per month for GSM service increased by 1.38% from 383 in QE Mar-13 to 388 in QE Jun-13. Prepaid MOU per subscriber increased from 361 to 364 and postpaid MOUs increased from 946 to 990 in this quarter.

11. Monthly ARPU for CDMA full mobility service increased by 3.26%, from `95 in QE Mar-13 to `98 in QE Jun-13. ARPU for CDMA has increased by 31.28% on Y-O-Y basis in this quarter.

12. The total MOU for CDMA per subscriber per month increased by 1.24%, from 275 in QE Mar-13 to 278 QE Jun-13. The Outgoing MOUs increased from 141 to 146, while Incoming MOUs decreased from 134 to 132 in this quarter.

13. Gross Revenue (GR) and Adjusted Gross Revenue (AGR) of Telecom Service Sector for the QE Jun-13 has been `57260.98 Crore and `38640.30 Crore respectively. There has been an increase of 5.48% in GR and 9.53% in AGR as compared to previous quarter. The year-on-year (Y-O-Y) growth in GR and AGR over the same quarter in last year has been 9.04% and 8.85% respectively. Pass-through charges accounted for 32.52% of the GR for the quarter ending Jun-13. The quarterly and the year-on-year (Y-O-Y) growth rates of pass-through charges for QE Jun-13 are -2.02% and 9.45% respectively.

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INDUSTRIAL ANALYSIS OF TELECOM

14. The quarterly and the year-on-year (Y-O-Y) growth rates of license fee are 8.09% and 5.14% respectively for the QE Jun-13.

15. Access services contributed 78.91% of the total Adjusted Gross Revenue of telecom services. In Access services, Gross Revenue, Adjusted Gross Revenue (AGR), License Fee and Spectrum Charges increased by 5.75%, 9.68%, 4.39% and 9.86% respectively, whereas Pass Through decreased by 2.62% in QE Jun-13.

16. Monthly Average Revenue per User (ARPU) for Access Services based on AGR increased from `104 in QE Mar-13 to `113 in QE Jun-13.

Composition of Adjusted Gross Revenue

17. The performance of wireless service providers in terms of QoS during the quarter vis-à-vis that in previous quarter is depicted as under:

19. Total number of private satellite TV channels permitted by the Ministry of I&B, as obtained from its website, are 795. There are a total of 187 pay channels, as reported by the broadcasters/ distributors for which the rates have been taken on records at the QE Jun-13.

20. Maximum number of TV channels (Pay, FTA and Local) being carried by any of the reported MSOs is 228 whereas in the conventional analogue form, maximum number of channels being carried by any of the reported MSOs is 100 channels.

21. Apart from All India Radio, Prasar Bharti a public broadcaster, there are 242 private FM Radio stations in operation at the end of Jun-13.

22. Besides the free DTH service of Doordarshan, there are 6 private DTH licensees, offering their services to the DTH subscribers. As on 30.06.2013, 58.89 million subscribers are registered with these 6 private DTH operators.

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INDUSTRIAL ANALYSIS OF TELECOM

THE INDIAN TELECOM SERVICESPERFORMANCE INDICATORS

April – June, 2014 1.The number of telephone subscribers in India increased from 933.01 million at the end of Mar-14 to 942.95 million at the end of Jun-14, registering a growth of 1.07% over the previous quarter. This reflects year-on-year (Y-O-Y) growth of 4.41% over the same quarter of last year. The overall Tele-density in India increased from 75.23 as on 31st March, 2014 to 75.80 as on 30th June, 2014.

Trends in Telephone subscribers and Teledensity in India

2. Subscription in Urban Areas increased from 555.28 million at the end of Mar-14 to 559.77 million at the end of Jun-14, and Urban Tele-density also increased from 145.78 to 146.24. Rural subscription increased from 377.73 million to 383.18 million, and Rural Tele-density also increased from 43.96 to 44.50.

3. Share of subscription in Rural areas out of total subscription increased

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INDUSTRIAL ANALYSIS OF TELECOM

from 40.49% at the end of Mar-14 to 40.64% at the end of Jun-14.

Composition of Telephone Subscribers

4. With a net addition of 10.41 million subscribers during the quarter, total wireless(GSM+CDMA) subscriber base increased from 904.51 million at the end of Mar-14 to 914.92 million at the end of Jun-14, registering a growth rate of 1.15% over the previous quarter. The year-on-year (Y-O-Y) growth rate of Wireless subscribers for Jun-14 is 4.76%. 5. Wireless Tele-density increased from 72.94 at the end of Mar-14 to 73.55 at the end of Jun-14. 6. Wireline subscriber base further declined from 28.50 million at the end of Mar-14 to 28.03 million at the end of Jun-14, registering a decline of 1.66%. The year-on-year (Y-O-Y) decline rate of Wireline subscribers for Jun-14 is 5.72%.

7. Wireline Tele-density declined from 2.30 at the end of Mar-14 to 2.25 at the end of Jun-14.

8. Total number of Internet subscribers has increased from 251.59 million at the end of Mar-14 to 259.14 million at the end of Jun-14, there has been a quarterly growth of 3.00%. Out of which Wired Internet subscribers are 18.55 million and Wireless Internet subscribers are 240.60 million.

Composition of internet subscription

9. Number of Broadband Internet subscribers increased from 60.87 million at the end of Mar-14 to 68.83 million at the end of Jun-14 with quarter growth of 13.07%. 10. The number of Narrowband Internet subscribers has slightly declined from 190.72 million at the end of Mar-14 to 190.31 million at the end of Jun-14 with quarterly growth of -0.21%.

11. Monthly Average Revenue Per User (ARPU) for GSM service increased by 4.84%, from `113 in QE Mar-14 to `119 in QE Jun-14, whereas Y-O-Y increase of 6.72%.

12. Prepaid ARPU for GSM service per month increased from `99 in QE Mar-14 to `104 in QE Jun-14, and Postpaid ARPU per month increased from `453 in QE Mar-14 to `469 in QE Jun-14.

13. On an all India average, the overall MOU per subscriber per month for

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INDUSTRIAL ANALYSIS OF TELECOM

GSM service increased by 0.42% from 389 in QE Mar-14 to 390 in QE Jun-14.

14. Prepaid MOU per subscriber for GSM service increased from 365 in QE Mar-14 to 366 in QE Jun-14 and postpaid MOUs increased from 957 in QE Mar-14 to 961 in QE Jun-14.

15. Monthly ARPU for CDMA full mobility service increased by 6.22%, from `105 in QE Mar-14 to `112 in QE Jun-14. ARPU for CDMA has increased by 13.4% on Y-O-Y basis in this quarter.

16. The total MOU for CDMA per subscriber per month increased by 2.70%, from 275 in QE Mar-14 to 283 QE Jun-14. The outgoing MOUs increased from 142 in QE Mar-14 to 147 in QE Jun-14 and incoming MOUs also increased from 133 in QE Mar-14 to 136 in QE Jun-14.

17. Gross Revenue (GR) and Adjusted Gross Revenue (AGR) of Telecom Service Sector for the QE Jun-14 has been `62919 Crore and `43852 Crore respectively. There has been an increase of 3.63% in GR and 6.91% in AGR as compared to previous quarter.

18. The year-on-year (Y-O-Y) growth in GR and AGR over the same quarter in last year has been 9.88% and 13.49% respectively.

19. Pass-through charges accounted 30.30% of the GR for the quarter ending Jun-14. The quarterly and the year-on-year (Y-O-Y) growth rates of pass-through charges for QE Jun-14 are -3.21% and 2.40% respectively.

20. The License Fee increased from 3286 Crore for the QE Mar-14 to 3503 Crore for the QE Jun-14. The quarterly and the year-on-year (Y-O-Y) growth rates of license fee are 6.62% and 13.30% respectively in this quarter.

21. Access services contributed 78.48% of the total Adjusted Gross Revenue of telecom services. In Access services, Gross Revenue, Adjusted Gross Revenue (AGR), License Fee and Spectrum Usage Charges increased by 4.64%, 7.81%, 7.62% and 8.61% respectively, whereas Pass Through Charges decreased by 2.96% in QE Jun-14.

22. Monthly Average Revenue per User (ARPU) for Access Services based on AGR increased from `115.28 in QE Mar-14 to `122.39 in QE Jun-14.

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INDUSTRIAL ANALYSIS OF TELECOM

NATURE OF THE COMPETITION

MARKET PLAYERS:

No. Service

Providers

Total sub

figures

Market

share (%)

Trends

1. BHARTI AIRTEL 58037920 25.40 Integrated Telco, with presence in all

sectors - Cellular, Basic, National Long

Distance (NLD) & International Long

Distance (ILD). Currently offering only

GSM based cellular services. No CDMA

based cellular services being offered.

2. RELIANCE

COMMUNICATI

ONS

52540000 22.99 Operating GSM wireless services in 7

circles and subsequently acquired

Madhya Pradesh circle from RPG.

Reliance is currently focusing on rollout

of CDMA based wireless services.

3. VODAFONE

ESSAR

44126243 19.31 Pure play GSM mobility player offering

cellular services in 16 circles. Has been

working on a model of being associated

with the high ARPU subscribers

4. BSNL 34251334 14.99 Incumbent operator, virtual monopoly in

the basic services. Very strong NLD

operator; and, has been able to quickly

ramp up GSM subscribers due to

nationwide network reach. Pan country

presence in both basic (except Mumbai

and Delhi) and cellular services.

5. IDEA 24001573 10.50 A 3 way GSM mobility joint venture

between Tatas, Birlas and AT&T

Wireless offering cellular services

in 11 circles.

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INDUSTRIAL ANALYSIS OF TELECOM

6. AIRCEL 6805066 2.98 Operates only in Metro(Chennai) and

Circle A(Tamil Nadu)

7. SPICE 4210669 1.84 Pure play GSM based mobility player

offering services in 2 circles – Punjab

and Karnataka.

8. MTNL 3241851 1.42 Integrated incumbent operator also

offering GSM based mobility in Delhi and

Mumbai.

the demand in the telecom industry in year 2007 is around 230 million now we will see does the main players in the industry has the capacity to fulfil the appetite of the demand side.

CONCLUSION

In our opinion, instead of taking a short-term view of paying capacity, the telecom companies should focus on a long-term game. There is one word that telecom companies are hearing a lot these days-“Volumes”. They need volumes to sustain the network and the large employee base they have enrolled. In this regard, companies like Reliance and Tata’s have been aggressive over the final rollout of connections to PCO owners. Reliance is giving upto 30% commission on each call. How they market and distribute these connections is a tough battle indeed. If and when the carrier access codes are introduced, there could be a tough fight among these outlets, as far as prices are concerned. Yet, prices can go down further by almost 40% of the present structure. Part of the price cuts could be because of tax exemptions, if and when these companies can lobby for the same. The other part could be earning

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through volumes.

New players like Virgin Mobile, which already has an international presence in close to 17 countries are entering India. It is doing so in collaboration with Tata Teleservices. The target market for Virgin Mobile is the youth, which in India is around 54% of its population.

There are challenges like porting time, allocation of capital and operational porting costs among participants and other interconnect issues. Yet, the atmosphere around the MNP issue looks positive and will be set once the committee submits its final report on the same.