Future of India in Telecom

8/6/2019 Future of India in Telecom

1/56

INSTITUTE OF BUSINESS MANAGEMENT STUDIES

Table of Contents

Executive Summary 31 Indian Telecom Industry 41.1 History 4

1.2 Quick Facts 41.3 Telecom services 41.4 Industry Sectors 51.5 Growth Avenues 61.6 Industry Revenue (2002-2010 81.7 Subscriber Growth 8

1.8 Major Players 91.8.1 Wireless Service Providers (Market share

10

1.8.2 Handset Manufacturers (Market share) 111.9 Major Investments 111.10 Rural Telephony 111.11 Exploring the rural telecom opportunity 111.12 Policy Initiatives 12

2 Telecom Regulatory Authority of India (TRAI)13

2.1 Mission 132.2 Role of TRAI 132.3 Recommendatory Functions 13

2.4 Mandatory Functions 132.5 Other functions 14

3 Spectrum Auctions in India Vis--vis Worldwide 153.1 Spectrum Auction Scenario in India 16

3.2 Gaps in Indian Spectrum Auction Licensing Scenario16

3.3 3G Spectrum allocation policy in India 173.4 Comparison-Spectrum Allocation Policy in UK 184 Indias Competitive Advantage 194.1 Stable Economic Outlook 194.2 Large Market Potential 204.3 Large Talent Pool 204.4 Low Labour Cost 21

5 Point of Sales (POS) 215.1 The Road Ahead235.2 Gradual Progression in Telecom Sector 23

5.3 Acquiring New Subscribers through expansion in Rural India24

5.4 Selling More to Existing Subscribers24

5.5 Government Initiatives 245.6 The reasons for the increasing importance of MVAS can b

classified as: 245.7 Defining VAS

25

1


2/56


5.7.1 Basic definition of a VAS25

5.7.2 Definition as per TRAI26

5.8 Mobile VAS in rural market26

5.9 Access devices for MVAS275.9.1 GPRS Handsets 27

5.9.2 3G Handsets28

6 Key trends in telecom industry296.1 Mobile Number portability (MNP) 296.1.1 The Inhibitors 29

6.1.2 MNP Implementation globally30

6.2 Wimax v/s 3G 316.3 Mobile Virtual Network Operator (MVNO) 32

6.4 IPTV 337 SWOT ANALYSIS

357.0.1 Matching and Converting

367.0.2 Internal and External Factors

377.0.3 Use of SWOT Analysis

377.0.4 Marketing

377.1 Consolidation in Industry. 38

7.1.1 Idea Cellulars Acquisition of Spice Telecom38

7.1.2 Vodafones entry into India397.1.3 Telenor-Unitech Deal 397.1.4 TTSL DoCoMo Deal 397.1.5 Bharti-MTN deal (in talks) 407.2 FDI Investments in the Telecom Sector in India: 42

7.3 Outsourcing by Telecom Service Providers in India

427.3.1 Hutchitson Essar (now Vodafone) and Nokia Deal:43

7.3.2 Bharti Airtels IT Outsourcing to IBM: 437.3.3 Bhartis Outsourcing to Alcatel-Lucent: 43

7.3.4 Bharti Outsourcing Deal with Nokia & Ericsson43

8 Future Technology Trends 458.1 IP Multimedia Subsystem (IMS) 46

8.2 High Speed Downlink Packet Access (HSDPA)46

8.3 4G or Fourth Generation Networks

469 Conclusion 48

2


3/56


10 References 49Appendix A 50

Executive Summary

The rapid growth in Indian telecom industry has been contributing toIndias GDP at large. Telecom industry in India started to set up in aphased approach. Privatisation was gradually introduced, first in value-added services, followed by cellular and basic services. TelecomRegulatory Authority of India (TRAI), was established to regulate and dealwith competition (the service providers). This gradual and thoughtfulreform process in India has favoured industry growth. Upcoming servicessuch as 3G and WiMax will help to further augment the growth rate.TheIndian telecommunications industry is one of the fastest growing in theworld and India is projected to become the second largest telecom market

globally by 2010.

This is evident from the facts of Telecom Industry for example, Indiaadded 113.26 million new customers in 2008, the largest globally. Thecountrys cellular base witnessed close to 50 per cent growth in 2008, withan average 9.5 million customers added every month. This would translateinto 612 million mobile subscribers, accounting for a tele-density of around51 per cent by 2012. It is projected that the industry will generaterevenues worth US$ 43 billion in 2009-10.

In this report we have tried to capture most of the areas of TelecomIndustry. Major highlights of the report are History of Telecom Industry,

Current Industry Analysis, Role of TRAI, Spectrum allocation, FDIRegulation, Competitive advantages, Outsourcing in Telecom, Emerging

3


4/56


Technologies, Latest Innovation, and Growth Trends, Mergers andAcquisitions.

1 Indian Telecom Industry

1.1 History

4


5/56


1.2 Quick Facts

1.3 Telecom services

Telecommunication sector in India is primarily subdivided into twosegments, which are Fixed Service Provider (FSPs) and Cellular Services.

Telecom industry in India constitutessome essential telecom services liketelephone, radio, television and Internet.

Telecom industry in India is specifically emphasizing on latest technologieslike GSM (Global System for Mobile Communications), CDMA (CodeDivision Multiple Access), PMRTS (Public Mobile Radio Trunking Services),Fixed Line and WLL(Wireless Local Loop ).

India has a prospering market specifically in GSM mobile service and the number ofsubscribers is growing very fast.

5


6/56


1.4 Industry Sectors

From holistic point of view telecom industry can be divided to four sub-sets. The major forces

in Indian telecom industry are Service providers. All major telecom equipment suppliers havetheir R&D centers in India. In last 5 years, global giants in mobile devices have set up their

manufacturing facitilities in India. The discussions in this document is mainly restricted to

only Telecom Service Providers.

6


7/56


1.5 Growth Avenues

Managed services is another segment that is attracting telecomcompanies. On account of the rapidly growing subscriber base, serviceproviders find it difficult to manage their infrastructure and networkmanagement operations. In such cases, they completely or partiallyoutsource their infrastructure or network management operations.

To reduce their network deployment costs, many service providersare considering infrastructure sharing offers the followingadvantages:

Improved service quality

Increased affordability for customers

Faster roll out of services in rural and remote areas

Significant reduction in initial set up costs

Increased environmental aesthetics

Lower operating costs for service providers

Enterprise Telecom Services includes key services, such as voice overInternet protocol (VoIP), dedicated telecom communication systems; ITinfrastructure enabled unified communication services, etc. Telecomservice providers are increasingly targeting enterprises by providing

dedicated services and is expected to witness major developmentsin nearfuture.

7


8/56


Virtual Private Networkis a private data network that providesconnectivity within closed user groups via public telecommunicationinfrastructure. Competition is likely to heat up in the VPN segmentas DoT has relaxed the norms for private players.

3GThe Indian government plans to auction the spectrum for 3Gservices by inviting bids from domestic as well as foreign players,and creating a competitive environment that offers better servicesto consumers. Therefore, the 3G spectrum is among the majorinvestment opportunities and growth drivers of the telecom

industry. The immense potential for 3G is reflected by the 3040 percent

annual growth in Value-Added Services.

Cell phone manufacturers are striving to develop USD 100 priced3G handsets for the Indian market. India expects to replicate its 2Ggrowth in 3G services.

WiMAX has been one of the most significant developments inwireless communication in the recent past. Since this mode ofcommunication provides network access in inaccessible locations at

a speed of more than 4 Mbps, it is expected to be a major factor indriving telecom services in India, especially wireless services. Thus,it will lead to the increased use of telecom services, Internet, value-added services and enterprise services. WiMAX is expected toaccelerate economic growth and assist in providing bettereducation, healthcare and entertainment services.

It is estimated that India will have 13 million WiMAX subscribersby 2012.

Aircel is the pioneer in WiMAX technology in India.

The state-owned player, BSNL, aims to connect 74,000 villagesthrough WiMAX.

Bharti, Reliance and VSNL have acquired licenses in the 3.3GHzrange to utilise

the opportunities offered by this domain.

Value Added Services:The VAS industry was worth USD 632 million

in 200607. The industry is estimated to grow by 60 percent in 200708 and become an USD 1,011 million opportunity.

8


9/56


The VAS industry is currently focussing on the entertainment sector,such as the Indian film industry and cricket; however, there is scopefor growth in other avenues as utility-based services, such aslocation information and mobile transactions.

Rural Telephony: As the government targets to increase ruralteledensity from the current 2 percent to 25 percent by 2012, ruraltelephony will require major investments. This segment will boostthe demand for telecom services, equipment, Internet services andother value-added services; thereby, offering great marketopportunities for telecom players.

1.6 Industry Revenue (2002-2010)

According to a Frost & Sullivan industry analyst, by 2012, fixed linerevenues are expected to touch US$ 12.2 billion while mobile revenueswill reach US$ 39.8 billion in India. India has become the second country inthe world to have more than 100 million CDMA-based (code divisionmultiple access) mobile phone subscribers after the US, which has 157million CDMA users. The Indian telecommunications industry is on agrowth trajectory with the GSM operators adding nearly 9 million newsubscribers in April 2009, taking the total user base to 297 million, agrowth of 3.11 per cent over the additions made the previous month. Thefigures, however, do not include the GSM subscriber additions made byReliance Telecom.

9


10/56


1.7 Subscriber GrowthIndia added 130 million new customers in 2008-09, the largest globally.

The countrys cellular base witnessed close to 50 per cent growth in 2008,with an average 9.5 million customers added every month.

By April 2009, the total number of telephone connections reached 441.47million. With this growth, the overall tele-density reached 37.94 at the endof April 2009. According to Business Monitor International, India iscurrently adding 8-10 million mobile subscribers every month. It is

estimated that by mid 2012, around half the country's population will owna mobile phone. This would translate into 612 million mobile subscribers,accounting for a tele-density of around 51 per cent by 2012.

1.8 Major Players

10


11/56


Bharti-Airtel leads the wirless market with 24% market share. Thecompany recently achieved the magic figure of 100 million subscribers.However, Bharti-Airtel expects a bloodbath in the Indian telecom market inthe near future, and is looking to spread its risks by entering new

geographies (Bharti-MTN deal is discussed in Industry Update Section).With 12-13 players present in the market there would be a severepressure on margins. Be it an Aircel or Etisalat, the new operators wouldnot remain fringe players in the Indian market, but would try and rock theapplecart of existing operators. The growth in Indian market could starttapering off very soon. According to an industry expert the subscriberbase will not expand beyond 800 million in coming years from currentnumber 400 million. Also, ARPUs in India have steadily falling($5-$6).

There have been talks about 3G and IPTV pushing growth, but it all seemsfar-fetched. The third generation of mobile services (3G) will be used bytelcos to gain more spectrum. Besides, the services will be used only inurban areas.

1.8.1 Wireless Service Providers (Market share)

Source:www.coai.com

1.8.2 Handset Manufacturers (Market share)

India's telecom equipment manufacturing sector is set to become one of

the largest globally by 2010. Mobile phone production is estimated to growat a CAGR of 28.3%, totaling 107 million handsets by 2010. Nokia Leads

11
http://www.coai.com/http://www.coai.com/http://www.coai.com/


12/56


the market with whopping 60% share. Korean giant Samsung currently atnumber there is looking forward increase its market share to 20% throughaggressive marketing.

1.9 Major InvestmentsThe booming domestic telecom market has been attracting huge amountsof investment which is likely to accelerate with the entry of new players

and launch of new services. Buoyed by the rapid surge in the subscriberbase, huge investments are being made into this industry.

The Russian government is likely to pick up equity amounting toUS$ 670 million-US$ 700 million in Sistema Shyam TeleServices Ltd(SSTL), a joint venture between Russia-based telecom majorSistema and Shyam Group in India, by the end of this financial year.SSTL is also planning to invest US$ 5.5 billion over the next 5 yearsin India.

Norway-based telecom operator Telenor has bought a 60 per centstake in Unitech Wireless for US$ 1.23 billion.

Japanese telecom major NTT DoCoMo acquired a 27.31 per cent

equity capital of Tata Teleservices for about US$ 2.6 billion inNovember 2008.

Bahrain's Batelco has signed a deal to buy 49 per cent in Chennai-based S-Tel, a GSM service provider, for US$ 225 million.

BSNL, India's leading telecom company in revenue terms, will put inabout US$ 1.16 billion in its WiMax project.

Vodafone Essar will invest US$ 6 billion over the next three years ina bid to increase its mobile subscriber base from 40 million atpresent to over 100 million.

Telecom operator Aircel, which launched GSM mobile services inBangalore in February 2009, plans to invest US$ 220.58 million overthe next year to set up base stations across the state.

12


13/56


Some deals are discussed in detail in industry consolidation section.

1.10 Rural Telephony

Rural India had 76.65 million fixed and Wireless in Local Loop (WLL)

connections and 551,064 Village Public Telephones (VPT) as on September2008. Therefore, 92 per cent of the villages in India have been covered bythe VPTs. Universal Service Obligation (USO) subsidy support scheme isalso being used for sharing wireless infrastructure in rural areas witharound 18,000 towers by 2010.

1.11 Exploring the rural telecom opportunity

It is believed that of the next 250 million people expected to go mobile; atleast 100 million will come from rural areas. Though the rural mobilepenetration is highest in Punjab (20.69 per cent), followed by Himachal

Pradesh (17.09 per cent), Kerala (10.63 per cent) and Haryana (10.20 percent), most companies are now sweating it out by hard selling theirproducts and services in the rural areas of the region. As a result, thegeographical coverage of mobile telephony in India has gone up from 13percent, a couple of years ago, to 39 percent now.

1.12 Policy InitiativesThe government has taken many proactive initiatives to facilitate the rapidgrowth of the Indian telecom industry.

13


14/56


100% foreign direct investment (FDI) is permitted through theautomatic route in telecom equipment manufacturing

FDI ceiling in telecom services has been raised to 74%

Introduction of a unified access licensing regime for telecomservices on a pan-India basis

Plan to introduce mobile number portability in a phased manner

The government is implementing a program of connecting 66,822uncovered villages under the Bharat Nirman programme. Thegovernment will invest US$ 2 billion to set up 112,000 communityservice centres in rural India to provide broadband connectivity in2008-09.

The Department of Telecommunications (DoT) has stated that foreigntelecom companies can bid for 3G spectrum without partnering withIndian companies. Only after winning a bid, would they need to applyfor unified access service licence (UASL) and partner with an Indiancompany in accordance with the FDI regulations.

2 Telecom Regulatory Authority of India (TRAI)

2.1 Mission

To ensure that the interests of consumers are protected and at the sametime to nurture conditions for growth of telecommunications, broadcastingand cable services in a manner and at a pace which will enable India toplay a leading role in the emerging global information society.

2.2 Role of TRAI

One of the main objectives of TRAI is to provide a fair and

transparent policy environment which promotes a level playing field and facilitates fair

competition. In pursuance of above objective TRAI has issued from time to time a large

number of regulations, orders and directives to deal with issues coming before it and provided

the required direction to the evolution of Indian telecom market from a Government owned

monopoly to a multi operator multi service open competitive market. The directions, orders

and regulations issued cover a wide range of subjects including tariff, interconnection and

quality of service as well as governance of the Authority. The functions of TRAI can be

divided as : Recommendatory function and Mandatory Function.

2.3 Recommendatory Functions

14


15/56


Need and timing for introduction of new service provider

Terms and conditions of licence to a service provider

Revocation of license for non-compliance of terms and conditions oflicense

Measures to facilitate competition and promote efficiency in theoperation to facilitate growth in industry

Technological improvement in services by service providers

Inspection of type of equipment used by service provider

Measures for Technological development

Efficient Management of available spectrum

2.4 Mandatory Functions Ensure compliance of terms and conditions of license

Fix the terms and conditions of their inter connectivity betweenservice providers

Ensure Technical compatibility and effective inter-connectionbetween different service providers

Regulate arrangements for sharing of revenues amongst service

providers

Lay-down the standards of QoS to be provided by serviceprovider,ensure this by periodical survey

Lay-down and ensure time period for providing local and long-distance circuits of telecommunication between different serviceproviders

Maintain inter-connect agreement register

Ensure compliance of USO(universal service obligation)

2.5 Other functions Levy fees and other charges as determined by regulations

Perform administrative functions as entrusted to it by Centralgovernment or as per TRAI act

Notify in Official Gazette the service rates and message rates withinand outside India

15


16/56


Snapshot of TRAI functions

Source: www.telenor.com

16


17/56


3 Spectrum Auctions in India Vis--vis Worldwide

Spectrum auctions have been used with significant success in manydeveloped countries. From a regulatory and policy perspective, spectrumauctions ensure the efficient use of spectrum by allocating it to those

entities that value it most, while also generating revenues forgovernments. But auctions may lead to unexpected outcomes due tounanticipated problems with their design leading to unexpected bidderbehavior such as collusion and over-bidding. The key challenge beforeregulatory agencies is to design auctions in such a way as to meet theobjective of fostering competition while at the same time ensuring thatbidders can effectively use the spectrum for their business. With privateinitiatives increasing in telecom and broadcast service provision, demandfor spectrum has increased.

Digital technology has increased the scope of applications and creatednew areas of service provision. Cellular telephony and wireless Internetare examples of such services. Despite technological changes that reducethe demand for spectrum, availability of spectrum continues to be aconstraint. In order to allocate spectrum amongst competing serviceproviders, regulatory agencies often use auctions. From the regulatoryand policy perspective, spectrum auctions ensure efficient usage byallocating it to those entities that value it most, while also generatingrevenues for governments. But auctions may lead to unexpectedoutcomes as, for example, when regulatory agencies have inadequatemarket information, there may be a mismatch between expected andactual bidder behavior, or auctions may be poorly designed. The keychallenge before regulatory agencies is to design auctions in such a way

as to meet the objective of fostering competition while at the same timeensuring that bidders can effectively use the spectrum for their business.

While India was one of the early adopters of spectrum auctions, itssuccess in service provision has been low. Despite this early start, serviceshave been slow to roll out.In India, telecom licences were auctioned for basic and cellular servicesfrom 1991 by the Department of Telecom (DoT), the incumbentgovernment policy maker, regulator and service provider. For serviceprovision, the entire country was divided into roughly 20 circles,categorized as A, B, or C depending upon their revenue potential. Thecircles were mostly co-terminus with the DoTs administrative boundaries

and the states. Potential service providers were required to seek foreignpartners, as it was felt that no Indian company had the requisite financialstrength and technical know how. For all licenses, bidding was a two-stageprocess, the first being a pre-qualification based on the evaluation offinancial net worth (linked to the category of circle and service bid for) andexperience in service

provision and the second stage involved evaluation of bids. The bids weresingle stage, with the award going to the highest bidder drawn from thosethat satisfied the pre-qualification conditions. For cellular licences, GlobalSystem for Mobile Communications (GSM) was the chosen technology and

for basic services, a combination of fiber optic and wireless in the localloop (WLL) was selected. For cellular services, there were separate

17


18/56


licenses for the four major metros of Kolkata (Calcutta), Chennai (Madras),Mumbai (Bombay) and New Delhi. The licenses for the circles containingthe metros excluded these cities. For metro licenses, the financial bidswere to be evaluated on the rental to be charged to the customer for thefirst 3 years.(The airtime tariffs were fixed by DoT.) The licensee fee was aflat amount for the first 3 years and then was linked to the number ofsubscribers, subject to a minimum amount. Subsequent to the bidopening, the rentals were fixed at Rs. 1561 based on the amountsspecified by the winners, even though some winning bids had zero out inmetros, and bidders were evaluated on an annual license fee for theduration of the license, converted to its net present value at a specifieddiscount rate.

The second highest bidder had to match the highest bid in order to obtainthe license. Despite these initiatives, service roll out continued to be slow.

The government then set up a group on telecom (GOT), that consisted oftop-level bureaucrats, industrialists and professionals to evolve a future

policy framework for the sector. This was presumably effected outside theDoT as the government felt that the DoT might not be able to conceive aradically different roadmap or might thwart the involvement of the privatesector or produce a regulatory framework crafted in the DoTs vestedinterest. The GOT drafted the National Telecom Policy in 1999,2 (NTP 99)which presented a roadmap for resolving the impasse. All existing licenseholders could migrate to a new regime that involved a one timepayment as entry fee and an annual revenue share with the government,provided that all operators withdrew their court cases against thegovernment on a variety of issues such as delays in clearances. The entryfee was based on a percentage of the total amount of the original bid. Thischange greatly facilitated private sector participation and severaloperators subsequently commenced services. As a part of the package,theoperators also agreed to allow the government to increase the number ofplayers in their service areas.

3.2 Gaps in Indian Spectrum Auction Licensing Scenario

The absence of clear separations in DoTs responsibilities for policy,regulation and operations led to several delays and lowered the credibilityof the government. Like all incumbents, it saw its position threatened byimpending private participation and set impediments in the service rollout, whereas in its role as a policy maker, it was required to design theauctions to facilitate service provision. Confusion in DoT was also evident

from the manner in which it handled the interconnect issues. Managingthe caps on the number of circles or delays in clearances after the bidswere opened showed a lack of adequate preparation in the auction designprocess. The establishment of TRAI and NTP 99 brought about majorchanges to the licensing process and converting the licence fee to arevenue sharing regime signaling the governments changing perspectiveand willingness to bear a part of the market risk. Subsequently, aninterconnect framework has been put in place (although problems persist)and service provision has accelerated.

3.3 3G Spectrum allocation policy in India in 2009

18


19/56


In the conducive business environment, India Inc. awaits the rollout of 3Gservices. The Indian government plans to auction the spectrum for 3Gservices by inviting bids from domestic, as well as foreign players andcreating a competitive environment that offers better services toconsumers. Therefore, the 3G spectrum is among the major investmentopportunities and growth drivers of the telecom industry.

The immense potential for 3G is reflected by the 30-40 per centannual growth in value added services

The global revenue for 3G is 60 per cent higher than that of otherservices

Cellphone manufacturers are striving to develop US$ 100-priced 3Ghandsets for the Indian market

India expects to replicate its 2G growth in 3G services. The Indianmarket is well poised to leverage the 3G service offerings in contentcategories such as sports, games and music. In the present context,

3G technology is extremely relevant for India. It offers voice capacity that is four to five times higher than that of

2G services. Therefore, it is an ideal platform for low-cost cellularservices

It can fulfil the need of fast developing mobile penetration in ruralareas

It can meet the demand for high-speed data and content richservices in the urban landscape

It can play a vital role in augmenting the competitiveness of thecountrys large BPO segment

It can be a way forward to achieve the Governments broadbandobjectives.

In addition, it will be a good solution for education, telemedicine, etc. Evenif 2 per cent of the 180 million cellular subscribers adopt 3G technology assoon as it is launched, it is likely to create an initial subscriber base of 3.6million. The market is slated to capture more than 11.3 per cent of allmobile subscribers by 2010, i.e., 21.3 million people. Therefore, it wouldnot be incorrect to assume that 3G is poised to create the next mobilerevolution in India. In the race towards lowering the entry barrier for 3Gservices, companies plan to offer bundled service packages with

subsidised handsets.With regard to its business potential, many nationalplayers have already completed 3G trials. BSNL has charted out a plan forlaunching 3G services in 250 cities. Private players, such as Bharti,Reliance and Idea, are also ready to offer this service in 10-20 majorIndian cities. However, Airtel and MTNL are very keen on leveraging theirfirst mover advantage in this field.

In June 2009 the DoT (Department of Telecom) in India has announced theradio spectrum that will be made available when 3G licenses areeventually auctioned off.It could be the case that just 4 Operators aregiven radio spectrum around Delhi - given that two incumbents (BSNL andMTNL) already have some licenses in each zone, then that would be just

the possibility of two new Operators coming to play. In other areas, thereis apparently going to be more provision for private players - meaning up

19


20/56


to 11 Operators could enter business. The greater availability ofspectrum in these other zones is due to the Defence Ministry giving upsome of its Spectrum.

There is still much to-ing and fro-ing to be done though over the 3Glicenses themselves - currently there are disputes over how manyOperators can exist per zone, and whether the relevant spectrum is sold intranches, or in one go. Hopefully something will be resolved soon, as Indiais beginning to really lag behind in 3G technologies, particularly as manyother countries are already at HSPA (3.5G) level, and going to HSPA+(3.75G) soon.

3.4 Comparison-Spectrum Allocation Policy in UK

The UK 3G auction took the necessary steps to design the auctionappropriately,keeping in mind the past discrepencies. In the UK, therewere already four established mobile players that had 2G licensescovering nearly 97 percent of the area and 90 percent of the population.Incumbents who won a 3G license, could provide roaming services overthe existing 2G network to new 3G customers. In contrast, a new entrantneeded to establish a roaming arrangement with the incumbent 2Gproviders.

The incumbents could thwart competition by denying or delaying roamingfacilities to the new entrants. The government felt that new entrantsneeded certainty regarding their ability to be able to provide roaming over

the existing networks and, therefore, mandated that incumbents wouldhave to provide roaming to the new entrants. Such a mandatenecessitated a change in the existing licenses that was undertaken for thedominant providers. The incumbents sought several changes to theoriginally proposed roaming conditions which would be to their advantage.

The FCC, the Radio Communications Agency that conducted the 3Gauctions in UK and Oftel (the UK regulator) went through a detailed publicdiscussion involving industry, academia and other interested parties indesigning the auctions. This allowed regulatory agencies in thesecountries to auction spectrum for all services rather than having to chooseallocation mechanisms separately for various services.

20


21/56


4 Indias Competitive Advantage

An analysis of the Indian telecom industry under the Porters Diamond

Model reveals that India offers a competitive advantage for firmsoperating in the country.India is the fastest growing free market democracy in the world. It has amature and dynamic private sector, which accounts for 75 per cent ofIndias GDP, and a market with enormous potential due to its large sizeand diversity. It is also expected to achieve the highest growth rate amongthe BRIC countries (Brazil, Russia, India and China). India offers significantbusiness opportunities to the services, as well as the manufacturingsectors. This is because India offers benefits such as cost advantage inproduct development and back-office processing and the large-scaleavailability of skilled English-speaking professionals. The middle classpopulation is also a significant market for any business entity. AT Kearney

ranked India as the second-most attractive democracy in its FDIconfidence index. The success of MNCs is a proof that India is an attractiveinvestment destination. Indias huge domestic market and buoyanteconomic growth have always attracted foreign investors. Some of the keyadvantages of investing in India are outlined below.

4.1 Stable Economic Outlook

A decade of reforms has opened the country to greater competition andspurred industries to become more efficient. India is currently the fourth-largest economy on PPP basis and is well positioned on a continuously

increasing growth curve. Indias emergence as a leading destination forforeign investment is a result of positive indicators such as a stable 6 per

21


22/56


cent annual growth, rising foreign exchange reserves of over US$ 266.18billion(July 24th 2009) and Foreign Direct Investment (FDI) of US$ 15 billion.Goldman Sachs had earlier predicted that India will become the third-largest economy in the world. However, it has now revised its previousestimates and claims that by 2050, India will even surpass the US andbecome the second-largest economy after China. The countrys economicgrowth has become more attractive due to the rising share of the servicessector in the GDP.

4.2 Large Market Potential

Around 30-40 million people in India join the middle class every year. Thecountrys upper middle class spends 6 percent of its earnings on telecomservices. India is one of the largest consumer markets in the world. Due torapid economic growth and rise in disposable income, the spending power

of consumers is increasing rapidly. It has been forecasted that 15 yearsdown the line, Indians will be approximately four times richer than theyare today. As per this forecast, Indians will purchase five times more carsand consume three times more crude oil than they do today.

According to the 2001 census, about 54 per cent of the countrys totalpopulation was below 25 years of age. By 2013, another 200 millionpeople will be joining the league, representing an exponential growth inthe consuming class. India will become a large consumer of worldresources - be it natural or man-made, thereby offering numerousopportunities to marketers around the globe. Approximately 33 per cent ofIndias population will be residing in urban areas by 2026, as against 28per cent in 2001.

4.3 Large Talent Pool

22


23/56


The working age population is expected to rise by 83 per cent by 2026.India has over 380 universities and about 1,500 research institutes, whichchurn out approximately 200,000 engineers, 300,000 post graduates,2,100,000 other graduates and around 9,000 PhDs. This large base ofskilled manpower offers unparalleled advantages to the companiesoperating in India. As a result, many multinational companies have eitherestablished operation hubs in India to leverage this sizeable talent pool, orthey have outsourced their work to a third party in India. The numerousBPOs and KPOs flourishing in India are a direct consequence of companieschoosing the latter option.

4.4 Low Labour Cost

CII estimates that manufactured product outsourcing accounted for US$10 billion in 2007. The value will escalate to US$ 50 billion by 2015. Indiahas one of the lowest labour costs among the developing countries, which

is the foremost factor for attracting multinational giants in every sector.The Ministry of Commerce, Government of India, has estimated that offshoring operations to India can provide a cost benefit of up to 40 to 60 percent, as compared to developed countries. The country has also emergedas a major R&D hub with more than hundred Fortune 500 companiesbased in India. An apt example is Nokia, which has set up itsmanufacturing operations in India considering the long term sustainabledemand for mobile telephony. The company believes that this initiativewill help the company in reducing time to market and respond better tocustomer requirements. It has pumped in US$ 150 million into its Chennaifacility.

5. POS (Point Of Sales)

Point of sale (POS) or checkout is the location where a transactionoccurs. A "checkout" refers to a POS terminal or more generally to thehardware and software used for checkouts, the equivalent of an electroniccash register.

A POS terminal manages the selling process by a salesperson accessibleinterface. The same system allows the creation and printing of the receipt.

HISTORY

Early software (pre 1990s)

Early electronic cash registers (ECR) were controlled with proprietarysoftware and were very limited in function and communications capability.In August 1973 IBM announced the IBM 3650 and 3660 Store Systems thatwere, in essence, a mainframe computer packaged as a store controllerthat could control 128 IBM 3653/3663 point of sale registers. This systemwas the first commercial use of client-server technology, peer-to-peercommunications, local area network (LAN) simultaneous backup, andremote initialization. By mid-1974, it was installed in Pathmark Stores in

New Jersey and Dillard's Department Stores.

23
http://en.wikipedia.org/wiki/Financial_transactionhttp://en.wikipedia.org/wiki/Hardwarehttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Receipthttp://en.wikipedia.org/wiki/Peer-to-peerhttp://en.wikipedia.org/wiki/Local_area_networkhttp://en.wikipedia.org/wiki/Pathmarkhttp://en.wikipedia.org/wiki/Dillard'shttp://en.wikipedia.org/wiki/Financial_transactionhttp://en.wikipedia.org/wiki/Hardwarehttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Receipthttp://en.wikipedia.org/wiki/Peer-to-peerhttp://en.wikipedia.org/wiki/Local_area_networkhttp://en.wikipedia.org/wiki/Pathmarkhttp://en.wikipedia.org/wiki/Dillard's


24/56


The first microprocessor-controlled cash register was built by WilliamBrobeck and Associates in 1974, for McDonald's Restaurants. Each stationwas controlled by an Intel 8008, a very early microprocessor. There wasone button for every item -- for example [2 Vanilla Shake], [1 ChocolateShake], etc. By pressing the [Grill] button, a second or third order could beworked on while the first transaction was in progress. When the customerwas ready to pay, the [Total] button would calculate the bill, includingsales tax. This made it accurate for McDonald's and very convenient forthe servers. Up to eight stations could be interconnected and printedreports, prices, and taxes handle from a single station in "Manager Mode."

24
http://en.wikipedia.org/wiki/McDonald'shttp://en.wikipedia.org/wiki/Intel_8008http://en.wikipedia.org/wiki/McDonald'shttp://en.wikipedia.org/wiki/Intel_8008


25/56


Porters Diamond Model Indian Telecom Industry

25


26/56


5.1 The Road Ahead

The target for the 11th Plan period (2007-12) is 600 million phoneconnections with an investment of US$ 73 billion. Apart from the basictelephone service, there is an enormous potential for various value-added

services. In fact, the real potential for telecom service growth is still lyinguntapped. According to the CII Ernst & Young report titled 'India 2012:

Telecom growth continues', revenue from India's telecom services industryis projected to reach US$ 54 billion in 2012, as against US$ 31 billion in2008.

India is the worlds largest untapped mobile market

5.2 Gradual Progression in Telecom Sector

The progression chart below depicts the major regulations and eventsdriving the extra ordinary growth of Telecom sector from year 1999 to

2008. In order to capitalize this opportunity of meeting the consumerneeds in highly competitive market the operators have reduced the tariffsto attract consumers with low purchasing power primarily in semi urbanand rural India. In fact lucrative offers like being paid for incoming callshave transformed the scenario completely. Through these changingregulations and events, the Industry players are aiming to achieve thefollowing

Acquiring new subscribers by expanding in Semi Urban and RuralIndia

Selling more services to existing subscribers

The recent TRAI recommendation permitting PC-to-phone calls where ISPscan offer cheaper STD calls and even free local calls. This would result in

26


27/56


further reduction of voice tariffs. This would lead to increased focus onMVAS by mobile operators.

5.3 Acquiring New Subscribers through expansion inRural India

Acquiring customers have always been a great challenge for companies.Given the current level of saturation in Metros and Urban Market and cutthroat competition among operators , increasing subscriber base in urbanmarket would be all the more challenging. Therefore a lot of operatorswith adequate support from Government are eyeing the rural market forfuture growth. Big operators like Airtel have claimed that soon mobileconnections and recharge vouchers etc will be available at all such placesfrom where people buy match boxes. This certainly explains the futurepenetration of these services in remotest of villages.

5.4 Selling More to Existing Subscribers

This is relatively easier as compared to acquiring new customers. Alsosince now the new subscriptions will largely happen at the bottom of thepyramid therefore the new subscriptions will further lower the averagerevenue per user. In such a scenario mobile VAS sector is a potential long-term revenue stream as it will be easier to sell more to the existingcustomers.

5.5 Government Initiatives

Government also has supported the growth of this sector by coming outwith a number of initiatives for the low end subscribers of rural India, andUniversal Service Obligation (USO) fund was one such initiatives. The USOfund was an initiative taken up by the government to increase ruralteledensity. In recent developments, BSNL and two private operators willerect 427 towers in remote areas offering over four lakh mobileconnections. All the towers are expected to be erected and commissionedby December 2008. Under the second phase, DoT aims at erecting 11,000towers throughout the country to offer over 11 million mobile connectionsADC was levied by Telecom Regulatory Authority of India (TRAI) in 2003 to

provide support for BSNL's rural telephone obligation. Telecom RegulatoryAuthority of India (TRAI) has recently given orders for the withdrawal ofthe ADC (Access Deficit Charge) and the subsequent passing of the benefitto the consumers by the telecom operators.

5.6 The reasons for the increasing importance of MVAScan be classified as:

Decrease in ARPU despite increase in MOU:Though thesubscriber base is growing at a rapid pace and has positivelyimpacted industry revenues, operator margins also have shrunk

owing to competition and lower Average Revenue per User (ARPU)as the major growth is coming from bottom of the pyramid. As ARPU

27


28/56


declines and voice gets commoditized, the challenge is to developalternative revenue streams and retain customers by creating abasis for differentiation in high-churn markets. Need fordifferentiation:There is a greater need among the telecomoperators to differentiate themselves from each other.

Number of Licensees: With increasing number of licensees (98UASL, and 37 cellular licenses) in the telecom space the averagenumbers of operators in many circles have increased to 5-6operators offering more choices to the consumer. Thus thecompetition among the operators has increased tremendously.

Therefore it is very important for them to differentiate themselvesfrom the others. Now that voice has got commoditized theseoperators are using MVAS for their differentiation and marketingthese services heavily for creating awareness among theconsumers.

Decreasing Call Rates: In order to attract consumers with

relatively low purchasing powers primarily from Semi Urban andRural India the operators have drastically reduced the call ratesmaking it affordable to even the lower segment of society. The tariffin India is one of the lowest at Rs.1 per minute as compared to thetariff in developed nations like USA and UK where the call rates areRs.13 and Rs7-8 respectively.

3G bidders who are non operators:The arrival of newtechnologies will give rise to greater competition as many nonoperators are also bidding for the 3G licenses. Department of

Telecom

has planned to allow five 3G operators in each circle depending onthe availability of spectrum.Therefore there would be a greaterneed to differentiate one self in order to attract new customers andretain the existing ones.

Saturation in Metro and Urban Market:The metro/urban areasoffer high level of penetration and have significant mobilesubscribers. In such a highly saturated market with the entry ofMVNOs the competition will get fierce. Therefore capitalizing onvalue added services will give operators opportunity to increaseARPU by providing premium services.

Increasing need and demand from consumers: In addition tothe above supply side reasons the pull effect from consumersasking for more than just basic telephony is also a key driver forMVAS services. Today most of the consumers are seeking morefrom their communication device apart from just mobility and desireto stay connected. As we have seen, Telecommunication has movedbeyond providing just basic voice calls. The mobile phone hasevolved from a mere communication device to an access mode withan ability to tap a plethora of information and services available inthe ecosystem. This is the reason why it is now being referred to asthe fourth screen, after Cinema halls, Television and PC.

28


29/56


5.7 Defining VASBut the fundamental question that remains is how VAS is defined. A clearMVAS definition is not only required to clear the air among the MVASproviders but it will also have an impact on the dynamics of the Value

chain. A detailed definition of VAS might have an impact on the licensingissues surrounding VAS. Lets look at different VAS definitions floating inthe market.

5.7.1 Basic definition of a VAS

Value Added Service (VAS) in telecommunication industry refers to non-core services, the core or basic services being standard voice calls and faxtransmission including bearer services. The value added services arecharacterized as under:-

Not a form of core or basic service but adds value in total serviceoffering.

Stands alone in terms of profitability and also stimulatesincremental demand for core or basic services

Can sometimes be provided as stand alone.

Do not cannibalize core or basic service.

Can be add-on to core or basic service and as such can be sold atpremium price.

May provide operational synergy with core or basic services.

A value added service may demonstrate one or more of thesecharacteristics and not necessarily all of them. In some cases, the valueadded service becomes so closely integrated with the basic offering thatneither the user nor the provider acknowledge or realize the difference. Aclassic example is of P2P SMS. Some of the operators do not consider P2PSMS as part of their VAS revenue.

5.7.2 Definition as per TRAI

In the Unified Access Service License (UASL), VAS is defined as follows-Value Added Services are enhanced services which add value to the basicteleservices and bearer services for which separate licence are issued

The Government of India issues licenses for the following Value AddedServices:-

Public mobile trunking service

Voice mail service

Closed users group domestic 64 kbps data network via INSATsatellites system

Videotex service

GMPCS

29


30/56


Internet

Audiotex

Unified messaging service

5.8 Mobile VAS in rural market

The next wave of Telecom growth will come from the bottom of thepyramid. For majority of the population in the rural segment, the mobilephone is the first communication device. Rural should not always beinterpreted as poor and therefore some categories of MVAS might applydirectly to them. But whether the statement can be extended to MVASdepends on some key factors. One is to clearly identify the need of therural segment, second is to communicate the services to them i.e.generate awareness and thirdly, to provide an easy and cheap accessmode to the rural consumers. All these 3 are quite big challenges and

therefore needs to be addressed adequately for MVAS to take off in RuralIndia. Apart from the identification of rural consumer needs anddevelopment of relevant content, communication of these services to therural population would be a bigger challenge. One way to do this is tocommunicate through regional SMS for which a separate SMS gatewayneeds to be installed. Literacy level of the geographical area will beanother limitation. Therefore the better communication option is Voice inregional languages. The challenge with regional voice is not onlyinvestment but also blockage of the already scarce spectrum.

Marketing the content in rural market is going to be all the more

challenging. This would require right packaging and pricing of MVAS.Providing cheap access mode to end consumer would be another keybooster to rural MVAS. Current voice MVAS charges are expensive from arural consumer perspective therefore that also would need to beaddressed for e.g. the sachet model could prove to be successful here.MVAS is going to address two main needs of rural consumers- connectivityand entertainment mode. Connectivity will provide Information VAS onAgriculture necessary for the farmers livelihood e.g. mandi rates,weather, etc. Health, finance, job opportunities etc are potential areas.Mobile also has the potential to evolve as a key entertainment modeconsidering lack of other entertainment options in rural areas. The

industry has witnessed some type of content being downloaded more insmall towns of UP and Bihar rather than in metros like Delhi and Mumbai.Therefore by leveraging on these two aspects MVAS can be a success inrural area.

5.9 Access devices for MVAS

5.9.1 GPRS Handsets

Currently the penetration of GPRS enabled handsets are close to 26% in

India as against 99% in South Korea and 76% in Japan. Of the total mobilesubscribers in India 65 million possess GPRS-enabled handsets. Of all

30


31/56


those who posses GPRS enabled handsets only 20-25% of them have gotthe GPRS activated and only about 15% use it. Even in case of developednations like South Korea and Japan not more than 50% of the subscribers

owning GPRS enabled handsets use it.

This clearly indicates that the consumer today engage more in text based services than the

web based applications. Therefore for MVAS to grow to its full potential the handset

manufacturers will have to look at ways to manufacture GPRS enabled phones which are

affordable and user friendly. Moreover they would also need to increase its awareness and

educate the consumers on how to use GPRS.

5.9.2 3G Handsets

The market for 3G in the country is expected to be huge with over 65million wireless subscribers, who use their handsets to access dataservices on the Web. These subscribers are currently using mobilehandsets which are internet-enabled and are potential broadbandsubscribers with the deployment of advanced wireless technologies such

as 3G. According to Indian Cellular Association (ICA) about 5% of mobileusers already have handsets that can work on 3G spectrum. In addition,out of all those possessing the 3G enabled handsets the number of peoplewho would use 3G services would be determined by the quality of contentavailable. Unlike most other countries, we are looking at 3G services notonly as premium services but also as an extension of 2G. Since ourbroadband penetration is abysmal, 3G would provide a much requiredboost to it. Given that mobile phones are much cheaper as compared toPCs, the demand for broadband on mobile is expected to be much greater.More importantly, 3G will solve problems more in rural India. Therefore theshift towards 3G would depend on affordability of handsets along with thequality of content available.

31


32/56


6. Key trends in telecom industry

6.1 Mobile Number portability (MNP)

One of the most frequent definitions that prevail in the telecom circles fornumber portability is: "Number portability is a circuit-switchtelecommunications network feature that enables end users to retain theirtelephone numbers when changing service providers, service types, andor locations." Why mobile number portability (MNP)? When fullyimplemented nationwide by both wireline and wireless providers,portability will remove one of the most significant deterrents to changingservice, providing unprecedented convenience for consumers andencouraging unrestrained competition in the telecommunications industry.In short, this is the best method to increase the efficiency of the serviceprovider by increasing the competition, thereby ensuring better services in

all respects. From the subscribers perspective, this is a deceptively simpleand very welcome change, because they can change wireless service

32


33/56


providers without worrying about notifying friends, family and businesscontacts that their wireless number is changing. In addition, being able toport a number from one provider to another eliminates the hassle andexpenses of changing business cards, stationery, invoices and othermaterials for businesses. From the wireless carriers perspective thechange is anything, but simple. Virtually all of wireless carriers systemsare affected. Especially any system that relies on mobile identity numbers(MINs) or mobile directory numbers (MDNs) will be affected. Examples ofcritical systems and processes that would be affected are: billing,customer service, order activation, call delivery, roamer registration andsupport, short messages service center, directory assistance, caller ID,calling name presentation, switches, maintenance and CSC systems, homelocation registers (HLRs), and visiting location registers (VLRs).

6.1.1 The Inhibitors

Huge Costs: One of the most common barriers in MNP

implementation, within any country, has been the implementationcost. Service Providers have been constantly bargaining for time,based on the cost factor, from their respective governments.Referring to the recent example of the US, where each of the largecarriers would need to spend $5060 million to institute the serviceand an equivalent sum to maintain it. The FCC on this plea gavewireless carriers in the US another year, i.e., till November 2003, forresolving implementation issues. The experience of developedcountries exhibits that local number portability for fixed wirelinewas introduced within two to three years of introduction ofcompetition to incumbent state telcos. The cost estimate for the

implementation of WNP in developed nations like the US can bevery helpful for the other countries, who wish to think on the lines ofnumber portability. To add on increased marketing costs are to berealized as the carriers look to lock up their current base beforenumber portability is implemented, and then aggressively pursuethe customers of other carriers thereafter.

Customer Retention/Increased Competition: Every subscriberin a race to retain its customer would like to offer its customers bestservices so as to save them from porting. Its like a blessing indisguise for the customers, as they would get better serviceirrespective of the carrier, albeit with the same number.Infrastructure Upgrade:To support WNP, a company has toupgrade both its hardware and software capabilities, which willamount to some cost. Softwares need to be upgraded to provideproper routing of calls. The carriers need to upgrade their networks

to handle portability requests. The provider, which has its portabilitycompatible would be expected to attract maximum customers andwill emerge the winner. Cost Recovery and Bill

33


34/56


Reconciliation/Query Processing: When a customer plans toshift, the old service provider (OSP) has to perform a query toidentify if there are any billing amounts pending, which they needto recover before the subscriber moves to the new service provider(NSP).

6.1.2 MNP Implementation globallyGlobally, Singapore was the first country to implement MNP in 1997,followed by Hong Kong in 1999 and Australia in 2001. Off late, manycountries have adopted the MNP model to prevent market doldrums andputting pressure on service providers to furnish more services at acompetitive price level. However, it has not been able to produce anysignificant results in these markets. While it has worked in markets likeHong Kong and Australia, it failed to bear fruit in the UK, France, Germany,Pakistan, Ireland, Malta, among others. MNP worked in Hong Kong due tothe speedy porting process and the availability of already implemented

solution (for fixed-line services). In Australia, the regulator effectivelypromoted number portability and was able to maintain the maximumporting time of just under three hours. Furthermore, in Finland, whereinitially the implementation was viewed as a success due to dearth ofminimal contract periods and high migration incentives, operators failed tosustain the momentum.

The failure in most markets where MNP was implemented is attributed to factors like half-

hearted implementation, issues related to contract, lack of consumer awareness, overboard ofpaperwork, technical difficulties and poor customer service.

The neighboring country Pakistan, the first country in Southeast Asia tointroduce MNP in March 2007, experienced less than 1% portability. One ofthe reasons for such poor response is the pitiable customer service andtime consuming process during porting the number. Pakistan has over 90mn cellular subscribers with approximately 95% of them pre-paid.

According to experts, disaster recovery and business continuity are alsocritical elements for MNP providers and hence, it is essential to have a

34


35/56


backup center connected over secured redundant leased lines. This centershould also be located on a different seismic area. There is no doubt that ifimplemented successfully, MNP can be a big boon for Indian cellularsubscribers. However, considering the overall market dynamics and pastexperiences, the approach of the government and gaps in implemetationplanning, its success can be strictly questioned in the long run. Theregulators therefore need to build their fundamentals. To make MNPutilitarian for consumers, the government needs to have a clear roadmap,strategic policies and should define strict guidelines and timelines for theservice providers.

6.2 Wimax v/s 3G

The WiMAX vs. 3G cellular showdown is poised to become one of the next

great market battles in the telecom industry. Fortunes will be made andlost in this battle, and the user experience of the Internet will beirreversibly changed in the process. 3G scores for voice; Wimax may leadto increased broadband penetration. With the Department of

Telecommunications gearing up for simultaneous release of 3G and WiMaxspectrum, analysts expect the two emerging wireless technologies tobattle it out for supremacy.

WiMax or Worldwide Interoperability for Microwave Access is a telecomtechnology that enables wireless transmission of data. The technology isavailable as IEEE 802.16D (fixed) and IEEE 802.16E (mobile). It offersdownloads of up to 70 Mbps as compared to the 15 Mbps that 3G

provides. Mobile WiMax offers download speeds of around 20 Mbps. InIndia, companies like Tata Communications Internet Services, Intel, BharatSanchar Nigam Ltd, Bharti Airtel and Reliance Communications are theproponents of WiMax. Most of the companies have had beta-runs of thetechnology. According to a top official with a service provider, telecomservice providers are in various stages of WiMax implementation. Somecompanies have commercially launched fixed WiMax services in certaincities.

While opponents of WiMax say currently it cannot be used for mobileapplications, the first mobile WiMax network was introduced in Italy this

July. Another reason for the industry pinning its hopes on WiMax is itsability to increase the broadband penetration. WiMax makes huge sensefor companies as it enables them to provide cheaper mobile internet andbroadband services, in turn, increasing the internet penetration. However,this will adversely impact services like GPRS and e-mail on mobile as usersmight move over to WiMax-enabled devices for data, even though theymight stick with 3G or 2G spectrum for voice. The Telecom RegulatoryAuthority of India has set a target of 20 million broadband connections by2010 from the current 4.3 million. The industry expects WiMax to bridgethe gap. According to a consultant of Ernst & Young service providerswould mainly use the technology for gaining traction with the customers,as providing the last mile over the conventional digital subscriber lines

would be time-consuming and costly.

35


36/56


Operators will have to use 3G spectrum to revive voice services that are being choked by a

dearth of 2G spectrum, Patel added. The WiMax customer premise equipment (CPE) is priced

at Rs 5,000-10,000, while the CPEs for 3G would be cost Rs 10,000 and above. The industry

will know the winner in the next six months, when the spectrum allocation is complete.

6.3 Mobile Virtual Network Operator (MVNO)Mobile Virtual Network Operator (MVNO) is a GSM phenomenon where anoperator or company which does not own a licensed spectrum andgenerally with out own networking infrastructure. Instead MVNOs resellwireless services under their brand name, using regular telecomoperator's network with which they have a business arrangements.Usually they they buy minutes of use from the licensed telecom operatorand then resell minutes of usage to their customers of MVNO. CurrentlyMVNOs are emerging in fast pace in European markets and beginning inUSA also. Slowly MVNO phenomenon catching up in Asia and other partsof the world also.

An example for MVNO is Virgin Mobile. Virgin Mobile plc is a mobile phoneservice provider operating in the UK, Australia and Canada, and the US.

The company was the world's first Mobile Virtual Network

36


37/56


Operator, launched in the UK in 1999. It does not maintain its ownnetwork, and instead has contracts to use the existing network(s) of otherproviders. In the UK, Virgin Mobile uses the T-Mobile network. In the US,the Sprint network is the carrier. In Australia, Virgin Mobile operates on theOptus network. In Canada, it uses the Bell Mobility network. Thesenetworks use different technology (GSM in the UK and Australia and CDMAin the US and Canada).

Usually MVNO's do not have their own infrastructure, some providers areactually deploying their own Mobile Switching Centers (MSC) and evenService Control Points (SCP) in some cases. Some MVNO's deploy theirown mobile Intelligent Network (IN) infrastructure in order to facilitate themeans to offer value-added services. In this way, MNVO's can treatincumbent infrastructure such as radio equipment as a commodity, while

the MVNO offers its own advanced and differentiated services based onexploitation of their own IN infrastructure. The goal of offering value-added services is to differentiate versus the incumbent mobile operator,allowing for customer acquisition and preventing the MVNO from needingto compete on the basis of price alone.

MVNO's have full control over the SIM card, branding, marketing, billing,and customer care operations. While sometimes offering operationalsupport systems (OSS) and business support systems (BSS) to support theMVNO, the incumbent mobile operators most keep their own OSS/BSSprocesses and procedures separate and distinct from those of the MVNO.In the future a cell phone user may be able to subscribe to a networkoperator plus multiple MVNOs for specific data services over the samephone. One MVNO could provide sports news, another weather and trafficand still another could provide instant messaging capabilities. In this way,each MVNO and the network operator could focus on their own nichemarkets and form customized detailed services that would expand theircustomer reach and brand.

Regulation of MVNOs

So far MVNOs have not been regulated in any country. The ITU hasreceived several requests to study the issue, specifically to provide input

on whether government intervention is necessary to allow MVNOs to offerservices and applications at a lower price to consumers. This would help toensure a more efficient use of the spectrum but some incumbentproviders argue that the market is already competitive and intervention isnot necessary.

6.4 IPTV

IPTV (Internet Protocol Television) delivers television programming tohouseholds via a broadband connection using Internet protocols. Itrequires a subscription and IPTV set-top box, and offers key advantagesover existing TV cable and satellite technologies. IPTV is typically bundled

with other services like Video on Demand (VOD), voice over IP (VOIP) ordigital phone, and Web access, collectively referred to as Triple Play.

37


38/56


Because IPTV arrives over telephone lines, telephone companies are in aprime position to offer IPTV services initially, but it is expected that othercarriers will offer the technology in the future. IPTV

promises more efficient streaming than present technologies, andtherefore theoretically reduced prices to operators and subscribers alike.However, it also adds many advantages that may play into market pricing.

One of the advantages of IPTV is the ability for digital video recorders(DVRs) to record multiple broadcasts at once. According to Alcatel, oneleading provider, it will also be easier to find favorite programs by using"custom view guides." IPTV even allows for picture-in-picture viewingwithout the need for multiple tuners. You can watch one show, while usingpicture-in-picture to channel surf!

IPTV viewers will have full control over functionality such as rewind, fast-forward, pause, and so on. Using a cell phone or PDA, a subscriber mighteven utilize remote programming for IPTV. For example, if a dinnerfunction runs longer than expected, you don't have to miss your favoriteprogram. Just call home and remotely set the IPTV box to record it.

However, the real advantage of IPTV is that it uses Internet protocols toprovide two-way communication for interactive television. One applicationmight be in game shows in which the studio audience is asked toparticipate by helping a contestant choose between answers. IPTV opensthe door to real-time participation from people watching at home. Anotherapplication would be the ability to turn on multiple angles of an event,such as a touchdown, and watch it from dual angles simultaneously usingpicture-in-picture viewing.

One can also receive Web service notifications while watching IPTV forthings such as incoming email and instant messages. If you IPTV ispackaged with digital phone, Caller ID might pop up on screen as yourtelephone rings.

IPTV is already growing in the international market, with providers in manycountries including Japan, Hong Kong, Italy, France, Spain, Ireland, and the

United Kingdom. In the United States SBC, reportedly purchased asoftware delivery system for IPTV services from Microsoft in 2004 for $400million dollars. Alcatel is working with Microsoft to develop a "globalsolution" for IPTV services, and Verizon has also made a deal withMicrosoft for IPTV software.

38


39/56


7. SWOT ANALYSIS

39


40/56


INTRODUCTION

SWOT analysis is a strategic planning method used to evaluate theStrengths, Weaknesses, Opportunities, and Threats involved in a project orin a business venture. It involves specifying the objective of the businessventure or project and identifying the internal and external factors thatare favorable and unfavorable to achieve that objective. The technique iscredited to Albert Humphrey, who led a convention at Stanford Universityin the 1960s and 1970s using data from Fortune 500 companies.

A SWOT analysis must first start with defining a desired end state orobjective. A SWOT analysis may be incorporated into the strategic

planning model. Strategic Planning has been the subject of muchresearch.[citation needed]

Strengths: characteristics of the business or team thatgive it an advantage over others in the industry. Weaknesses: are characteristics that place the firm ata disadvantage relative to others. Opportunities: external chances to make greater salesor profits in the environment. Threats: external elements in the environment thatcould cause trouble for the business.

40
http://en.wikipedia.org/wiki/Strategic_planninghttp://en.wikipedia.org/wiki/Projecthttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Albert_S_Humphreyhttp://en.wikipedia.org/wiki/Fortune_500http://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Strategic_planninghttp://en.wikipedia.org/wiki/Projecthttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Albert_S_Humphreyhttp://en.wikipedia.org/wiki/Fortune_500http://en.wikipedia.org/wiki/Wikipedia:Citation_needed


41/56


Identification of SWOTs is essential because subsequent steps in theprocess of planning for achievement of the selected objective may bederived from the SWOTs.

First, the decision makers have to determine whether the objective is

attainable, given the SWOTs. If the objective is NOT attainable a differentobjective must be selected and the process repeated.

The SWOT analysis is often used in academia to highlight and identifystrengths, weaknesses, opportunities and threats.[citation needed] It isparticularly helpful in identifying areas for development.

7.0.1 Matching and converting

Another way of utilizing SWOT is matching and converting.

Matching is used to find competitive advantages by matching thestrengths to opportunities.

Converting is to apply conversion strategies to convert weaknesses orthreats into strengths or opportunities.

An example of conversion strategy is to find new markets.

If the threats or weaknesses cannot be converted a company should try tominimize or avoid them.

7.0.2 Internal and external factors

The aim of any SWOT analysis is to identify the key internal and externalfactors that are important to achieving the objective. These come fromwithin the company's unique value chain. SWOT analysis groups keypieces of information into two main categories:

Internal factors The strengths and weaknessesinternal to the organization. External factors The opportunities and threats

presented by the external environment to the organization. -

The internal factors may be viewed as strengths or weaknesses dependingupon their impact on the organization's objectives. What may representstrengths with respect to one objective may be weaknesses for anotherobjective. The factors may include all of the 4P's; as well as personnel,finance, manufacturing capabilities, and so on. The external factors mayinclude macroeconomic matters, technological change, legislation, andsocio-cultural changes, as well as changes in the marketplace orcompetitive position. The results are often presented in the form of amatrix.

41
http://en.wikipedia.org/wiki/Academiahttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Marketing_mixhttp://en.wikipedia.org/wiki/Academiahttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Marketing_mix


42/56


SWOT analysis is just one method of categorization and has its ownweaknesses. For example, it may tend to persuade companies to compilelists rather than think about what is actually important in achievingobjectives. It also presents the resulting lists uncritically and without clearprioritization so that, for example, weak opportunities may appear tobalance strong threats.

It is prudent not to eliminate too quickly any candidate SWOT entry. Theimportance of individual SWOTs will be revealed by the value of thestrategies it generates. A SWOT item that produces valuable strategies isimportant. A SWOT item that generates no strategies is not important.

7.0.3 Use of SWOT analysis

The usefulness of SWOT analysis is not limited to profit-seekingorganizations. SWOT analysis may be used in any decision-makingsituation when a desired end-state (objective) has been defined. Examplesinclude: non-profit organizations, governmental units, and individuals.SWOT analysis may also be used in pre-crisis planning and preventivecrisis management. SWOT analysis may also be used in creating arecommendation during a viability study/survey.

7.0.4 Marketing

In many competitor analyses, marketers build detailed profiles of eachcompetitor in the market, focusing especially on their relative competitivestrengths and weaknesses using SWOT analysis. Marketing managers willexamine each competitor's cost structure, sources of profits, resources

and competencies, competitive positioning and product differentiation,degree of vertical integration, historical responses to industrydevelopments, and other factors.

Marketing management often finds it necessary to invest in research tocollect the data required to perform accurate marketing analysis.Accordingly, management often conducts market research (alternatelymarketing research) to obtain this information. Marketers employ a varietyof techniques to conduct market research, but some of the more commoninclude:

Qualitative marketing research, such as focus groups Quantitative marketing research, such as statisticalsurveys Experimental techniques such as test markets Observational techniques such as ethnographic (on-site) observation Marketing managers may also design and overseevarious environmental scanning and competitive intelligenceprocesses to help identify trends and inform the company'smarketing analysis.

Using SWOT to analyse the market position of a small management

consultancy with specialism in HRM.

42
http://en.wikipedia.org/wiki/Non-profit_organizationshttp://en.wikipedia.org/wiki/Crisis_managementhttp://en.wikipedia.org/wiki/Viability_studyhttp://en.wikipedia.org/wiki/Non-profit_organizationshttp://en.wikipedia.org/wiki/Crisis_managementhttp://en.wikipedia.org/wiki/Viability_study


43/56


Strengths Weaknesses Opportunities Threats

Reputation inmarketplace

Shortage ofconsultants atoperating levelrather than

partner level

Well establishedposition with awell definedmarket niche

Largeconsultanciesoperating at aminor level

Expertise atpartner level inHRM consultancy

Unable to dealwith multi-disciplinaryassignmentsbecause of size orlack of ability

Identified marketfor consultancy inareas other thanHRM

Other smallconsultancieslooking to invadethe marketplace

7.1 Consolidation in Industry.

Telecom players are looking to tap into global funds to finance their

aggressive growth plans. This will result in partnerships joint ventures andequity sellout to foreign players. New license holders will continue to lookto sell their stake at a premium. New policies will seek to curb this licensearbitrage. Smaller players with operations in only a few circles will find indifficult to compete with the nationwide players. The industry may seeconsolidation with these smaller operators being acquired by the largerones. Unbundling of the corporation will continue as companies will seekf or economies of scale and lower startup cost by infrastructure sharing.3G and WiMax license will spur M&A and partnership activity.

7.1.1 Idea Cellulars Acquisition of Spice Telecom

There were three transactions as part of this acquisition; acquisition ofshares of Spice, a non-compete fee and a capital infusion of about Rs 7300crores received from TM International Bhd (TMI). With respect to shares,Idea acquired 40.8% stake of Spice Communications at Rs 77.30 a sharefor Rs 2,716 crore. There was a share swap in which Spice shareholdersgot 49 Idea shares for every 100 Spice shares held. An additional Rs 544crore was paid to the promoters of Spice group as 'non-compete fee'. Thedeal was strategically important for Idea Cellular as it was looking forwardto transfer itself into a pan-India telecom service provider. The spectrumauctioned by GoI is a scarce resource nowadays and cost a premium. Alsotheres restriction by TRAI with respect to number of operators pertelecom circle. So it makes sense to acquire a small telecom operator.Small players like Spice Telecom operating at only a few circles(Karnatakaand Punjab) will find difficult to compete with the nationwide players in thelong run. So it was a win-win deal for both companies.

7.1.2 Vodafones entry into India

Vodafone paid a discounted price of $10.9 billion in cash for acquiring the52% stake held by Hutchison Telecom International (HTIL) in Indian mobilefirm Hutch-Essar. HTIL declared a special dividend of 6.75 HK dollars pershare following the completion of the formalities. The final price was areduction of $180 million from the originally agreed price of $11.08 billion.

Vodafone is the largest mobile telecommunications network company in

43


44/56


the world. The deal gave them access to one of the fastest growing mobilemarkets in the world.

7.1.3 Telenor-Unitech Deal

Norwegian Telecom major Telenor is in the process of acquiring controllingstake of 67.25% in Unitech wireless via equity infusion. The enterprisevaluation of Unitech Wirelsss is about Rs 10,900 crore. As per the deal,

Telenor will infuse cash in four stages and at each phase, by increasing itsstake in Unitech Wireless. In the first phase, they got 33.5% ownership inUnitech Wireless. In the second phase they completed the acquisition for a49 per cent stake in Unitech Wireless by paying Rs 1,130 crore for afurther 15.5 per cent stake in the company. The acquisition is expected tobe completed by end of this quarter.

7.1.4 TTSL DoCoMo Deal.

Japanese carrier NTT DoCoMo acquired 26 per cent stake in TataTeleservices (TTSL). The Tata DoCoMo-branded GSM service has alreadystarted in Southern India and gradually will be expanded nationwide.DoCoMos international expansion plans have not always provensuccessful, with the firm historically preferring to take small stakes infirms and then try to influence their strategy. It has been less prepared totake majority stakes and impose its will, as other leading carriers havechosen to do.

The difficulties faced by the firm in spreading its domestically successful i-

mode service internationally typify the obstacles it has faced overseas.With Tata, DoCoMo had said participating proactively in TTSLsmanagement by providing human resources and technical assistance tohelp realise improved network quality and the possible introduction ofleading-edge, value-added services.

7.1.5 Bharti-MTN deal (in talks).

Recently Bharti Airtel has re-started its audacious merger bid with MTNthat could create a $61-billion transnational telecom goliath withcombined revenues of $20 billion and over 200 million subscribers across

44


45/56


Africa, Asia and Middle East, will be among the world's 10 biggest telecomcompanies. The deal could be win-win for both parties. Bharti is underpressure in its home country due to severe competition and lookingforward to spread its risk across geographies. Meanwhile, the Africantelecom operator is also encountering some of the problems that itscounterpart in India is confronting. MTN may have higher ARPUs (in therange of $12-20), but they are also falling fast.

7.1.5.1 Strategic benefits to both players

Synergies would be sought from a number of areas, includingprocurement, operational best practice, R&D and international networksharing. The two companies will not overlap in each others businessoperations: Bharti Airtel will be the primary vehicle for Bharti and MTN topursue further expansion in Africa and the Middle East.

With both Bharti and MTN operating in high-growth geographies, it would

be imperative for them to incrementally expand into untapped areas.Collaborating with each other would seem the logical way ahead. Themost important, and visible fallout of the deal, if it materializes, will be theadvantage of economies of scale for the new entity.In recent times, companies are more amenable to mergers andacquisitions. Of late, companies are finding it tough to obtain easy fundsfor expansion, which calls for more collaboration if corporate intend toexpand. Bharti would not be involved only in MTNs day-

to-day activities, but it would also have a say while making biggerstrategic decisions, such as those pertaining to investments in other

45


46/56


geographies or sourcing of equipment. The high subscriber base andfinancial muscle will give Bharti-MTN the desired edge while dealing withvendors. Once the merger happens, the economies of scale of thecomplete outfit (Bharti-MTN) would be taken into account. For instance,even if the company places an order worth just $1 million, the vendorwould not hesitate to lap it up, as there could be orders worth a billiondollars in other projects. This would offset whatever concerns there maybe with respect to the small population size in countries where MTNoperates.

7.1.5.2 Takeaways for Bharti

The biggest takeaway for Bharti is in the form of access to newgeographies with high growth potential. Without a partner, Bharti wouldhave to embark on a Greenfield project, which would be time-consumingand capital intensive.

Besides, without local knowledge (with respect to the market andgovernment regulations), Bharti could be on a sticky wicket. TheIndian telco does not have the expertise in running multi-countryoperations.

MTN has operations in 21 countries across Africa and the MiddleEast and is one of the largest emerging market mobile operatorsglobally. While Africa has one-third of the worlds population, itstelephonic density is just 30 per cent. This offers plenty of room forexpansion. The fact that 95 percent of Africa is prepaid, whichensures all cash operations, fits perfectly into Bhartis plans.

The options for Bharti were to go either the Greenfield way or with

an experienced partner. MTNs strong foothold in some growingmarkets such as South Africa, Botswana, Iran and Nigeria ensuresthat when the growth in India starts to slow down, Bharti would beready to take off in other geographies. Besides, there is a lot ofpotential in Africa as three-fourths of the continent is still untapped.

Africa is quite like rural India and from that perspective; Bharticould learn how to roll out infrastructure in rural India.

In addition, MTN is strong in the value-added services (VAS) andmobile commerce space. So, as and when mobile commerce picksup in India (after RBIs approval), Bharti would be able to tap this

market through MTNs expertise. MTN has a vast experience in running multi-country operations and

overcoming regulatory hurdles. By working with MTN, life for Bhartiwill get a lot of easier.

7.1.5.3 Major Challenges for the merger

One of the major challenges would be the integration of the company onthe ground. It is tough for intercontinental companies to merge seamlessly

because of cultural divide.

Alcatel-Lucent for instance is still trying to adjust to cultural divide.

Although Nokia-Siemens has bridged this divide faster, it wasbecause both the companies were European.

46


47/56


The Black Empowerment Act could pose a challenge, as it is meantto safeguard the rights of the black population. As per this Act,blacks are ensured a minimum shareholding management seatsand voting rights.

The countrys strong trade union, Congress of South African Trade

Unions (COSATU), which has influence over President Jacob Zuma,had almost wrecked the Vodafone-Vodacom deal.

7.2 FDI Investments in the Telecom Sector in India:

The Indian telecom industry has always allured foreign in

Documents

Future of India in Telecom