Report on Telecom Sector 2009 (1)

8/8/2019 Report on Telecom Sector 2009 (1)

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Report

On

Telecom Sector


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Table of Content

Executive Summary ...5

Problem Statement.5

1. Introduction.....62. Indian Telecom Industry

2.1. History......62.2. Facts....72.3. Telecom services....72.4. Industry revenue....72.5. Major players.......8

3. Telecom Regulatory Authority ofIndia (TRAI)3.1.

Mission......9

3.2. Role of TRAI.......93.3. Functions of TRAI......9

4. The Road Ahead4.1. Expansion in rural areas......104.2. Government initiatives.....104.3. VAS

4.3.1. Basic definition of VAS......104.3.2. Definition as per TRAI.....11

4.4. GPRS Handsets.....115. Key Trends in Telecom Industry

5.1. Mobile Number Portability.....125.2. 3G.....125.3. MVNO....125.4. IPTV

5.4.1.What is IPTV? ....135.4.2.Market Position....13

6. Industry Updates6.1. Idea Cellulars Acquisition......146.2. Vodafone Entry......146.3. TATA DOCOMO......146.4. FDIInvestment....15

7. Conclusion.....168. References.....17


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List of Tables & Figures

y Facts ofIndian Telecom Industry..7y Telecom Industry Revenue7y Major Players

o in services.....8o in handset..8

y TRAI Report on GPRS Handset...11y FDIInvestment in Telecom..15


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Executive Summary

The rapid growth in Indian telecom industry has been contributing to Indias GDP at large. Telecom

Regulatory Authority ofIndia was established to regulate and deal with competition among the service

providers. Upcoming services like 3G and Portability will help to further increase the growth rate. TheIndian telecommunication industry is one of the fastest growing in the world and India is expected to

become the second largest telecom market in the world by 2010.

India added 113.26 million new customers in 2008, the largest globally. The countrys cellular base

witnessed close to 50% growth in 2008, with an average 9.5 million customers added every month. It is

estimated that telecom industry will generate revenues worth US$ 43 billion in 2009-10.

IN this we have tried to capture the most of areas of telecom industry. Like, History of Telecom

Industry, TRAI role and functions, new trends in industry and latest updates.

Problem Statement-

y To find the reason of tremendous growth in Indian Telecom Industryy To study the role of TRAIy To study upcoming trends in telecom industry


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1. IntroductionIndia growth story has already got the world to sit up and take a note of the changing economic

scenario. The Indian government is doing everything that is possible to ensure that this story remains

intact. Factors, like the liberalization in the government stance and the daring entrepreneurs of theIndian soils, have helped the sectors achieve the highs like never before. And currently, the flavor of

the month seems to be the telecom industry.

2. Indian Telecom Industry2.1. HistoryHistory ofIndian Telecommunications started in 1851 when the first operational land lines were laid by

the government near Calcutta (seat of British power). In 1883 telephone services were merged with

the postal system. Indian Radio Telegraph Company (IRT) was formed in 1923. After independence in

1947, all the foreign telecommunication companies were nationalized to form the Posts, Telephone

and Telegraph (PTT), a monopoly run by the government's Ministry of Communications. Telecom

sector was considered as a strategic service and the government considered it best to bring under

state's control.

The first wind of reforms in telecommunications sector began to flow in 1980s when the private sector

was allowed in telecommunications equipment manufacturing. In 1985, Department of

Telecommunications (DOT) was established. It was an exclusive provider of domestic and long-distance

service that would be its own regulator (separate from the postal system). In 1986, two wholly

government-owned companies were created: Videsh Sanchar Nigam Limited (VSNL) for international

telecommunications & Mahanagar Telephone Nigam Limited (MTNL) for service in metropolitan

areas.

In 1990s, telecommunications sector benefited from the general opening up of the economy. National

Telecom Policy (NTP) 1994 was the first attempt to give a comprehensive roadmap for the Indian

telecommunications sector. In 1997, Telecom Regulatory Authority of India (TRAI) was created. TRAI

was formed to act as a regulator to facilitate the growth of the telecom sector. New National Telecom

Policy was adopted in 1999 and cellular services were also launched in the same year.

Indian telecom industry has the highest growth rate in the world. A record 5.9 Million new mobile

phone subscribers were drawn by the Telecom sector in India in the month of August 2006, according

to the COAI (Cellular Operators Association of India). India, which is seeing over 8 million wireless

subscribers being added every month (8.62 million in May 2008), is the fastest growing telephone

market in the world.The government has reiterated the target of 500 million telecom subscribers and20 million broadband connections by 2010.


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2.2 FactsTotal Telecom Subscriber 429.72(March 2009)

Wireless Subscriber 391.76

Wire line Subscriber 37.94Indias service provider revenue Q1 2009 $8.2billion

Indias rural mobile users 100 million

2.3 Telecom ServicesTelecommunication sector in India is subdivided into 2two segments, which are Fixed Service Provider

(FPS) and Cellular Services. Telecom Industry in India is specifically emphasizing on latest technologies

like GSM, CDMA, PMRTS, and WLL. India has a prospering market specifically in GSM mobile service

and the number of subscriber is growing very fast.

2.4 Industry RevenueYear Revenue(US$ billion)

2002-03 9

2003-04 10

2004-05 11

2005-06 15

2006-07 20

2008-09 32

2009-10(forecasted) 43

Network Infrastructure companies:Cisco, Ericsson

Telecom SolutionsProviders:Mahindra,Aricent,IBM,Wipro

Telecom Service Provider: Airtel, Idea,Reliance,Vodafone

Telecom Equipment Manufacturer:Nokia,Motorola, Samsung

Telecom


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2.5 Major Players

2.4.1 In Services

2.4.2

In Handset Market

29%

22%14%

13%

6%

4%1%

10%

1%

As on 30 June 2009

Bharti Airtel Vodafone BSNL IDEA Aircel Reliance GSM MTNL TATA LOOP Moble

59%

8%

7%

6%

5%

15%

Sales of Handset

Nokia Samsung Sony Motorola LG Other


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3.Telecom Regulatory Authority of India (TRAI)

3.1 Mission

To ensure that the interest of consumer is protected and at the same time encourage the development

of telecommunications, broadcasting and cable services in a manner and at a pace which will enable

India to play a leading role in the emerging global information society.

3.2 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 facilities fair competition. TRAI has issued from time to time a large

number of regulations, orders and directives to deal with the issues coming before. These regulations

cover a wide range of subjects including tariff, interconnection and quality of services etc.

3.3Functions of TRAIo Need and timing for introduction of new service providero Terms and condition of license to a service providero Technological improvement in services by service providero Maintain inter-connect agreement registero Levy fees and other charges as determined by regulationso Measures for technological developmento Measures to facilitate competition and promote efficiency in the operation to facilitate

growth in industry


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4. The Road Ahead

4.1 Expansion in rural areas

Acquiring customers have always been a great challenge for companies. The current level of saturationin Metros and Urban Market and Cut Throat Competition among operators, increasing subscriber base

in urban market would be all the more challenging. Therefore a lot of operators with support from

government are eyeing the rural market for future growth. Big operators like Airtel have claimed that

soon mobile connections and recharge vouchers will be available at all such places from where people

buy match boxes. In order to attract consumers with relatively low purchasing powers primarily from

semi urban and rural India the operators have reduced the call rates making it affordable to even the

lower segment of society.

4.2 Government initiatives

Government also has supported the growth of this sector by coming out with a number of initiatives

for the low end subscribers of rural India and Universal Service Obligation (USO) fund was one such

initiatives. The USD fund was an initiative taken by government to increase rural telecommunication

density. In recent developments BSNL and other two operators will erect 427 towers in remote areas

offering over four lakh mobile connections. Telecom Regulatory Authority of India (TRAI) has given

orders for the withdrawal of the ADC (Access Deficit Charges) and the subsequent passing of the

benefits to the consumers by the telecom operators.

4.3 VAS (Value Added Services)

4.3.1 Basic definition of VAS

Value Added Services (VAS) in telecommunication industry refers to non-core services, the core or

basic services being standard voice calls and fax transmission including bearer services. The value

added services are characterized as under-

y Not a form of core or basic services but adds value in total services offeringy Do not cannibalize core or basic servicesy Can be add-on to core services and as such can be sold at premium pricey Provide operational synergy with core or basic services

A Value added service may demonstrate one or more of these characteristics and not necessarily all of

them.


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4.3.2 Definition as per TRAI

Value Added Services are services which add value to the basic teleservices and bearer services. The

government ofIndia issues licenses for the following services-

y Public mobile trunking servicesy Voice mail servicesy Videotext servicesy GMPCSy Internety Audio texty Unified messaging services

4.4 GPRS Handset

TRAI Report

Population ofIndia- 1130 mn

Mobile subscriber base- 426 mn

GPRS Enabled- 65 mn

GPRS Activated- 15-16 mn

GPRSUsers-

9 mn


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5. Key Trends in Telecom Industry

5.1 Mobile Number Portability (MNP)

The Telecom Regulatory Authority (TRAI) ofIndia has decided to set up a steering committee to workout the modalities for implementing mobile number portability. The move comes after the

Communications Ministrys decision to introduce the facility in the four metros. To implement this, it

requires a database management having information of the networks and associated ported number.

Majority of the countries opt for a centralized database service managed by a neutral third party. The

cost of the database will be borne by each operator depending on the strength of subscribers. The

challenge for the service providers lies in maintaining separate data bases for GSM and CDMA

operators.

Number portability is a circuit-switch telecommunication network feature that enables end users to

retain their telephone numbers when changing service providers, service types and or locations. When

fully implemented nationwide by both wire line and wireless providers, portability will bringconvenience for consumers and encouraging competition in telecommunication industry. Number

Portability is best method to increase the efficiency of the services provider by increasing the

competition.

5.2 3G (Third Generation)

3G Technology was implemented in Japan for the first time in the world. Today the technology is

serving 25 countries over more than 60 networks having its existence in Asia, Europe and USA. Video

conferencing has been a major factor in the success of the technology.

3G or Third Generation technology is a convergence of various Second Generation telecommunicationsystems. The technology is intended for SMARTPHONES - multimedia cell phones. Video broadcasting

and other e-commerce services such as, stock transactions and e-learning will now are made possible

much faster. It offers 3 Mbps speed for downloading, which is very high as compared to that of the 2G

technology. The 3G technology provides for internet surfing, downloading, e-mail attachment

downloading, audio-video conferencing, fax services and many other broadband applications.

5.3 MVNO

A mobile virtual network operator (MVNO) are a companies that provides mobile phone service but

does not have its own licensed frequency allocation of radio spectrum, nor does it necessarily have the

entire infrastructure required to provide mobile telephone service.MVNO's have full control over theSIM card, branding, marketing, billing, and customer care operations. While sometimes offeringoperational support systems (OSS) and business support systems (BSS) to support the MVNO, the

incumbent mobile operators most keep their own OSS/BSS processes and procedures separate and

distinct from those of the MVNO.


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6. Industry Updates

6.1 Idea Cellulars Acquisition

Idea cellulars acquisition of Spice Telecom, there were three transactions as partof this acquisition of shares of Spice, a non-compete fee and a capital infusion of

about Rs. 7300 crores received from TM International Bhd (TMI). With respect to

shares, Idea acquired 40.8% stake of Spice Telecom at Rs. 77.30 a share for Rs. 2716 crores. The deal

was strategically important for Idea Cellular as it was looking forward to transfer itself into a pan- India

telecom service provider.

6.2 Vodafone Entry

Vodafone paid a discounted price of $10.9 billion in cash for acquiring the 52%

stake held by Hutchison International (HTIL) in Indian mobile firm Hutch-Essar.

Vodafone is the largest mobile telecommunication network company in the

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

6.3 TATA DOCOMO

Japanese carrier NTT DoCoMo acquired 26% stake in Tata Teleservices (TTSL). The TataDoCoMo GSM service has firstly started in Southern India and then gradually expanded

nationwide. The launch of the TATA DOCOMO brand marks a significant milestone in the Indian

telecom landscape, as it stands to redefine the very face of telecoms in India. Tokyo-based NTT DOCOMO is one

of the world's leading mobile operators-in the Japanese market, the company is clearly the preferred mobile

phone service provider in Japan with a 50 per cent market share.


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6.4 FDIInvestment

The Indian telecom industry has always attracted foreign investors. FDI inflow, from August 1991 to

March 2009, in the telecommunication sector amounted to US$ 7513.22 million. This makes

telecommunication the third largest sector to attract FDI in India in the post liberalization era. The

investment was majorly in handset and telecom service provider.

0

500

1000

1500

2000

2500

2008-09 2007-08 2006-07 2005-06 2004-05 2003-04

FDI in Telecom Sector (US$ million)

FDI in Telecom Sector (US$

million)


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7. Conclusion

The Indian Telecon Services provider industry is gearing for a revolutionary. The customer is

driving this revolution and will see more unique offerings coming his way. The 3G which will

pave the way for 4G and the VAS services will keep the customer asking for more. The rural

areas which have remained unstapped will see revolutionary services. Also the easing of the

regulation by TRAI, the FDI investment will make the telecom space in India a must watch in

coming years.


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Report on Telecom Sector 2009 (1)