Telecom 2009

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The Indian Telecom

Success Story

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Foreword

Havingemergedasthefastestgrowingtelecommarketintheworld,Indiahas

over500milliontelecomsubscribers,withmorethan120millionsubscribers

addedinthelasteightmonths.Theteledensitytoohasshownsignificantincrease

tocrossthe40percentmarkthisyear.ThesuccessoftheIndian

telecommunicationssectorhasbecomethecynosureoftheworldandhasmade

thecountryatrulyattractiveinvestmentdestination.

Thesuccessofthesectorcanbeattributedinnosmallparttothestrong

regulatorysupportprovidedbytheGovernment.Thepolicyinitiativescoupledwith

numerousgrowth-orientedstepstakenbyprivateplayersandotherstakeholders

havecreatedatrulystimulatingenvironment.

Thegrowthofthetelecommunicationsectorhasalsofueledtheinclusivegrowth

agendawiththeindustryseekingtomakeanactivecontributiontothe

developmentofthelessadvancedsectionsofsociety.Todayeveryfifthpersonin

ruralIndiaisconnected;fromwageearnerstoshopkeepers,farmersto

fishermen;mobilephonesarehelpinginincreasingtheirproductivity.

OntheoccasionofIndiaTelecom2009,the4thInternationalConferenceand

Exhibition,theDepartmentofTelecommunicationsispleasedtoreleasethis

reportontheIndiantelecomsuccessstory.CompiledbyKPMGandFICCI,it

providesanoverviewoftheIndiantelecommunicationssectorandwillserveasa

usefulreferencemanualforallstakeholdersincludingregulators,policymakers,

telecomoperatorsandthegeneralpublic.

P. J. Thomas

Secretary

DepartmentofTelecommunications&IT

GovernmentofIndia

NewDelhi

2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.

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TheFederationofIndianChambersofCommerceandIndustry(FICCI)andKPMG

areproudtopresentthisreportonIndiaTelecom2009TelecomforInclusive

Growth,inassociationwiththeDepartmentofTelecom(DoT).

ThisisanexcitingtimefortheIndiantelecommunicationsindustry.Thesectorhas

witnessedtremendousgrowthoverthelastfewyears,havingaddedmorethan

morethan120millionsubscribersineightmonthsalone.Whilethesuccesssofar

wasdrivenprimarilybyurbanareas,thenextphaseofgrowthisexpectedtohave

astrongruralflavor.Therewillbeastrongfocusonconnectingnewmarketsas

wellasexpandingcurrentmarketsthroughnon-voiceservices.Thispresents

attractiveopportunitiesforallstakeholdersoftheindustry,includingthe

Governmentandprivateplayers.

Thisreportprovidesthereaderwithanoverviewofhowtheindustryhas

developedoverthelastfewyears,withaspecialemphasisonkeytrends

impactingtheindustrytoday.Thisreportalsodiscussestheimpactthatthissector

hashadinpromotingtheagendaofinclusivegrowth.

WeareextremelygratefultotheDepartmentofTelecommunications(DoT)for

providinguswiththisopportunitytoworkwiththemfortheIndiaTelecom2009

event.

Sean Collins

GlobalChair

CommunicationsandMedia

KPMG

Romal Shetty

ExecutiveDirector

HeadofTelecom

KPMGinIndia

Amit Mitra

SecretaryGeneral

FICCI,India


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Executive Summary

Overthelastfewyears,Indiahasobservedenviablegrowthinitseconomy,even

inthefaceoftheglobalslowdown.Thestrengtheningdomesticmarketandthe

domesticnatureofinvestmentfinancinghashelpedinminimizingtheimpactof

theglobaleconomiccrisis.Thechangingdemographicsinthecountryhavealso

contributedinmakingthisanattractivemarket,thusattractingsignificant

investmentsfrombothdomesticandinternationalplayers.

Thetelecomindustryspecificallyhashadabigroletoplayintheprogressthat

hasbeenmadebythecountry.TheIndiantelecomsectorhasbeenthefastest

growingintheworldandisnowthesecondlargesttelecommarketglobally.The

eyesoftheworldarenowonIndia,andthepolicymakersandprivateplayersare

workingtogethertoensurethatthetelecomsuccessstorycontinuesatthesame

pace.

Thesuccessofthesectorhaslargelybeendrivenbywirelessservices,with

operatorsreportingtotal(wireline+wireless)additionsofapproximately15million

subscriberseverymonth.Theoverallteledensityhascrossed43.5percent,with

urbanareasapproaching100percentteledensity.1 Clearly,thefocusnowisto

increasepenetrationinruralareastodrivethenextphaseofgrowth.All

stakeholders-includingthegovernment,theregulatorandtheprivateplayers

havetakensignificantinitiativestopromoteruralpenetrationandcontributeto

inclusivegrowth.

Contributingtoalmost70percentofthepopulationandasignificantpieceof

overalldemandforgoodsandservicesinthecountry,ruralIndiahasnowcometo

theforefrontoftheindustryscollectivefocus.TheGovernmenthasintroduced

specificmeasuresandpoliciesforruralupliftment,includingenhancedprovisions

undertheNationalRuralEmploymentGuaranteeSchemeandtheBharatNirman

Program.Ofparticularinteresttothetelecomindustryaretheprovisionsunder

theUniversalServiceObligationFundwhichpromotethepenetrationoftelecom

infrastructureandservicesinruralareas.

InheraddressinJune2009,PresidentPratibhaPatilannouncedthatthe

governmentstargetswillincludearuralteledensityof40percentinthenextfive

yearsandtheexpansionofbroadbandcoveragetoeverypanchayatinthreeyears.

ShealsomentionedthattheschemeforCommonServiceCentresore-kioskswill

berepositionedsoastobeanetworkofpanchayat-levelBharatNirmanCommon

ServiceCentresprovidinggovernmentservicestoruralcitizens.2

1TRAI,November2009;DoT

2http://presidentofindia.nic.in/sp040609.html


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Ithasbeenintriguingtoobservetheimpactthatthetelecomsectorandtherural

populationhavehadoneachother.Whiletheruralareasbenefitedtheindustryby

openingupalargemarket,theindustryinturnplayedasignificantroleinthe

socialandeconomicupliftmentfortheruralpublic.Thesectorhascontributedin

generatingemployment,improvinglocalbusinessesandoverallstandardofliving

byeffectivelyintegratingwiththeeconomiclifecycleofthelocaleconomy.

Telecommanufacturingisanotherfacetofthesectorthathasemergedasahot

topicinindustrycircles.Indiaisfastemergingasahubforglobaltelecom

manufacturingandtheproductionandexportsoftelecomequipmentinthe

countryhavebeenonasteadyrise.Leadingglobalplayershavemadesignificant

investmentsinsettingupmanufacturingandR&DfacilitiesinIndia,withmany

morebeingplanned.

Whilevoiceserviceshavehistoricallybeenthekeyforcebehindtelecomgrowth,

industryobservershaveseenasteadyriseintheuptakeofvalueaddedservices

inrecenttimes.TheABCofVAS-namelyAstrology,BollywoodandCricketstill

continuestodrivetheprimeusageofvalueaddedservices.However,applications

likemobilecommerceareslowlyontheuptakeandareexpectedtogrowfurther

inthecomingyears.Theneedofthehouristodevelopmorelocallyrelevant

contentlikenewsalertsinlocallanguages,weatherupdatesandotherswhich

willdriveuptheconsumptionofVASevenfurtherinthefuture.

Theindustryisnoweagerlyawaitingsomekeyupcomingregulationsincluding

the3GandBWAauctions,scheduledforearlynextyear.Thesearelikelytohavea

significantpositiveimpactonthesectoranditsgrowthinthenextfewyears.

MobileNumberPortabilityisalsolikelytoberolledoutinthenextfewmonths

whichwillmakethemarketmorecompetitiveandoffertremendousbenefitsto

theconsumers.

Intheshortterm,themarketwillbeunderseverecompetitivepressureas

revenuesarestillprimarilydrivenbyvoice.Thelongtermlooksattractivedueto

anticipatedpotentialofVASandDataservicesaskeydifferentiatorsandrevenue

generators.

TheIndiantelecommunicationsindustryiswellsettobuildfurtheronthesuccess

ofthelastfewyears.Thepolicymakersandtheprivateplayershavesuccessfully

cometogetherwithvariousinitiativestoensurethattheindustrycontinuesto

remainashiningstarforIndia,tothebenefitofall.


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Table of contents

1 Macro-Economic View of India 01

2 Global Telecommunications Market 05

3 Indian Telecommunications Market 11

4 Connecting Rural India 19

5 Broadband Connectivity 27

6 Telecom Manufacturing 33

7 Telecom Research & Development 39

8 Value Added Services 41

9 Regulatory and Policy Environment 49

Conclusion 56

About Department of Telecommunications (DoT) 57

About Federation of Indian Chambers of Commerce

and Industry (FICCI) 57

About KPMG in India 58

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01. Macro-Economic View of India

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Macro-Economic View of India

Source:RBI,IMF Source:CSO(2009)

Evolution of Indias GDP GDP Composition by Sector (2008-09)

Resurgence in the time of global slowdown

Theyeargoneby,wasonepackedwithsignificant

developmentsontheworldeconomicfront.Despitethe

effectsoftheglobaleconomicturmoil,theIndianeconomy

hasmanagedtoperformrelativelybetterthanits

contemporariesrecordingarealGDPgrowthrateof6.7

percentin2008-091.

Whileagriculture,manufacturingandserviceshavebeenthe

fundamentalpillarsoftheIndianeconomy,theservices

sectorhasbeentheforerunnerofcontinuedrapidgrowth

contributingapproximately57percentoftheGDPin2008-

092.

1RBI

2CSOEstimates


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USA

UK

2008 2009 2010E

1.1

-3.3

1.2

Euro

Zone

0.7

3.3

1.2

0.7

-3.4

1

China

9.1

6.5

8.2

9

6.76

India

-0.7 -0.2

Japan

USA

-

-China

9.18.2

India

--

--

-6.8

6.5

Source:EIUEstimates,EstimatesforIndia:RBI,EconomicSurvey2009

Source:DIPP;*=Provisional;

3RBIEstimates

4.36.1

9.0

22.8

34.4 35.2

0

5

10

15

20

25

30

35

40

USD

Bn

CAGR: 52%

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

FDI Inflows - Driving Globilization

Slowdown in Global Growth...India still in Positive Territory

Thecountryisexpectedtoregisteragrowthrateof6

percentin2009-103.Evenattheserates,Indiasgrowthis

estimatedtobehigherwhencomparedtootherregions

globally.

Reforms have enabled sustained growth

Whileliberalizationinindustry,foreigntrade,ForeignDirect

Investments(FDI)hasledtoIndiabecomingwellintegrated

withtheglobaleconomy;structuralstrengthslikeayoung

population,skilledmanpower,largedomesticdemandand

presenceofgloballycompetitivefirmshaveattracted

significantinvestorattentioninrecentyears.

The Indian Telecom Success Story | 02


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Additionally,positiveeconomicdataandexpectationsofthe

globaleconomicdownturnbottomingoutsoonhavealso

revivedtheriskappetite.Consequently,therallyinglobal

equitymarketsthatbeganearlierthisyearhascontinued

withIndiaoutperformingotheremerginganddeveloped

markets.

Source:DIPP,Apr2008-Mar09

Sector-wise FDI Inflows

Bytheyear2025,Indiaisexpectedtoemergeasoneofthe

foremostnationsintheworldpoliticallyandeconomically.

Indiasresilienceisreflectedinitsstrongfundamentals;

namely,risingforexreserves,highsavingsrate,risein

productivitysupportedbytechnologicalup-gradationand

greaterintegrationwithglobalflowsoftrade,financeand

technology.

Rising Forex Reserves Savings rates higher and better aligned

Note:*Apr-Sep2009

Source:RBI,DGFT,EconomicSurvey2008-09Source:CSO

03 | The Indian Telecom Success Story

Forward-looking policies, skilled workforce and large domestic

demand has helped India emerge out of the global economic

turbulence unscathed


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4 CIA,www.india.gov.in

Median Age Population of Major Countries (2008)

Source:CIAWorldFactbook;USCensusBureau;UrbanPovertyReport,2009;KPMGAnalysis

Demographic dividend; encouraging demanddriver

Additionally,Indiasdemographiccompositionensuresthatit

continuestoremainanattractivemarketforinvestments.

Thehigheconomicgrowthinthepastfewyearshas

resultedinarisingnumberofIndianswithagreater

propensitytospend.Thisriseinincomelevelsacrossurban,

semi-urbanandruralhouseholdshasledtochanging

consumptionpatterns.

Necessitiessuchasfoodandapparelareexpectedto

declineinrelativeimportancetocategoriessuchas

communications,education&recreationandhealthcare

creatinggreateropportunitiesforpublicprivatepartnerships

todriveinvestmentsininfrastructure.

Further,Indiasdemographiccompositionaugursfavorably;

withnearlyone-halfofthe1.1billionpeoplebelowtheage

of25years.Thesizeoftheworkingagepopulationexceeds

thesizeofthedependentpopulationanditisestimatedthat

itwillremainsountiltheyear2025andperhaps,even

beyond4.

Theserobustmacroeconomicindicatorsclubbedwith

socio-economicdriversarelikelytohelpthecountrysustain

itsgrowthtrajectory.WhileIndiahasnotbeencompletely

insulatedformtheimpactoftheglobaldownturn;ithas

shownsizeablesignsofrecoverycomparedtoitspeers

withthehelpoffocusedGovernmentintervention.Thekey

driversofeconomicgrowth,namelyconsumptionand

investment,arelikelytoprovidefurtherimpetustoIndias

growthstory.



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02. Global Telecommunications Market

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Mobile Payment fostering a trend for cashlesstransactions

M-PESAisaninnovativenewmobilepaymentsolutionthat

enablescustomerstomakesimplefinancialtransactions

throughthemobilephone.TheM-PESAschemereliesonan

applicationinthemobilephoneSIMcard,whichis

authorizedbyaPINcodeanddoesnotrequireanyspecial

technology.

Currently,theserviceismainlyaimedatmobilecustomers

whodonothaveabankaccount,typicallybecausetheydonothaveaccesstoabankortheydonothavesufficient

incometojustifyabankaccount.Themoneyisheldsafely

inabankaccountrunbyM-PESAontheusersbehalfand

theuserdoesnothaveanycontactwiththebanknordoes

thebankhavetheusersdetails.TheM-PESAsystemallows

customerstodepositandwithdrawcashvialocalagents

andtransfermoneytoothermobilephoneusersviaSMS.In

acountrylikeKenyawhere90percentpeopledonothavea

bankaccount,theM-PESAservicehasseenadramatic

take-upsinceitslaunch.AsofMarch2009,theservicehad

over6.5mregisteredusers(vs.2.1minMarch2008)with

2mdailytransactionsinKenyaalone.M-PESAisdistributed

through8,650retailoutletscountrywide(2,262outletsin

March2008).Thistake-upclearlydemonstratesthedemand

foreasilyaccessible,securecashpaymentservicesin

emergingmarkets.Morerecently,commercialM-PESA

serviceshavebeenintroducedbyRoshan,theleading

mobileoperatorinAfghanistan,andbyVodacominTanzania.

Indianoperatorshavelaunchedsimilarinitiatives.Offerings

fromsomeoperatorsenableamobilephoneusertosendor

receivemoneyinstantlyusingtheirmobilephoneto

authorizethetransfer.AccordingtotheGSMAssociation,

mobilemoneyinemergingmarketscouldbring inUSD7.9bn

ofsalesforoperatorsby2012.Moneytransferservicesfor

handsetownerswithoutabankaccountmaybringin

USD5bnoftransactionfeesandtextmessage-linked

revenueby2012.Indirectrevenue,includingrevenuefrom

greatercustomerloyalty,willprobablyamounttoUSD2.9bn.

Rural Expansion to help offset urban saturationChina,theworld'slargesttelecommarket,attributesits

phenomenalgrowthtoruralareas.Thecountry'slargest

operator,ChinaMobile,creditsruralareaswithcontributing

around50percentofitsmillionsofnewsubscribers.While

goingrural,ChinaMobilemanagedtoavoidanAverage

RevenuePerUser(ARPU)fallbycreatingademandfor

high-marginvalueaddedservicessuchasSMS,music

downloadsandringtones.

However,theroadtoruralexpansionwouldhaveseveralroadblockslikelandacquisition(Lease/Purchase)forBTS,

availabilityofcheapandfastbackhaulconnectivity,costs

associatedwithsettinguptelecominfrastructure,availability

ofadequatepowersupply,higheroperational&

maintenancecostsandlowerpurchasingpowerofrural

population.TheOperatorsaretakingadequatestepsto

counterthesechallenges:

Micro Financing: GrameenPhoneinBangladesh

providesmicrofinanceoptionstosetupVillagePhone

Operators(VPO).GrameenBankprovidesaloanpackage

toselectVPOstopurchaseahandsetandoperatetheir

VPbusiness.

Developing locally relevant content: Qualcomms

FisherFriendBREWapplicationhasbeenimplemented

incoastalTamilNadu.Theapplicationworkson3G

CDMAhandsetsandgivesfishermanaccesstotimely

weatheralerts,real-timedataonfishmigration,market

pricesandupdatesonrelevantgovernmentschemes

andpoliciesinthelocallanguage.

Setting up viable distribution and collection

channels: Mobitel,SriLanka'sNationalMobileservices

provider,expandeditsruralpenetrationwithatie-upwith

theSriLankanPostalDepartment.Asperthedeal,post

officesandpostmencouldsellMobitelprepaidcardsto

ruralcustomers.



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In times of RecessionMostofthetelecomcompaniesinthedevelopedand

emergingmarketshavelaunchedapoints-basedloyalty

program;whileasmallpercentageoptedfordiscounting

theirservices,withtherestchoosingdifferentpromotional

andmarketinginitiatives.Withallplayersfacingchallenges

intermsofincreasingtheirAverageRevenueperUser

(ARPU)andavoidingcustomerchurn,mostareforcedto

implementprogramsontightmargins.

Asia: The Epicenter of Telecom Growthworldwide

Asia isaboomingmarketwithcountrieslikeJapanand

SouthKoreaimplementingadvancedtechnologieswhilethe

Chinesemarketispoisedforgrowthafterrestructuringand

3Glicenseauctions.IndiaandChinacontribute31percent

ofworldssubscriberbase;yetthemobilepenetrationrates

arenotashighcomparedtoUSorotherdeveloped

economies.Needlesstomention,furthergrowthis

expectedtobewitnessedinthisregion.

Japan withover30millionbroadbandlinesinplace,isthe

thirdlargestcountryintheworldaftertheUSandChinain

termsofbroadbandusers.Muchofthesuccessof

broadbandinJapanisowedtothestunninggrowthsurge

thatoccurredbackin2003onthebackofDSLbroadband

technology.TherestructuringoftheChinese telecom

markethaschangedthecompetitivelandscapeofthe

country.Withthelargestmobileandbroadbandsubscriber

base,themarkethasstayedrelativelyinsulatedfromthe

globalmeltdown.Postrestructuringandtheawardingof3G

licensesinDecember2008,themarketispoisedforyet

anotherboost.Therestructuringwillprovidehugemarket

opportunitiestocommunicationsequipmentmanufacturers,

thusacceleratingtheall-roundupgradeoftelecomoperation

supportsystems.

China,

19%

India, 12%

USA, 7%

Others,

62%

Source:EIU

Mobile subscriber base (% share of world)


The Asia-pacific region, with India in the lead, will be the key

growth market for global telecom over the next few years


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Source:PyramidResearch,NationalBureauofStatistics,CEIC

Source:PyramidResearch,NationalBureauofStatistics,CEIC

Mobile Subscriber Data (Millions)

Fixed Line Data (Millions)



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Indian telecomcrossedthetargetof500Million(Wireless

&Wire-line)SubscriberinSeptember20094.Buoyedbythe

entryofnewtelecomplayerstheIndiantelecomindustry

clockedthehighestsubscriberadditionof15.87million

subscribersinMarch,20095.IndiaovertookUStobecome

the2ndlargestmobilegeographyafterChina.

FixedMobileSubstitution(FMS),provisionofbundled

servicesandincreasedconcentrationonwirelessbroadband

istheglobaltrendpresently.InAfrica,broadband

penetrationisincreasingduetocheapersubscriptionon

accountofnewsubmarinecablesreachingitsshoreandrolloutofwirelessbroadbandservices.InEurope,all

operatorsaretryingtoincreasetheirsharebyoffering

bundledservicesoverthewire-linenetwork.TheMiddle

Eastregionshowsabalancedapproachtowardswireless

broadbandservices.ThetelecomindustryinNorthAmerica

hastakenahitasaresultoftheeconomicmeltdownand

reducedconsumerspendingwhileinSouthAmerica,the

operatorsareconstantlylookingtoinnovatebyproviding

video-on-demandandotherbundledservicesinorderto

increasethenumberofsubscribers.Theepicenterof

telecommarketcontinuestobeAsiawhereChinaandIndia

continuetoplayakeyrole.

4TRAI,November2009

5TRAI,April-May2009



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03. Indian Telecommunications Market

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Indiahasemergedasoneofthelargestandfastgrowing

economiesoftheworld.Eveninthetimeofdownturn,

Indianeconomyhasshownconsiderableresistanceleading

togrowthacrosstheboardwhenmanyregionsoftheworld

hadshownsignificantdeclineingrowth.Thefar-reaching

measuresintroducedbytheGovernmentofIndiaoverthe

pastdecadetoliberalizetheIndianmarkethavehelpedthe

businessandregulatoryenvironmenttosuccessfullymove

towardsgreatertransparencyandefficiency.Servicessector

hasbeentheprimaryengineforthisgrowth.Telecom

industryisoneofthefastestgrowingsectorsofIndian

economywithsignificantcontributionfromtheprivatesector.

Thetelecomsectorcanbedividedintobasic(fixed),mobile

andinternetservices.Therearealsosomesmaller

segmentssuchasradiopagingservices,VerySmall

ApertureTerminals(VSATs)andPublicMobileRadioTrunked

Services(PMRTS).Indianmobilemarketiscurrentlyoneof

themostattractivetelecommarketacrosstheworld.

OverallteledensityinIndiahasrisentothelevelsof

approximately43.5percent1.Withalargepopulationyetto

haveaccesstotelecommunicationmarketthepotentialfor

thesectorremainslargeespeciallyinnon-urbanareas

wherewirelineandinternetservicesareyettomake

significantin-roads.Wirelineservicesinparticularareyetto

reachthevastmajoritywithalowteledensityof3.19

percentand1percent2 inurbanandruralregions

respectively.Eventhemobileservicesspace,whichhas

seenexponentialgrowthinurbanareas,hasnotreached

thevastmajorityinruralareaswithatotalwireless

teledensityofapproximately40.31percent

3

indicatingalargeuntappedpotentialforthesector.

Thenumberofinternet/broadbandsubscribershavealso

grownatafastrate;therewere14.05milliontotalinternet

subscribersasofJune,2009and6.62millionbroadband

subscribers.Thesectorhaspotentialforlargegrowthinthe

future.4

1 TelecomServicesPerformanceIndicatorsAprilJune2009,October2009

2 TRAI,November2009

3 TRAI,TheIndianTelecomServicesPerformanceIndicatorsAprilJune

2009,October2009,TRAI,November2009

4 TRAIQuarterlyReportsonTelecomServicesPerformanceIndicators

Indian Telecommunications Market


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5TRAI,November2009

611 28

47

75

142

229

347

427

0

50

100

150

200

250

300

350

400

450

2001 2002 2003 2004 2005 2006 2007 2008 H1'09

Subscriberbaseinmn

Source:TRAIAnnualReportandQuarterlyReportsonTelecomServicesPerformanceIndicators

Mobile ServicesTheIndianmobilitymarketcanbecharacterizedasone

withaverylargesubscriberbase(~427millionasofJune

2009),highgrowth(additionof10Mn+subscribersevery

month),lowARPUs(~INR165permonth)andsignificant

churnrates.5

TheGovernmentofIndiaopenedupmobileservicesto

privateparticipationin1994-95byinvitingbidsforproviding

servicesinthefourmetropolitancitiesand18non-metro

circles.Serviceswereintroducedin1995withthehightariffsresultinginpoordemand.TheNationalTelecomPolicy

1999,movedtheindustrytoarevenuesharemodelfrom

thefixedlicensefeeandthelowertariffsresultedinthe

additionof~12millionsubscribersinthe1999-03period

ascomparedtolessthanamillionsubscribersaddedinthe

1995-99period.Theperiodwascharacterizedbysettingup

ofTelecomRegulatoryAuthorityofIndia(TRAI)in1997.

Growth of Wireless Subscriber Base (year end numbers)

China,

19%

India, 12%

USA, 7%

Others,

62%

Mobile Subscribers (share of the world)

Source:EIUEstimates



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TelecomDisputeSettlementandAppellateTribunal(TDSAT)

wassetupin2000inordertoadjudicatedisputesarising

betweenlicensorandlicensee;andtohearappealsagainst

anydecisionororderofTRAI.TheCallingPartyPaysregime

wasintroducedin2003-04whichmadeincomingcallsfree.

TelecomcirclesinIndiahavebeenclassifiedinto4

categoriesviz.Metros,CategoryA,BandC.With

penetrationratesinmetrosapproaching100percentthe

markethereisnearlysaturated.However,thereisstill

immensepotentialinothercirclecategoriesparticularlyB

andC.

Gujarat25.8 mn

44%

UP (W)21.5 mn

UP (E)30.2 mn

Rajasthan

26 mn38%

MP22.7 mn

24%

17.4 mn

HP3.6 mn54%

Bihar24 mn19%

Orissa10 mn25%

J&K4.1 mn36%

Haryana11 mn43%

UP (E+W)25 %

+ Mumbai48%

Delhi

23 mn

133%

Maharashtra

33.5 mn

Andhra Pradesh

33 mn

40%Karnataka25.5 mn

44%

Punjab

15.6 mn

55%

Tamil Nadu

40 mn

59%

Kolkata

12.4 mn

Gujarat

25.8 mn

44%

UP (W)

21.5 mn

UP (E)30.2 mn

Rajasthan

26 mn38%

MP

22.7 mn

24%

West Bengal

17.4 mn

HP

3.6 mn

54%

Bihar24 mn

19%

Orissa

10 mn

25%

Assam

6.4 mn21%

North East

3.8 mn

30%

J&K

4.1 mn

36%

UP (E+W)

25 %

WB + kolkata

33%

Maharashtra + Mumbai

48%

Haryana

11 mn

43%

Kerela

18 mn

53%

Metros

Circle A

Circle B

Circle C

Mumbai

20.4 mn

110%

Source:TRAI,TheIndianTelecomServicesPerformanceIndicatorsAprilJune2009,October2009,KPMGAnalysis

Subscriber Base and Teledensity across Telecom Circles



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Thesubscriberbaseof494.06Million(asofAugust,2009)

iscomprisedof343.24Millionurbansubscribers

(teledensityof98.70percent)and150.82Millionrural

subscribers(teledensityof~18.37percent)6.Themarketis

highlycompetitivewitheachtelecomcirclehaving7-8

operators.Inaddition,thereareseveralnewlicensees

whichareintheprocessofrollingoutservices.Competitive

intensityinthemarketcontributedtoreductionintariffsand

launchofinnovativeschemeslikelifetimeprepaidandlow

costhandsetbundlingwhichreducedtheentrycostfora

newsubscriber.WithreducingARPUs,changingeconomic

profileofsubscribersandtheneedtomeettheaggressive

roll-outtargets,theoperatorshavebeenundertremendous

pressuretobringinoperationalefficiencies.Operatorshave

beenrealizingefficienciesthroughextensiveoutsourcing

acrossthetelecomvaluechain.Thishasresultedinlarge

scaleopportunityforplayersbelongingtoallthecategories

withinthetelecomecosystem.Someoftheprominent

categoriesincludenetworkequipmentvendors,tower

infrastructurecompanies,telecomimplementationvendors,

ITvendors.

Ithasbeenobservedthatthepastsubscribergrowthhas

beenskewedinfavorofurban.Thelargeruralpopulation

baseandlowteledensityindicatesthatthereisstilllarge

untappedopportunityintheIndianmarket.Withurban

marketsnearingsaturation,operatorshavebeenactively

seekinggrowthinruralIndia.

Wireline Services

Thetotalnumber7 offixedservicesconnectionsinIndia

increasedfrom5.81Millionin1991-92to40.8Millionin

2006-07.During1999-2000to2001-02,approximately5-6

Millioncustomerswereaddedtofixed-lineserviceseach

year.However,withthedropinmobiletariffsandincrease

incoverageofmobileservices,netadditionsinfixed-line

subscribersstartedslowingdownfrom2.5Millionin2002-

03goingdownto0.5Millionin2004-05.Duetomobile

substitutionandlowertariffsfromtheyearsfrom2006-07

to2008-09haveseenadecreasein3.5Millionfixed

connections.However,thepotentialforwirelineservices

remainslargeduetoverylowpenetrationinthewireline

industry.Newplayersinthetelecomspacehadhitherto

concentratedonwirelessspaceleadingtolowcompetition

andpromotionofwirelineservices.Greaterpan-India

expansionbyprivateplayerscansignificantlyleadtogrowth

ofwirelineservices.Inaddition,withcombinedofferingof

internet/broadbandandalliedservicesshowingpromising

potential,thesectorcanbouncebackinthefuture.

33

3841 41 41 42 41 39

38

0

5

10

15

20

25

30

35

40

45

Mar'01 Mar'02 Mar'03 Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 Mar'09

SubscribersinMn

Source:TRAIAnnualReportandQuarterlyReportsonTelecomServicesPerformanceIndicators,CrisilResearch

Wireline Subscriber Base

6 DepartmentofTelecommunications,TRAI,TheIndianTelecomServicesPerformanceIndicatorsAprilJune2009,October2009

7 CrisilResearch,Stateofthe Industry,October2007



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Internet ServicesInternetsubscriberbaseinIndia(dialupandbroadband),

thoughcurrentlyatalowlevelisexperiencingsignificant

growthforthelast2-3years.Thisgrowthisbeingdrivenby

growingpopularityofbroadband,increasingusercomfort

withusageofinternetapplications,continuousfallinPC

prices,cheaperaccessplans.

Thisgrowthhasbeenaccompaniedbyanassociated

increaseinthenumberofinternetuserswhichcanbe

attributedtogrowthofpublicinternetcafesandmultiplemembersofahouseholdaccessinginternet.

ThegovernmentofIndiahassettargetsof20Millionfor

broadbandfor2010,fromthecurrentfiguresof7.22Million

(September,2009),whichrequiresrelookattechnologies

usedinforbroadbandaccess.Whilethereanumberof

technologiesbeingusedbyserviceproviderstoprovide

broadbandservices,DSLcontinuestobethemost

preferredtechnologyandconstitutesnearly87percentof

totalbroadbandsubscribers8.Cablemodemtechnology

followswith7.4percentconnections9.Focusonincreasing

wirelineaccessaswellgreaterfocusontechnologieswhich

canberolledoutfaster(e.g3GandBWA)orhavesignificant

penetration(cableTVandDTH)cansignificantlyenhancethe

adoptionofbroadbandinIndia.

Source:TRAIAnnualReportandQuarterlyReportsonTelecomServicesPerformanceIndicators

Internet Subscriber Base





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Source:Industryconsensusestimates,KPMGanalysis

Growth of VAS Revenues

CRBT

45%

GPRS/WAP

Products

9%

P2A SMS & Alerts

18%

Voice Portals

20%

Others

8%

Source:IndustryEstimates,InformationInterviews

Priorto2008,majorityofVASrevenueswereattributableto

SMSandthattooPerson-to-Person.Itisinterestingtonote

thatoverthelast1-2years,non-SMSVAShasbeengaining

importanceandislikelytobecomeadominantcontributor

toVASrevenueoverthenextfewyears.In2009,non-P2P

SMSVASaccountedforbetween5and6percentof

operatorrevenues.Industryprotagonistsenvisagethis

sharetoincreasetoaround8percentoverthenexttwo

years.Theaddressablemarketfornon-P2PSMSVAShas

historicallybeendominatedbyringtonesandcallerringback

tones(CRBT)whichaccountforaround45percentof

revenues.

Market Split for VAS

Value Added ServicesCurrently,VASmarketisworthINR91Billionwhich

translatesintoapproximately8percentofwirelessindustry

revenues.TheshareofVASinwirelessrevenueislikelyto

increaseto11percentby2011.Thisgrowthwouldbedriven

byincreasedoperatorfocusonVASduetocontinuousfallin

voicetariffs,featurerichhandsets,vernacularcontentand

alsowithincreaseduseradoptionofVASapplications.



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New Frontiers for Growth

3G Technology

Whilethelast5yearshavebeentransformationalforIndian

telecomindustry,thenextfewyearslookevenmore

exciting.Oneofthekeyfrontierswhichwouldmakejourney

incomingyearsexcitingisthelaunchof3Gtechnology.

Inthenearfuture,Indiangovernmentwillbeauctioning

spectrumforthirdgenerationwirelessservicesforwhicha

numberofincumbentsandnewentrantsareexpectedtobe

intherace.Eachtelecomcirclehasadesignatednumberof

spectrumblocksoutofwhich1blockisreservedforthe

staterunoperators.

Withthelaunchof3Gservicestheoperatorswouldbeable

toproviderichdataservicestoHNIs,workingprofessionals,

enterprisecustomersandyouth.Theywouldbespecifically

targetingcurrentusersof2.5Gand/orownersof3G

enabledhandsets.Atthesametimeoperatorswouldbe

activelylookingatproviding3Gservicestootherincome

groupsasthiswillhelpspreadinginvestmentintechnology/

licenseoverawidersubscriberbase.

Telecom Infrastructure Services

Infrastructuresharinghasbeenarelativelynewsegment,

whichwitnessedsignificantinvestmentandinterestfrom

theinvestorcommunityinthepasttwoyears.

Thekeytriggerforinfrastructuresharinghasbeenthe

MobileOperatorSharedTower(MoST)initiative

implementedbytheDepartmentofTelecom,underwhich

pilotsharedtowerswererolledoutatdifferentlocationsin

NewDelhiin2006.Throughthisinitiative,thebusinesscase

fortowersharingwaslaidoutclearly,andthisresultedin

significantinterestinadoptionofthetowercompany

businessmodel.



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Thebusinesscaseforthetowercompanywasquickly

establishedaroundthefollowingbenefits,whichmade

strongeconomicsenseforOperatorCompanies(OpCos)to

hiveofftowerassetsintotowercompanies.

Buildandleasepassiveinfrastructure

Lowercapitalandoperatingexpensesforcarriers

throughassetsharing

Accesstolow-profitabilityruralareaswithoutCapex

Monetisingtowerassetsasaneasierrouteofraising

capitaltofundcoreoperations.

Thetowerandtelecominfrastructureecosystemisfurther

evolvingwiththeDOTsassenttorecommendationson

activeinfrastructuresharinginMarch2008.Underthese

recommendations,sharingofinfrastructureamongstservice

providersbasedonthemutualagreementshasbeen

initiated.Infrastructuresharingisnowalsoallowedfor

antenna,feedercable,NodeB,RadioAccessNetwork

(RAN)andtransmissionsystems.Thishasalreadyledto

towercompaniesofferingend-to-endtowerinfrastructureto

thenewtelecomoperatorsinclusiveofbackhaulservices,

whichhithertohadbeenasignificantchallengedueto

inadequatefibreandmicrowavebackhaulcapacityexisting

attowerlocations.Weexpectsignificantfurtheractionand

innovationinthisspacewiththetowercompanieslooking

toofferenhancedportfolioofservicestotelecomoperators.


Strong regulatory support, domestic demand and enterprise of

private sector telecom providers have been the key drivers for the

growth of the Indian telecom industry


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04. Connecting Rural India

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1 Credit Suisse, India MarketSt rategy,June17,2009

2 CreditSuisse,IndiaTelecomsSector,February23,2009

3 CIATheWorldFactbook,2008

4 TRAI,DraftrecommendationsonAnApproachtoRuralTelephony

SuggestedMeasuresforanAcceleratedGrowth,March04,2009

Connecting Rural India

Whilemarketsallacrosstheglobewitnessedasignificant

reductioninconsumerspending,theruralIndianconsumer

managedtoremainanattractiveproposition,especiallyin

thedemandforconsumergoodsandtelecomservices.

Leadingcompaniesacrossindustrysectors,appreciatingthe

enormouspotentialofthismarket,havedevelopeda

focusedstrategytotargetruralIndia.

RuralIndiaisbelievedtocontributealmost45percentofthe

countrysGDP1.Thesegmentreportedlyalsoaccountsfora

significantchunkofdemandformanyconsumergoodsand

servicescompanies.Whilethepercapitaruralconsumption

spendremainsatnearlyhalfoftheurbancounterpart2,itis

believedtobegrowingatafasterrate.Ruralareashouse

nearly71percent3 ofthecountryspopulationandthus

representanenormousconsumerbase.Perhapsevenmore

importantly,ruralIndiacontributestoroughly56percentof

incomeand64percentofthecountrysexpenditure4.

Clearly,theruralmarketcannotbeignoredanylongerand

nowfiguresasanonnegotiablesuccessfactorinmany

corporatestrategies.


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100 percent = 1.17 billion

Urban

29%

Rural

71%

Urban

43%

Rural

57%

Source:CIAWorldFactbook,KPMGAnalysis Source:CIAWorldFactbook,KPMGAnalysis

5 Credit Suisse, India MarketSt rategy,June17,2009

Rural vs. Urban Population Rural vs. Urban Consumption

Key Government Initiatives for RuralDevelopment

Asignificantportionoftheruralpopulationisengagedin

agricultureandagriculture-relatedemploymentactivities.The

impactofanyapplicableregulatoryinitiativesoranynatural

phenomenonlikethedelayedmonsoonisthusfeltbyalarge

sectionofthepopulation.

TheGovernmenthastakenastronginterestinthegrowth

anddevelopmentofruralareas.The2009-10budget,announcedinthebackdropoftheeconomicslowdown,

includedspecificmeasuresforthesocialandeconomic

upliftmentofthissegment,clearlyhighlightingtheintentof

thegovernmenttoworkforthebettermentofthecommon

man.

Inthelastthreeyears,duetoanumberofregulatoryand

non-regulatoryfactors,ruralIndiahasexperiencedhigh

incomegrowthofapproximately12percentperannum.

Theappealoftheruralsegmenthasincreasedwithmore

companieslookingatruralexpansionasaviablemeansto

overcometheimpactoftheslowdown.

Cultivators

40%

Other Workers

23%

Agricultural

Labourers

33%

Household

Industry

4%

Source:Census,CreditSuisse

Rural Employment



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Thetelecomsectorhasalsoobservedawideningrural-urban

divide.Urbantelecomadoptionhasfaroutpaceditsrural

counterpart.Thishasleadtoanincreasingawarenessamong

allstakeholdersabouttheimmensegrowthpotentialthat

ruralmarketscanoffer.

Telecomadoption,historically,hadimpliedtheadoptionof

wirelineservices.Thistrend,however,hasmovedtowards

anever-growingadoptionofwirelessservicesoverthelast

fewyears.Anincreasingnumberofprivateoperatorsare

alsomakingaconcentratedefforttodriveupwireless

adoption.

1.7% 1.7% 1.9%5.8%

9.3%

14.8%

21.3%26.2%

38.0%

47.2%

63.7%

88.7%

7.6% 9.1%12.7%

18.2%

25.6%

37.0%

Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 Mar'09

Rural Urban Overall

Source:TRAIPerformanceIndicators,July13,2009;TRAI,DraftRecommendationson'AnApproachtoRuralTelephony-SuggestedMeasuresforan

AcceleratedGrowth',March04,2009

Rural VS. Urban Teledensity

Rural Wireless vs. Wireline

73% 75% 79% 82% 84% 86% 89% 90% 91%

27% 25%21% 18%

16% 14%11% 10% 9%

Mar'07 Jun'07 Sep'07 Dec'07 Mar'08 Jun'08 Sep'08 Dec'08 Mar'09

Wireless Wireline

Source:TRAIPerformanceIndicatorReports(2007-2009)



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Rural Telecommunications and the InclusiveGrowth Agenda

Urbandevelopmentalonecannothelpacountryprogressat

aquickpace.Theruralagendathusbecomesincreasingly

importanttoachieveawell-rounded,sustainablegrowth.The

Indiangovernmenthasbeenfullyappreciativeofthisand

hasestablishedastrongagendaforinclusivity.

Withaviewtobridgingtheurban-ruraldivideandimproving

theeconomicstrengthofruralIndia,thegovernmenthas

broughtinclusivegrowthforallsectionsofsocietyontothe

mainplatform.Telecommunicationsisacriticallynchpinin

thisendeavorandislikelytobeasuccessfulpartofthis

agenda.Thegovernmentisstronglypromotingthiseffort

throughvariouslarge-sizedbudgetaryallocationsandthe

telecommunicationsindustryalsohasaclearagendaofrural

expansion.

Mobile Banking and Mobile Commerce

Indiahasoneofthemostexpansivebankingsystemsinthe

world.Acombinationofscheduledcommercialbanks,

regionalruralbanksandspecializedfinancialinstitutions

coveralargesectionofsocietyinIndia.Despitethese

focusedefforts,itisestimatedthatcloseto65percentof

thecountryspopulationstillfallsintheunbanked

categoryduetovariousreasons,includinggeographical

isolationandlackofbasicinfrastructure10.

Publicsectorbanks,privatebanksandotherfinancial

institutionshaveconstantlypushedthelimitsoftechnology

toreachouttoeverypartofsocietyaswellasmakingtheir

businesssystemsandprocessesmoreefficientfromacost

andtransactionprocessingperspective.However,despite

nearly76,518branches 11 ofscheduledcommercialbanks,

thereisstillalongwaytogo.Corebankingsystemshave

helpedbankstocomputerizetheirrecordsaswellasprovide

seamlessservicessuchasinternetbanking.Mobilebanking

representsthenextleveloftechnologicalevolutioninthe

bankingindustry.Thisevolutionmakesbankinganyplace

anytimeserviceandrelievestheexistingpressuresonthe

branchexpansion.

Inrecognitionofitsmanybenefits,theReserveBankof

Indiaissuedanoperatingguidelineonmobilebanking

transactionsinOctober2008.Thisguidelineprimarily

addressessecurityovermobilebankingtransfers;however,

RBIbelievesthatthiscouldbeafeasibleandalternate

channelfordeliveryofbankingservices.Thisservedasan

indicatorthatmobilebankinghasanimportantparttoplayin

expandingbankingservicestoall.

Thesuccessofruralmobilebankinginitiativesinother

countriesbodeswellforIndiasaspirationstomakeita

successinthecountrysruralareas.M-PesaandG-Cashare

twouniversallyknownmobilebankinginitiativesundertaken

inKenyaandPhilippinesrespectively.Boththesenations

haveinfrastructure,bankingandtechnologyconstraintsdue

towhichlargesectionsofthecountrywereunbankedand

basicbutsafemeanstotransfermoneybetweenindividuals

wasabsent.Usingsimplemobilephonetechnologyand

SMS,individualscouldtransfermoneyinstantaneouslyand

atfractionofstandardmoneytransfercosts.Money

transferscanbemadeacrossthecountryinstantaneouslyat

lessthan1percentofthetransactionvalue12.In2008,1.6

millionKenyanshadtransactedoverUSD145millionusing

theM-Pesasystemusing1,500intermediarieswhoare

typicallycornershops13.Suchabankingsystemislikelyto

workinIndiaaswellgiventhecurrenttelecommunication

networkandavailabilityofneighborhoodshopkeeperor

localagents.

Itisimperativethatmobilebankingstandardsarecarrier

agnosticandinteroperabilityismaintained,toensurethe

lowestpossiblecostoftransactions.Thecostoftransactions

canhavealargeimpactoftheeffectivenessofvarious

developmentprojects.Mediareportshavesuggestedthata

mobilepaymentmechanismforNREGAisduetostartin

variousstates14.Thiscouldbeaneffectiveprovingground

formobilebankingandaidsocialinfrastructuredevelopment.

10 Mediareports,KPMGanalysis

11 ReportonTrendandProgressofBankinginIndia,2007-08

12 www.safaricom.co.ke

13 ReportoftheThirdAnnualJointRoundtableonCommunicationsPolicy

2008AspenInstituteIndia

14 http://www.financialexpress.com/news/delhi-firm-in-talks-with-govt-to-

digitise-nrega-payments/514077/



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15 http://www.bhoomi.kar.nic.in/Bhoomi/Home.htm

Mobile Governance

Beingtheworldslargestdemocracymeansthatthepeople,

theexecutivebranchandthelegislativebranchofthe

governmentneedtoworkcloselytoensurethatthepeoples

mandateiseffectivelycarriedoutconsistentlyandwithinthe

frameworkofourconstitution.Thisleadstoastrong

requirementforaneffectiveandsafemeansofexchanging

information,especiallyoverthelargegeographicspreadof

thecountry.Mobilegovernancecanplayacriticalpartin

maintainingconstantdialoguebetweenthepeopleandthe

government.

Today,variousgovernmentagenciessuchasthepassport

issuingauthorityenableapplicantstochecktheprogressof

theirapplicationusingasimpleSMScode.Thishas

significantlyincreasedtheleveloftransparencyinthetime

takenforsuchprocesses,whichwasconsideredtobe

tediouspreviously.Suchmechanismscombinedwiththe

greateruseoftheinternetwillenablecompanies,

organizationsandthecommoncitizentoperformother

routinetaskssuchasfilingvariousdirectandindirecttax

returnswithgreaterefficiencyandtransparency.

Governmentinstitutionsareconstantlytryingtoincrease

theircoverageandreachoftheirmandatedservices,and

withtheuseoftelecommunicationsthesecansolvetheir

deficienciesaroundlastmileconnectivitywithcitizens.

Variousstategovernmentshaveinitiatedpilote-governance

projects.SomeoftheseincludetheBhoomiprojectandthe

eSevaproject.IntheBhoomiproject,20millionlandrecords

of6.7millionlandownersweremadeintoelectronic

information15.

Anothersignificantareaofgovernancethatcangohandin

handwithtelecommunicationsistheRighttoInformation

Act(RTI)of2005.Thisactprovidestherighttocitizensto

querycentralandstategovernments.Further,theact

requiresthegovernmenttocomputerizesignificantamount

ofinformationmakingitaccessibletothecommonman.

Abilitytoaccessthisinformationthroughtheinternetgives

Indiatheabilitytotrackandreviewvariousaspectsof

governmentorinstitutionaldevelopmentwork,fromremote

locationswithoutthehurdlesofbureaucraticprocesses.This

Actandtheabilitytopursueiteffectivelywillgivea

significantboosttoourruraldevelopmentefforts.

Telecommunications for Rural Employment

Thetelecommunicationsindustry,duetoverynature,

requiresparticipationfromalargenumberofpeopleto

ensuresmoothoperation.Fromtheactualsettingupof

physicalinfrastructure,totheservicebeingprovidedtothe

endconsumer,thetelecomsectorinitsentiretyisabig

employerofpeopleresources:

InfrastructureSetup:Thetaskofidentifyingappropriate

sites,obtainingrequisitepermissions,layingthe

foundation,settinguptelecomtowers,andothersuch

activitieshavelargemanpowerrequirements

SalesandDistribution:Thisincludesactivitiesforthesale

oftelecomhandsetsaswellasconnections.Thiswould

alsoincludebilldistributionandrentcollection

OtherAssociatedServices:Thisincludessupport

activitiesrangingfromtransportationoftelecom

equipment,securityforphysicalinfrastructure,

maintenanceservicesandothers.Telecomcallcentres

alsogenerateadditionalemploymentopportunities

Forthedualpurposeofincreasingruralpenetrationaswell

astoachievecosteffectiveness,manycompaniesare

lookingtoexpandtheirruralsetups.



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16 3Gand BWAThenextFrontier,FICCI ,Januar y2009

Thispresentsagoodprospectfortheruralpopulationin

termsoftheemploymentopportunitiesgenerated.Another

advantageisthattheseopportunitiescanbenefitthe

educatedaswellastheuneducatedpeopleduetotherange

ofskillrequirements.Telecomcompaniesalsoofferdifferent

internaltrainingprogramstoensurethataruralemployees

skillsareatparwithhisurbancounterpart.

Indiahasalsoseentelecommanufacturingcomingupina

bigway.Manyinternationalplayersaresettinguptheir

manufacturingaswellasR&Dfacilitiesinthecountry.

Significantinvestmentshavebeenearmarkedfortheseinitiativesandcompaniesarelookingtohirelocaltalentto

bringtheseplanstoasuccessfulconclusion.

Anotherinitiativethathasbeenimmenselysuccessfulin

generatingemployment,speciallyforruralwomen,isthatof

theVillagePublicTelephones(VPT).Inmanyvillages,rural

womenhavetakenontheentrepreneurialresponsibilityand

operatelocalVPTs.Notonlydoesthisbenefitthelocality,it

alsobringsinadditionalincomefortheVPToperators

household.

Telecom in Education

UrbanIndiahasalreadywitnessedthebenefitsoftelecom

connectivityinpromotingeducation.Largeuniversitiesoffer

distancelearningcoursestostudents,especiallyforhigher

educationcourseslikeMBAs.

Theaspirationwouldbetoreplicatethesuccessoflarge

universitiesinurbanareas,totheremoteareasinruralIndia.

Thefirstprioritywouldremaintheprovisionofprimary

educationtoallchildreninthecountry,irrespectiveof

geographicalremoteness.

TheIndiraGandhiNationalOpenUniversity(IGNOU)has

forayedintothisbyworkingtowardsdevelopingrelevant

distancelearningprogramsforstudentsandproviding

assistanceinfinancialsupportandgrants.

Key Challenges in Going Rural16

Despitetheinherentattractivenessoftheruralmarket,many

operatorshavefacedsignificantchallengesinpenetrating

themarket.

Acquisition of Customers

Duetothemanydifferencesexistingbetweentheurbanand

ruralmarkets,itisimpossibletoapplyurbanlearningsand

businessmodelsinaruralsetup.Ruralareascomewitha

completelydifferentsetofconstraintsandissueswhichthe

operatorsneedtoaddressinordertoattractthisfreshpool

ofcustomers.Operatorsfaceanumberofchallengeswhen

itcomestotheacquisitionofruralcustomers.

Affordabilityoftelecomservicescontinuestobeakey

concerninruralmarkets.Althoughthecostofowningand

usingtelecomequipmentandserviceshascomedown

considerablyinthelastfewyears,thetypicalruralconsumer

findsithardtoputasidemoneyforwhatisstillbelievedto

beadiscretionaryspend.Microfinancingcouldprovidea

possiblesolutionforthisproblem.Tie-upswithstate-owned

bankscouldenabletheruralconsumerstopurchasetelecom

equipmentandservicesataffordablerates.

Operatorshavealsofoundthatamongtheruralcustomers

whoareabletoaffordtelecomservices,theAverage

RevenuePerUser(ARPU)remainsquitelow,especially

whencomparedtotheurbancounterparts.Thus,thelow-

subscriber,low-volumemarketdoesnotprovideenough

incentivesfortheplayerstoventureintotheregionswiththe

revenuesnotjustifyingthecosts.TheruralARPUarenotexpectedtobedrivenupsolelythroughvoiceservices.Itis

believedthattheavailabilityofdataserviceswillhavea

positiveimpactontheruralARPUs.


The largely untapped rural market will

drive the next phase of telecom growth in

the country, supported by an enablingenvironment and focused initiatives by

telecom players


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17 "WhatWorks:GrameenTelecom'sVillagePhones",June2001;KPMG

Currently,thelackoflocallyrelevantcontentisanother

challengethatrestrictstelecompenetration.Toincrease

adoption,itisessentialtodevelopserviceslikenewsinlocal

languages,weatheralertsforfishermen,comparativemandi

ratesforfarmers,andsuchothers.

Anotherfactorthatimpactstheadoptionoftelecomservices

(especiallybroadband),istheprevalentliteracylevels.To

derivemaximumbenefitsfromtheseservices,itisessential

fortheconsumerstohavebasicreadingandwritingskillsin

place.

Infrastructure-Related Challenges

Inadditiontoacquisitionofcustomers,telecomplayersalso

facesomeinfrastructure-relatedroadblockswhilesettingup

theirruralinfrastructure.Theseleadtoasteepescalationin

coststherebyreducingthefinancialattractivenessofthe

ruralmarket.

Thetelecomsetuprequireslargeamountsoflandforsetting

upinfrastructureelementsliketheBaseTransceiverStations

(BTS).Inmanycases,thelandisownedbyGovernment

bodiesorGramPanchayats,andtheprocessofleasingor

purchasingthelandisarduousandexpensive.Similar

problemsariseduetoRightofWayissues.Layingofcable

orfibreinruralareasoftengoesacrossmultiplejurisdictions.

Thisinvolvesobtainingtherequisiteapprovalsand

permissionsfrommultipleauthoritieswhichcouldbecome

laborious.

Oncesetup,thetelecominfrastructureinvolvesimmense

operatingandmaintenanceexpenditures,considerably

higherascomparedtourbanareas.Anumberoffactors

contributetothisincludingthelimitedavailabilityofskilled

workforceaswellaspoorroadconnectivity,amongothers.Theissueofirregularpowersupplyalsoremainsakey

concern.Currently,anumberofvillagesinIndiaeitherdonot

haveanelectricityconnection,orfacelimitedpower

availability.Abatterybackupisnotasustainablesolution

sincethebatteryneedstobechargedregularly.Asaresult,

otherbackupsintheformofdiesel-poweredgenerators

needtobemaintainedtopowertheBaseTransceiver

Stations.Itisestimatedthatover35percentofaruralcell

sitesnetworkoperatingexpensesareduetothecosts

associatedwithelectricityanddiesel.Theprovisionsunder

theBharatNirmanProgramareexpectedtoaddressthis

concernbyprovidingaregularsupplyofelectricityacross

thecountry.Onealternativewaytoaddresstheconcernof

powersupplycouldbetoexploretheviabilityofalternate

sourcesoffuel,includingsolarenergy,windpowerandbio-

fuels.Theseprovideacleanandeffectivewayofharnessing

naturalenergy,whilekeepingtheequipmentmaintenance

costatsignificantlylowerlevels.

Theconcernofhighcostsassociatedwithsettingupofrural

infrastructurecanbewelladdressedthroughinfrastructure

sharingbetweenthetelecomplayers.Thismodelhasbeen

fairlysuccessfulinurbanareas,butisyettopickuptraction

inruralareas.

Thelackofefficientandlow-costbackhaulconnectivity

continuestohavealimitingeffectontelecompenetration.

Theoptionofdeploymentofopticalfibreisbeingexplored

andislikelytobeabletoresolvethisissue.

GrameenPhone17

GrameenPhoneinBangladeshisasuccessfulexampleof

ruralpenetration.Theirapproachincludes:

ProvidingmicrofinanceoptionstosetupVillagePhone

Operators(VPO).GrameenBankprovidesaloan

packagetoselectVPOstopurchaseahandsetand

operatetheirVPbusiness

Solicitingheavyinvolvementfromlocals(especially

women)insettingupVillagePhoneoperationsbypitchingitasanadditionalincomesource

Subsidizingcallchargestoallowlocal operatorsto

earnahealthyprofitmargin

Providingrecommendedratecardstoensurethatthe

localoperatorstayscompetitive

Trainingsonusage,callrates,collectionsand other

tariffschemes



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Broadband Connectivity

Broadbandisdefinedasanalwaysondataconnection

thatisabletosupportinteractiveservices,includinginternet

accessandhasthecapabilityofminimumdownloadspeed

of256kilobitspersecond(kbps)toanindividualsubscriber.

Variousstudieshaveindicatedthatbroadbandconnectivity

hassignificanteconomicimpact.Thisisprimarilydueto

improvedgrowthinliteracyandvocationalskillsduetoe-

initiatives,increasedemploymentofruralyouthdueto

accessibilityandteleworking,higherlaborproductivity,real-

timehealthcare,speedygovernmentclearancesandsuch.

Realizingthesebenefits,DepartmentofTelecomissued

BroadbandPolicy2004,on29thApril2004,inabidto

encouragehighspeedinternetgrowthinthecountryand

addressthedemandofapplicationsenablingeconomic

growth.Thepolicyalsosetanambitiousgrowthpathfor

broadbandgrowthinIndiabyfixingstifftargetstobe

achievedtill2010.

Source:TRAI,BroadbandSubscribers,2009

Targets for broadband subscribers as set by the Broadband Policy, 2004


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28.5%

25.8%

23.6%22.4%

7.8%7.2%

0.6%

0%

5%

10%

15%

20%

25%

30%

UK USA Japan OECD Turkey Mexico India

GlobalBroadband

penetration

Source:OECD,BroadbandStatistics,2008

Broadband penetration in India vs. other countries, 2008

Thesurgeinbroadbandpenetrationisexpectedtobeone

ofthekeydriversfornextphaseoftelecommunications

growthinthecountry,andbroadbandgrowthseemsto

havealreadybegunwiththefirstvisiblesignofrisein

subscriberbase.During2008,thebroadbandbasehas

grownby2.7million,whichismorethantwoandahalf

timesthe1.0millionbroadbandsubscribersaddedduring

20071.Suchtrendisexpectedtoonlyimprovewith

broadbandwirelessaccessalleviatinglast-mileconnectivity

concerns,PCpenetrationlikelytoincreaseandbroadband

servicesanticipatedtobecomemoreaffordable.

Challenges in adoption of broadband

Poorwirelineinfrastructure:Incontrasttodevelopedworld,

Indiahasfavoredwirelesstelephonyoverwireline

telephony.InCY08,wirelinesubscribersdeclinedto~38.0

millionandwirelineteledensityreducedto~3.4percent.

Thislackofanddeclineofwirelineposesalastmile

accesschallengeforbroadband,whichispresentlyprovided

mainlybyDSLtechnologywhichinturnreliesonthe

availabilityofcopperloopinlocalnetwork(iewireline

network).Tocompoundmattersfurther,majorityofavailable

copperlocalloopsarenotsuitabletosupportbroadband

connectionsduetolonglengthofcablelocalloop,qualityof

cableandmaintenanceconstraints.

Actualbroadbandsubscriberbasehasfallenshortofset

targetswithAugust2009subscriberbaseat7.0millionas

againstanenvisaged9millionby2007!In2007,Indiahad

oneofthelowestbroadbandpenetrationintheworldof

~0.3percent.Whilstthepenetrationhasdoubledsince,

Indiacontinuestobeoneoftheleastpenetratedregions

withcurrentpenetrationof~0.6percent.PCpenetration

continuestobeverylow,andlimitedwirelineinfrastructure

includingRoWchallenges,hightariffsandlackofquality

webcontentinlocallanguage,havefurtherconstrainedthe

growthofbroadband.

1 TRAI,BroadbandSubscribers,2009



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41 4038

4245

49

0

10

20

30

40

50

60

FY07 FY08 FY09 FY10E FY11E FY12E

Subscribers(Million)

Wireline

Source:TRAI,KPMGAnalysis

Wireline subscribers in India (FY07-FY12E)

Inaddition,thefactthatIndiaisavastcountryimpliesthat

itisnotpossibletorolloutwirelineaccessnetworkto

supportbroadbandinacosteffectiveandaffordablemanner.

Whilstsomeprivateplayershavebeenrollingoutwireline

networkstoprovidebroadbandconnectivity,suchinitiatives

arelargelyrestrictedtourbanareas.Thegovernment

realizingtheserealitiesissupportingincreasedpenetration

ofwirelineandbroadbandconnectivityinruralandremote

areasthroughitsUniversalServiceObligationFund(USOF)

activities.InJanuary,2009,itsignedanagreementwith

BSNLtoprovide8,61,459wirelinebroadbandconnections

toindividualusersandgovernmentinstitutionsoveraperiod

ofnext5-years.

Right of Way (RoW) procedures: RoWisoneofthemajor

impedimentsinlayingwirelineinfrastructure.Beforelaying

thecablesoperatorshavetoapproachmunicipalities/local

authoritiesforobtainingRoW,whichnotonlydelaysthe

rolloutplansoftheserviceprovidersbutalsoincreasestheir

cost.Moreoverthechargesthatmunicipalities/local

authoritieslevyforgrantingRoWarenotuniformacrossthe

country.

Low PC penetration, increased regulation of internet

cafes: WhilstPCpenetrationinIndiaisincreasing,only3

percenthouseholdsinIndiahaveaPC.Thisposesamajor

challengetouptakeofinternet/broadband.Toovercome

thischallenge,thekeyliesinmassmarketingofaproduct

thatiscosteffective,powerefficientandresilienttothe

harshrealitiesoftheIndianenvironment(hightemperature,

dust).Variousinitiativeshavebeenlaunchedinthisrespect

(e.g.SimputerwithanestimatedcostofINR9,000afterit

hasachievedsalesofmorethan100,000units2,Microsofts

IQPCthatwaslaunchedin2007withanestimatedpriceof

INR20,0003),howeverthesehavenotbeensuccessfulin

creatingamassmarket.Further,duetotightenedsecurity

measuresandthinmargins4 thegrowthofcybercafes(the

mostpopularaccessmedium)hascomedownfromc.60

percentin2004,2005toc.20percentin2008anditis

estimatedthattherearearound180,000cafesinIndia5.

2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss

cooperative.Allrightsreserved.

2 Simputer.org

3 Zdnet.com

4 Mediareports

5 Siliconindia.com


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Affordability: Whilebroadbandtariffshavebeendecreasing

overthepastfewmonthsasprivateoperatorsexpandtheir

services,thetariffscontinuetoremainhighwhencompared

totariffsformobileservices.Thisispartlyreflectiveoflow

volumesandhighcostofprovisioningofbroadband

services.Thisseemstobeabigchallengeandthereisa

needforcostefficientmeansofbroadbandaccess.

GovernmentagenciessuchasTRAIhavetakenseveral

stepstoensurelowerinternetandbroadbandprices(eg:cut

inInternationalPrivateLeasedCircuitprices).The

Government,underUSOF,isalsoconsideringaproposalto

providesubsidysupportforbroadbandconnectivityinrural

andremoteareasofthecountrybyutilizingexistingpassive

andcoreinfrastructureavailablewithbothwirelineand

wirelessserviceproviders.

Lack of quality web content in local languages:While

businessusersseemtobetheimmediatebeneficiariesof

broadband,stakesforruralIndiaareevenhighergiventhe

unparalleledbenefitsthatbroadbandenabledapplications

suchastelemedicine,e-commerce,e-educationande-

governancecanunleash.Forthistohappen,theavailability

ofcontentthatcaterstotheneedsoftheruralpopulationis

critical.Thecurrentlackoflocallanguagecontentcould

provetobeamajorstumblingblockintheuptakeofinternet

amongsttheruralmasses.

Source:EconomicTimes,InternetimproveslivesofwomeninHimachal

Pradesh,September2009

Benefit of quality content in local language

Peoplefromremoteareasseemtobeincreasinglyusing

theinternet,luredbyitsabilitytoprovideinformation

crucialtotheirlives,inalanguagetheyunderstand.For

example,womenofKangraMahilaSabha(KMS),aself-

helpgroupforwomeninmountaincommunitiesof

HimachalPradesh,makealivingexportingpineneedle

hats,coastersandbaskets,whentheydiscoveredonthe

internetthatpeopleinMexicoandCanadamake

handicraftitemswithpineneedle.Thiswasenabled

throughcontentthatwasavailableinlocallanguage.

Likewise,inGujaratsAnanddistrict,YashodaBen,an

Englishilliteratemotheroftwodaughters,frequentsa

localinternetkiosktoaccessinformation,inGujarati,on

differentcollegesandcourses,downloadapplication

formsandfindoutabouteducationloansforherteenager

kids


Broadband connectivity at the gram-panchayat level will provide

rural citizens access to services like mobile banking, e-governance

applications, e-education and telemedicine


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6FICCI- BDAReport,BusinessModels,ProjectionsandImperatives,

January2009

7TRAI,RecommendationsonGrowthofBroadband,January2008

8 TRAI,RecommendationsonGrowthofBroadband,January2008

9 Mediareports,KPMGanalysis

10Mediareports

Enablers of broadband growthBroadbandsubscribersinIndiaareexpectedtogrowto~46

millionby2013atacompoundedannualgrowthrateof~70

percent.6 TheGovernmenthasidentifiedavailabilityof3G

andbroadbandwirelessaccessservices(BWA)and

streamliningRightofWay(RoW)proceduresaskeyenablers

toboostdeploymentofbroadband.7 Theseenablerswould

addressconcernsofwirelineaccess,PCpenetrationand

affordability.

3G and BWA services: TheGovernmentisexpectedtoauction3Gandbroadbandwirelessaccess(BWA)licenses

inthenearfuture.Withtheopeningofaccessnetworkto

thesewirelesstechnologies,itisanticipatedthatwireless

broadbandwill,inashorttimeframe,provideawider

coverageandovercomeconstraintsofwireline.

GiventhelowlevelofPCpenetrationintheconsumer

segmentinIndia,3GandBWAdefinitelyholdsthepromise

toprovidethefirstexperienceofbroadbandtomillionsof

usersinIndia.Thiscouldbethroughawidearrayofdevices

includingconnectedcomputingdevices,lowcostportable

internetdevices,affordablemininotebooks,andcheap

mobilehandsets..As3Gsubscriberbaseexpandsfurther,

handsetpricesareexpectedtodeclineovercomingthe

constraintsofaffordabilityofbroadbandaccessdevices.

Right of Way (RoW): Inordertoencourageservice

providersforrollingoutnewinfrastructureandproviding

advancedbroadbandservicesinatimelymannerTRAIhas

recommendedthatacommitteebeformedatdistrictlevel

tostudyRoWrequirement,anditshouldevolveaduct-

sharingmechanismamongserviceproviders.TheCentral

Governmentshouldalsoconsidermandatingthestate

governmentstoadoptuniformRoWproceduresand

streamline/rationalizeRoWcost,whichmayprimarilybe

limitedtocostofre-instatement8.However,implementinga

uniformRoWframeworkmayrequireaconsensual

approach,whichcouldbealongdrawnprocess.

Applications of broadbandTherearevariousapplicationsthatwouldbesupportedby

broadbandandcoulddriveinclusivegrowth:

Mobile banking: Broadbandaccessthroughwirelesswould

enablemobilebanking,forwhichthegreatestopportunity

liesinservingtheneedsoftheunbanked,whichismore

than65percentofthepopulation9 (vis--vismobiledensity

ofc.42percentandrisingeachyear).Thereareseveral

initiativesbeingtakenbythegovernment,serviceproviders,

andthelike,toenhancetheofferingandextenditsreach.Accordingtoaglobalconsultancyfirm,mobilebankingin

Indiahaswitnessed94percentgrowthsince2002and

Indiaisbecomingapromisingnationforsuchservices.The

firmexpectsthepenetrationofIndia'smobilebankingactive

userbasetoreach2percent(2.5crore)by2012,upfrom

thecurrent0.2percent10.

Tele-education: InIndia,schoolsandlibrariesinruralor

remoteareaswithoutwiredinfrastructureorbroadband

servicescanbecosteffectivelyconnectedtobroadband

usingwirelessaccess.Extensiveandreliablebroadband

internetcanhelpinternet-basedqualitydistanceeducation

reachmorepeopleacrossthenation.TheIndiraGandhi

NationalOpenUniversity(IGNOU)isalreadyencouraging

stategovernmentsandconventionaluniversitiestoestablish

distancelearningprograms,providingfinancialsupportand

grantsforprogramsandfacilitatingdevelopmentof

multimediamaterialsfordeliverythroughdistancelearning

programs.



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E-governance: Indiaisalreadyrunninge-Governancepilot

programsaimedatbringinglocalgovernmentservicesto

peoplethroughinternetaccess.E-sevaisonesuchinitiative,

createdbytheAndhraPradeshgovernmenttoprovideits

citizenswithonlineservicessuchasobtainingbirth

certificatesandvariouslicenses,paymentofutilitybillsand

taxes,ticketreservationsfortransportationservices,and

listingsofgovernmentordersandpolicies.Similarinitiatives

havebeentakenbyotherstategovernments.TheCentral

Governmentisalsocreatinganenvironmentfor

establishmentofCommonServiceCentres(CSCs)that

wouldprovidehighqualityandcost-effectivevideo,voice

anddatacontentandservicesintheareasofe-governance,

education,health,telemedicine,entertainmentaswellas

otherprivateservices.

Telemedicine: InIndia,around1millionpeopledieeach

yearbecauseofalackofbasichealthcare.Doctorscanuse

real-timevideoconferencingtodiscusspatientsymptoms

withfarawayexperts,thusprovidingfasterandbettercare

tothepatients.Oneoftheleadinghospitalsinthecountry

havesetuparound45RuralTelemedicineCentresacross

differentlocationsinthecountry,workingwithdifferent

kindsofentitiesinthehealthcareindustrytoprovide

healthcaretoruralmasses.

Others: Broadbandaccesshasotherinclusivegrowth

benefits.Forexample,high-resolutionpicturesorreal-time

imagesofcropdiseasescanbetransmittedtoagricultural

expertsinadifferentgeographiclocationforimmediate

expertadvice,thuscontainingthecropdiseasesfaster.

Therearemanysocialadvantagesofbroadbandsuchas

telecastingofentertainmentprogramsandinfotainment

service.Suchentertainmentdeliveredviabroadbandcould

beaneventforsocialgatheringsinisolatedvillages.

Toconclude,broadbandcansupportvariousapplications

thatcoulddriveeconomicgrowthinruralandremoteareas.

Whiletheseapplicationsseemtoholdhugepotential,and

havebeensuccessfullypilotedinsomecases,greater

accesstobroadbandserviceswouldprovidethenecessary

triggertoachievewidercoverageandachieveinclusivegrowth.



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Telecom Manufacturing

1iDatePressReleaseonPRLog.com,TelecomEquipment:AMarketin

Transiti on,March 11,200 9

2 iDatePressReleaseonPRLog.com,TelecomEquipment:AMarketin

Transiti on,March 11,200 9

3 TRAI,November2009

4 TEPC,Policyrecommendationstoincreasedomestictelecomgrowthin

exportsoftelecomequipmentandservices

Despitetheeconomicslowdowntheglobal

telecommunicationsequipmentmarketgrewnearly5

percentin2008.Thismoderaterateofgrowthwaslargely

duetocontributionsmadebythehandsetcomponentsand

infrastructurehardwareverticals.Thispavedthewayforrise

ofAsianmanufacturerswhoaccountedfortwo-thirdsofthis

increase.

WhileAsiarepresentedslightlyover40percentshareofthe

totalmarket,asignificantportionoftheAsiangrowthcould

beattributedtoChinaandIndiawhichtogetheraccounted

fornearly20percentofthisglobalpie 1.

Fromabroaderperspective,Asia-Pacificregions

contributiontoglobalspendingontelecomnetworks

increasedbyfourpercentagepointsduringthattime,while

thatofWesternEuropeandNorthAmericalostsixandfive

percentagepoints,respectively2.

Indiaisaddingaround14millionnewwirelesssubscriptions

monthonmonth,withSeptember2009aloneseeingan

additionof~15millionsubscribers.AsofSeptember2009,

totalsubscriberbasecatapultedto509.03millionwitha

tele-densityof43.5percent.3 Giventhisgrowth,

Governmentstargetofover1.1billionsubscriptionsby2015

seemsmorethanachievable4.

Thisboominthetelecomsectorhasslowlyandsteadily

pavedthewayforanotherindustry;thetelecomequipment

manufacturingindustry.

The telecom manufacturing sector ispoised for growth due to the impetus

provided by telecom services, with

India having the potential to emerge

as a global hub for telecom

manufacturing


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144,000 140,000160,900

178,330

236,560

412,700

518,000

-

100,000

200,000

300,000

400,000

500,000

600,000

(INRMillion)

2002 - 03 2003 - 04 2004 - 05 2005 - 06 2006 - 07 2007 - 08 2008 - 09

Source:TEPC

Telecom Equipment Production

In2003-04,thetelecomequipmentmanufacturingindustry

postedanegativegrowthrateof3percent(YoY)whereas

by2008-09,theindustryhadgrowntoboastapositive

growthrateof26percent(YoY).Invaluetermsthe

productionoftelecomequipmentsmanufacturedincreasedfromINR144,000millionin2002-03toINR518,000million

in2008-09.

Thisgrowthinthetelecomequipmentmanufacturing

industryislargelyattributabletotherapidlygrowingtelecom

sector.Otherfavorablefactorssuchaspolicymovestaken

bytheIndiangovernment,incentivesoffered,largetalent

poolintheresearchanddevelopment(R&D)spaceandlow

laborcostsarefurtherprovidinganimpetustothisindustry.

Key milestones in the sector

Thefoundationsofdevelopingthetelecomequipment

manufacturingindustryinIndiawerelaidin1999.

1999: Openingupoftheindustrytoprivatesector

participation

2005:

- FDIceilingintelecomserviceswasraisedfromthe

existing49percentto74percent

- TheUnionMinistryofCommunicationsand

InformationTechnologybegantopromoteIndiaasa

viableoptionforsettingupmanufacturingplants.This

wasstronglysupportedbyitsfastgrowingtelecom

market,itstalentpoolandthesuccessofthe

BusinessProcessOutsourcing(BPO)industry.


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How can India inch towards doing so?Indiahasallthemakingsofagloballycompetitivetelecom

manufacturingandR&Ddestination.Thisisevidentfrom

AlargeandboomingdomesticmarketwithIndian

operatorsreachingouttotheglobalmarketproviding

wideraccesstoIndiantelecomcompanies

Strongmanagementexperienceincriticalfunctionssuch

asSCM,hightechmanufacturingsystems,working

capitalmanagement,valuechainwithEMScompanies,

captivefacilitiesofMNCs(willingtoinvestfurtherin

India),auxiliarycomponentmanufacturingbase(e.g.,for

cables,cabinets,shelves,powerelectronics,tooling,

barePCBs,etc.)

StrongtechnicalandR&Dworkforcehavingexperience

inR&DcentersofMNCcompanies,ITservice

companiesdoingtelecomprojects,strongacademicand

researchlabsandanincreasingnumberofIndianswho

arereturningbackfromUSA/Europe

Skilled&trainedshopfloorworkforceforelectronics

circuitassembly,testingandintegrationfromwidely

availableresourcesfromIndustrialTrainingInstitutesand

Polytechnics.

Costadvantagearisingfromlowermanufacturingplant

establishmentcostandcompetitivelaborcosts.

Availabilityofcapitalfromawellestablishedfinancing

industryaswellasprivateequitynetwork

TheTelecomEquipmentandServicesExportPromotion

Council(TEPC)hassetitssightsoncertainmilestones

tobeachievedbytheyear20146

Exportsgrowthat25percentCAGRovernext5years,

reachingoverUSD10Billion

Domestictelecomproductsgrowthof18percentCAGR

overnext5years

Employmentgeneration(directandin-direct)of20

million

Atleast70percentofIndiandomestictelecomneeds

aremetbyproductsmanufacturedinIndia

AtleastafewIPR-driven,Indianproductcompaniesshouldsucceedgloballyandbecomebilliondollarcompanies

Thesetargetsthoughambitiousareastepintheright

direction.Theaimisnotonlytobeaglobaltelecom

manufacturinghubbutalsoensureinclusivegrowthforthe

countryassuchbyfocusingonareaslikeemployment

generation.

Favorablegovernmentinitiativesandtimelypolicychanges

hasensuredthatIndiahastransformeditselfintoatelecom

servicesgiant.ThesameneedstobedonetospeedIndias

transformationtowardsbecomingaglobalmanufacturing

hubthatcancatertothedomesticandglobaltelecom

equipmentdemand.

A Case-in-Point

Seamlesseffortstakenbythegovernmenthavecertainly

initializedIndiastransformationtobecomingaglobal

manufacturinghub.

SriperumbudurinTamilNaduisleadingIndias

transformationintoaglobaltelecommanufacturinghub.

DuetotheprogressivepolicyinitiativeoftheGovernment,

Sriperumbuduristodaychurningmoremobilephonesthan

ShenzheninsouthernChina.Thisisnotasmall

achievement,consideringShenzhenmakesoneoutofeight

handsetssoldanywhereintheworld.TheclusterofSEZ

unitsemerginginSriperumbudurneedtobesupportedwith

suitabletaxbreaks,world-classpublicinfrastructuresuchas

expressways,railwaylinksandanairport,andprivate

amenities,includinghotels,apartments,shoppingmallsand

entertainmentsites.Alreadymanycomponent

manufacturershavebegunworkinSriperumbudurtomake

partsandcomponentsforthecellphoneindustry.

Approximately20,000peopleareestimatedtobeworking

inthearea7.

Largeinternationalplayershavemadesignificant

investmentsinthecountry,includingthefollowing

investmentsinChennaialone:

6 TEPC,Policyrecommendationstoincreasedomestictelecomgrowthin

exportsoftelecomequipmentandservices

7 TEMApressrelease,"TelecomEquipmentProductiontoCrossRs.50,000

Croresin2008-2009",November20,2008



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Company Description Estimated Investment

Nokia HandsetManufacturing INR10,000million

Motorola HandsetManufacturing INR5,000million

Ericsson R&D facility and global ser vice deliver y centre INR2,500 million

Flextronics Telecomhardwaremanufacturing INR5,000million

NokiaSiemensNetwork TelecomEquipment INR5,000million

HonHai(Foxconn)Mobilehandsetsandcomponentsandelectronic

hardwareandrelatedservicesINR5,500million

LairdTechnologies MobilePhoneaccessories INR1,250million

Perlos MobileHandsetmechanics INR600million

Salcomp MobileHandsetchargers INR400million

TelecordiaTechnologies SoftwareandservicesforIPwirelineandcable INR1,500million

XLTelecom Capacitytomake10,000handsetsinSKDfacility INR2,500million

Source:ELCINA-AVISTA,EnvisagingtheNextWaveofICTEManufacturinginIndia,February2009,PressreleasefromTEMAdatedNovember20,2008

Note:TheabovefigureshavebeencalculatedusingexchangerateasINR/USD-50

Globally,therehavebeeninstanceswhereinawell

developedSEZmodelhassupportedthemanufacturing

industry.ThegovernmentshaveencouragedastrongR&D

infrastructuretofacilitatethegrowthinthesector.Fiscal

measuresandincentivessuchassubsidies,easycredit/

linesofcreditandtheuseofbi-lateraltradearesomeofthe

measuresthathavebeenimplementedtoattractforeign

investmentandprovideboosttothedomestic

manufacturingindustry.

Giventhegeographicalspreadofourcountry,itmightbea

goodstrategyforIndiatogoforaphasedandplanned

expansion.PlanningprivateSEZsinstrategiclocationswill

fosteranenablingenvironmentforglobalanddomestic

manufacturingmajorstosetupplants.Highquality

infrastructureatSEZswillfurtherprovidethenecessary

pushwhichthetelecomequipmentmanufacturingmajors

require.

How can India benefit from becoming a global

manufacturing hub?

Indiahaswitnessedfastergrowthinurbanareas,as

comparedtoruralareas.Thegovernmenthasframed

inclusivegrowthasoneoftheaspectsoftheirpolicythis

term.Thisorientationismostvisiblymanifestedinthe

themeoftheEleventhFive-YearPlan,whichrunsfrom2007

to2012.Thethemeis'towardsfasterandmoreinclusive

growth,'whichclearlyreflectstheneedtofindasustainable

balancebetweengrowthandinclusion.

Inclusivegrowthisunderstoodbydifferentpeoplein

differentways.Forgrowthtobeinclusiveitshouldinvolve

keyattributeslike

Creatingnewandvariedopportunitiestoearna

livelihood

Providewaystoenhancecapabilitiestoexploitvaried

opportunities

Providingsecurityagainstapermanent lossoflivelihood



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Telecommanufacturingisonesuchindustrythatislikelyto

providethisinclusivegrowththatIndiahasbeenlookingfor.

Therehavebeeninstanceswheredeploymentoftechnology

inrelatedindustrieshaveledtocreationofnewer

employmentandincomegenerationopportunitiesfor

peopleintheruralareas.Forinstance,settingupofIndias

firstruralBPOinKrishnagiribythegovernmentin2007

undertheFoSTERA(FosteringTechnologiesinRuralIndia)

initiativeledtoitstransformation.Thegovernmentplayeda

keyroleinprovidingtheemployeeswiththebasic

computing,communicationandothersoftskills.Similarbenefitscanalsobereplicatedbyamanufacturingunitin

ruralareastoprovideemploymentandincomegeneration

opportunitiestherebyaidinginreducingthedependenceof

peopleonagriculture.

Additionalincomegeneratingopportunitiesforpeoplein

ruralareaswillmostlikelyleadtotheirchildrenhavinga

betteraccesstotheeducationwhichinturncanimprove

ourcountrysliteracyratesandemployability.

Accesstobettertechnologyanditsinnovativeapplication

canplayaverycriticalroleinimprovingthehealthcare

facilitiesinruralIndia.Forinstance,ahospitalcanleverage

telecomconnectivitytoprovidehealthcareservicestorural

areasthroughtele-medicine.Adoctorintheruralareacan

remainincontactviaavoiceanddataconnectionwiththe

doctoratthehospital.Thehospitalcanemploytele-

medicinetoassistdoctorsinruralareasastheyanalyseand

treatpatients.

Otherthanbenefitingtheruralareas,telecommanufacturingcanalsobringalotofpositivesforthe

countryasawhole.

Employment Opportunities Astrongtelecom

manufacturingindustrywillaidtheancillaryand

componentsindustriesandtherebygenerateemployment

opportunities.Thetelecomsectoremploysover1Million

directlyandisestimatedtoemployanother4Million

indirectly8.

Large export potential Telecomequipmentindustry

offersatremendouspotentialforincreasingIndiasexports

especiallysincethetraditionalsectorshavesufferedon

accountofthecurrentglobalcrisis

Documents

Telecom 2009