Report on Telecom Service

Provider Industry

Report prepared by
Group VI Section B

As a fulfillment of the course in

Industry Analytics

Post Graduate Program 2008-2010

Industry Report on Telecom

Service Provider Industry
 Report prepared by
Group VI Section B
Members

1. Ajay Goyal
2. Geetanjali Ghosh
3. Natasha Jain
4. Ritesh Bhansali
5. Satam Roy

As a fulfillment of the course in

Industry Analytics

Post Graduate Program 2008-2010

DECLARATION
This is to declare that this report on “The Telecommunications Service
Sector” has been made for the partial fulfillment of the course: Industry
Analytics in Term – III of PGP (Batch 2008-2010) by the group members.

The work was undertaken by the following members. The members express
that the contents of the report have been done jointly and the views
contained therein have been discussed and deliberated in full. The group
takes responsibility of the contents and agrees to go through the review
process.
MEMBERS SIGNATURE

1. Ajay Goyal 08PG077

2. Geetanjali Ghosh 08PG089

3. Natasha Jain 08PG101

4. Ritesh Bhansali 08PG113

5. Satam Roy 08PG125

Post Graduate Program 2008-2010

 ACKNOWLEDGEMENT

At the successful completion of our project, we would like to express my

sincere gratitude to all the people without whose support this project
would not be completed.
At the onset, I would like to thank my institute “Alliance Business School”
for giving us the opportunity to undergo this research project.
We would also like to acknowledge the constant help and encouragement
of our project guide Prof. Samik Shome, who has given his valuable
suggestions and expert guidance and support.
We would also like to thank all those who have directly or indirectly
helped us in the preparation of this report.
EXECUTIVE SUMMARY
This report examines the emergence of innovation and value creation for enhancing
customers' experience, as a result of increasing competition in the Indian telecom
industry during the late 1990s and early 2000s. The report provides a detailed account of
the evolution of the Indian telecom industry.
It traces various developments in the industry before, during and after the liberalization of
the Indian telecom sector. It also provides information about the increasing popularity of
cellular services which led to the emergence of several private telecom operators like
Bharti Tele Ventures, Hutchison Telecom, Idea Cellular Ltd, Reliance Telecom Ltd, etc.
Due to the huge market potential even public sector undertakings like BSNL and MTNL
have also begun offering cellular services apart from basic wire line services.
The fast track growth of the Indian telecom industry has made it a key contributor to
India’s progress. India adopted a phased approach for reforming the telecom sector right
from the beginning. Privatization was gradually introduced, first in value-added services,
followed by cellular and basic services. An independent regulatory body, Telecom
Regulatory Authority of India (TRAI), was established to deal with competition in a
balanced manner. This gradual and thoughtful reform process in India has favoured
industry growth. Today, there are more than 225 million telecom subscribers in India.
Every month, 6-7 million new subscribers are added. Upcoming services such as 3G and
WiMax will help to further augment the growth rate.
Furthermore, the Indian economy is slated to sustain its 7-9 per cent growth rate in the
near future. This is supported by the political stability that the country is experiencing
currently. India’s demographic outlook makes it one of the largest markets in the world. A
conducive business environment is also created by a favourable regulatory regime. There
exists enormous business potential for telecom companies on account of the country’s
low tele-density, which is close to 19 per cent presently. The Indian telecom industry is
growing at the fastest pace in the world and India is projected to be the second largest
telecom market globally by 2010.
LIST OF TABLES
Table 3.1: Telecom Statistics of the world

Table 3.2: Outgoing Minutes of the world

Table 3.3: International Comparison of tele-density
Table 4.1 Companies and No. of Circles covered
Table: 4.2 Number of broadband subscribers
Table: 4.3 FDI Inflows into India’s Telecom Industry (1991-2007, in Rs million)
Table: 4.4 Year wise production and export of telecom equipment-manufacturing sector
Table: 4.4 Indian Telecommunications at a glance
Table: 7.1 FDI Policy for different telecom sectors
Table: 7.2 Actual Inflow (Year Wise) of FDI in Telecom Sector from April 2000 to
August 2008
Table: 7.3 Actual Inflow of FDI in Telecom Sector Country -wise (from January 2000
to August 2008)
Table: 7.4 Actual Inflow of FDI in Telecom Sector -Sector-wise as on August, 2008

Table: 7.5 Capital Market data

Table 9.1: Key Ratios of Bharti Airtel Ltd.
Table 9.2: Key Ratios of Reliance Communications Ltd.
Table 9.3: Key Ratios of Vodafone Essar Ltd.
Table 9.4: Key Ratios of BSNL
Table 9.5: Key Ratios of Idea Cellular Ltd.
Table 9.6: Key Ratios of Aircel Cellular Ltd.
Table 9.7: Key Ratios of MTNL
Table 9.8: Key Ratios of BPL Communications Ltd. (2006-2007)
Table 9.9: Key Ratios of HFCL Infotel Ltd.
Table 9.10: Key Ratios of Shyam Telecom Ltd
Table: 9.11 Inter-Company comparison of top 5 companies
Table: 9.12 Inter-Company comparison of bottom 5 companies

LIST OF FIGURES
Figure: 3.1 Growth in fixed lines, mobile cellular subscribers, estimated Internet users
and subscribers to mobile broadband networks, in billions, 1995-2007

Figure: 3.2 Broadband subscribers by region, 2007

Figure: 3.3 Fixed and mobile broadband evolution in developed and developing
countries
Figure: 4.1 Wireline Subscriber
Figure: 4.2 Wireless Subscriber
Figure: 4.3 Internet Subscriber
Figure: 4.4 Broadband Subscriber
Figure: 4.5 Growth of Tele-density
Figure: 4.6 Market share of wireless service providers (as on 31st March 2008)
Figure: 4.7 Subscriber growth of wireless services (GSM and CDMA)
Figure: 4.8 PSU Operators Subscriber Base
Figure: 4.9 Private Operators Subscribers Base
Figure: 4.10 Share of pubic and private sector IPS (in lakhs)
Figure: 4.11 Set top boxes in CAS notified area
Figure: 6.1 Year wise cellular tariff and no. of subscribers

Figure: 7.1 Employment Potential of Indian telecom industry

Figure: 9.1 Market Share of Telecom Companies as on 31st Jan’09
 TABLE OF CONTENTS

CHAPTER PAGE NO.

1. Introduction
1

2. Review of Literature
4

3. Global Overview
12

4. Indian Overview
25

5. Industry Structure
45

6. Government Policy Analysis

53
7. Economic Factors and Its Implications
65

8. Analytical Framework
83

9. Company Analysis
98
10. Trend and forecast
134

11. Bibliography
147

Chapter 1
INTRODUCTIO
N
1.1 HISTORY OF TELECOMMUNICATION
INDUSTRY

The history of telecommunication industry started with the first public demonstration of
Morse’s electric telegraph, Baltimore to Washington in 1844. In 1876 Alexander Graham
Bell filed his patent application and the first telephone patent was issued to him on 7th of
March.

In 1913, telegraph was popular way of communication. AT&T commits to dispose its
telegraph stocks and agreed to provide long distance connection to independence
telephone system.

In 1956, the final judgment limited the Bell System to Common Carrier Communications
and Government projects but preserving the long-standing relationships between the
manufacturing, researches and operating arms of the Bell System. In this judgment
AT&T retained bell laboratories and Western Electric Company. This final judgment
brought to a close the justice departments seven –year-old antitrust suit against AT&T
and Western Electric which sought separation of the Bell Systems Manufacturing from its
operating and research functions. AT&T was still controlling the telecommunication
industry.

In 1982 , AT&T was requested to divestiture its stock ownership in Western Electric;
termination of exclusive relationship between AT&T and Western Electric; divestiture by
Western Electric of its fifty percent interest in Bell Telephone Laboratories, AT&T ‘s
telecommunication research and development facility, is a jointly owned subsidiary in
which AT&T and Western Electric each own 50% of the stock; separation of telephone
manufacturing from provision of telephone service and the compulsory licensing of
patents owned by AT&T on a non-discriminatory basis.

It was telecommunication act of 1996 that true competition was allowed. The act of 1996
opened the market to all competitors. AT&T being the first telecommunication company
paved the road for the telecommunication industry as well as set the policy and standards
for others to follow.
Beginning of telecommunication in India

 1851 First operational land lines were laid by the government near Calcutta

 1881Telephone services introduced in India

 1883  Merger with postal system

 1923 Formation of Indian radio Telegraph Company

 1932 Merger of ETC and IRT into Indian Radio and Cable Communication
Company

 1947 Nationalization of all foreign telecommunication companies to form the

posts, telephone and telegraph, a monopoly run by the government’s ministry of
communications

 1985Department of telecommunication established , an exclusive provider of

domestic and long-distance services that would be its own regulator

 1986 Conversion of dot into two wholly government – owned companies the
VSNL for international telecommunication and MTNL for services in
metropolitan areas

 1997 Telecom regulatory authority created

Telecommunication is important not only because of its role in bringing the benefits of
communication to every corner of India but also in serving the new policy objectives of
improving the global competitiveness of the Indian economy and stimulating and
attracting foreign direct investment.

Indian Telecom industry is one of the fastest growing telecom markets in the world. In
telecom industry, service providers are the main drivers; whereas equipment
manufacturers are witnessing growth and decline in successive quarters as sales is
dependent on order undertaken by the companies.

Chapter 2

REVIEW OF
LITERATURE
REVIEW OF LITERATURE
Girija (1998), in its article “Socioeconomic Implications of Telecommunications
Liberalization: India in the International Context” says that Telecommunications
restructuring have evolved differently in Asia and Latin America. While Asian
governments have moved cautiously in bringing changes to the sector, Latin American
nations have implemented radical ownership and market transformations. The Indian
telecommunications reform falls in between these two general regional trends. The
choice of a high component of competition, increased private participation, and no
privatization of the national carrier set conditions that will trigger unique socioeconomic
effects. This article identifies and highlights the likely implications of the Indian reform
on key economic and social issues, such as the cost of services, cross-subsidies, network
interconnection, private investments, universal services, employment, and the possible
rise of an information-intensive economy. It does so by comparing and contrasting the
Indian experience with dominant reform strategies elsewhere in the developing world.

T.H. Chowdary (1999) discusses how Telecom reform, or demonopolization, in India

has been bungled. Shaped by legislation dating back to the colonial era and post Second
World War socialist policies, by the mid-1980s India realized that its poor
telecommunications infrastructure and service needed reform. At the heart of the problem
lay the monopoly by the government’s Department of Telecommunications (DOT) in
equipment, networks and services. The National Telecom Policy 1994 spelt out decent
objectives for reform but tragically its implementation was entrusted to the DOT. This
created an untenable situation in which the DOT became policymaker, licenser, regulator,
operator and also arbitrator in disputes between itself and licensed competitors. He
discusses the question: ‘Why did India get it so wrong? and What India should do now?
Anand (1999), in his article named “India's economic policy reforms” says that India
was embarked on economic reforms in July 1991, in the wake of a balance of
payments crisis. In this article, an attempt is made to review two books and a set of
World Bank reports concerning the progress of these reforms. Issues concerning
economic policy, impact of the reforms on poverty, sectoral issues relating to agriculture,
industry and infrastructure are briefly discussed. As reforms enter a more difficult phase,
several challenges remain. Some of this fall under the “economic agenda'' of measures
needed to maintain economic growth; others can be termed the “development agenda'' -
of improving human development. Progress with regard to the former is not sufficient to
produce results concerning the latter.

Bhattacharya (2000) constructs a vision of the Indian telecommunication sector for the
year 2020. The paper aims at isolating agents of change based on international
experiences and situates India in the development continuum. The agents of change have
been broadly categorized into economic structure, competition policy and technology.

Das (2000), in her paper described the Liberalisation of the Indian telecommunications
services which started in mid nineties with no change in the existing public monopoly
structure, entirely controlled by Department of Telecommunications (DoT). In order to
evaluate any proposed industry structure, it is essential to analyse the production
technology of DoT so as to determine the rationale of liberalisation and sustainability of
competition. Accordingly, the researcher estimates a frontier multi-product cost function
for DoT, where the cost function has been duly modified to account for the production
technology of a public monopoly. The study finds that although DoT displays high
allocation inefficiency, it is still a natural monopoly with very high degree of sub
additively of cost of production. This study implies that the choice of any reform policy
should consider the trade-off between the loss of scale and scope economies and cost
saving from the reduction in inefficiency of the incumbent monopoly in the event of
competition.

Rao (2000), in her article named “Internet service providers in India”, provides a broad
view of the role of an Internet service provider (ISP) and the factors to be considered
before entering the ISP market. Describes the Internet/ISP scene within India and
discusses the configuration of local, regional and national level ISPs, and the supporting
infrastructure. She also identifies the various success factors. The global Internet scenario
is discussed regarding the phases of the Internet in India, i.e. pre and post
commercialization. The main players are described: ERNET, NICNET, STPI, VSNL,
MTNL, Satyam Infoway and Bharti-BT. The financial and legal implications are
highlighted in the Indian context. Many companies entered the nascent ISP business in
India due to deregulation. Building local content, foreknowledge of new Internet
technologies, connecting issues, competitiveness, etc. would help in their sustainability.
She concludes that though many companies entered the nascent ISP businesses in India
due to deregulation, many of them are unlikely to survive in the longer term.

Vrmani (2000) estimates the contribution of telecommunication (or telecom) services to

aggregate economic growth in India. Estimated contribution is distinguished between
public and private sectors to highlight the impact of telecom privatization on economic
growth. Knowledge of policy determinants of demand of telecom services is shown to be
essential to enhance growth contribution of telecom services. Using a recent sample
survey data from Karnataka State in South India, price and income determinants of
demand for telecom services are estimated by capacity of telephone exchanges
Estimation results offer evidence for significant negative own price elasticity and positive
income elasticity of demand for telecom services.

Narinder (2004), in his article “Enhancing Developmental Opportunities by Promoting

ICT Use: Vision for Rural India” talks about the foremost benefits of Information and
Communication Technologies (ICTs) in developing countries that can be helpful in
improving governance including public safety and eradication of illiteracy. The benefits
of ICTs have not reached the masses in India due to lack of ICT infrastructure,
particularly in rural areas, where two-third of the population of the country lives. Even in
cities and suburban areas, use of ICTs is not popular due to lack of awareness to its use,
computer illiteracy, and absence of practical applications. India is the largest country in
South Asia, with a population of over one billion people and its telecom sector is
presently experiencing fast growth phases. However telephony penetration in villages is
less than two percent of the rural population and about 15 percent of the villages are still
without any telephony service. Universal access to ICTs in rural areas has been planned
and is being implemented through Public Tele Info Centers having voice data and video,
as majority of villagers in India cannot afford a separate home connection. Illiteracy in
rural areas is as high as 40 percent and in some tribal belts hardly about 20 percent
people are literate. There are 35 million children in age group of 6–11 years, who are out
of school and one out of four drops out during primary classes. Education and training,
therefore, must be given the top priority if advantages of ICTs are to be harnessed. Indian
economy is agriculture based and employs maximum workforce. Improvement in
agriculture productivity can help in reducing rural poverty. Adoption of ICT in
agriculture will play an increasingly important role in crop production and natural
resource management. The other critical factor is technological challenges for universal
access to ICTs to bring down the network access cost.
Nikam, Ganesh, Tamizhchelvan (2004), analyses that changing face of India in
bridging the digital device. He reiterated - “India lives in villages” said the Father of the
Nation, Mahatma Gandhi. With 1,000 million people and 180 million households, India
is one of the biggest growing economies in the world. With the advent of the Information,
Communication and Technology (ICT) revolution, India and its villages are slowly but
steadily getting connected to the cities of the nation and the world beyond. Owing to the
late Rajiv Gandhi, India is now a powerful knowledge economy, and though India may
have been slow to start, it certainly has caught up with the West and is ahead in important
respects. The Government, the corporate sector, NGOs and educational institutions have
supported rural development by encouraging digital libraries, e-business, e-learning and
e-governance. The aim of this paper is to touch upon and highlight some of the areas
where, by using ICT, the masses have been reached in this way. A follow-up paper will
outline collections of significant cultural material which, once national IT strategies are
fully achieved, could form part of a digitally preserved national heritage collection.

Dey (2004), in her article talks about the discussions between the Federal
Communications Commission (FCC) and communications policy makers and regulators
in other countries and how they have gleaned several clusters of issues where further
research would directly benefit them. Recently, there have been two notable shifts. First,
as the acceptance of the competition model over the monopoly model for
telecommunications markets takes deep effect in regulators all over the world, questions
regarding process and procedure for regulation are becoming ever more urgent. This
paper discusses current questions regarding decision making, enforcement, and
understanding consumer issues that arise often in the FCC's discussions with other
regulators. Second, technological change is potentially shifting market definitions. In the
FCC's discussion with other regulators over the last two years, the overlap of wireline
telecom, wireless telecom and cable television has become more pronounced.

Singh (2005), in his article “The role of technology in the emergence of the information
society in India” describes the role that information and communication technologies are
playing for Indian society to educate them formally or informally which is ultimately
helping India to emerge as an information society. Though India has a huge population,
the illiteracy rate is also huge in this country. The paper has taken an approach to find the
historical situation and present the prevailing scenario as well as the change that are
taking place with the application of ICT to the advantage of the society in different areas
including daily life. India is making all out efforts to be counted among the developed
nations of the world. The article also describes the considerable attention India is taking
for application of technology, development of infrastructure and human resource for
meeting national needs. Basically India is building an information society. Technology
has helped society to cut across the traditional boundaries for getting converted into an
emerging information society. The study concludes that The Indian software and services
industry has significantly helped to boost the Indian economy. In IT-enabled services too,
India has been clearly perceived to be the dominant hub. The Indian software sector is
being recognized as the single largest contributor to incremental market capitalization in
India but the sector is still small in terms of contribution to GDP, especially when
compared to other large sectors in the economy like agriculture and manufacturing.
Similarly, the telecommunication sector has contributed a lot but still has a considerable
way to go. The paper also enforces that comparisons of India’s telecommunication
statistics with those of developed and other emerging economies show that the country is
still far behind its contemporaries.

Mr. Banka (2006) gives an overview of the mergers and acquisitions in the
telecommunication industry. According to him Governments decision to raise the foreign
investment limit to 74% is expected to spur fresh rounds of mergers and takeovers in
India. He foresees a sector that represents humongous opportunity waiting to be tapped
by Indian and foreign conglomerates.

Thomas (2007), in his article describes the contribution made by telecommunications in

India by the state and civil society to public service, this article aims to identify the
state’s initial reluctance to recognize telecommunications provision as a basic need as
against the robust tradition of public service aligned to the postal services and finds hope
in the renewal of public service telecommunications via the Right to Information
movement. The article follows the methodology of studying the history of
telecommunications approach that is conversant with the political economy tradition. It
uses archival sources, personal correspondence, and published information as its research
material. The findings of the paper suggests that public service in telecommunication is a
relatively ‘‘new’’ concept in the annals of Indian telecommunications and that a de-
regulated environment along with the Right to Information movement holds significant
hope for making public service telecommunications a real alternative. The article
provides a reflexive, critical account of public service telecommunications in India and
suggests that it can be strengthened by learning gained from the continual renewal of
public service ideals and action by the postal services and a people-based demand model
linked to the Right to Information Movement. All studies done by the researcher suggests
that the right to information movement has contributed to the revitalisation of
participatory democracy in India and to a strengthening of public service
telecommunications.

Cygnus Business Consulting & Research Pvt. Ltd. (2008), in its “Quarterly
Performance Analysis of Companies (April-June 2008)” has analysed the Indian telecom
industry in the awake of recent global recession and its overall impact on the Indian
economy. The analysis is done in the background of wake of global recession and rising
inflation. Cygnus estimates, the Indian telecom industry is expected to maintain the
growth trajectory in the next quarter as well. With almost 5-6m subscribers are being
added every month, and the country is witnessing wild momentum in the telecom
industry.

Maheshwari (July-September 2008), in her report analysed the Indian telecom industry
and ascertain that Indian telecommunications has been zooming up the growth curve at
an mounting pace, and India is has surpassed US to become the second largest wireless
network in the world. This growing subscriber base is basically created by tapping into
rural India, which is an emerging market for the industry. The estimate for the next five
to ten years is that the rural market will form 40 % of the subscriber base. The study has
analysed the human resource management process of the industry, and specially the latest
trends of recruitment of this massively growing industry.

Anderson (2008), in his single executive interview titled “Developing a route to market
strategy for mobile communications in rural India An interview with Gurdeep Singh,
Operations Director, Uttar Pradesh, Hutch India” suggests that managers need to go
beyond traditional approaches to serving the poor, and innovate by taking into account
the unique institutional context of developing markets. His practical implication says that
the experience of Hutchison Essar in India provides some important lessons for mobile
network operators (MNOs) and other firms in other developing markets who are hoping
to serve the rural poor: Hutchison has recognized the value of corporate and non-
corporate partners. The company has proactively established relationships with
individual entrepreneurs, and has provided has provided development support to other
partners such as distributors. The company has recognized the value of leveraging
existing local institutions, and has seen gaps in local infrastructure or missing services as
potential opportunities rather than barriers to growth. The company has seen the rural
market as an opportunity – not just an obligation to be served because of universal
service obligations. Also this article demonstrates that MNOs can deliver availability and
affordability to achieve increased individual or household penetration through business
model innovation.

Mani (2008) addresses a number of issues arising from the growth of telecom services in
India since the mid-1990s. It also discusses a number of spillover effects for the rest of
the economy and one of the more important effects is the potential to develop a major
manufacturing hub in the country for telecom equipment and for downstream industries
such as semiconductor devices. The telecom industry in India could slowly become an
example of the service sector acting as a fillip to the growth of the manufacturing sector.
A beginning towards this has been made. The formation of a Telecom Equipment Export
Forum and the announcement of the Indian Semiconductor Policy 2007 are steps in this
direction. Success crucially depends on the response of the private sector to these
incentives. Given the importance that a regulatory agency can play in this crafting, no
effort should be lost in strengthening the powers of the TRAI. The benefits to the Indian
economy from having both a strong services and manufacturing segments in the telecom
sector cannot be undermined.

Narayana (2008) estimates the contribution of telecommunication (or telecom) services

to aggregate economic growth in India. Estimated contribution is distinguished between
public and private sectors to highlight the impact of telecom privatization on economic
growth. Knowledge of policy determinants of demand of telecom services is shown to be
essential to enhance growth contribution of telecom services. Using a recent sample
survey data from Karnataka State in South India, price and income determinants of
demand for telecom services are estimated by capacity of telephone exchanges.
Estimation results offer evidence for significant negative own price elasticity and positive
income elasticity of demand for telecom services.

Sharma (2009) deals with the major challenges faced by India’s telecom equipment
manufacturing sector, which lags behind telecom services. Only 35% of the total demand
for telecom equipment in the country is met by domestic production. This is not
favourable to long-term sustained growth of the telecom sector. The country is also far
behind in R&D spending when compared to other leading countries. India needs to see an
increase in R&D investment, industry-academia-government partnership, better quality
doctoral education and incentives to entrepreneurs for start-ups in telecom equipment
manufacturing. In 2006-07, 65% of the total consumption of equipment was met through
imports. This trend has far-reaching implications for the economy and should not be
allowed to continue for long. In a country like India which has a problem of massive
unemployment, the manufacturing sector should be promoted to create more employment
opportunities.

Shah (February, 2009), has analysed Indian telecom industry and studied the sector
keeping in mind three companies; namely Bharti, R.Comm and idea in the background of
recent global meltdown. The study suggests that though there is no sign of slowdown in
this sector, but surely a strong turmoil is going on in the industry. The study states that
the sector is fairly immune from the current economic downturn & does provide a good
defensive bet in medium term. With the help of newer technologies, wireless penetration
is expected to increase in the near future, which is basically fuelling the growth of the
sector. While the 3G / Broadband adoption would ensure long term growth momentum,
the article has thoroughly investigated about the intense competitive scenario, pricing
pressure, high capital intensity & substantial regulatory uncertainties currently faced by
the industry. The article has also described the cause of being relatively safe of this
industry. The causes described by Shah are increasing rural coverage, rising affordability,
declining handset/subscription costs, substantially low tariffs & established
brand/distribution. However, the study also cautions the telecom industry that a steeper
economic slowdown could start impacting the subscriber usage patterns as well as
operator capital investments & thereby could substantially restrict revenue growth rates
going forward.

Chapter 3

GLOBAL
OVERVIEW
3.1 INTRODUCTION

World telecom industry is an uprising industry, proceeding towards a goal of achieving

two third of the world's telecom connections. Over the past few years information and
communications technology has changed in a dramatic manner and as a result of that
world telecom industry is going to be a booming industry. Substantial economic growth
and mounting population enable the rapid growth of this industry.

The world telecommunications market is expected to rise at an 11 percent compound

annual growth rate at the end of year 2010. The leading telecom companies like AT&T,
Vodafone, Verizon, SBC Communications, Bell South, Qwest Communications are trying
to take the advantage of this growth. These companies are working on
telecommunication fields like broadband technologies, EDGE(Enhanced Data rates for
Global Evolution) technologies, LAN-WAN inter networking, optical networking, voice
over Internet protocol, wireless data service etc.

Economical aspect of telecommunication industry: World telecom industry is taking a

crucial part of world economy. The total revenue earned from this industry is 3 percent of
the gross world products and is aiming at attaining more revenues. One statistical report
reveals that approximately 16.9% of the world population has access to the Internet.

Present market scenario of world telecom industry: Over the last couple of years, world
telecommunication industry has been consolidating by allowing private organizations the
opportunities to run their businesses with this industry. The Government monopolies are
now being privatized and consequently competition is developing. Among all, the
domestic and small business markets are the hardest.
3.2 GLOBAL SCENARIO

Until the 1980s the world telecommunications systems had a simply administrative
structure. The United States telephone service was supplied by a regulated monopoly,
American Telephone and Telegraph (AT&T). Telegraph service was provided mainly by
the Western Union Corporation. In almost all other countries both services were the
monopolies of government agencies known as PTTs (for Post, Telephone, and
Telegraph). In the United States beginning in 1983, AT&T agreed in a court settlement to
divest itself of the local operating companies that provided basic telephonic service. They
remained regulated local monopolies, grouped together into eight regional companies.

AT&T now offers long distance service in competition with half a dozen major and many
minor competitors while retaining ownership of a subsidiary that produces telephonic
equipment, computers and other electronic devices. During the same period Great
Britain’s national telephone company was sold to private investors as was Japan’s NTT
telephone monopoly. For telegraphy and data transmission, Western Union was joined by
other major companies, while many multinational firms formed their own
telecommunications services that link offices scattered throughout the world. New
technology also brought continuing changes in the providers of telecommunication.
Private companies such as Comsat in the United States were organized to provide
satellite communication links within the country.

Around the world we are witnessing remarkable changes to the telecoms environment.
After years of debate, structural separation is now taking place in many parts of the world
including Hong Kong, New Zealand, Singapore and some European markets. Structural
separation – or at least full-blown operational separation – is required to advance the
entire industry and to create new business opportunities and innovations which will
benefit our society, our economy and ultimately our industry.
The focus is also shifting away from broadband to what it can actually achieve. Next
Generation Telecommunications better describes this new environment and is essential
for the emerging digital economy. Important services that depend on NGT include tele-
health, e-education, e-business, digital media, e-government and environmental
applications such as smart utility meters.

In order to meet this burgeoning consumer demand for NGT applications, we are seeing
increasing investment in All-IP Next Generation Networks and fibre networks. A proper
inventory of national infrastructure assets is required if we want to establish an efficient
and economically viable national broadband structure for these services. In the
developing markets, next generations telecoms will take the form of wireless NGNs (ie,
LTE/WiMAX).

These are some of the elements of the broader ICT revolution that is unfolding before our
very eyes. We are right in the midst of the transition from old communications structures
(mainly one-way streets) to new structures that are fully-interactive and video-based.

One of the drivers behind the industry changes are the declining revenues experienced by
the telcos in their traditional markets. Over the past 10 years or so, fixed-line operators
have been affected by deregulation, a severe industry downturn, declining prices and
major inroads by mobile services. In addition, people are drifting to other forms of
communication, such as email, online chat, and mobile text messaging instead of the
traditional phone.

This has also led to an increased need for bandwidth, which in turn has revived the
submarine cable sector. In recent times there have been many cable build-out
announcements around the world, and some major systems are again being constructed.
Over 25 systems are expected to be built over the next two to three years and network
upgrades are also on the agenda for some existing systems.

It is clear that the mobile industry is also undergoing profound changes. The saturated
developed markets are forcing the industry to find new revenue streams and we are now
seeing other organizations such as media companies, content providers, Internet media
companies and private equity companies becoming involved in this market.

For the time being however, voice will remain the killer application for mobile with some
data services included as support services and niche market services. 4G (ie,
WiMAX/LTE) is the real solution for mobile data and by 2015 it is expected that the
majority of mobile revenues will come from data.
With the Internet economy, digital media and other telecommunications activities
becoming further established, the need for modern and efficient infrastructure is
becoming more critical.

3.2.1 Key highlights

• In 2008 the overall telecoms industry was valued at well over $3.5 trillion with
steady growth ahead.

• On a regional level, Western Europe still has the largest share of broadband
subscribers worldwide.

• DSL is the most popular broadband access technology worldwide, equating for
around a 66% market share.
Worldwide telecom statistics at a glance – mid-2008

Table 3.1: Telecom Statistics of the world

TELECOM STATISTICS
Population 6.7 billion
Fixed lines 1.3 billion
Mobile subscribers 3.5 billion
Mobile text messages sent 2.3 trillion
Internet users 1.2 billion
Fixed broadband subscribers 380 million

(Source: BuddeComm estimates)

 Table 3.2: Outgoing Minutes of the world

Bank Operator (Country) Fiscal International International telecom

year outgoing revenue
telephone traffic
(Million) Change (M Change As % of
1998-99 US$) 1998-99 total
(%) (%) telecom
revenue
1 AT&T (United States) 31.Dec. 10'900.0 4.3% 4'921.0 -7.7% 7.9%
2 MCI WorldCom 31.Dec. 8'306.0 15.4% 3'489.0 27.1% 8.6%
(United States)
3 Deutsche Telekom 31.Dec. 3'860.0 -18.1% 1'493.5 -53.1% 8.0%
(Germany)
4 Sprint (United States) 31.Dec. 3'640.0 24.8% 825.0 -10.5% 4.1%
5 France Télécom 31.Dec. 3'200.0 -5.9% 1'333.5 -24.7% 4.6%
(France)

Ranked by 1999 outgoing minutes (www.itu.in)

Note: All fiscal year dates show the ending period except those preceded by an asterisk which
show the beginning period.
Source: International Telecommunication Union: PTO database; Tele-Geography
(www.telegeography.com). © ITU, 2001
3.2.2 Tele-density

Table 3.3: International Comparison of tele-density

3.3 GLOBAL PLAYERS

3.3.1 AT&T

AT&T Inc. is the largest provider of both local and long distance telephone services,
wireless service, and DSL Internet access in the United States. Formerly SBC
Communications, Inc., the company shed its name and took on the iconic AT&T moniker
and the T stock-trading symbol (for "telephone") after its acquisition of American
Telephone & Telegraph Company (later known as AT&T Corporation).

AT&T Inc. was founded in 1983 as Southwestern Bell Corporation, headquartered in St.
Louis, Missouri. It was one of the seven original Regional Bell Operating Companies, or
"Baby Bells." The company — a holding company for Southwestern Bell Telephone
Company — was created as a result of U.S. antitrust action against American Telephone
& Telegraph Company in 1983. It took full control of Southwestern Bell Telephone on
January 1, 1984.

3.3.2 MCI Worldcom

MCI, Inc. is an American telecommunications company that is headquartered in

Ashburn, Virginia. The corporation was the result of the merger of WorldCom (formerly
known as LDDS followed by LDDS WorldCom) and MCI Communications, and used
the name MCI WorldCom followed by WorldCom before taking its final name on April
14, 2003 as part of the corporation's emergence from bankruptcy. The company formerly
traded on NASDAQ under the symbols "WCOM" (pre-bankruptcy) and "MCIP" (post-
bankruptcy). The corporation was purchased by Verizon Communications with the deal
closing on July 7, 2006, and is now identified as that company's Verizon Business
division with the local residential divisions slowly integrated into local Verizon
subsidiaries.
MCI's history, combined with the histories of companies it has acquired, echoes most of
the trends that have swept American telecommunications in the past half-century: It was
instrumental in pushing legal and regulatory changes that led to the breakup of the AT&T
monopoly that dominated American telephony; its purchase by WorldCom and
subsequent bankruptcy in the face of accounting scandals was symptomatic of the
Internet excesses of the late 1990s. It accepted a proposed purchase by Verizon for
US$7.6 billion.

3.3.3 NEXTEL

Sprint Nextel Corporation is one of the largest telecommunications companies in the US.
With 53.8 million subscribers, Sprint Nextel operates the third largest wireless
telecommunications network in the United States (based on total wireless customers),
behind AT&T and Verizon Wireless. Sprint is a global Tier 1 Internet carrier, and, as
such, makes up a portion of the Internet backbone. In the United States, the company also
operates the second largest wireless broadband network and is the third largest long
distance provider.

The company was created in 2005 by the $35 billion purchase of NEXTEL
Communications by Sprint Corporation. In 2006, the company spun off its local landline
telephone business, naming it Embarq and also completed the $6.5 billion acquisition of
Nextel Partners, one of its largest affiliates, which primarily provides Nextel wireless
services to more rural markets.

Sprint Nextel has its executive headquarters in Reston, Virginia and maintains an
operational and engineering headquarters in Overland Park, Kansas (where the largest
number of Sprint Nextel employees are based). Both internally and externally, "Sprint" is
an acceptable short name for the company; however, all iDEN "walkie-talkie" phones
currently being shipped are still branded with the Nextel logo and graphics.

3.3.4 Deutsche Telecom

Deutsche Telekom (DTAG) is a telecommunications company headquartered in Bonn,

Germany. It is the largest telecommunications company in Germany and in the European
Union.
Deutsche Telekom was formed in 1996 as the former state-owned monopoly Deutsche
Bundespost was privatized. As of June 2008, the German Government still holds a 15%
stake in company stock directly, and another 17% through the government bank.

3.3.5 France telecom

France Télécom is the main telecommunication company in France and one of the
largest in the world. It currently employs about 191,000 people (half outside of France)
and has nearly 159 million customers worldwide (2007). For the twelve months ending
September 2004 it had revenue of US$60.11 billion. The current CEO is Didier Lombard.

In August 2005, FT acquired a 77% ownership in the Spanish mobile phone company
Amena, rebranding it Orange España. France Telecom-Orange is the number three
mobile operator and the number one provider of broadband internet services in Europe
and, under the brand Orange Business Services, is one of the world leaders in providing
telecommunication services to multinational companies

3.4 GLOBAL TRENDS

The industry is dominated by three major communication tools. These are:

• Fixed-lines
• Mobile
• The Internet

The State of the market though has been changing. This has been mainly characterized by
increasing competition, mainly due to the numerous players in the telecom industry. The
boom in the telecom industry can be mainly attributed to increasing private sector
participants. There also has been an increased independent regulation by these
companies.

3.4.1 Fixed Line and Cellular Line Subscribers

Fixed-line market penetration remains comparatively low in most developing countries,

at an average of 13 per cent by end of 2007 even though the developing world accounted
for 58 per cent of the world’s 1.3 billion fixed phones lines in 2007. In fact, this segment
of the market showed a decline in developed countries and just a slight increase in some
developing countries. Overall, it is fair to say that fixed-line penetration worldwide
stagnated in 2007. Mobile penetration, however, continued to show high growth rates –
enough to reach an estimated 61 per cent of the world’s population (some 4 billion
subscribers) by the end of 2008. Moreover, by the beginning of the year, more than 70
per cent of the world’s mobile subscribers were in developing countries. Five years
earlier, in 2002, those subscribers had been less than 50 per cent of the world total. Africa
remains the region with the highest growth rate (32 per cent between 2006 and 2007).

The graph below shows the growing trends of the fixed and cellular subscribers. This
shows the transition from fixed telephone subscribers to mobile subscribers

Figure: 3.1
Growth in fixed lines, mobile cellular subscribers, estimated Internet users and subscribers to
mobile broadband networks, in billions, 1995-2007

Source: ITU World Telecommunications

3.4.2 High-speed, broadband access trends

ITU’s Internet and broadband data suggest that more and more countries are going high-
speed. By the end of 2007, more than 50 per cent of all Internet subscribers had a high-
speed connection. Dial-up is being replaced by broadband across developed and
developing countries alike. In developing countries such as Chile, Senegal, and Turkey,
broadband subscribers represent over 90 per cent of all Internet subscribers.

At the same time, major differences in broadband penetration levels remain, and the
number of broadband subscribers per 100 inhabitants varies significantly between
regions. While fixed broadband penetration stood at less than 1 per cent in Africa, it had
reached much higher levels in Europe (16 per cent) and the Americas region (10 per cent)
by the end of 2007.
Figure: 3.2 The broadband divide
Broadband subscribers by region, 2007

Source: ITU World Telecommunication/ICT Indicators Database.

Figure: 3.3 Fixed and mobile broadband evolution in developed and developing
countries
Mobile broadband subscribers Fixed broadband subscribers
per 100 population, 2007 per 100 population, 2007

Source: ITU World Telecommunication/ICT Indicators Database

Note: ITU’s definition of “Mobile broadband covers mobile cellular subscribers with access to
data communications at broadband speeds (minimum of 256 kbit/s).

The shift to all-IP environments

Probably the best example of the “all-IP” move is the rise of Voice-over-Internet-Protocol
(“VoIP”) services. In the last few years, VoIP services have continued to grow strongly.
Even if they were not as “disruptive” to traditional telephony as had been predicted, VoIP
offerings have proved to be some of the most successful Internet applications. Over the
past two years, the market presence of VoIP has surged forward, although at a slower
growth rate than in 2005. More importantly, it is steadily replacing traditional public
switched telephone network (PSTN) lines in many developed and some developing
countries.

3.5 CONCLUSION

Despite the unsteady state of the global financial markets, the worldwide
telecommunications industry is expected to continue expanding over the next five years
as continuing growth of wireless services in emerging markets offsets the spending
slowdown in the advanced economies, says a new market analysis report from The
INSIGHT Research Corporation. According to the new industry market study, overall
telecommunications services revenues are expected to grow at a compounded rate of
nearly 10.3 percent over the next few years, reaching $2.7 trillion by 2013. wireless
makes the strongest showing while wireline follows a distant second. Nearly all of the
growth in both sectors is expected to occur in broadband services, with wireless
broadband service revenues expected to grow at a compounded rate of more than 70
percent over the forecast period, while wireline broadband services grow at under 10
percent over the same forecast horizon.

“The 2009 Telecommunications Industry Review: An Anthology of Market Facts and

Forecasts” states that even amidst so much economic uncertainty the fact remains that
telecommunications is a key input factor in economic growth. Telecommunications is a
facilitator of socio-economic advancement and is a critical utility for economic
development, much like water and energy. It is on the basis of telecommunications as a
lynchpin in the eventual economic recovery that INSIGHT Research projects continued
carrier revenue growth.

“The worldwide economy is in turmoil, there is no doubt about that, but over the long
haul we expect the telecommunications industry to continue growing,” says INSIGHT
president Robert Rosenberg. “Telecom is as necessary to development as roads and
bridges, so we expect it to fare much better than other economic segments that may take
longer to return to normalcy,” Rosenberg concluded.

Chapter 4

INDIAN
OVERVIEW
4.1 INTRODUCTION

Today the Indian telecommunications network with over 375 Million subscribers is
second largest network in the world after China. India is also the fastest growing telecom
market in the world with an addition of 9- 10 million monthly subscribers. The tele-
density of the Country has increased from 18% in 2006 to 33% in December 2008,
showing a stupendous annual growth of about 50%, one of the highest in any sector of
the Indian Economy. The Department of Telecommunications has been able to provide
state of the art world-class infrastructure at globally competitive tariffs and reduce the
digital divide by extending connectivity to the unconnected areas. India has emerged as a
major base for the telecom industry worldwide. Thus Indian telecom sector has come a
long way in achieving its dream of providing affordable and effective communication
facilities to Indian citizens. As a result common man today has access to this most needed
facility. The reform measures coupled with the proactive policies of the Department of
Telecommunications have resulted in an unprecedented growth of the telecom sector.

The thrust areas presently are:

1. 1.Building a modern and efficient infrastructure ensuring greater competitive

environment
2. With equal opportunities and level playing field for all stakeholders.
3. Strengthening research and development for manufacturing, value added services.
4. Efficient and transparent spectrum management
5. To accelerate broadband penetration
6. Universal service to all uncovered areas including rural areas.
7. Enabling Indian telecom companies to become global players.

Recent things to watch in Indian telecom sector are:

1. 3G and BWA auctions
2. MVNO
3. Mobile Number Portability
4. New Policy for Value Added Services
5. Market dynamics once the recently licensed new telecom operators start rolling
out
6. Services.
 7. Increased thrust on telecom equipment manufacturing and exports.
8. Reduction in Mobile Termination Charges as the cost per line has substantially
reduced
9. Due to technological advancement and increase in traffic.

India's telecom sector has shown massive upsurge in the recent years in all respects of
industrial growth. From the status of state monopoly with very limited growth, it has
grown in to the level of an industry. Telephone, whether fixed landline or mobile, is an
essential necessity for the people of India. This changing phase was possible with the
economic development that followed the process of structuring the economy in the
capitalistic pattern. Removal of restrictions on foreign capital investment and industrial
de-licensing resulted in fast growth of this sector. At present the country's telecom
industry has achieved a growth rate of 14 per cent. Till 2000, though cellular phone
companies were present, fixed landlines were popular in most parts of the country, with
government of India setting up the Telecom Regulatory Authority of India, and measures
to allow new players country, the featured products in the segment came in to
prominence. Today the industry offers services such as fixed landlines, WLL, GSM
mobiles, CDMA and IP services to customers. Increasing competition among players
allowed the prices drastically down by making the mobile facility accessible to the urban
middle class population, and to a great extend in the rural areas. Even for small
shopkeepers and factory workers a phone connection is not an unreachable luxury. Major
players in the sector are BSNL, MTNL, Bharti Teleservices, Hutchison Essar, BPL, Tata,
Idea, etc. With the growth of telecom services, telecom equipment and accessories
manufacturing has also grown in a big way.

Indian Telecom sector, like any other industrial sector in the country, has gone through
many phases of growth and diversification. Starting from telegraphic and telephonic
systems in the 19th century, the field of telephonic communication has now expanded to
make use of advanced technologies like GSM, CDMA, and WLL to the great 3G
Technology in mobile phones. Day by day, both the Public Players and the Private
Players are putting in their resources and efforts to improve the telecommunication
technology so as to give the maximum to their customers.

4.2 TELECOM SUBSCRIBER BASE IN INDIA

Indian telecommunication Industry is one of the fastest growing telecom market in the
world. The mobile sector has grown from around 10 million subscribers in 2002 to
reach 150 million by early 2007 registering an average growth of over 90%. The two
major reasons that have fuelled this growth are low tariffs coupled with falling handset
prices.

Surprisingly, CDMA market has increased it market share upto 30% thanks to Reliance
Communication. However, across the globe, CDMA has been loosing out numbers to
popular GSM technology, contrary to the scenario in India.

The other reason that has tremendously helped the telecom Industry is the regulatory
changes and reforms that have been pushed for last 10 years by successive Indian
governments. According to Telecom Regulatory Authority of India (TRAI) the rate of
market expansion would increase with further regulatory and structural reforms.
Even though the fixed line market share has been dropping consistently, the overall
(fixed and mobile) subscribers have risen to more than 200 million by first quarter
of 2007. The telecom reforms have allowed the foreign telecommunication companies to
enter Indian market which has still got huge potential. International telecom companies
like Vodafone have made entry into Indian market in a big way.

Currently the Indian Telecommunication market is valued at around $100 billion (Rupees
400,000 crore). Two telecom players dominate this market - Bharti Airtel with 27%
market share and Reliance Communication with 20% along with other players like BSNL
(Bharat Sanchar Nigam Limited) and AT&T. One segment of the market that has been
puzzling is broadband Internet. Despite the manner in which the country’s Internet
market has been booming, India’s move into high-speed broadband Internet access has
been distinctly slow. And, while there appears to be considerable enthusiasm amongst the
population for the Internet itself, this has not been reflected in broadband subscription
numbers. In 2006 India witnessed a good surge in broadband users with the total
subscriber base in the country expanding by almost 200% to just over 2 million by
years end. Despite this surge, broadband penetration in India still remains around
only 0.2%; broadband services still account for only 25% of the total Internet subscriber
base, still in itself comparatively low. So, if 70% of total population is rural, the scope for
growth in this Industry is unprecedented

The Ministry of Communications and Information Technology (MCIT) is has very

aggressive plans to increase the pace of growth, targeting 250 million telephone
subscribers by end-2007 and 500 million by 2010. Most of the expansion in subscribers
is set to occur in rural India. India’s rural telephone density has been languishing at
around 1.9%. The subscriber addition rate has been strong in the last 12 months but the
regulatory developments will increase competition and thus curtail the long-term growth
rates of individual companies. The savings through the setting of tower companies will
partly go towards the higher capex and opex costs from more stringent spectrum
allocation norms for the incumbents.

The Telecommunications sector has been consistently adding more than 7 million
subscribers for the last 6 months, a very healthy net addition rate infact. All the private
operators GSM as well as the CDMA operators have been very consistent in their
performance. The sector provides very strong revenue as well as earnings visibility over
the next 12 months. However the recent regulatory developments are seem to be negative
for the telecom companies as it will increase the number operators per circle which will
intensify competition.

4.3 GENERAL ENVIRONMENT IN THE TELECOM

SECTOR

The year 2007-08 also witnessed a phenomenal growth in the subscriber base for mobile
services which includes subscribers of WLL (F), thus building on the growth trend in
subscriber base experienced since mid-1990s. As per the data available on CTIA
(International Association for the wireless Telecommunications Industry) website, India
has become second largest wireless network in the world after China by overtaking USA.

4.3.1 Wireline Subscriber

The subscriber base of Wireline services as on 31st March 2008 was 39.42 million as
compared to 40.75 million subscribers on 31st March, 2007 registering a decrease of 1.33
million subscribers during the year 2007-08. Out of the 39.42 million wireline
subscribers, 27.78 million are Urban wireline subscribers and 11.64 million Rural
Subscribers.

Figure: 4.1 Wireline Subscriber

4.3.2 Wireless Subscriber

The wireless subscriber crossed the 261 million subscriber mark at the end of the
financial year in comparison to the subscriber base of 165.11 million at the end of March,
2007. It added 95.9 million subscribers in the financial year 2007-08 registering an
annual growth rate of about 58.12%. The total subscriber base of wireless services has
grown from 33.69 million in March, 04 to 261.07 million in March, 08.

Figure: 4.2 Wireless Subscriber

4.3.3 Internet Subscriber

The Internet subscriber base in the country as of 31st March 2008 stood at 11.09 million
as compared to 9.27 million during the previous year, registering an annual growth rate
of about 19.63%.
Figure: 4.3 Internet Subscriber
4.3.4 Broadband Subscriber

The total Broadband subscriber base has reached 3.87 million by the end of March, 2008
as compared to 2.34 million by the end of March 2007 thereby registering a net addition
of 1.56 million broadband subscribers during the financial year 2007-08.

Figure: 4.4 Broadband Subscriber

4.3.5 Tele-density

The tele-density at the end of March, 2008 reached to the mark of 26.22% as compared
to 18.23% at the end of previous year recording an increase of nearly 8%. Competition
driven by regulatory initiatives, technological advancements and policy initiatives
continue to push the growth to newer levels. This trend was more visible in mobile and
long distance services. The competitive pressures also made the service providers to be
more innovative in their tariff offerings.
Figure: 4.5 Growth of Tele-density
4.4 REVIEW OF BASIC SERVICES

As on 31st March 2008, wireline connections are being provided by 5 licensed private
operator groups in addition to the incumbent BSNL and MTNL. The list of Service
Providers providing wireline services along with their area of operation is given in the
table below. The subscriber base of basic services (Wireline) recorded a decrease of
3.28% in 2007-08 over the previous year. In comparison, the private BSOs, recorded an
annual increase of 43.14% in the subscriber base during the year 2007-08. As on 31st
March 2008, the incumbents BSNL and MTNL had 80% and 9% market share
respectively in the subscriber base, while all the five private BSOs had only 11% of the
total subscriber base. During the previous year, at the end of March 2007, the market
share of the BSNL and MTNL was 83% and 9% respectively, while the share of all the
private operators taken together was 8%. Thus the market share in terms of subscriber
base of the incumbents BSNL and MTNL has slightly decreased, whereas the market
share of private BSOs has increased by 3%. The 5 private BSOs have added 8.96 lakhs
new Direct Exchange Lines (DELs). However, BSNL has recorded a reduction of 21.86
lakhs DELs, whereas MTNL has also registered an annual decline of 0.47 Lakhs DELs.
Thus Private operators have contributed to provide most of the new additions in DELs.
The total subscriber base however has been recorded an annual decline of 13.37 lakhs
DELs in comparison to previous year.

Table 4.1 Companies and No. of Circles covered

4.4.1 Review of Wireless (GSM and CDMA)
Services

The Wireless Industry crossed 261 million-subscribers mark at the end of the financial
year 2007-08. This total subscribers base of 261.07 million comprise of 192.7 million
GSM and 68.37 million CDMA subscribers. During the financial year 2007-08 around
95.96 million subscribers were added with a growth rate of 58.12% as compared to
67.17% growth during the year 2006-07. The growth of subscriber base of Wireless
(including GSM and CDMA) Services from March 2004 to March 2008 is depicted in
Figure 1.10 The subscriber base & market share of different mobile operators as on
March 2008 is displayed in Figure . In the wireless segment, GSM services has reached
the 192.70 million subscriber mark at the end of financial year 2007-08, as compared to
120.47 million during the previous year. It added around 72.23 million subscribers during
the year, registering an annual growth of 59.96%. In terms of subscriber base and market
share of GSM services, M/s Bharti with 61.98 million subscriber base remains the largest
GSM operator followed by M/s Vodafone, M/s BSNL, and M/s Idea with subscriber base
of 44.13 million, 36.21 million and 24.00 million respectively. The market share of
different GSM operators as on March 2008 is displayed in Figure 1.12. In Cellular
CDMA services, in terms of subscriber base and market share, M/s Reliance Infocom
with 38.78 million subscriber base remains the largest CDMA operator followed by M/s
Tata and M/s BSNL with subscriber base of 24.33 million, and 4.58 million respectively.
 Figure: 4.6 Market share of wireless service providers (as on 31st March 2008)

Figure: 4.7 Subscriber growth of wireless services (GSM and CDMA)

Public and Private Sector Contribution in the Growth of Fixed and Mobile Services

Before opening up of the Telecom Sector for the private players, growth in telecom
services was primarily driven by public sector monopoly, showing very marginal growth,
as the incremental tele-density between 1948 and 1998, a 50 year period, was only
1.92%. Telecommunication development in the initial stage of the reforms process
beginning with NTP’94 started at a slow pace, but accelerated later on under NTP’99,
which provided for migration from fixed license fee to revenue share regime. Cost-
oriented Telecom tariffs were also introduced by TRAI in 1999.

From 2003 onwards, as a result of certain pragmatic decisions by the Government and
the Regulator, viz., introduction of Calling Party Pay (CPP) regime, Unified Access
licensing regime, lowering of access deficit coupled with introduction of revenue share
regime in ADC triggered further growth. The policy and regulatory regime established by
the Government and the Regulator has led to speedy growth of subscriber base of the
incumbent Public Sector Undertakings as well as that of the private sector operators.

During the period 1998-2008, the absolute growth in subscriber base of PSU operators
was 61.7 million comprising of 19.5 million fixed subscribers and 42.2 million mobile
subscribers. The PSU Operators have shown remarkable growth in the competitive
environment, while in the pre-reform non-competitive environment, their performance
was slow. Figure 1.15 shows growth in subscriber base of PSU Operators. Private
operators have also shown remarkable growth in a highly competitive environment. The
overall growth in the subscriber base of private operators during 1998-2008 was 220.94
million comprising of 9.81 million fixed subscribers and 211.13 million mobile
subscribers. Private operators have contributed very largely to post 1998 growth
primarily in mobile services due to the obvious cost and fast deployment advantages. The
Figure shows the growth in subscriber base of private operator. It may be seen from the
two graphs at Figure and Figure that in comparison to Private Sector, the growth of
subscriber base of PSUs have been very low during the last five years.

Figure: 4.8 PSU Operators Subscriber Base

 Figure: 4.9 Private Operators Subscribers Base

4.4.2 Public Mobile Radio Trunked Services

Public Mobile Radio Trunked Service (PMRTS) was opened for private sector in the year
1995. As on 31st March 2007, PMRTS is being provided by 12 operators. The subscriber
base of PMRTS has recorded a growth rate of 15.04% during 2007-08 over the previous
year. Its subscriber base increased from 31501 at the end of March 2007 to 36240 at the
end of March 2008.

4.4.3 Internet Services

TRAI is constantly monitoring the growth of the Internet and Broadband services in the
country by way of Performance Monitoring Reports being submitted by Internet Service
Providers (ISP). Issues raised by ISPs, from time to time, were successfully resolved by
TRAI to create conducive environment and to encourage the growth of the service during
the financial year. Total 138 ISPs reported data to TRAI, which indicates 11.09 million
Internet Subscribers at the end of 31st March 2008. There was an increase of 19.63% in
the subscriber’s base as compared to March 2007.

The distribution of Internet Subscribers among Govt. ISPs & Private ISPs as on 31st
March 2008 is at Figure 1.17. The market share of top eight Internet Service Providers
(ISPs), including BSNL, in terms of subscriber base as on 31st March 2008 is at Figure
1.18. The BSNL has maximum of 50.82% of total internet subscriber base. Among PSUs
owned ISPs, M/s BSNL and M/s MTNL have reported a subscriber base of 5.64 Million
and 1.89 Million respectively. Amongst the Private Sector ISPs M/s Bharti Airtel Limited
has a subscriber base of 0.81 Million and stood third overall.

Figure: 4.10 Share of pubic and private sector IPS (in lakhs)

4.4.4 Broadband

The number of Broadband subscribers (with a download speed of 256 kbps or more) was
3.87 Million on 31st March 2008 as compared to 2.34 Million subscribers on 31st March
2007 registering an annual growth of 65.38%. The distribution of Broadband subscribers
among Government ISPs and Private ISPs as on 31st March 2008 is as below:

Table: 4.2 Number of broadband subscribers

4.4.5 Internet Telephony

On the recommendation of TRAI, Government issued the guidelines on 24th August

2007 for further opening of Internet Telephony by permitting all ISPs signing new ISP
License to provide Internet Telephony. The restrictions on devices being used for Internet
Telephony have also been removed. As on 29th February 2008, DOT has given
permission to 149 ISPs (Category ‘A’ – 56; Category ‘B’ – 64; and Category ‘C’ – 29) to
offer Internet Telephony services. At the end of 31st March 2008 30 ISPs have reported
the provisioning of Internet Telephony Services. The total minutes of usage of internet
telephony are 115 million at the end of 31st March 2008.

4.4.6 Broadband Casting and Cable TV Services

In order to regulate the ‘carriage’ of Broadcasting and Cable Services, the Government of
India issued a Notification dated 9th January, 2004 by which broadcasting and cable
services have been brought within the purview of TRAI in terms of section 2(k) of the
Telecom Regulatory Authority of India Act, 1997. The Government also issued an order
dated 9th January, 2004 under section 11(d) of the TRAI Act, which mandated TRAI to
make recommendations regarding terms and conditions on which the “Addressable
Systems” shall be provided to the customers and the parameters for regulating maximum
time for advertisements in pay channels as well as other channels. The order also
entrusted to TRAI, the function of specifying the standard norms for, and periodicity of
revision of rates of pay channels, including interim measures.

(a) Cable TV Service

At present, as per latest estimates there are 127 million households in India having
television sets. Out of this, there are 71 million household subscribers of cable television
services. The maximum number of Free-to-Air (FTA) Channels, pay channels and local
channels being carried by MSOs in their networks across the country as on Quarter
ending 31st March 2008 was 133, 95 and 8 respectively. These figures are based on the
reports received from some of the major service providers regarding the number of
channels being carried by them in their Networks, analog and / or in digital form. These
channels have been reported across different networks of the service providers having
different combinations of pay, FTA and local. As on 31st March 2008, the total number of
set-top box installed in the CAS notified areas of Delhi, Mumbai, Kolkata and Chennai
was 6,07,883. A break-up of the set top boxes in the four metropolitan cities has been
depicted in the graph below:

Figure: 4.11 Set top boxes in CAS notified area

(b) Satellite TV Channel

At the end of March 2008, there are reportedly 114 pay channels in existence and these
channels are being broadcasted / distributed by 17 broadcasters or their distributors

(c) DTH Services

Apart from Free-to-Air DTH service of Doordarshan, there were six private DTH
licensees and out of these six licensees, only three licensees are offering paid DTH
Service to customers as on 31st March 2008. The following are the six private DTH
licensees:

1. Dish TV
2. Tata Sky Limited
3. Sun Direct TV Private Limited
4. Reliance Blue Magic Limited
5. Bharati Telemedia Limited
6. Bharat Business Channel Limited

(d) FM Radio / Community Radio Service

Apart from FM Radio Stations of All India Radio (AIR), there are 205 private FM Radio
Stations in operation across the country as on 31st March 2008. For the quarter ending
March 2008 out of 49 licensees of Community Radio Stations, 35 Stations are in
operation

4.5 FDI

Ever since the government opened up its gates for foreign direct investment (FDI) in
1991, telecom sector has emerged as the clear winner in attracting foreign capital.

For starters, Indian telecom sector ranks first in terms of actual FDI inflow since August
1991 till February 2003, pipping to post many developed as well as developing countries
including the South East Asian countries. More, it stands second only to petrochemicals
in attracting FDI, beating other sectors in the manufacturing as well as services.

Table: 4.3 FDI Inflows into India’s Telecom Industry (1991-2007, in Rs million)

According to the numbers published by Investindiatelecom, an on-line agency which

tracks developments in the Indian telecom sector, Indian telecom has grossed actual FDI
worth Rs 9,576.40 crore during the period starting from late 1991 to early 2003. In
absolute terms, this is the highest inflow of FDI into the telecom sector in the world.
Mauritius, which houses a number of holding and investment companies, emerges as a
distant second with FDI grossing Rs 6,855.83 crore during the period.

“The Mauritius numbers may be deceptive as it is one of the last tax havens in the region
and may include money actually invested elsewhere. Though data for several important
countries are not included, the FDI inflow into India telecom sector is impressive,” a
senior analyst who tracks the telecom sector says.

Of the total FDI inflow into Indian telecom sector, the lion’s share has gone into
investment in holding companies followed by cellular network and manufacturing and
consultancy. The total foreign money invested in the holding companies stood at Rs
4,813.3 crore or 50.26 per cent of the total inflow, cellular telephony attracted Rs 2,332.8
crore accounting for 24.36 per cent during the period.

The foreign capital inflow into the manufacturing and consultancy segment stood at Rs
1,578.4 crore or 16.48 per cent of the total inflow.

On an inter-sectoral comparison, telecom sector is the second largest recipient of FDI

with 19.79 per cent of total inflow.

“The numbers are a clear indication of the foreign companies perception about the
prospects in Indian telecom sector. So far, the investment is mainly confined to cellular
telephony. However, with recent changes, basic telephony too will start attracting foreign
capital in a big way,”

4.6 PERFORMANCE OF TELECOM EQUIPMENT

MANUFACTURING SECTOR

As a result of Government policy, progress has been achieved in the manufacturing of

telecom equipment in the country. There is a significant telecom equipment-
manufacturing base in the country and there has been steady growth of the manufacturing
sector during the past few years. The figures for production and export of telecom
equipment are shown in table given below:
 Table: 4.4 Year wise production and export of telecom equipment-manufacturing sector

(Rs. in crore)

Year Production Export

2002-03 14400 402

2003-04 14000 250

2004-05 16090 400

2005-06 17833 1500

2006-07 23656 1898

(Source: www.dot.gov.in)

Rising demand for a wide range of telecom equipment, particularly in the area of mobile
telecommunication, has provided excellent opportunities to domestic and foreign
investors in the manufacturing sector. The last two years saw many renowned telecom
companies setting up their manufacturing base in India. Ericsson set up GSM Radio Base
Station Manufacturing facility in Jaipur. Elcoteq set up handset manufacturing facilities
in Bangalore. Nokia and Nokia Siemens Networks have set up their manufacturing plant
in Chennai. LG Electronics set up plant of manufacturing GSM mobile phones near
Pune.
Ericsson launched their R&D Centre in Chennai. Flextronics set up an SEZ in Chennai.
Other major companies like Foxconn, Aspcom, Solectron etc have decided to set up their
manufacturing bases in India.

The Government has already set up Telecom Equipment and Services Export Promotion
Council and Telecom Testing and Security Certification Centre (TETC). A large number
of companies like Alcatel, Cisco have also shown interest in setting up their R&D centers
in India. With above initiatives India is expected to be a manufacturing hub for the
telecom equipment.

4.7 TARGETS SET BY THE GOVERNMENT

1. Network expansion
 a. 500 million connections by the year 2010
b. Provision of mobile coverage of 90% geographical area by 2010

2. Rural telephony
a. One phone per two rural households by 2010 (about 80 million rural
connections)
b. Reduce urban-rural digital divide from present 25:1 to 5:1 by 2010

3. Broadband
a. Broadband with minimum speed of 1 mbps
b. Broadband coverage for all secondary & higher secondary schools and
public health care centres by the end of year 2008
c. Broadband coverage for all Grampanchayats by the year 2010

4. Infrastructure Sharing
a. USO subsidy support scheme for shared wireless infrastructure in rural
areas with about 18,000 towers by 2010
b. Increase sharing in urban areas to 70% by 2010

5. Introduction of Spread of IPTV and Mobile TV

a. IPTV in 600 towns by 2010

6. Manufacturing
a. Making India a hub for telecom manufacturing by facilitating more and
more telecom specific SEZs
b. Quadrupling production in 2010
c. Achieving exports of 6 times from present level of 0.5 billion in 2010

7. Research & Development

a. Pre-eminence of India as a technology solution provider
b. Comprehensive security infrastructure for telecom network
c. Tested infrastructure for enabling interoperability in Next Generation
Network
d. Doubling the telecom equipment R&D by 2010 from present level of 15%

8. 8.International Bandwidth
a. Facilitating availability of adequate international bandwidth at competitive
prices to drive ITES sector at faster growth

Table: 4.4 Indian Telecommunications at a glance

 (As on 30th September 2008)

Rank in world in network size 3rd

Tele–density (per hundred populations) 30.64
Telephone connection (In millions)
Fixed 38.35
Mobile 315.31
Total 353.66
Village Public Telephones 5.6 lakh
Foreign Direct Investment (in million) (from 182042 million
January 2000 till August 2008)
Licenses issued
Basic 2
CMTS 60
UAS 224
Infrastructure Provider I 177
ISP (Internet) 382
ISP with Telephony (Broadband) 125
National Long distance 24
International Long Distance 19

4.8 CONCLUSION
Indian telecommunication Industry is one of the fastest growing telecom markets in the
world. The mobile sector has grown from around 10 million subscribers in 2002 to
reach 150 million by early 2007 registering an average growth of over 90% y-o-y.
The two major reasons that have fuelled this growth are low tariffs coupled with falling
handset-prices

Surprisingly, CDMA market has increased it market share upto 30% thanks to Reliance
Communication. However, across the globe, CDMA has been losing out numbers to
popular GSM technology, contrary to the scenario in India. The other reason that has
tremendously helped the telecom Industry is the regulatory changes and reforms that
have been pushed for last 10 years by successive Indian governments. According to
Telecom Regulatory Authority of India (TRAI) the rate of market expansion would
increase with further regulatory and structural reforms. Even though the fixed line market
share has been dropping consistently, the overall (fixed and mobile) subscribers have
risen to more than 200 million by first quarter of 2007. The telecom reforms have
allowed the foreign telecommunication companies to enter Indian market which has still
got huge potential.

International telecom companies like Vodafone have made entry into Indian market in a
big way. Currently the Indian Telecommunication market is valued at around $100
billion (Rupees 400,000 crore). Two telecom players dominate this market - Bharti Airtel
with 27% market share and Reliance Communication with 20% along with other players
like BSNL (Bharat Sanchar Nigam Limited) and AT&T. One segment of the market that
has been puzzling is broadband Internet. Despite the manner in which the country’s
Internet market has been booming, India’s move into high-speed broadband Internet
access has been distinctly slow. And, while there appears to be considerable enthusiasm
amongst the population for the Internet itself, this has not been reflected in broadband
subscription numbers. In 2006 India witnessed a good surge in broadband users with the
total subscriber base in the country expanding by almost 200% to just over 2
million by year’s end. Despite this surge, broadband penetration in India still remains
around only 0.2%; broadband services still account for only 25% of the total Internet
subscriber base, still in itself comparatively low.
The Ministry of Communications and Information Technology (MCIT) is has very
aggressive plans to increase the pace of growth, targeting 250 million telephone
subscribers by end-2007 and 500 million by 2010. Most of the expansion in subscribers
is set to occur in rural India. India’s rural telephone density has been languishing at
around 1.9%; So, if 70% of total population is rural, the scope for growth in this Industry
is unprecedented.

Chapter 5
 INDUSTRY
STRUCTUR
E

5.1 INTRODUCTION
The telecom industry is one of the prime contributors to India's GDP. The once
monopolistic market is today, highly competitive. This has necessitated the growth of
India telecom infrastructure.

From the time of the British Rule, the Telecom Industry was under the strict supervision
of the government. The trend continued even after independence until the late 1990s
when the following initiatives were taken up by the government:

* The telecom sector was opened up for private investment as a part of liberalization-
privatization-globalization policies

* On 1st October, 2000 the Government corporatized its operations wing under the
name of Bharat Sanchar Nigam Limited (BSNL)

* The criteria for private companies for entering the telecom sector were relaxed

What followed was a rapid development of the market for mobile phones and allied
innovations, hence bringing about a new era in the telecom sector in India.

5.2 INDIA TELECOM INFRASTRUCTURE

The telecom services have been recognized the world-over as an important tool for socio-
economic development for a nation. It is one of the prime support services needed for
rapid growth and modernization of various sectors of the economy. Driven by various
policy initiatives, the Indian telecom sector witnessed a complete transformation in the
last decade. It has achieved a phenomenal growth during the last few years and is poised
to take a big leap in the future also.

5.2.1 India telecom infrastructure – present status

The government of India believes that for rapid economic development backed by social
welfare, the telecom infrastructure in India needs to be uplifted. This necessitates the
formulation of a comprehensive telecom policy that visualizes the future of the Indian
telecom market. By the beginning of 2007, the telecom network in India consisted of 48
million fixed-line connections. Nowadays, a vast majority of the population has access to
telephone services. The highly competitive environment has ensured low pricing of
goods and services that caters to the weaker sections of the society. Moreover, the
enhancement of India telecom infrastructure has also widened the scope of the telecom
sector to other allied ventures like mobile services, Internet, cable TV services, E-
Commerce, and other forms of Information Technology (IT).
The Indian Telecommunications network with 353 million connections (as on September
2008) is the third largest in the world. The sector is growing at a speed of 46-50% during
the recent years. This rapid growth is possible due to various proactive and positive
decisions of the Government and contribution of both by the public and the private
sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of
the Government that provides easy market access for telecom equipment and a fair
regulatory framework for offering telecom services to the Indian consumers at affordable
prices

In terms of long distance calls, India telecom infrastructure has made remarkable
progress. Latest technologies, like use of fibre-optic cables has enhanced call-clarity and
reduced call-costs to a large extent. The present telecom and mobile-phone service
providers in India, apart from BSNL include Hutchison Essar, Reliance Communications,
Bharti Airtel, Idea, Tata Indicom, and a few others.

5.2.2 India telecom infrastructure – present status

India has proven its dominance as a technology solution provider. Efforts are being
continuously made to develop affordable technology for masses, as also comprehensive
security infrastructure for telecom network. Research is on for the preparation of tested
infrastructure for enabling interoperability in Next Generation Network. It is expected
that the telecom equipment R & D shall be doubled by 2010 from present level of 15%.
Modern technologies inductions are being promoted. Pilot projects on the existing and
emerging technologies have been undertaken including WiMax, 3G etc. Emphasis is
being given to technologies having potential to improve rural connectivity. 3G and
Broadband Wireless Access (BWA) policies have since been issued. Also to improve the
R&D infrastructure in the telecom sector and bridge the digital divide, cellular operators,
top academic institutes and the Government of India together set up the Telecom Centres
of Excellence (COEs).

5.2.3 Targets Set By the Government of INDIA

Indian government has taken up the following expansion plan for the future:
1. Network expansion
• 500 million connections by the year 2010.
• Provision of mobile coverage of 90% geographical area by 2010.

2. Rural telephony
• One phone per two rural households by 2010 (about 80 million rural
connections).
• Reduce urban-rural digital divide from present 25:1 to 5:1 by 2010.

3. Broadband
• Broadband with minimum speed of 1 mbps.
• Broadband coverage for all secondary & higher secondary schools and
public health care centres by the end of year 2008.
• Broadband coverage for all gram panchayats by the year 2010

4. Infrastructure Sharing
• USO subsidy support scheme for shared wireless infrastructure in rural areas
with about 18,000 towers by 2010.
• Increase sharing in urban areas to 70% by 2010.

5. Introduction of Spread of IPTV and Mobile TV

• IPTV in 600 towns by 2010.

6. Manufacturing
• Making India a hub for telecom manufacturing by facilitating more and more
telecom specific SEZs.
• Quadrupling production in 2010.
• Achieving exports of 6 times from present level of 0.5 billion in 2010.

7. Research & Development

• Pre-eminence of India as a technology solution provider.
• Comprehensive security infrastructure for telecom network.
• Tested infrastructure for enabling interoperability in Next Generation
Network.
• Doubling the telecom equipment R&D by 2010 from present level of 15%.

8. International Bandwidth
 • Facilitating availability of adequate international bandwidth at competitive
prices to drive ITES sector at faster growth.

5.3 MAJOR SEGEMENTS

5.3.1 Basic Services

Basic Services in the public sector, like BSNL and MTNL together account for 99
percent of the 28 million connections. The total revenue in FY2001, for these two entities
combined was INR 287 billion. The telecommunication network of the BSNL - MTNL
combine is one of the largest in Asia, with a capacity of 35 million lines and 28.4 million
working connections. Switching capacity during FY2000 increased by over 40 percent.
In the period from April-December 2000, 4.9 million new fixed line connections were
provided representing a growth rate of 29.8 per cent over the corresponding period last
year. As of June 2000, USD 57.5 million FDI has been invested in the basic services
sector. The total number telephone lines is expected to go up to 75 million by the year
2005, and assuming average revenue per user (APRU) of INR 10000 per line, the total
revenue is expected to rise to INR 750 billion by 2005, translating into an CAGR of
around 25 per cent. Until 1994, DoT, now BSNL, was the sole fixed service provider
(FSP) in India except Mumbai and Delhi where services were provided by MTNL. In
1994, the Government of India (GOI) allowed private participation in provision of fixed
services. For the provision of basic services, NTP 94 divided the country into, 21 basic
telecom circles to be serviced by BSNL and one other private sector operator. But in
Delhi and Mumbai, the public sector provider would be MTNL and one private operator.
NTP 99 took this process further and allowed upto four private operators to compete in
each circle and recently TRAI allowed unlimited competition in each circle In addition,
existing cellular providers have been granted permission to operate fixed services using
their GSM infrastructure.

The first round of bidding for basic and cellular services licenses’ mopped up an
astonishing INR 1290 billion as license fees in 1994. Subsequently it turned out that
these amounts were too ambitious, and would possibly lead to bankruptcy. Therefore,
under NTP 99 guidelines, the fixed license fee arrangement was replaced by a revenue
sharing regime. The fee structure as it stands now has three components: a fixed entrance
fee of anything between INR 10 million to INR 1.15 billion, a revenue share of 8 to 10
percent and a fee for R&D.
Pre-NTP 99 licensees’ have to clear their license fee dues before moving on to the
revenue sharing regime. The private sector hasn’t shown the level of interest in basic
telephony that was anticipated. Table 2 below shows the various private players in
different circles. Of the 13 projects for which Letters of Intent (LoI’s) had been issued,
license agreements have been signed only in the case of 6 projects. Licenses have been
issued to: Bharti Telenet (for the state of Madhya Pradesh); Tata Teleservices (for the
state of Andhra Pradesh); Reliance Telecom (for the state of Gujarat); Essar Comvision
(for the state of Punjab); Hughes Ispat (for Maharashtra); and Shyam Telelink (for
Rajasthan). These six licensees have to pay license fees USD 650 million to the GOI over
the next 15 years.

In a recent policy announcement, guidelines were issued by the DOT in January 2001, to
permit basic operators to provide limited mobility services (using CDMA technology for
wireless in local loop), within a short distance charging area (SDCA), e.g. a district. In
response to this guideline, fourth round of bidding received 80 bids for the remaining 15
circles, from private operators, including existing cellular operators. The same companies
which have bid for basic licenses are likely to bid for other segments NLD and ISD. The
relatively high bids again threaten their financial viability, and often make projects un-
bankable.

5.3.2 National Long Distance (NLD) Services

According to TRAI, NLD represents telecom services within the country but outside the
local area of an exchange system. This sector was liberalized in 2000 and the DoT has
since awarded preliminary approval (LoIs) to Reliance Infocomm and Bharti Telesonic.
MTNL plans to enter the long-distance telephone business along with Railtel, a
subsidiary of the Indian Railways and a third partner. VSNL too has showed interest in
entering this segment of the market in anticipation of a definite end to its monopoly over
ISD services by April 2002.

Guidelines for entry in this sector, issued by TRAI, restrict entry to those, with a
minimum paid-up capital at INR 2.5 billion and combined net worth of INR 25 billion.
The guidelines also require that, NLD operators with national license to carry inter-circle
traffic enter into agreements with respective FSPs, for carrying intra-circle traffic. This
can restrict the NLD market to inter-circle market for a pure long-distance player.

According to TRAI estimates, the NLD market size, in FY99, was 26 billion minutes,
with revenues of INR 124 billion (including revenue from the domestic carriage of ISD
which is estimated at INR 21 billion). Inter-circle calls accounted for 25 per cent of the
26 billion minutes traffic and 54 per cent of the INR 124 billion revenue in FY99. Thus,
the addressable market for NLD operators is roughly 50 per cent of the total long
distance market.

5.3.3 International Subscriber Dialing (ISD)

The segment was monopolized by VSNL whose revenue from the ISD services was INR
68 billion in FY2001. ISD call charges have been reduced by 23 per cent in May 1999,
and further 17 per cent in October 2000, as a part of tariff rationalization initiated by
TRAI. The government has invited overseas companies to offer international calling
services.

But the current situation is entirely different.

Tele-density per hundred populations has grown from 7.08 in March 2004 to 8.95 in
March 2005 and to a level of 12.74 in March 2006. Fully automatic International
Subscriber Dialing (ISD) service is available to almost all the countries. The total number
of stations connected to National Subscriber Dialing (NSD) is over 31,686. The growth
in rural demand has outstripped urban demand with telecom penetration in villages
increasing in multiples. Higher telecom dispersal is indicative of reduced economic
disparities, experts point out.

5.3.4 Cellular Mobile Services

The cellular sector is the fastest growing segment within the Indian telecom services. The
billed revenue during FY2001 was INR 38.7 billion. After a slow start, this sector
registered an annual growth rate of more than 70 per cent in FY2000 and FY2001 and is
expected to grow at the same rate for FY2002. Similar to basic services, under NTP 94
each service area for cellular mobile services was to be serviced by two operators with
the difference that both were to be private operators. A 10-year license period was
provided, with DoT reserving the right to enter the market at a future date. In addition
direct interconnection between different private service providers (basic, cellular and
'Value Added Services') in the same service area was not permitted as such
interconnection had to pass through DoT’s and MTNL’s network.

Bids for cellular services were initially invited for the four metros and service
commenced in August 1995. In 1996, cellular telephone services were opened for 18
telecom circles. The licenses for different ‘circles’ (two each per circle) were priced by
public auction. But NTP 99 altered the competitive structure of the industry and changed
the duopoly to unlimited competition in each circle.

A staggering 15.4 million mobile lines were activated in India during January, according
to the latest statistics from the Telecom Regulatory Authority of India (TRAI).

5.4 CONCLUSION

Economic reforms and liberalization have driven telecom sector through several
transmission channels of which these three categories are of major significance. Indian
Telecom Sector is going under a huge technical change. It is attracting a lot of investors,
and thus the industry dynamics is changing rapidly. The telecom sector requires a high
investment and the market is also very competitive. The industry is forced to change
under the influence of international force, experience, technology and competition.
 Chapter 6

GOVERNMEN
T POLICY
ANALYSIS
 6.1 INTRODUCTION

As the sector is open for both private and public players there are huge number of players
in the market which requires a proper picturing of rules and regulation to play a fair
game. India has been very strong in case of rules and regulation; it has created body like
DOT, TRAI, DTS who takes care of the rules and regulation. Apart from them it keeps
issuing policy and act which checks the events happening in the industry. The
government has been issuing policy like Broadband Policy 2004, new telecom
policy1999, National Telecom Policy 1994. There are more agencies like ITU, TDSA,
TCIL, ICSIL, and MCOCA, which helped it regulating their work. With increasing
number of players in market the government and its agencies have to function more
carefully.

6.2 GOVERNMENT REGULATION

6.1.1 Department of Telecommunications

Until October 2000, the Department of Telecommunication (DOT) was the authority in
granting licences and service provision. It also operated domestic basic telephone
services throughout India. The policy making functions and the service providing
function were segregated into two different entities during 2000.The two service
providing department of telecom sector were corporatized-the department of telecom
service and the department of telecom operation . The state owned corporation BSNL
took over all service providing functions of these two departments.

6.1.2 National telecom policy, 1994

The new economic policy adopted by the Government aims at improving India's
competitiveness in the global market and rapid growth of exports. Another element of the
new economic policy is attracting foreign direct investment and stimulating domestic
investment. Telecommunication services of world class quality are necessary for the
success of this policy. It is, therefore, necessary to give the highest priority to the
development of telecom services in the country.

Objective
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6.1.4 New telecom policy, 1999
Objectives and targets of the new telecom policy, 1999

1. Access to telecommunications is of utmost importance for achievement of the

country's social and economic goals. Availability of affordable and effective
communications for the citizens is at the core of the vision and goal of the
telecom policy.

2. Strive to provide a balance between the provision of universal service to all

uncovered areas, including the rural areas, and the provision of high-level
services capable of meeting the needs of the country's economy

3. Encourage development of telecommunication facilities in remote, hilly and tribal

areas of the country.

4. Create a modern and efficient telecommunications infrastructure taking into

account the convergence of IT, media, telecom and consumer electronics and
thereby propel India into becoming an IT superpower

5. Convert PCO's, wherever justified, into Public Teleinfo centers having

multimedia capability like ISDN services, remote database access, government
and community information systems etc.

6. Transform in a time bound manner, the telecommunications sector to a greater

competitive environment in both urban and rural areas providing equal
opportunities and level playing field for all players

7. Strengthen research and development efforts in the country and provide an

impetus to build world-class manufacturing capabilities

8. Achieve efficiency and transparency in spectrum management

9. Protect defense and security interests of the country

10. Enable Indian Telecom Companies to become truly global players

6.1.5 Broadband Policy, 2004

Preamble

Recognizing the potential of ubiquitous Broadband service in growth of GDP and

enhancement in quality of life through societal applications including tele-education,
tele-medicine, e-governance, entertainment as well as employment generation by way of
high speed access to information and web-based communication, Government have
finalized a policy to accelerate the growth of Broadband services.

Demand for Broadband is primarily conditioned and driven by Internet and PC

penetration. It is recognized that the current level of Internet and Broadband access in
the country is low as compared to many Asian countries. Penetration of Broadband,
Internet and Personal Computer (PC) in the country was 0.02%, 0.4% and 0.8%
respectively at the end of December, 2003. Currently, high speed Internet access is
available at various speeds from 64 kilobits per second (kbps) onwards and presently an
always-on high speed Internet access at 128 kbps is considered as ‘Broadband'. There are
no uniform standards for Broadband connectivity and various countries follow various
standards.

6.1.6 Administration and Control on Telecom

Industry

The Telecom Commission, set up in April 1989, has the administrative and financial
powers of the Government of India to deal with various aspects of telecommunications.

The Commission and the Department of Telecommunications (DOT) are responsible,

inter alia, for policy formulation, licensing, wireless spectrum management,
administrative monitoring and control of the Public Sector Undertakings
(PSUs) engaged in telecommunication services, research and development,
standardization/validation of equipment. In addition to the Telecom Commission,
other Government organizations engaged in the telecom sector (as a part of
DOT) are the Centre for Development of Telematics (CDOT), the Telecom
Engineering Centre (TEC) and the Wireless Planning and Coordination (WPC) wing.

CDOT was established in 1984 with the objective of developing a new generation of
digital switching items. It has developed a wide range of switching and transmission
products both for rural and urban applications. TEC is devoted to product validation and
standardization for user agencies. It also provides technical and engineering support to
the Telecom Commission and the field units. The Wireless Planning and Coordination
wing deals with the policies of Spectrum management, licensing, frequency
assignments, international coordination for spectrum management and administration of
the Indian Wireless Telegraphy Act, 1933. In order to administer the use of radio
frequencies, the licenses/renewals for use of wireless equipment and the frequencies are
authorized by WPC. The licenses are granted for specific periods on payment of
prescribed license fees and royalty in advance and are renewed after expiry of the
validity periods.

6.1.7 Telecom Reforms

As a part of the continuing process of telecom reforms and in pursuance of the New
Telecom Policy 1999 (NTP-99), the Department of Telecom Services (DTS) and the
Department of Telecom Operations (DTO) were carved out from DOT in October 1999
for providing telecommunication services in the country. DTS and DTO were finally
corporatized into a wholly owned Government Company namely, the Bharat Sanchar
Nigam Limited (BSNL) (incorporated on 15 September 2000) and their business was
transferred to this Company with effect from 1 October 2000. The creation of BSNL was
expected to provide a level playing field in all areas of telecom services, between
Government operators and private operators.

6.1.8 Regulatory Control

The entry of private service providers in 1992 brought with it the inevitable need for
independent regulation. The Telecom Regulatory Authority of India (TRAI) was thus
established with effect from 20 February 1997 by an Act of Parliament, called the
Telecom Regulatory Authority of India Act, 1997, to regulate telecom services, including
fixation/revision of tariffs for telecom services, which were earlier vested in the Central
Government. The TRAI Act was amended by an ordinance, effective from 24 January
2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal
(TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSAT was
set up to adjudicate any dispute between a licensor and a licensee, between two or more
service providers, between a service provider and a group of consumers, and to hear and
dispose of appeals against any direction, decision or order of TRAI.

6.1.9 Other Government Organizations in the

Telecom Sector

Besides MTNL and BSNL, other public sector undertakings in the telecom sector are ITI
Limited (ITI), Telecommunications Consultants India Limited (TCIL), Intelligent
Communication Systems India Limited (ICSIL) and Millennium Telecom Limited
(MTL). ITI Limited was formed in 1948 for manufacturing a wide range of
equipment, which included electronic switching equipment, transmission equipment
and telephone instruments of various types. TCIL was established in 1978 for providing
know-how in all fields of telecommunications at the global level. The core competence
of TCIL is in communications network projects, software support, switching and
transmission systems, cellular services, rural telecommunications and optical fiber based
backbone network. ICSIL was established in April 1987 for manufacturing computer
based communication systems and equipment. It also provides engineering, technical and
management consultancy services for computers and communication systems in India
and abroad. MTNL was established in February 2000 as a wholly owned subsidiary
of MTNL for providing internet services in the country. It is pursuing the establishment
of broadband internet access for the corporate segment and Voice over Internet Protocol
(VOIP) telephony services throughout India with the use of relevant technologies like
Very Small Aperture Terminals (VSATs).

6.1.10 Regulatory and policy issue of telecom

industry

Indian telecom sector is witnessing an unprecedented growth of its time. The same is
expected to increase in future as well. This is necessitating action on the fronts of
infrastructure development and suitable legislative and regulatory reforms in the field of
Information and Communication Technology (ICT) at large. Convergence laws in India
are in the process of formulation and so are policy related matters. Though the
Communication Convergence Bill, 2001 has been formulated, it seems not to have been
notified yet. The Bill is intended to promote, facilitate and develop in an orderly manner
the carriage and content of communications (including broadcasting, telecommunications
and multimedia), for the establishment of an autonomous Commission to regulate
carriage of all forms of communications, for establishment of an Appellate Tribunal and
to provide for matters connected therewith or incidental thereto, to facilitate development
of a national infrastructure for an information based society, and to enable access thereto,
to provide a choice of services to the people with a view to promoting plurality of news,
views and information, to establish a regulatory framework for carriage and content of
communications in the scenario of convergence of telecommunications, broadcasting,
data-communication, multimedia and other related technologies and services, to provide
for the powers, procedures and functions of a single regulatory and licensing authority
and of the Appellate Tribunal, etc.
6.1.11 Norms for M&A Between Telecommunication
Companies

The government has revised norms and regulations for merging & acquisition (M&A)
between telecommunication companies within a same circle. Declaring the guidelines
and regulations, the Department of Telecommunication (DoT) said that prior approval for
merger of telecommunication companies is necessary. It is emphasize that the total
market share after merging should not exceed to more than 40% in terms of both
subscriber base and revenue. Prior it was held at 67 per cent. It has been made clear that
no merger would be allowed unless and until there are minimum four service providers
left after such merging process.

The government's revised norms and regulations concerning to merger has tightened the
merging and acquisitions between telecommunication companies in the circle. From now
consolidation between telecommunication companies within same circle would have
means facing difficulty and high cost also. Idea has recently acquired license only for 9
circles. Therefore, it is not possible for an existing licensee to get the Idea in these nine
circles. Similarly other licensees if they want to sell, needs to search for some other suitor
which should be outside the purview of group of licensed operators in their circles. This
new step from the government side has opened up a new gateway for new players, which
would have till now facing lots of troubles in absence of any license.

The new government regulations are more stringent and left less room for air to pass.
Less flexibility is allowed while designing all four phases - for any merging pre consent
of government is required to take, the market share of merging entity beyond which any
merging will not be allowed, has been brought down from 67% to 40%, before
contemplating any merging process it is imperative that the license must go from through
3 years of operation and last the merged entity is required to pay extra amount for every
spectrum.

The new norms issued are somewhere deviated from the TRAI's regulations. The TRAI
had ruled out merging and acquisition procedure unless and until rollout
recommendations were not full filled. But in the revised guidelines issued by government
for merging process, nothing has been mention in respect of rollout obligations. It is kept
silent for it. Now a clause has been inserted which have made license operation of three
years obligatory. In new guidelines issued by the government 'acquisition' word has been
dropped. The removal in the recent issued guidelines will somewhere create ambiguity to
the extent that it will not be clear as whether these norms are specifically for merger or
acquisition.
The regulations are looking as a pill of relief for new entrants. As now they can bring
strategic investors, which means they can sell maximum 74% stake to all those new
global companies or domestic entities which are keen to make entry into the India's
fastest growing telecommunication sector. Earlier existing telecommunication players
purchased new entrants for reducing spectrum crunch. But now all new entrants who
have received license in recent years can be merged or purchased by others only after
January 2011.

The new issued guideline also makes it clear that ‘merger of licenses shall be restricted to
the same service area’. It means if an operator has its services only in eastern regions it
can't undergone into merging process with another telecommunication company who is
offering services only in Himachal Pradesh and Punjab. Further it clears that no buoyant
or merging process can be taken place among top 3 service providers. It makes clear that
as long as these new norms are into operation, Vodafone can never be able to purchase
Bharti or Reliance and vice versa, nor can ever the Idea Cellular purchase Vodafone.
However, such big companies- Reliance, Bharti, Vodafone, and Idea Cellular can
purchase small players like Spice.

The DoT also explicitly mentioned out that the spectrum transfer charges are needed to
be pay in case of any merging between existing telecommunication companies. The
amount which will be paid is decided by government. However, if number of service
providers falls below 4 in circle during process then no merging will take place.

The government's motto behind issuing new principles and guidelines is to ensure that
one of the fastest growing telecommunication sectors in near future will continually to
have more than 8 operators in circles. This step in turns bolsters competition and helps in
earning more bucks. It will also lead to optimum utilization of resources.

6.2. IMPORTANT REGULATIONS AND THEIR

IMPACT ON THE INDIAN TELECOM
INDUSTRY

6.2.1 Unified Access Service License Regime

(UASL)
Unified licensing marked the end of the license regime in the Indian telecom industry. It
helped in aligning convergent technologies and services. The establishment of the
Unified Access Licensing Regime (2003) eliminated the need for different licenses for
different services. Players are now allowed to offer both mobile and fixed-line services
under a single license after paying an additional entry fee. This does not take into account
national and international long-distance services and Internet access services.

6.2.2 Access Deficit Charges (ADC)

ADC makes it mandatory for a service provider at the caller’s end to share a percent of
the revenue earned with the service provider at the receiver’s end in long-distance
telephony. This subsidises the infrastructure costs of the service provider enabling access
at receiver’s end, especially because rental for fixed-line services is low. Revision in the
ADC regime is expected to be followed by further tariff reduction in telecom services.

Figure: 6.1 Year wise cellular tariff and no. of subscribers

6.2.3 Access Deficit Charges (ADC)

ADC makes it mandatory for a service provider at the caller’s end to share a percent of
the revenue earned with the service provider at the receiver’s end in long-distance
telephony. This subsidises the infrastructure costs of the service provider enabling access
at receiver’s end, especially because rental for fixed-line services is low. Revision in the
ADC regime is expected to be followed by further tariff reduction in telecom services.

6.3 CONCLUSION

We saw various agencies and acts passed by Indian government to regulate the industry.
The government has to be rigid and cautious as the global players enter into the market.
The increasing number of services provided by telecom sectors call for additional
attention. The government has been doing excellent job in maintaining a harmony
between public and private players but still has a long way to go. The step taken by
government towards the 3G allocation shows how effectively it can operate.
 Chapter 7

ECONOMIC
FACTORS AND
ITS
 IMPLICATION
S

7.1 INTRODUCTION

This chapter gives us an overview about the various measures taken by the government
of
India to bring in more FDI in to telecommunication sector. The government wants to
bring in advanced technology and more capital in the telecommunication sector and
hence has increased the FDI cap to 74%. The telecommunication sector has provided
employment opportunities to various skilled and unskilled workers directly or indirectly.
The telecommunication sector has contributed to the growth of GDP and also to the
growth of Capital markets. There are stocks like which form the BSE -30 share index.
These factors provide an economic overview of the economy and have an impact on the
growth of the sector and the country as a whole.

7.2 INVESTMENTS
One of the most significant contributors to India’s booming economy is the development
of the services sector and the focus of Foreign Direct Investment in the
Telecommunication sector. Over the past two decades, the service sector has expanded
rapidly and has come to play an increasingly important role in national economies and in
the international economy. The structure of Foreign Direct Investment (FDI) worldwide
has also shifted towards services. In the early 1970s, service sector accounted for only
one quarter of the world FDI stock. In 1990 this shares was less than one half and by
2003, it has risen to about 67 per cent. Now service sectors like telecommunication, IT
enabled services, electricity insurance, air transport are becoming prominent.

Since the introduction of `Manmohanomics’ during PV Narasimha Rao’s government in

1991, Foreign Direct Investment (FDI) has been looked upon as a tool to transform under
developed countries into advanced nations. Since then every government has encouraged
the expansion of foreign direct investment.

The liberalization measures post-1990 has changed with foreign investments radically,
now portfolio as well as Foreign Direct Investment are not only allowed but also actively
encouraged. Initially Foreign Direct investment was introduced only in a few sectors but
since then it has been introduced in a variety of sectors including the sector of
Telecommunications. There are multi-faceted advantages of encouraging foreign direct
investment in telecom sector. Apart from ensuring telecom services at subsidized prices,
it can satisfy the dire need of infrastructural reforms in rural areas. The inflows will allow
multiple benefits such as technology transfer, market access, improvement in voice and
data quality and organizational skills. It increases the flow of foreign currency and helps
in maintaining harmonious relationship with the country from which the investment is
made. Moreover, India offers an unprecedented opportunity for telecom service
operators, infrastructure vendors, manufacturers and associated services companies.

When the Indian government opened up cellular telephony to private industry, several
foreign investors were ready to enter India’s telecom sector. However beating other
manufacturing and services sectors, Indian telecom had attracted major inflow of FDI
since August 1991. According to the numbers published by Investindiatelecom (an online
agency which tracks developments in the Indian telecom sector), Indian telecom has
grossed actual FDI worth Rs 9576.40 crores during the period starting from late 1991 to
early 2003. Of the total FDI inflow in Indian telecom sector, the major share has gone
towards investment in holding companies followed by cellular network and
manufacturing and consultancy.

While Hutchison Whampoa has a 49 per cent stake in Hutchison telecom, Vodafone has
21 per cent in RPG cellular and Verizon has ten percent stake in Reliance telecom. Other
foreign companies with similar stake in Indian companies include AT&T Wireless,
Cellnet and First Pacific.
Recently, there has been a hike in the Foreign Direct Investment in the telecom sector
and it has been increased from 49% to 74 %. This move seems to be positive for the
sector, as it requires investments of Rs 700 –900 million over the next 5 years. FDI
inflow by 2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and Japan
telecom are likely to enter India, as India is seen as fastest growing telecom market in
world. The increase in the FDI limit is expected to usher in a 20 per cent jump in foreign
investments in the telecom sector within the next two years from the current Rs10, 000
crores.

There are restrictions related to remote access, transfer of network information outside
India and international transit routing of Indian traffic. It has been decided to enhance the
FDI in telecom services in areas like basic telecom, cellular unified access services, Nat
/intranet, long distance Vast, public mobile, radio service & gmdcs. DOT will have the
authority to restrict the license company from operating in any of the sensitive areas of
the country. Foreign portfolio investments will be allowed in existing news channels
within an existing 26 per cent cap on foreign investment holdings for that sector. This
comes in time when there is a boom in the Indian stock markets as well and in the
consumers section. This would clearly go on to attract several players in the telecom
sector globally to look forward to investing in India. The highlights of the new policy are
that Foreign Direct Investment up to 74% is permitted in the telecom sector. Internet
service (with gateways); infrastructure providers (category-II); radio paging service etc.
have been made subject to licensing and security requirements. FDI up to 100%
permitted in respect of the following telecom services: Internet Service Providers not
providing gateways, Electronic mail, Voice mail, Infrastructure providers providing dark
fibre. FDI up to 100% is allowed subject to the stipulation that all such companies would
confirm to divest 26% of their equity in favour of the Indian public within five years, if
these companies are listed in other parts of the world. The above services would be
subject to licensing and security requirements, wherever required. This increase in the
FDI limit would see a sea change of investment flowing into India, and have a
magnanimous effect on the telecom sector by way of economic reforms and also would
affect the economy as a whole, and would have a chain effect on various other sectors.

Due to the increase in the foreign direct investment in the telecommunication market in
India companies like Bharti Tele-Ventures and Hutchison Essar will be able to modulate
the foreign stakes in their companies that have already acquired a range between 67-69
percent of their assets. With respect to the unnerving growth in the telecom industry in
India which accounted for nearly 30 percent every year, the Union Cabinet decided for
the hike in foreign direct investment as it will benefit the country by facilitating the
capital inflows in the industry. As of now acquires the largest share in the Indian telecom
market has been acquired by the mobile segment as it has been estimated to witness a
double rise in the past 2 years.

The 74 shares occupied by the Indian telecommunication industry would involve all the
foreign direct investments that have mainly come from the non-residential Indians,
foreign currency convertible bonds, foreign institutional investors, convertible preference
shares, and depository receipts on a direct and indirect basis. The step taken for the
increase in the FDI in Indian telecom industry will boost up the country's economic
condition. Post 1991 one of the major contributors in the accretion of India's economy is
Foreign Direct Investment and thereby it has been highly needed by each sector in Indian
telecommunications industry. As of now the telecom sector requires 1, 60,000 crores for
development purposes among which 30,000 is coming from the local markets.

FDI in services responds well to openness especially when it comes to the

telecommunications sector. This is quite evident looking at the recent boom in the Indian
Telecommunication sector. Further liberalization of services involves potential
advantages for Indian economy. Benefits can arise from increased competition, lower
prices, and better quality of services. FDI in services like Telecommunications provide
key inputs to other productive activities that lead to further investment and
competitiveness of an economy. Efforts should be made towards attracting efficiency
seeking FDI through a right policy that expands operation, improve local skills, establish
linkages and upgrade technology

However, precautions should be taken to avoid the risk of foreign investors out-
competing domestic investors especially in case of infrastructure services like
Telecommunications. Services where domestic investors are not able to cater to the
growing demand, or where domestic service-providers do not have the ability or capacity
to provide the required quality of services, are where the least barriers exist.

To circumvent such spirals it is important for the region to have appropriate domestic
regulations in place, which will assure better quality of services at affordable prices.
Clear domestic regulations increase transparency in the system and encourage foreign
direct investment. To sustain the momentum of growth in services trade in the region,
conscious efforts should be made to improve the competitive advantage of the region as a
whole. Inclusion of trade in services in SAFTA may help attract FDI in services and lead
to greater intra-regional trade. Access to more efficient services could lead to higher
growth in productivity in other sectors, which, in turn, could improve the overall
competitive strength of the region.
Thus it can be concluded that the recent upward swing in the Telecommunications sector
in India is due to the introduction of FDI in this sector by the Indian Government since
1991 but at the same time we must also be careful and not get carried away by this
development and should have proper regulations in place to actually utilize this situation
to our advantage.

7.3 FOREIGN DIRECT INVESTMENT

7.3.1 FDI Policy

FDI Policy for the Telecom is as under:-

Table: 7.1 FDI Policy for different telecom sectors

S Sector/Activity FDI Cap/Equity Entry Other Conditions Relevant

l.n route Press Note
o.
1. Basic and cellular,74% (includingAutomatic Subject toPN 3/2007
Unified AccessFDI, FII, NRI,upto 49%. guidelines notified
Services, FCCBs, ADRs, in the Press Note
National/Internation GDRs, No. 3 (2007 Series)
al Long Distance, V-convertible
 Sat, Public Mobilepreference shares,
Radio Trunkedand proportionateFIPB
Services (PMRTS)foreign equity inbeyond
Global MobileIndian 49%.
Personal promoters/Investi
Communications ng Company)
Services (GMPCS)
and other value
added telecom
services

2. ISP with gateways,74% Automatic Subject to licensingPN 4

radio-paging, end- upto 49% and security/2001
to-end bandwidth. requirements
notified by the
Department of
FIPB Telecommunication
beyond s. www.dot.gov.in
49%

3. a) ISP without100% Automatic Subject to thePN 9/ 2000

gateway, * upto 49% condition that suchand PN
companies shall2/2007
divest 26% of their
equity in favour of
b) Infrastructure Indian public in 5
provider providing years, if these
dark fibre, right of FIPB companies are
way, duct space, beyond listed in other parts
tower( Category –I); 49% of the world. Also
subject to licensing
and security
requirements,
c) Electronic mail
where required.
and voice mail
www.dot.gov.in

4. Manufacture of100% Automatic Subject to sectoralPN 2 / 2000

telecom equipments requirements.
7.3.2 Incentives for Telecom Sector
 Incentives to Promote Telecom Equipments Manufacturing

• Custom duty on ITA-I product reduced to zero w.e.f. 01.03.2005.

• 4% additional duty on import of ITA products to countervail the state level taxes.

• No industrial licence for manufacturing of telecom equipment. Simple Industrial

Entrepreneur Memorandum (IEM) has to be filed with SIA.

• 100% Foreign Direct Investment (FDI) through automatic route.

• Fully repatriable dividend income and capital invested.

• Payment of technical know-how fee of up to US$ 2 million and royalty up to 5%

on domestic sales and 8% on export sales, net of taxes, through automatic route.

• Imposition of additional import duty, at the rate not exceeding 4% ad-valorem, to

countervail sales tax, value added tax, local taxes and other charges leviable on
like goods on their sale or purchase or transportation in India

• Promotion of telecom product specific SEZs.

• Modification of Electronic Hardware technology Park (EHTP)/Special Economic

Zones (SEZs) scheme to allow 100% sales in the Domestic Tariff Area (DTA) for
the purpose of meeting export obligations.

 Incentives for Promotion of Service Sectors

• Any undertaking which has started or starts providing telecommunication services

whether basic or cellular, including radio paging domestic satellite service,
network of trunking, broadband network and internet services on or after the 1 st
day of April, 1995, but on or before the 31st day of March 2005, will be allowed in
computing the total income, a deduction of, an amount equal to hundred percent of
profits and gains derived from such business for ten consecutive assessment years.

• Import of specified telecom equipment (ITA1 Products) is permitted at zero

customs duty rates.

• Import of all capital goods for manufacturing telecom equipment does not require
any license.

 Incentives for Exporters

• 10 year income tax holiday for EOU/EPZ/STP/EHTP units.

• Export income is exempt from income tax for all exporters.

Table: 7.2 Actual Inflow (Year Wise) of FDI in Telecom Sector
from April 2000 to August 2008
 (In Millions)

Year (April-March)

FDI in Rs.
FDI in US$

2000-01

7,841.59
177.69

2001-02

39,384.61
873.23

2002-03

9,077.31
191.60

2003-04

5,139.21
111.72

2004-05

5,695.38
124.53

2005-06

27,759.53
623.55
Table: 7.3 Actual Inflow of FDI in Telecom Sector Country -wise
(from January 2000 to August 2008)
 34
South Africa
6.82
0.15
0

35
Spain
1,589.70
36.29
0.88

36
Sri Lanka
4.73
0.1
0

37
Sweden
650
15.12
0.36

38
Switzerland
274.45
6.12
0.15

39
Taiwan
35.2
0.8
0.02

40
Thailand
735.12
17.1
0.41

41
U.A.E.
1,160.61
25.51
0.64

42
U.K.
2,959.04
Table: 7.4 Actual Inflow of FDI in Telecom Sector -
Sector-wise as on August, 2008
 (Amount in Million)

S. No.

Service/Item

In Rs.

In US$

%age

Telecommunications

117,325.41

2,684.24

64.41

Radio Paging Service

113.92

2.53

0.06

Cellular Mobile/Basic Telephone Services

61,290.58

1,433.72

33.65
7.3.3 Major Investments

The booming domestic telecom market has been attracting huge amounts of investment
which is likely to accelerate with the entry of new players and launch of new services.

Buoyed by the rapid surge in the subscriber base, huge investments are being made into
this industry.

• Norway-based telecom operator Telenor has bought a 60 per cent stake in Unitech
Wireless for US$ 1.23 billion.
• Japanese telecom major NTT DoCoMo has acquired a 27.31 per cent equity
capital of Tata Teleservices for about US$ 2.6 billion and a 20.25 per cent stake in
Tata Teleservices (Maharashtra) Ltd for about US$ 190.23 million.
• Singapore Telecommunications (SingTel), which has a 31 per cent stake in Bharti
Airtel, has received the government’s approval to offer long distance services in
India, according to a communication ministry official.
• Mauritius-based P5 Asia Holding Investments (Mauritius) Ltd will be investing
around US$ 545.13 million to hold a 20 per cent stake in Aditya Birla Telecom
Ltd (ABTL). The funds will be utilised for network rollout and operations of
ABTL in the Bihar circle.
• Bharat Sanchar Nigam Ltd (BSNL) is planning an investment of around US$
201.5 million in the Tamil Nadu Circle for an additional 23 lakhs mobile
connections under both 2G and 3G technologies by 2009.
• The latest to join the world's second largest telecom market is Bahrain's Batelco
which has signed a deal to buy 49 per cent in Chennai-based S-Tel, a GSM
service provider, for $225 million.
• Etisalat, a Gulf-based telecommunications company has picked up a 45 per cent
stake in Swan Telecom.
• Kaveri Telecom Products Limited is planning to set up a new subsidiary - Kaveri
Telecom Infrastructure Limited (KTIL) - with an investment of US$ 20.11 million
over the next two years, to offer in-building telecom infrastructure to telecom
service providers.
• Juniper Networks, which is the second-largest maker of networking equipment,
plans to invest US$ 400 million in India, over the next five years, with a focus on
its research and development (R&D) activity.
• BSNL, India's leading telecom company in revenue terms, will put in about US$
1.16 billion in its WiMax project.
• Bharti Airtel will be spending US$ 2.5 billion in a major expansion bid.
• Reliance Communication has committed US$ 5.69 billion as capital investment
for the fiscal year ending March 2009.
 • Idea Cellular will spend about US$ 2.36 billion in the fiscal ending March 2009.
• Srei Group's Quippo Telecom Infrastructure Ltd (QTIL) plans to invest US$ 3
billion in 2008-09 to ramp up its telecom infrastructure business to grow both
organically and inorganically.
• Vodafone Essar will invest US$ 6 billion over the next three years in a bid to
increase its mobile subscriber base from 40 million at present to over 100 million.
• Telecom service provider, Tata Teleservices Limited, has announced that the
company will be investing additional US$ 6.74 million in Gujarat to set up 100
cell sites by August 2009. The company had earlier made an announcement of
investing US$ 24.1 million in the state till March 2009.

Telecom operator Aircel, which launched GSM mobile services in Bangalore on

February 23, 2009, plans to invest US$ 220.58 million over the next year to set up base
stations across the state.

Investments Abroad

After the amazing growth story in the domestic market, Indian telecommunication
companies are now set to have a major global footprint.

• The Bharti Group, which already has operations in Seychelles, (begun over a
decade ago), and in the Channel Islands in Europe, launched its mobile services in
Sri Lanka under 'Airtel' brand on January 12, 2009. Airtel is expected to invest
about US$ 200 million in setting up and expanding its operation in Sri Lanka over
the next five years. The company will simultaneously roll out second generation
(2G) and third generation (3G) services in the country.
• Tata Communications has bought the 30 per cent stake in Neotel that was
previously held by Eskom and Transnet. With this, Tata Communications in
association with Tata Africa Holdings became the largest stakeholder with 56 per
cent stake.
• Tata Communications marked its entry into UAE by launching a range of
dedicated Ethernet services in association with leading telecommunication service
provider of UAE, Etisalat.

7.4 CAPITAL MARKET

Table: 7.5 Capital Market data
 Full Year (Rs Cr.) Price Information
Name Year End Equity Gr. Blk Div% B.V Rs EPS Rs. Price Price 52 W 52 W Mkt. Cap. P/E P/BV
Date -H -L
Bharti Airtel 200803 1,898.24 28,115.65 0 106.3 32.6 571 3/19/2009 950 484 108,465.40 18 5.37
HFCL Infotel 200803 525.52 1,355.28 0 -7.1 0 8 3/19/2009 23 6 416.21 0 -1.13
Idea Cellular 200803 3,100.09 13,888.89 0 35 3.2 46 3/19/2009 114 34 14,151.91 14 1.31
M TNL 200803 630 15,842.58 40 189.2 9 65 3/19/2009 116 52 4,076.10 7.2 0.34
Reliance Comm 200803 1,032.01 21,576.32 15 120.3 12.4 157 3/19/2009 609 131 32,322.55 13 1.31
Spice Comm 200812 689.92 2,665.54 0 -2 0 63 3/19/2009 95 23 4,360.29 0 -31.5
Tata Tele Mah 200803 1,897.19 4,524.71 0 -1 0 23 3/19/2009 38 13 4,297.14 0 -23

The telecom sector consists of the above few companies that are listed on the Stock
Exchange, of which Bharti Airtel and Reliance Communications are among the Top 30
Companies.

• The prices of all the companies have been fluctuation over a period of time due to
sell by foreign Institutional Investors, bringing the prices to share to its lowest
levels.

• Bharti Airtel and Reliance Communications are the two scripts that have been
traded the most.

• The Market Capitalization of Bharti Airtel and Reliance Communications is the

highest among the telecom players as there are more number of shares
outstanding in the market.

• The Share capital is the highest for Idea Cellular and Bharti Airtel among all the
players in the market.

7.5 GDP

The current global financial crisis is, of course, now one of the major constraints on the
pace of economic reform, but the Indian telecom sector, because of its innate strength and
resilience, is perhaps one of the few sectors that have remained almost unaffected by this
adverse global trend,"

The telecom sector, which clocked a 42.2% growth in the quarter ended September, has
emerged as a big contributor to the GDP growth.
High growth rate in this sector - with weight of less than 3% in GDP - was a key driver
which pushed GDP figures for the quarter ended September to 7.6%," Companies reflect
the confidence, and the sector will continue its growth story remain unscathed by the
global financial turmoil.

The telecom sector's potential in India remains under-tapped and growth rate in tele-
density, especially in rural India, will remain robust.

"Telecommunications contribution to the GDP growth rate will further increase in the
coming quarters,"

The telecom sector is expected to perform even better; its contribution to the nation's
GDP is expected to increase from 2% in 2006 to an estimated 3.6 per cent in 2010.

7.6 Labour Market

With telecom sector booming, career in the industry is very lucrative. The career path to
the leading companies goes via telecom engineering. The telecom sector offers a variety
of career options.

With the coming of more and more projects, the telecom industry is going for high scale
recruitments. There is a huge demand for software engineers, mobile analysts, and
hardware engineers for mobile handsets. Besides, there are ample opportunities for
marketing people whose services are required to capture more and more customer base.

The new projects, setting up of new service bases, expansion of coverage areas, network
installations, maintenance, etc are providing more and more employment opportunities in
the telecom sector. With the boom of e-business & voice data convergence for IP, the
demand for telecom service is growing fast.

Telecom offers unlimited opportunities & possibilities in the present and future. The
Telecom sector is fast advancing globally by introducing advanced technologies and
solutions to the world markets.
The sector will need up to 1, 50,000 additional hands in 2009. While new players are
launching operations, existing ones are beginning to scale up. Now that the government
has issued 120 new licences, telecom industry officials fear a talent crunch that could
push salaries in core operations by up to 30% in the next few quarters.

Conservative estimates put the demand from new players at one lakh people in the first
phase. With rolling out of 3G and Wimax, existing players will need another 50,000
people.

Most of the new players would be looking for experienced hands, so getting people in
such large numbers will be a great challenge. Currently, the sector directly employs about
1, 50,000 people, while providing jobs to another 1.5 million with retail outlets, prepaid
card sellers and tower constructors.

And now with most telecom players expanding in the rural markets, the demand for
manpower is expected to go up further. “The new players will have to attract talent by
offering 15-20% higher salaries.

Figure: 7.1 Employment Potential of Indian telecom industry

7.7 CONCLUSION
The above factors have played a significant role in the growth of the Indian economy and
shall contribute to the growth in the future as well. With the increased FDI cap, new and
better technology will be available to the Indian users and have a better access to the
world.
 Chapter 8

ANALYTICAL
FRAMEWOR
K
8.1 INTRODUCTION

In the third section we have analyzed in detail the entire telecom industry sector. There
only we have laid the background for analysing the analytical framework for the telecom
industry. Here we will carry out the Porter’s five forces analysis and SWOT analysis for
the telecom industry. We will also carry out the ratio analysis of the telecom industry as a
whole to find the financial performance of the industry and compare it with that of
different companies.

8.2 PORTER’S FIVE FORCES

There is continuing interest in the study of the forces that impact on an organisation or an
industry, particularly those that can be harnessed to provide competitive advantage. The
ideas and models which emerged during the period from 1979 to the mid-1980s (Porter,
1998) were based on the idea that competitive advantage came from the ability to earn a
return on investment that was better than the average for the industry sector (Thurlby,
1998).

As Porter's 5 Forces analysis deals with factors outside an industry that influence the
nature of competition within it, the forces inside the industry (microenvironment) that
influence the way in which firms compete, and so the industry’s likely profitability is
conducted in Porter’s five forces model. A business has to understand the dynamics of its
industries and markets in order to compete effectively in the marketplace. Porter (1980)
defined the forces which drive competition, contending that the competitive environment
is created by the interaction of five different forces acting on a business. In addition to
rivalry among existing firms and the threat of new entrants into the market, there are also
the forces of supplier power, the power of the buyers, and the threat of substitute
products or services. Porter suggested that the intensity of competition is determined by
the relative strengths of these forces.

The nature of competition in an industry is strongly affected by suggested five forces.

The stronger the power of buyers and suppliers, and the stronger the threats of entry and
substitution, the more intense competition is likely to be within the industry. However,
these five factors are not the only ones that determine how firms in an industry will
compete – the structure of the industry itself may play an important role. Indeed, the
whole five-forces framework is based on an economic theory know as the “Structure-
Conduct-Performance” (SCP) model: the structure of an industry determines
organizations’ competitive behaviour (conduct), which in turn determines their
profitability (performance). In concentrated industries, according to this model,
organizations would be expected to compete less fiercely, and make higher profits, than
in fragmented ones.

Main Aspects of Porter’s Five Forces Analysis

The original competitive forces model, as proposed by Porter, identified five forces
which would impact on an organization’s behaviour in a competitive market. These
include the following:

• The rivalry between existing sellers in the market

• The power exerted by the customers in the market

• The impact of the suppliers on the sellers

• The potential threat of new sellers entering the market

• The threat of substitute products becoming available in the market

Understanding the nature of each of these forces gives organizations the necessary
insights to enable them to formulate the appropriate strategies to be successful in their
market (Thurlby, 1998). We will examine these concepts as described by Porter’s 5 force
model and as applied to Indian telecom industry simultaneously.

8.2.1 Force 1: The Degree of Rivalry

The intensity of rivalry, which is the most obvious of the five forces in an industry, helps
determine the extent to which the value created by an industry will be dissipated through
head-to-head competition. The most valuable contribution of Porter's “five forces”
framework in this issue may be its suggestion that rivalry, while important, is only one of
several forces that determine industry attractiveness.

• This force is located at the centre of the diagram

• Is most likely to be high in those industries where there is a threat of

substitute products; and existing power of suppliers and buyers in the market

Now let us understand the implication of degree of revelry in Indian telecom sector. The
dimensions of this parameter are determined by:

High Exit Barriers: In any industry, if the exit barrier is high it increases the difficulty
of any organization to leave the industry sector. So it makes any difficult to any willing to
leave company to leave the industry. The telecom industry suffers from high exit barriers,
mainly due to its specialized equipment. Networks and billing systems cannot really be
used for much else, and their swift obsolescence makes liquidation pretty difficult.

High Fixed Cost: The industry also suffers from high fixed cost which makes the entry
barrier also very high for the industry. It comes as no surprise that in the capital-intensive
telecom industry the biggest barrier to entry is access to finance. To cover high fixed
costs, serious contenders typically require a lot of cash. When capital markets are
generous, the threat of competitive entrants escalates. When financing opportunities are
less readily available, the pace of entry slows. Meanwhile, ownership of a telecom
license can represent a huge barrier to entry.

• 6-7 players in each region

• 3 out of 4 BIG-Four present in each region

Very less time to gain advantage by an innovation: Every company in this industrial
sector in investing a huge amount in research and development and marketing strategy.
That is why we see any offer launched by any company is counter attacked by other
companies very soon. This makes the industry rivalry most prominent.
Eg. Caller tunes, life time card

Price wars: The price war is really very fierce in this industry. Price war in telecom
industry has commoditized the market that branding has taken a backseat.

8.2.2 Force 2: The Threat of New Entrants

Both potential and existing competitors influence average industry profitability. The
threat of new entrants is usually based on the market entry barriers. They can take diverse
forms and are used to prevent an influx of firms into an industry whenever profits,
adjusted for the cost of capital, rise above zero. In contrast, entry barriers exist whenever
it is difficult or not economically feasible for an outsider to replicate the incumbents’
position. The most common forms of entry barriers, except intrinsic physical or legal
obstacles, are as follows:

• Economies of scale: In telecom industry the economies of scale exists from

the supplier side. That is why companies try to increase their subscriber base
at drastic rate.

• Distribution channels: Distribution channels are also providing a major

determining factor. These channels are not loyal to any company and
competitors can easily access them and make out work for them.

• Customer Switching Costs: Customer switching cost is very low, as cost of

new connection is really low. And new connection offers more benefits to the
customers.

8.2.3 Force 3: The Threat of Substitutes

The threat that substitute products pose to an industry's profitability depends on the
relative price-to-performance ratios of the different types of products or services to which
customers can turn to satisfy the same basic need. The threat of substitution is also
affected by switching costs – that is, the costs in areas such as retraining, retooling and
redesigning that are incurred when a customer switches to a different type of product or
service. It also involves:
• Product-for-product substitution (email for mail, fax); is based on the
substitution of need;
 • Generic substitution (Video suppliers compete with travel companies);

• Substitution that relates to something that people can do without (cigarettes,

alcohol).

Now let us discuss this concept for telecom industry. The potential major substitutes for
telecom industry are as follows:

 VOIP (Skype, Messenger etc.)

 Online Chat
 Email
 Satellite phones

All of these technologies have a huge potential, though none of the above a major threat
in current scenario. So the telecom industry has to keep a close look on these substitutes.

8.2.4 Force 4: Buyer Power

Buyer power is one of forces that influence the appropriation of the value created by an
industry. The most important determinants of buyer power are the size and the
concentration of customers. Other factors are the extent to which the buyers are informed
and the concentration or differentiation of the competitors. Kippenberger (1998) states
that it is often useful to distinguish potential buyer power from the buyer's willingness or
incentive to use that power, willingness that derives mainly from the “risk of failure”
associated with a product's use.

• This force is relatively high where there a few, large players in the market, as it is
the case with retailers a grocery stores;

• Present where there is a large number of undifferentiated, small suppliers, such as

small farming businesses supplying large grocery companies;

• Low cost of switching between suppliers, such as from one fleet supplier of
trucks to another.

In the context of Indian telecom industry we can say that the following points influence
the buyer power:

 Lack of differentiation among the service provider

 Cut throat competition
 Customer is price sensitive
  Low switching costs
 Number portability to have negative impact

8.2.5 Force 5: Supplier Power

Supplier power is a mirror image of the buyer power. As a result, the analysis of supplier
power typically focuses first on the relative size and concentration of suppliers relative to
industry participants and second on the degree of differentiation in the inputs supplied.

The ability to charge customers different prices in line with differences in the value
created for each of those buyers usually indicates that the market is characterized by high
supplier power and at the same time by low buyer power.

In the drawback of Indian telecom industry the following should be kept in mind:

 Large number of suppliers: The industry basically has a large number of suppliers,
which helps them to choose from a lot of options. So they try to select the best
option to deliver the value to the customers and to have a competitive advantage
from their competitor.

 Shared tower infrastructure: Technology has helped them to share the tower
infrastructure. This basically helps them to reduce the initial investment a lot.

 Limited pool of skilled managers and engineers especially those well versed in the
latest.

 Medium cost of switching since changing their hardware would lead to additional
cost in modifying the architecture.

 Overall influence on the industry – medium.

8.3 SWOT ANALYSIS
A scan of the internal and external environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified as
strengths (S) or weaknesses (W), and those external to the firm can be classified as
opportunities (O) or threats (T). Such an analysis of the strategic environment is referred
to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources
and capabilities to the competitive environment in which it operates. As such, it is
instrumental in strategy formulation and selection. The following diagram shows how a
SWOT analysis fits into an environmental scan:

SWOT Analysis Framework

Environmental Scan

/
\

Internal Analysis
External Analysis

/\
/\

Strengths Weaknesses
Opportunities Threats

SWOT Matrix
8.3.1 Strengths

Here we will analyze the strengths of the telecom industry as a whole. The most
important factors are:

• Technology is advanced and easy to implement: For telecom industry the

technology is really advanced and more and more investment is done on
technology to get world class infrastructure and knowhow to put in this field.
Recently the telecom sector is going to add 3G spectrum as its latest up-
gradation.

• Management Team has prior experience: The management team controlling

Indian telecom sector in really efficient. Thank goes to the IITs which produce
world class engineers. So Indian telecom sector has abundance of
technological knowhow.

8.3.2 Weakness

The weaknesses of the Indian telecom sector are as follows.

• High Cost of Infrastructure: The infrastructure cost of telecom industry is very

high.

• Low customer retention power: The customer retention power for telecom
industry is really low and the customer changes their service provider
company very soon.

8.3.3 Opportunity

• Population: The population of India is really an opportunity of telecom service

providers, as the number of population without telecom service is also very high.
The industry has to target India’s huge population to grow.
 • Changing Population psychograph: Population psychograph is also changing.
Previously telecom service was thought as an emergency service, now it has
become an essential part of life in our country.

• Increased Penetration Level: All the organizations of the industry are trying to
increase their penetration level, in other word to increase the tele-density of the
country. The urban Indian population gives a real growth prospect to the industry.

• FDI: The foreign direct investment in telecom has been hiked up from 49% to
74%. This move is positive for the sector, as it requires investments of Rs 700 –
900 million over the next 5 years. FDI inflow by 2004 was 9950.94 cores in
telecom. Countries like Europe, Korea, and Japan telecom are likely to enter
India, as India is seen as fastest growing telecom market in world.

8.3.4 Threats

The treats to the industry are the following:

• Government Policies – Government may provide licenses to many foreign

operators, which may already have pose a threat for the existing players in the
industry.

• New Technology can change the market dynamics: A lot of new technologies are
coming. Then even have the potential of changing the entire industry dynamics or
even create substitute of the telecom services existing.

Some of the examples are follows:

 VOIP (Skype, Messenger etc.)

 Online Chat
 Email
 Satellite phones

To summarize the SWAT analysis we can draw the following framework for telecom
industry:
8.4 RATIO ANALYSIS OF INDUSTRY

Ratio Analysis is an approach in understanding the strength and weakness of a business.

Ratio analysis is a very powerful analytical tool useful for measuring performance of an
organization. It is also a yardstick to set goals for improvement. Ratio analysis allows
various interested parties to make evaluation of certain aspects of the firm’s performance.

8.4.1 Liquidity Ratios:

Current Ratio-

This ratio measures the solvency of the company in the short term. This ratio indicates
that how much current asset is available for each rupee of current liabilities. So, higher
the ratio more will be the margin of safety for short-term creditors.

Current ratio for telecom service provider industry for 2007-2008 – 1.22

Current ratio of 1.22 means that the industry can successfully pay off its debt while at the
same time still have cash left over to continue operating.
Debt-to-Equity Ratio-

Debt equity ratio is long term debt divided by share holder’s fund. Long term consists of
secured and unsecured debt while share holders fund consists of share capital and reserve
& surplus. If the ratio is 1:1, it indicates that the company is having equal fund from the
shareholders and also the debt instruments. While the increasing ratio indicates the
company has to pay more interest on the borrowed debt.

Debt-to-equity ratio for telecom service provider industry for 2007-2008 – 0.35

Debt to equity ratio of 0.35 means that industry is not using debt instruments while it is
relying more on the shareholders capital. This indicates that the assets are primarily
supplied with equity. Now as debt is the cheapest source of fund, so telecom service
providers industry is not using the cheapest source of fund.

8.4.2 Turnover Ratios:

These ratios measure how effectively the firm utilizes its resources. These ratios are also
called Activity Ratio, it involves comparison between the level of sales and investment in
various accounts – inventories, debtors, fixed assets etc.

Fixed Assets Turnover Ratio-

Fixed Assets Turnover Ratios is net sales divided by net fixed assets. So fixed assets
turnover ratios show how efficiently the assets of the firm are utilized. Therefore, the
higher the ratio, the more efficient the company is with its assets.

Fixed Assets Turnover Ratios for telecom service provider industry for 2007-2008 –
0.43

Fixed assets in telecom service provider industry are various transmission equipments
like towers, transmitters, optical fibers etc. This fixed assets turnover ratio of 0.43 is very
low

Inventory Turnover Ratio-

Inventory turnover ratio is cost of goods sold divided by average stock. So inventory
turnover ratio leads to stock velocity, which is an indication of the rotation of the current
stock. So less rotation time is good for the company.

Inventory Turnover Ratio for telecom service provider industry for 2007-2008 –
25.65

Stock Velocity – 365/25.65 comes as 14.23 days means the telecom service providers
industry takes 14.23 days to rotate the stock which is again a low stock velocity.

Debtor Turnover Ratio-

It is credit sales divided by average accounts receivables (Debtor + Bills receivables). So

debtor turnover ratio leads to debtor velocity which is an indication that how much time
an organization takes to collect its receivables. Hence, lower the debtor velocity, the good
for the organization.

Debtor Turnover Ratio for telecom service provider industry for 2007-2008 – 6.44

Debtor Velocity – 365/6.44 comes as 56.68 days which means telecom service provider
industry takes on an average 57 days to collect its money back from its debtors.

Interest Cover Ratio-

Interest Coverage Ratio is profit before interest, depreciation and tax divided by interest
on long term debt. So the high ratio indicates the low proportion of the debt in the sector
and the industry is using a very conservative policy of using the debt component in the
capital structure.

Interest Cover Ratio for telecom service provider industry for 2007-2008 – 4.52

Interest cover ratio of 4.52 means that the telecom service industry has 4.52 times more
income to pay interest on their debts. This indicates the industry can cover its interest
payments well.

8.4.2 Profitability Ratios:

The purpose of study and analysis of profitability ratios are to help assessing the
adequacy of profits earned by the company and also to discover whether the profitability
is increasing or decreasing.

Gross Profit Margin Ratio-

The Gross Profit Margin Ratio is gross profit divided by sales and by multiplying it to
100. This assists in helping us understand the financial health of the company in terms of
knowing whether or not the company’s profit is enough to pay off its other expenses.

Gross Profit Margin Ratio for telecom service provider industry for 2007-2008 –
39.53

Gross Profit Ratio of 39.53% means that the industry is making 39.53 % on the sales.

Net Profit Ratio-

This ratio is calculated by diving net profit after tax with net sales and multiplying with
100. This ratio reflects net profit margin on the total sales after deducting all expenses,
but before deducting interest and taxation. The comparison of this ratio, with that of the
previous year, will give a correct trend of the performance of the sector.

Net Profit Ratio for telecom service provider industry for 2007-2008 – 15.41

Return on Capital Employed Ratio-

It is calculated by dividing operation profit before interest and tax by capital employed
and multiplying it to 100.

This ratio indicates that how much profit is earned on the total capital employed that
consists of equity, reserve & surplus and long-term debt.

Return on Capital Employed Ratio for telecom service provider industry for 2007-
2008 – 9.72

Return on Net Worth-

Return on Net Worth is profit after tax divided by net worth which consists of equity
share capital and reserve and surplus and multiplying with 100. This ratio is an important
yardstick of performance for equity share holder since it indicates the returns on the
funds employed by them.

Return on Net Worth for telecom service provider industry for 2007-2008 – 10.11
 Chapter 9

COMPANY
ANALYSIS

9.1 INTRODUCTION
A brief overview about each company has been mentioned in this chapter. This chapter
also deals with the analysis of the companies on various financial ratios. The financial
ratios of these companies are compared with the industry standard ratios. There is
comparison with the companies on various parameters like Enterprise value, Market
capitalization, EPS, Sales and other income. This comparison gives us an overview in
terms of position of companies in each parameter. These ratios give us an insight to the
financial stability of the firm.

Figure: 9.1 Market Share of Telecom Companies as on 31st Jan’09

9.2 TOP FIVE COMPANIES

The Top five companies, on the basis of ‘Market Share’ as on 31st January, 2009 are:

1. Bharti Airtel Ltd.

2. Reliance Communications Ltd.
3. Vodafone Essar Ltd.
4. BSNL
5. Idea Cellular + Spice

BHARTI AIRTEL LTD.

Telecom giant Bharti Airtel is the flagship company of Bharti Enterprises. The Bharti
Group has a diverse business portfolio and has created global brands in the
telecommunication sector. Airtel comes from Bharti Airtel Limited, India’s largest
integrated and the first private telecom services provider with a footprint in all the 23
telecom circles. Bharti Airtel since its inception has been at the forefront of technology
and has steered the course of the telecom sector in the country with its world class
products and services. The businesses at Bharti Airtel have been structured into three
individual strategic business units (SBU’s) - Mobile Services, Airtel Telemedia Services
& Enterprise Services. The mobile business provides mobile & fixed wireless services
using GSM technology across 23 telecom circles while the Airtel Telemedia Services
business offers broadband & telephone services in 95 cities and has recently launched
India's best Direct-to-Home (DTH) service, Airtel digital TV. The Enterprise services
provide end-to-end telecom solutions to corporate customers and national & international
long distance services to carriers. All these services are provided under the Airtel brand.

The company served an aggregate of 88,270,194 customers as of December 31, 2008; of

whom 85,650,733 subscribed to GSM services and 2,619,461 use the Telemedia Services
either for voice and/or broadband access delivered through DSL. Bharti Airtel is the
largest wireless service provider in the country, based on the number of subscribers as of
December 31, 2008. They also offer an integrated suite of telecom solutions to their
enterprise customers, in addition to providing long distance connectivity both nationally
and internationally. They have recently forayed into media by launching their DTH and
IPTV Services. All these services are rendered under a unified brand "Airtel".

The company also deploys, owns and manages passive infrastructure pertaining to
telecom operations under its subsidiary Bharti Infratel Limited. Bharti Infratel owns 42%
of Indus Towers Limited. Bharti Infratel and Indus Towers are the two top providers of
passive infrastructure services in India.

Company shares are listed on The Stock Exchange, Mumbai (BSE) and The National
Stock Exchange of India Limited (NSE).

RELIANCE COMMUNICATIONS LTD.

Reliance Communications is the flagship company of the Anil Dhirubhai Ambani Group
(ADAG) of companies. Listed on the National Stock Exchange and the Bombay Stock
Exchange, it is India’s leading integrated telecommunication company with over 71
million customers.

Their business encompasses a complete range of telecom services covering mobile and
fixed line telephony. It includes broadband, national and international long distance
services and data services along with an exhaustive range of value-added services and
applications. Our constant endeavour is to achieve customer delight by enhancing the
productivity of the enterprises and individuals we serve.

Reliance Mobile (formerly Reliance India Mobile), launched on 28 December 2002,

coinciding with the joyous occasion of the late Dhirubhai Ambani’s 70th birthday, was
among the initial initiatives of Reliance Communications. It marked the auspicious
beginning of Dhirubhai’s dream of ushering in a digital revolution in India. Today, the
company can proudly claim that they were instrumental in harnessing the true power of
information and communication, by bestowing it in the hands of the common man at
affordable rates.

They endeavour to further extend their efforts beyond the traditional value chain by
developing and deploying complete telecom solutions for the entire spectrum of society.
It was established in the year 2004 as Reliance Infrastructure Developers Private Limited,
Reliance Communications started laying 60,000 route kilometers of a pan-India fibre
optic backbone with high capacity, integrated (wireless and wireline), convergent (voice,
data and video) digital network and to offer services spanning the entire infocomm value
chain. It is capable of delivering a range of services spanning the entire infocomm
(information and communication) value chain, including infrastructure and services for
enterprises as well as individuals, applications, and consulting.

VODAFONE ESSAR LTD.

Vodafone Essar in India is a subsidiary of Vodafone Group Plc and commenced
operations in 1994 when its predecessor Hutchison Telecom acquired the cellular license
for Mumbai. Vodafone Essar now has operations in 22 circles with over 65.92 million
customers**. The company is a joint venture of Essar Communication Holdings Ltd and
the UK-based Vodafone Group. Vodafone has partnered with the Essar Group as their
principal joint venture partner for the Indian market. They are in the business of cellular
telephony. Over the years, Vodafone Essar, under the Hutch brand, has been named the
‘Most Respected Telecom Company’, the ‘Best Mobile Service in the country’ and the
‘Most Creative and Most Effective Advertiser of the Year’.

Vodafone is the world’s leading international mobile communications company. It

currently has equity interests in 27 countries across 5 continents and 40 partner networks
with over 289 million proportionate customers worldwide. Vodafone has partnered with
the Essar Group as its principal joint venture partner for the Indian market.

Essar Global Limited (EGL) is a diversified business group spanning the manufacturing
and services sectors of Steel, Energy, Power, Communications, Shipping & Logistics,
and Projects. The group has operations and investments in India, Canada, USA, Africa,
the Middle East, the Caribbean and South East Asia and employs 30,000 people
worldwide.

Vodafone Essar Ltd provides services like 2G, which are based on 1800 Mhz and
900Mhz GSM digital technology. They offers voice and data services. In addition, they
offers postpaid connections activation, prepaid SIM cards and recharge coupons sale,
service activation/deactivation, postpaid tariff plan change, customer query resolution,
prepaid/postpaid SIM card replacement and upgradation, mobile number change, and
information on and subscription of value added services through stores.

**Figures from Cellular Operators Association of India, February 28, 2009

BHARAT SANCHAR NIGAM LTD.

Bharat Sanchar Nigam Ltd. formed in October, 2000, is World's 7th largest
Telecommunications Company providing comprehensive range of telecom services in
India: Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service,
MPLS-VPN, VSAT, VoIP services, IN Services etc. Within a span of five years it has
become one of the largest public sector unit in India.

It has about 47.3 million line basic telephone capacity, 4 million WLL capacity, 20.1
Million GSM Capacity, more than 37382 fixed exchanges, 18000 BTS, 287 Satellite
Stations, 480196 Rkm of OFC Cable, 63730 Rkm of Microwave Network connecting
602 Districts, 7330 cities/towns and 5.5 Lakhs villages.

BSNL is the only service provider, making focused efforts and planned initiatives to
bridge the Rural-Urban Digital Divide ICT sector. In fact there is no telecom operator in
the country to beat its reach with its wide network giving services in every nook & corner
of country and operates across India except Delhi & Mumbai.

BSNL is numero uno operator of India in all services in its license area. The company
offers vide ranging & most transparent tariff schemes designed to suite every customer.

BSNL cellular service, CellOne, has more than 17.8 million cellular customers, garnering
24 percent of all mobile users as its subscribers. That means that almost every fourth
mobile user in the country has a BSNL connection. In basic services, BSNL is miles
ahead of its rivals, with 35.1 million Basic Phone subscribers i.e. 85 per cent share of
the subscriber base and 92 percent share in revenue terms.

BSNL has more than 2.5 million WLL subscribers and 2.5 million Internet Customers
who access Internet through various modes viz. Dial-up, Leased Line, DIAS, Account
Less Internet (CLI). BSNL has been adjudged as the NUMBER ONE ISP in the country.

BSNL has set up a world class multi-gigabit, multi-protocol convergent IP infrastructure

that provides convergent services like voice, data and video through the same Backbone
and Broadband Access Network. At present there are 0.6 million DataOne broadband
customers.

IDEA CELLULAR LTD. + SPICE

DEA Cellular is a publicly listed company, having listed on the Bombay Stock Exchange
(BSE and the National Stock Exchange (NSE) in March 2007. Idea Cellular Ltd.
is India's leading GSM mobile services operator. It has licenses to operate in 11 circles.
The company has a customer base of over 17 million. It is the first cellular company to
launch music messaging with Cellular Jockey, Background Tones, Group Talk, a voice
portal with Say IDEA and a complete suite of mobile email Services.

A brand known for many firsts, Idea was the first to launch GPRS and EDGE in the
country. Idea has received international recognition for its path-breaking innovations
when it won the GSM Association Award for "Best Billing and Customer Care Solution"
for 2 consecutive years.

IDEA Cellular is part of the Aditya Birla Group, India's first truly multinational
corporation. The group operates in 25 countries, and is anchored by over 1,25,000
employees belonging to 25 nationalities.

The combined holding of the Aditya Birla Group companies in Idea stands at 98.3 per
cent. Mr. Kumar Mangalam Birla has been named the Chairman of the company.

The Indian telecommunications market for mobile services is divided into 22 "Service
Areas" classified into "Metro", Category "A", Category "B" and Category "C" service
areas by the Government of India. These classifications are based principally on a
Service Area's revenue generating potential

Customer Service and Innovation are the drivers of this Cellular Brand. A brand known
for their many firsts, IDEA is the only operator to launch General Packet Radio Service
(GPRS) and EDGE in the country. IDEA has seen phenomenal growth since its inception,
the company's footprint idea is to first achieve critical mass, then drill deep instead of
spreading thin, however, does not increasing geographic footprint only, it also drills deep
and successfully attempts to provide excellent network coverage in all its circles of
operations.

9.3 BOTTOM FIVE COMPANIES

The Bottom five companies, on the basis of ‘Market Share’ as on 31st January, 2009 are:

1. Aircel Cellular Ltd. + Dishnet

2. Mahanagar Telephone Nigam Ltd. (MTNL)
3. BPL Mobile Communications Ltd.
 4. HFCL Infotel Ltd.
5. Shyam Telecom Ltd.

AIRCEL + DISHNET

The Aircel Group is a joint venture between Maxis Communications Berhad of Malaysia
and Apollo Hospital Enterprise Ltd of India, with Maxis Communications holding a
majority stake of 74%.

Aircel commenced operations in 1999 and became the leading mobile operator in Tamil
Nadu within 18 months. In December 2003, it launched commercially in Chennai and
quickly established itself as a market leader – a position it has held since.

Aircel began its outward expansion in 2005 and met with unprecedented success in the
Eastern frontier circles. It emerged a market leader in Assam and in the North Eastern
provinces within 18 months of operations. Till today, the company gained a foothold in
14 circles including Chennai, Tamil Nadu, Assam, North East, Orissa, Bihar, Jammu &
Kashmir, Himachal Pradesh, West Bengal, Kolkata, Kerala, Andhra Pradesh, Karnataka
and Delhi.

The Company has currently gained a momentum in the space of telecom in India post the
allocation of additional spectrum by the Department of Telecom, Govt. of India for 13
new circles across India. These include Delhi (Metro), Mumbai (Metro), Andhra Pradesh,
Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra & Goa, Rajasthan,
Punjab, UP (West) and UP (East).

Aircel has won many awards and recognitions. Voice and Data gave Aircel the highest
rating for overall customer satisfaction and network quality in 2006. Aircel emerged as
the top mid-size utility company in Business world’s ‘List of Best Mid-Size Companies’
in 2007. Additionally, Tele.net recognized Aircel as the best regional operator in 2008.

With over 16 million customers in the country, Aircel, the fastest growing telecom
company in India, has revved up plans to become a full-fledged national operator by end
of 2009.

MTNL
Mahanagar Telephone Nigam Limited (MTNL) was set up in 1st April of the year 1986
by the Government of India to upgrade the quality of telecom services, expand the
telecom network, introduce new services and to raise revenue for telecom development
needs of India's key metros, Delhi (the political capital) and Mumbai (the business capital
of India). The company has also been in the forefront of technology induction by
converting 100% of its telephone exchange network into the state-of-the-art digital mode.

MTNL as a company, over last nineteen years, grew rapidly by modernizing the network,
incorporating the State-of-the-art technologies and a customer friendly approach. The
Company providing various types of telecommunication services including Telephone,
telex, wireless, data communication, telematic and other like forms of communication
(Internet).

First digital exchange world technology brought to India by the company during the year
1986. Phone Plus services was offered by the company in the year 1988, it gives
multiplied benefits to telephone users. During the year 1992, the company introduced
Voice Mail Service. MTNL had introduced the Integrated Services Digital Network
(ISDN) services in the period of 1996. Apart from this IVRS (Interactive Voice Response
System) like local assistance changed number information, and fault booking system
ensuring round the clock service, a CD-ROM version of the telephone directory and an
on-line directory enquiry through PC was introduced during the year 1997. To facilitate
the clientele, MTNL launched the country's first toll-free service in Delhi in the period of
1998. During the year 1999, MTNL brought in the most widely using service called
Internet (Network of Networks), the extreme level of information exchange.

During the year 2001, the company launched GSM Cellular Mobile service under the
brand name Dolphin and in the same year MTNL also launched Wireless in Local Loop
(WLL) Mobile services under the brand name Garuda.

The Company established Wi-Fi & digital certification services in the identical year.
MTNL bagged the award for excellence in cost reduction in the year 2004. State of the
art training centre of the company 'CETTM' was commissioned in the year of 2004. The
Company introduced the broadband services under the brand name of 'TRI BAND'
during the year 2005. MTNL-STPI IT Services Ltd is a 50:50 Joint Venture between
Software Technology Parks of India (STPI) and the company. The Company has
restructured Millennium Telecom Ltd (MTL) as a Joint Venture company of MTNL and
BSNL with 51% and 49% equity participation respectively.
To remain market leader in providing world class Telecom and IT related services at
affordable prices, the company partaking its all efforts in the same business area and
MTNL wants to become a global player, also find a place in the Fortune 500' companies.

BPL MOBILE COMMUNICATIONS LTD.

BPL Mobile Communications Limited popularly known as BPL Mobile is an India-based

telecommunication service providing company. BPL Mobile Communications Limited is
an offshoot of the legendary business conglomerate ESSAR group. BPL Mobile
Communications Limited was established in the year 1995 and it is presently operating in
only in the city of Mumbai. BPL Mobile Communications Limited has revolutionized the
Indian mobile telecommunication industry. Within a short span of time the subscriber
base of BPL Mobile Communications Limited has reached the 1 million mark. This
gigantic mobile telecommunication company of India has grown in leaps and bounds and
it offers seamless service to its customers spread across Mumbai. Further, BPL Mobile
has gained tremendous popularity due to its competitive pricing of tariffs. BPL Mobile
offers high-class mobile service to its wide pool of Mumbai subscribers.

Further, it ranks very high on parameters like, customer satisfaction, billing performance,
voice quality etc and was thus ranked first in the category of Global System for Mobile
Communications (GSM) and Code Division Multiple Access (CDMA) of mobile service
providers, operating in Mumbai. Superior coverage and optimum sound clarity are the
strengths of BPL Mobile. BPL Mobile Communications Limited provides its customers
with world class mobile services, through the use of state-of-the-art technology and
network and this includes use of unique network design, the Qualnet, Camel Phase 2
Intelligent Network (IN) platform and GPRS facilitating ultra modern services like
Multimedia Messaging Services (MMS), mobile browsing and Java based mobile phone
games. Mr. S. Subramaniam, CEO of the company, heads this leading telecommunication
company of India.

The products and services offered by BPL Mobile Communications Limited are as
follows -

• Prepaid Connections
• Postpaid Connections
 • Prepaid Recharge Coupons
• Bill Payments
• Value Added Services (VAS)
• Service Inquiries
• SIM Replacements
• Handset Sales

HFCL INFOTEL LTD.

Incorporated on 2 Aug.'46, The Investment Trust of India (ITI) is managed by chairman

and managing director B K Kothari. During 2002-03 the name of the Company changed
to HFCL Infotel Ltd, as part of Company's diversification and restructuring programme,
HFCL Infotel Ltd ('transferor Company') a telecommunication Company operating in the
Punjab Circle merged with the Company through a Scheme of Amalgamation and
decided to hive off the business of Hire Purchase, Finance, Leasing and Securities
Trading by way of an outright sale with effect from 1st September 2002 to its wholly
owned subsidiary 'Rajam Finance & Investments Company (India) Ltd' now renamed as
'The Investment Trust of India Ltd'

Other group companies are Kothari Sugars and Chemicals and Madras Safe Deposit. In
Sep.'94, it came out with a rights issue of 21.79 lac shares (premium: Rs 30) aggregating
Rs 8.72 cr, to augment long-term working capital. The company is mainly engaged in
hire purchase, lease financing and investments. Its clients include individuals, firms as
well as corporate bodies.

ITI's business activities include sugar, petrochemicals, industrial alcohol, etc. It has two
subsidiaries -- ITI Pioneer AMC and ITI Capital Markets. ITI Pioneer AMC has
promoted Kothari Pioneer Mutual Fund. ITI has invested 55% of its capital in ITI
Pioneer AMC and the remaining 45% has been subscribed to by Pioneering Management
Corporation, US. During 1995-96, ITI Pioneer AMC Limited ceased to be a subsidiary of
the company. During 1997-98, The Company’s holding in ITI Capital Market Ltd was
sold to Kothari Pioneer AMC Ltd.

During 2003-04, The Company launched its Prepaid Mobile product and a complete
range of innovative value Added Services and Data products were launched in May 2004,
by the introduction of DSL-high speed Internet product. The company became the first
service provider to have launched DSL services in the state of Punjab and Chandigarh.
During 2004-05, The Company expanded its services to 125 cities/towns with 2.47 lacs
subscribers in Punjab.

The company is planning a venture into Video and Cable TV Services and making triple
play services by an expansion into the neighbouring states of Punjab. A wholly owned
subsidiary, Connect Broadband Services Limited was formed on July 2004, for the above
purpose.

The Company's services namely, Fixed Line Telephoney, Mobile Telephoney, Broadband
Internet Access and Data Networking Access are offered under the brand name
'CONNECT'.

SHYAM TELECOM LTD.

Incorporated in 1992, Shyam Telecom Limited, a leading manufacturer of Telecom

Equipment in India is the flagship company of the Shyam Group of India. The expanding
horizon of the telecom sector in India has given Shyam new vistas and avenues for
growth and expansion.

To concentrate mainly on its core activities i.e. investment in Telecom activities, the
company restructured its business and a result it has de-merged its manufacturing
business to a wholly owned subsidiary viz. Shyam Telecom Manufacturing Ltd (formerly
known as Shyam Telecom Infrastructure Projects Ltd). Subsequently the company will be
an investor in Shyam Telecom Manufacturing Limited (developer of wireless product for
GSM & CDMA) and Shyam Telelink Ltd (basic telephony services in Rajasthan).

Shyam Telecom also took a strategic decision by de-subsidiarise Shyam International Ltd
by which Shyam ACeS also got de-subsidiarised. It has also acquired the entire capital of
Shyam Telecom Manufacturing Ltd & Shyam Tel Singapore Pvt. Ltd.

Shyam's R&D which is fully recognized by the Department of Science and Technology
has been able to design new products. Shyam's R&D wing is well-equipped with the
latest and sophisticated testing instruments, CAD/CAM for design and assembly work
besides having highly qualified engineers.

The company currently manufactures Wireless in Local Loop, Fiber in local loop, Digital
Loop Carriers (DLC), Digital Radios, Spread Spectrum Radios, Digital Subscriber Line
(DSL) for Internet Access, Remote Energy Meeting Systems (REMS) & Supervisory
control & data accusation systems (SCADA). The company has an international presence
in 27 countries spread over America, Europe, Africa, Indian sub-continent and Asia-
Pacific.

The company has extended its basic telephony service to Jaipur and Jodhpur. The
company's service covered all the three technologies in basic telephony - wireline,
CDMA and CorDect.

9.4 RATIO ANALYSIS OF COMPANY

9.4.1 Bharti Airtel Ltd.

Table 9.1: Key Ratios of Bharti Airtel Ltd.

 Industry :Telecommunications - Service Provider

8- 7- 6- 5- 4 3- 2- 1- Mar-
Mar Mar Mar Mar - Mar Mar Mar 00
Mar
Debt-Equity Ratio 0.38 0.54 0.83 0.6 0.07 0.01 0.02 0.09 0.37
Long Term Debt- 0.35 0.5 0.76 0.5 0.03 0 0 0.09 0.37
Equity Ratio
Current Ratio 0.53 0.46 0.46 1.1 17.3 40.35 16.34 13.05 69.18
Turnover Ratios
Fixed Assets 0.94 0.8 0.72 1.19 0 0 0 0 0
Inventory 462.1 509.0 447.7 500.5 0 0 0 0 0
2 3 4 1
Debtors 11.08 12.1 12.54 22.08 0 0 0 0 0
Interest Cover 12.47 15.81 10.65 5.93 0.39 0.27 -4.22 0.04 0.58
Ratio
PBIDTM (%) 41.72 40.7 36.23 36.7 0 0 0 0 0
PBITM (%) 29.43 27.52 22.46 23.8 0 0 0 0 0
PBDTM (%) 39.36 38.96 34.13 32.69 0 0 0 0 0
CPM (%) 36.53 35.78 31.69 28.22 0 0 0 0 0
APATM (%) 24.24 22.59 17.91 15.32 0 0 0 0 0
ROCE (%) 34.88 34.07 22.55 23.96 0.16 0.17 -1.17 0.11 0.41
RONW (%) 39.53 43.04 31.82 23.88 -0.27 -0.47 -1.47 -2.55 -0.4

The Current Ratio of Bharti Airtel Ltd. is 0.53 for the year 2007-2008. This means that
the company is having fewer assets to cover the liability and also the investors should be
weary of the fact that the company cannot pay off its short-term debt if necessary

Debt-to-Equity Ratio of Bharti Airtel Ltd. is 0.38 for the year 2007-2008 which means
that company is not using its debt instruments while it is relying more on the
shareholders capital. This also indicates the company’s assets are primarily supplied with
equity.

Fixed Assets Turnover Ratio of Bharti Airtel Ltd. is 0.94 for the year 2007-2008. This
ratio is higher than the industry ratio for Bharti Airtel which indicates that assets are
being fairly utilized by the company in order to generate sales.
Inventory Turnover Ratio of Bharti Airtel Ltd. is 462.12 for the year 2007-2008. So the
stock velocity of Bharti is 365/462.12 which is equal to 0.79 which is fairly good if we
compare it with the industry standard which is as high as 14.23. Therefore, Bharti Airtel
takes less than a day to rotate its stock.
Debtor Turnover Ratio of Bharti Airtel Ltd. is 11.08 for the year 2007-2008. So the
debtor velocity is 365/11.08 which comes out as 32.94 days i.e. Bharti takes on an
average 33 days to collect its money back from the debtors, which is again lower than as
compared to the industry.

Interest Cover Ratio of Bharti Airtel Ltd. is 12.47 for the year 2007-2008, which means
that Bharti has 12.47 times more income to pay interest on their debts. So the company is
in a comfortable situation.

Gross Profit Margin Ratio of Bharti Airtel Ltd. is 41.72% for the year 2007-2008,
means that Bharti is making a profit before interest, depreciation and tax of 41.72%.

Net Profit Ratio of Bharti Airtel Ltd. is 24.24% for the year 2007-2008 which is higher
in comparison with the industry ratio, so this goes to show the efficiency of the operation
of the company.

Return on Capital Employed Ratio of Bharti Airtel Ltd. is 34.88 for the year 2007-
2008 which indicate that the company is earning 34.88 times the profit on the total
capital employed that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of Bharti Airtel Ltd. is 39.53 for the year 2007-2008 which is
more than the industry average and therefore shows a profit of 39.53 times per rupee
invested by the investors.

9.3.2 Reliance Communications Ltd.

Table 9.2: Key Ratios of Reliance Communications Ltd.

Industry :Telecommunications - Service Provider

 8-Mar 7-Mar 5-Dec 5-Mar
Key Ratios
Debt-Equity Ratio 0.77 0.41 0 0
Long Term Debt-Equity Ratio 0.57 0.39 0 0

Current Ratio 1.25 1.94 5.13 0

Turnover Ratios
Fixed Assets 0.7 0.98 0 0
Inventory 98.7 207.19 0 0
Debtors 15.61 25.45 0 0
Interest Cover Ratio 3.99 6.3 0 0
PBIDTM (%) 35.95 36.95 0 0
PBITM (%) 23.49 22.56 0 0
PBDTM (%) 30.07 33.37 0 0
CPM (%) 29.95 33.28 0 0
APATM (%) 17.49 18.88 0 0
ROCE (%) 8.66 9.23 0.16 0
RONW (%) 11.4 10.92 0.1 0

Current Ratio of Reliance Communications is 1.25 for the year 2007-2008. This
indicates that the company can successfully pay off its debt while at the same time still
have cash left over to continue operating.

Debt-to-Equity Ratio of Reliance Communications is 0.77 for the year 2007-2008

indicating that the company’s assets are primarily supplied with equity.

Fixed Assets Turnover Ratio of Reliance Communications is 0.7 for the year 2007-
2008. This ratio is higher, for the company, than the industry ratio which indicates that
assets are being fairly utilized by the company in order to generate sales.

Inventory Turnover Ratio of Reliance Communications is 98.7 for the year 2007-2008.
So the stock velocity of Reliance is 365/98.7 which is equal to 3.69 which is fairly good
if we compare it with the industry standard which is as high as 14.23. Therefore,
Reliance Communications takes less than four days to rotate its stock.
Debtor Turnover Ratio of Reliance Communications is 15.61 for the year 2007-2008.
So the debtor velocity is 365/15.61 which comes out as 23.38 days i.e. Reliance takes on
an average 23 days to collect its money back from the debtors, which is again lower than
as compared to the industry.
Interest Cover Ratio of Reliance Communications is 3.99 for the year 2007-2008,
which means that Reliance has 3.99 times more income to pay interest on their debts. So
the company is in a good situation.

Gross Profit Margin Ratio of Reliance Communications is 35.95% for the year 2007-
2008, means that Reliance is making a profit before interest, depreciation and tax of
35.95%.

Net Profit Ratio of Reliance Communications is 17.49% for the year 2007-2008 which
is higher in comparison with the industry ratio, so this goes to show the efficiency of the
operation of the company.

Return on Capital Employed Ratio of Reliance Communications is 8.66 for the year
2007-2008, which indicate that the company is earning 8.66 times the profit on the total
capital employed that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of Reliance Communications is 11.4 for the year 2007-2008,
which is a little more than the industry average and therefore shows a profit of 11.4 times
per rupee invested by the investors.

9.3.3 Vodafone Essar Ltd.

Table 9.3: Key Ratios of Vodafone Essar Ltd.

Industry :Telecommunications - Service Provider
8-Mar 6-Dec 5-Dec
Key Ratios
 Debt-Equity Ratio 0.27 0.2 0.17
Long Term Debt-Equity Ratio 0 0 0.14

Current Ratio 1.4 1.51 1.61

Turnover Ratios
Fixed Assets 1.52 1.26 1.3
Inventory 1,656.82 1,137.42 1,414.38
Debtors 15.2 11.48 10.48
Interest Cover Ratio 2.44 3.93 12.18
PBIDTM (%) 30.81 34.92 39.26
PBITM (%) 22.18 27.51 30.85
PBDTM (%) 21.71 27.91 36.73
CPM (%) 21.99 29.16 35.25
APATM (%) 13.36 21.75 26.84
ROCE (%) 4.23 4.22 5.38
RONW (%) 3.22 4.01 5.5

Current Ratio of Vodafone Essar is 1.4 for the year 2007-2008. This indicates that the
company can successfully pay off its debt while at the same time still have cash left over
to continue operating.

Debt-to-Equity Ratio of Vodafone Essar is 0.27 for the year 2007-2008 indicating that
the company’s assets are primarily supplied with equity.

Fixed Assets Turnover Ratio of Vodafone Essar is 1.52 for the year 2007-2008. This
ratio is higher, for the company, than the industry ratio which indicates that assets are
being very well utilized by the company in order to generate sales.

Inventory Turnover Ratio of Vodafone Essar is 1656.82 for the year 2007-2008. So the
stock velocity of Vodafone is 365/1656.82 which is equal to 0.22 which is fairly good if
we compare it with the industry standard which is as high as 14.23. Therefore, Vodafone
Essar takes less than a day to rotate its stock.

Debtor Turnover Ratio of Vodafone Essar is 15.2 for the year 2007-2008. So the debtor
velocity is 365/15.2 which comes out as 24.01 days i.e. Vodafone takes on an average 24
days to collect its money back from the debtors, which is again lower than as compared
to the industry.
Interest Cover Ratio of Vodafone Essar is 2.44 for the year 2007-2008, which means
that Vodafone has 2.44 times more income to pay interest on their debts. So the company
is in a good situation.

Gross Profit Margin Ratio of Vodafone Essar is 30.81% for the year 2007-2008, means
that Vodafone is making a profit before interest, depreciation and tax of 30.81%.

Net Profit Ratio of Vodafone Essar is 13.36% for the year 2007-2008, which is higher in
comparison with the industry ratio, so this goes to show the efficiency of the operation of
the company.

Return on Capital Employed Ratio of Vodafone Essar is 4.23 for the year 2007-2008,
which indicate that the company is earning 4.23 times the profit on the total capital
employed that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of Vodafone Essar is 3.22 for the year 2007-2008, which means it
shows a profit of 3.22 times per rupee invested by the investors.

9.3.4 Bharat Sanchar Nigam Ltd. (BSNL)

Table 9.4: Key Ratios of BSNL

Industry :Telecommunications - Service Provider
8- 7- 6- 5-Mar 4- 3- 2- 1-
Mar Mar Mar Mar Mar Mar Mar
Key Ratios
Debt-Equity Ratio 0.05 0.08 0.1 0.12 0.13 0.17 0.24 0.29
Long Term Debt-Equity Ratio 0.05 0.08 0.1 0.12 0.13 0.17 0.24 0.29
Current Ratio 1.92 1.8 1.56 1.25 0.89 0.77 0.7 0.57
Turnover Ratios
Fixed Assets 0.27 0.3 0.33 0.34 0.35 0.32 0.35 0.31
Inventory 10.47 12.22 13.91 14.58 11.64 7.39 7.57 7.61
Debtors 5.86 5.83 5.59 6.3 9.07 5.84 5.09 5.22
Interest Cover Ratio 6.1 11.23 8.53 210.77 76.87 2.08 10.18 3.72
PBIDTM (%) 46.41 52.28 52.41 47.23 53.05 40.75 56.8 41.83
PBITM (%) 16.45 25.85 26.46 18.46 21.6 2.99 20.81 8.76
PBDTM (%) 43.72 49.98 49.31 47.14 52.77 39.31 54.76 39.48
CPM (%) 39.26 48.98 50.68 54.46 45.61 38.61 53.28 39.48
APATM (%) 9.3 22.55 24.74 25.69 14.16 0.84 17.29 6.4
ROCE (%) 5.84 10.02 11.44 8.17 10.02 1.15 8.6 3.49
RONW (%) 2.92 9.34 11.93 13.03 8.44 0.44 9.58 3.29

Current Ratio of BSNL is 1.92 for the year 2007-2008. This indicates that the company
can successfully pay off its debt while at the same time still have cash left over to
continue operating.

Debt-to-Equity Ratio of BSNL is 0.05 for the year 2007-2008 which means that
company is not using debt instruments while it is relying more on the shareholders
capital. This also indicates the company’s assets are primarily supplied with equity.

Fixed Assets Turnover Ratio of BSNL is 0.27 for the year 2007-2008. This ratio is
higher than the industry ratio which indicates that assets are being fairly utilized by the
company in order to generate sales.

Inventory Turnover Ratio of BSNL is 10.47 for the year 2007-2008. So the stock
velocity of BSNL is 365/10.47 which is equal to 34.86 that is higher than the industry
standard of 14.23. Therefore, BSNL takes 35 days to rotate its stock.

Debtor Turnover Ratio of BSNL is 5.86 for the year 2007-2008. So the debtor velocity
is 365/5.86 which comes out as 65.29 days i.e. BSNL takes on an average 65 days to
collect its money back from the debtors, which is again higher than the industry
standards. It is highest among all the major players in the market.
Interest Cover Ratio of BSNL is 6.1 for the year 2007-2008, which means that BSNL
has 6.1 times more income to pay interest on their debts. So the company is in a good
situation.

Gross Profit Margin Ratio of BSNL is 46.41 for the year 2007-2008, means that BSNL
is making a profit before interest, depreciation and tax of 46.41%. BSNL being a public
sector company has been able to generate gross profit more than the industry standards
and also other major players.

Net Profit Ratio of BSNL is 9.3 for the year 2007-2008, which is lower in comparison
with the industry ratio. This shows that BSNL had to pay other indirect expenses which
led to fall in the net profit.

Return on Capital Employed Ratio of BSNL is 5.84 for the year 2007-2008, which
indicate that the company is earning 5.84 times the profit on the total capital employed
that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of BSNL is 2.92 for the year 2007-2008, which is lower than the
industry average and therefore shows a profit of 2.92 times per rupee invested by the
investors.

9.3.5 Idea Cellular Ltd.

Table 9.5: Key Ratios of Idea Cellular Ltd.

Industry :Telecommunications - Service Provider
8 7 6 5 4 3 2 1 Ma Mar-
-Mar -Mar -Mar -Mar -Mar -Mar -Mar -Mar r-00 99
Key Ratios
Debt-Equity Ratio 1.88 2.14 2.54 2.41 2.02 2 3.5 6 3.23 2.13
Long Term Debt-Equity 1.63 1.55 1.43 1.55 1.64 2 3.5 6 3.23 2.13
Ratio
Current Ratio 0.66 0.84 0.76 0.8 0.93 0.89 0.51 0.41 0.47 0.43

Turnover Ratios
Fixed Assets 0.58 0.63 0.46 0.41 0.34 0.31 0.39 0.38 0.27 0.23
Inventory 295. 326. 180. 143. 137. 137.1 134.1 94.3 78.9 40.72
19 83 33 04 44 1 1 5 5
Debtors 38.2 35.8 17.2 13.5 13.4 11.15 9.72 7.84 7.12 5.59
8 9 1 3 9
Interest Cover Ratio 3.38 2.49 1.5 1.1 0.2 0.21 -0.14 -0.51 0.23 -1.63
PBIDTM (%) 36.6 34.8 36.6 32.1 21.6 35.3 24.8 -12.7 42.4 -167.
5 5 3 3 8 2 7 33
PBITM (%) 23.6 19.4 19.3 17.5 4.44 4.99 -3.79 -25.3 24.1 -189.
7 1 3 4 5 22
PBDTM (%) 29.6 27.0 23.7 16.1 -0.56 11.62 -3.03 -62.6 -60. -283.
7 4 2 7 6 98 4
CPM (%) 28.5 26.8 23.5 16.1 -0.56 11.62 -3.03 -62.6 -60. -283.
9 8 7 7 6 98 4
APATM (%) 15.5 11.5 6.26 1.6 -17.7 -18.7 -31.6 -75.2 -79. -305.
4 5 7 5 9 31 29
ROCE (%) 15.5 11.61 6.86 6.49 0 1.72 -1.83 -14.4 4.75 -20.7
9 7 5
RONW (%) 21.8 14.3 5.32 1.8 0 -28.8 -62.1 -112. -41. -99.9
1 7 1 3 71 59 7

Current Ratio of IDEA is 0.66 for the year 2007-2008. This means that the company is
having fewer assets to cover the liability and also the investors should be weary of the
fact that the company cannot pay off its short-term debt if necessary

Debt-to-Equity Ratio is 1.88 for the year 2007-2008, which means that company using
more of debt instruments. This also indicates the company’s assets are primarily supplied
with debt.

Fixed Assets Turnover Ratio of IDEA is 0.58 for the year 2007-2008. This ratio is
higher than the industry ratio which indicates that assets are being fairly utilized by the
company in order to generate sales.

Inventory Turnover Ratio of IDEA is 295.19 for the year 2007-2008. So the stock
velocity of IDEA is 365/295.19 which is equal to 1.24 that is lower than the industry
standard of 14.23. Therefore, it takes only a day to rotate its stock.
Debtor Turnover Ratio of IDEA is 38.28 for the year 2007-2008. So the debtor velocity
is 365/38.28 which comes out as 9.54 days i.e. IDEA takes on an average 10 days to
collect its money back from the debtors, which is a good sign for the company.

Interest Cover Ratio of IDEA is 3.38 for the year 2007-2008, which means that IDEA
has 3.38 times more income to pay interest on their debts. So the company is in a good
situation.

Gross Profit Margin Ratio of IDEA is 36.65 for the year 2007-2008, means that IDEA
is making a profit before interest, depreciation and tax of 36.65%

Net Profit Ratio of IDEA is 15.54 for the year 2007-2008 which is higher in comparison
with the industry ratio, so this goes to show the efficiency of the operation of the
company.

Return on Capital Employed Ratio of IDEA is 15.59 for the year 2007-2008, which
indicate that the company is earning 15.59 times the profit on the total capital employed
that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of IDEA is 21.81 for the year 2007-2008, which means it shows a
profit of 21.81 times per rupee invested by the investors.

9.3.6 Aircel Cellular Ltd.

Table 9.6: Key Ratios of Aircel Cellular Ltd.

Industry :Telecommunications - Service Provider

6-Dec 6- 5-Mar 4-Mar 3-Mar 2- 1-Mar Mar- Mar-
Mar Mar 00 99
Key Ratios
Debt-Equity Ratio 0.41 0.61 1.21 1.87 2.01 1.85 2.68 3.58 3.21
Long Term Debt- 0.41 0.57 1.15 1.87 2.01 1.85 2.68 3.58 3.21
Equity Ratio
Current Ratio 1.01 1 0.99 1.18 0.88 0.77 0.82 0.67 0.68

Turnover Ratios
Fixed Assets 0.9 0.77 0.66 0.55 0.77 1.03 1.04 0.72 0.67
Inventory 527.1 605.6 784.7 611.08 685.0 512.5 290.7 136.39 88.97
7 6 8 2
Debtors 15.22 15.37 13.07 10.06 12.21 11.87 10.07 6.13 4.55
Interest Cover Ratio 9.17 8.26 2.91 1.97 1.69 2.14 2.03 0.74 0.18
PBIDTM (%) 44.96 43.52 34.63 44.01 37.76 33.87 33.97 28.83 20.03
PBITM (%) 34.6 32.78 17.01 26.98 17.3 23.77 23.21 12.49 3.5
PBDTM (%) 41.19 39.55 28.78 30.31 27.54 22.74 22.53 11.92 0.32
CPM (%) 36.04 35.93 32.68 29.55 27.54 22.74 22.53 11.92 0.32
APATM (%) 25.68 25.19 15.06 12.52 7.08 12.65 11.78 -4.43 -16.2
ROCE (%) 43.3 41.88 17.78 19.31 17.29 34.7 31.69 12.29 3.26
RONW (%) 45.33 51.84 32.18 19.44 16.32 42.93 78 -32.46 -113.2
2

Current Ratio- 1.01 for the year 2005-2006. This indicates that the company can
successfully pay off its debt while at the same time still have cash left over to continue
operating.

Debt-to-Equity Ratio- 0.41 for the year 2005-2006 which means that company is
relying less on debt instruments while it is relying more on the shareholders capital. This
also indicates the company’s assets are primarily supplied with equity.
Fixed Assets Turnover Ratio of Aircel is 0.9 for the year 2005-2006. This ratio is higher
than the industry ratio which indicates that assets are being fairly utilized by the company
in order to generate sales.

Inventory Turnover Ratio of Aircel is 527.17 for the year 2005-2006. So the stock
velocity of Aircel is 365/527.17 which is equal to 0.69 that is lowest in the industry.
Therefore, Aircel takes a day to rotate its stock.

Debtor Turnover Ratio of Aircel is 15.22 for the year 2005-2006. So the debtor velocity
is 365/15.22 which comes out as 23.98 days i.e. Aircel takes on an average 24 days to
collect its money back from the debtors, which is again lower than as compared to the
industry standards of 57 days.

Interest Cover Ratio of Aircel is 9.17 for the year 2005-2006, which means that Aircel
has 9.17 times more income to pay interest on their debts. So the company is in a good
situation.

Gross Profit Margin Ratio of Aircel is 44.96 for the year 2005-2006, means that Aircel
is making a profit before interest, depreciation and tax of 44.96%.

Net Profit Ratio of Aircel is 25.68 for the year 2005-2006, which is higher in
comparison with the industry ratio, so this goes to show the efficiency of the operation of
the company.
Return on Capital Employed Ratio of Aircel is 43.3 for the year 2005-2006, which
indicate that the company is earning 43.3 times the profit on the total capital employed
that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of Aircel is 45.33 for the year 2005-2006, which means it shows a
profit of 45.33 times per rupee invested by the investors.

9.3.7 Mahanagar Telephone Nigam Ltd. (MTNL)

Table 9.7: Key Ratios of MTNL

Industry :Telecommunications - Service Provider

8- 7- 6- 5- 4- 3- 2- 1- Mar- Mar-
Mar Mar Mar Mar Mar Mar Mar Mar 00 99
Key Ratios
Debt-Equity 0 0 0 0 0 0.14 0.32 0.39 0.52 0.91
Ratio
Long Term Debt- 0 0 0 0 0 0.14 0.32 0.39 0.52 0.91
Equity Ratio
Current Ratio 1.35 1.34 1.32 1.29 1.28 1.45 1.78 1.94 2.09 2.58

Turnover Ratios
Fixed Assets 0.3 0.33 0.38 0.4 0.49 0.48 0.55 0.56 0.55 0.59
Inventory 24.73 27.34 34.3 40.54 53.4 27.19 21.8 20.98 21.05 20.83
Debtors 4.95 4.08 3.48 3.28 4.31 5.68 9.15 9.2 7.94 7.95
Interest Cover 292.8 502.6 28.59 34.94 49.7 39.38 63.19 206.2 149.6 27.03
Ratio 9 9 1
PBIDTM (%) 32.15 34.5 24.18 32.95 35.55 37.19 42.95 42.89 37.97 52.23
PBITM (%) 17.24 20.58 12.55 22.41 27.01 22.26 29.66 29.59 24.28 39.17
PBDTM (%) 32.09 34.46 23.74 32.31 35.01 36.63 42.48 42.74 37.8 50.78
CPM (%) 27.34 27.8 22.06 27.52 27.92 30.43 34.46 39.92 34.68 38.83
APATM (%) 12.43 13.89 10.43 16.99 19.38 15.49 21.17 26.63 20.99 25.78
ROCE (%) 7.03 8.97 6.33 11.76 17.36 12.28 15.99 15.97 12.41 18.1
RONW (%) 4.98 5.96 5.23 8.92 12.46 9.76 15.05 19.91 16.27 22.74

Current Ratio of MTNL is 1.35 for the year 2007-2008. This indicates that the company
can successfully pay off its debt while at the same time still have cash left over to
continue operating.

Debt-to-Equity Ratio is 0 for the year 2007-2008, which means the company is totally
dependent on Equity.

Fixed Assets Turnover Ratio of MTNL is 0.3 for the year 2007-2008. This ratio is lower
than the industry ratio which indicates that assets are not being fairly utilized by the
company.

Inventory Turnover Ratio of MTNL is 24.73 for the year 2007-2008. So the stock
velocity of MTNL is 365/24.73 which is equal to 14.76 that is slightly higher than the
industry standard of 14.23. Therefore, MTNL takes 14 days to rotate its stock.

Debtor Turnover Ratio of MTNL is- 4.95 for the year 2007-2008. So the debtor
velocity is 365/4.95 which comes out as 74 days i.e. MTNL takes on an average 74 days
to collect its money back from the debtors, which is again higher when compared to the
industry standards of 57 days.

Interest Cover Ratio of MTNL is 292.89 for the year 2007-2008 which means that
MTNL has 292.89 times more income to pay interest on their debts. This is highest
among all the players in the market.

Gross Profit Margin Ratio of MTNL is 32.15 for the year 2007-2008, means that
MTNL is making a profit before interest, depreciation and tax of 32.15%.

Net Profit Ratio of MTNL is 12.43 for the year 2007-2008, which is lower in
comparison with the industry ratio.
Return on Capital Employed Ratio of MTNL is 7.03 for the year 2007-2008, which
indicate that the company is earning 7.03 times the profit on the total capital employed
that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of MTNL is 4.98 for the year 2007-2008, which means it shows a
profit of 4.98 times per rupee invested by the investors.

9.3.8 BPL Mobile Communications Ltd.

Table 9.8: Key Ratios of BPL Communications Ltd. (2006-2007)

Industry :Telecommunications - Service Provider

7-Mar 5-Dec 5- 4-Mar 3-Mar 2- 1- Mar- Mar- Mar-

Mar Mar Mar 00 99 98
Key Ratios
Debt-Equity 13.52 20.2 34.12 0 38.86 10.06 4.75 3.23 2.51 2.73
Ratio
Long Term 13.47 19.79 32.93 0 36.69 10.06 4.75 3.23 2.51 2.73
Debt-Equity
Ratio
Current Ratio 1.35 1.2 1.04 0.79 0.84 1.27 1.75 1.56 1.1 1.03

Turnover
Ratios
Fixed Assets 0.45 0.48 0.53 0.44 0.5 0.6 0.63 0.6 0.54 0.47
Inventory 1,458. 874.3 843.5 1,430. 1,709. 955.5 78.61 24.8 16.84 16.4
 18 3 2 41 28 5
Debtors 9.32 8.93 11.32 10.28 8.26 4.8 2.92 3 4.17 4.36
Interest Cover 1.67 0.53 1.69 0.89 0.79 0.31 -0.12 1.03 0.76 0.33
Ratio
PBIDTM (%) 37.76 27.24 40.38 42.3 41.19 24.63 14.22 38.66 30.37 20.53
PBITM (%) 19.18 6.14 21.29 19.15 20.12 6.71 -3.01 30.04 21.53 10.59
PBDTM (%) 26.28 15.64 27.81 20.75 15.63 2.77 -10.6 9.63 2.15 -11.4
5 6
CPM (%) 26.22 15.51 27.78 20.75 15.63 2.77 -10.6 9.63 2.15 -11.4
5 6
APATM (%) 7.64 -5.59 8.69 -2.41 -5.43 -15.1 -27.8 1.01 -6.7 -21.4
5 8
ROCE (%) 12.52 0 14.95 0 0 4.84 -1.89 17.63 12.43 5.28
RONW (%) 19.75 0 28.54 0 0 -107. -87.0 2.13 -11.9 -35.9
41 3 9

Current Ratio for BPL is 1.35 for the year 2006-2007. This indicates that the company
can successfully pay off its debt while at the same time still have cash left over to
continue operating.

Debt-to-Equity Ratio of BPL is 13.52 for the year 2006-2007, which means that
company raises its capital through debt instruments. It is more than the industry standards
and highest among the other players.
Fixed Assets Turnover Ratio of BPL is 0.45 for the year 2006-2007. This ratio is close
to the industry ratio which indicates that assets are being fairly utilized by the company
in order to generate sales.

Inventory Turnover Ratio of BPL is 1458.18 for the year 2006-2007. So the stock
velocity of BPL is 365/1458.18 which is equal to 0.25 that is lowest in the industry.
Therefore, BPL takes less than a day to rotate its stock.

Debtor Turnover Ratio of BPL is 9.32 for the year 2006-2007. So the debtor velocity is
365/9.32 which comes out as 39 days i.e. BPL takes on an average 39 days to collect its
money back from the debtors, which is again lower than as compared to the industry
standards of 57days.

Interest Cover Ratio of BPL is 1.67 for the year 2006-2007 which means that BPL has
1.67 times more income to pay interest on their debts.

Gross Profit Margin Ratio of BPL is 37.76 for the year 2006-2007, means that BPL is
making a profit before interest, depreciation and tax of 37.76%.
Net Profit Ratio of BPL is 7.64 for the year 2006-2007, which is lower in comparison
with the industry ratio, so this goes to show the efficiency of the operation of the
company.

Return on Capital Employed Ratio of BPL is 12.52 for the year 2006-2007, which
indicate that the company is earning 12.52 times the profit on the total capital employed
that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of BPL is 19.75 for the year 2006-2007, which means it shows a
profit of 19.75 times per rupee invested by the investors.

9.3.9 HFCL Infotel Ltd.

Table 9.9: Key Ratios of HFCL Infotel Ltd.

Industry :Telecommunications - Service Provider
8- 7 6 5 4 3- 2 1 M M
Mar - - - - Mar - - ar- ar-
Mar Mar Mar Mar Mar Mar 00 99
Key Ratios
Debt-Equity Ratio 0 0 66.6 14.6 8.41 4.71 2.08 1.88 2.86 4.98
1 2
Long Term Debt-Equity 0 0 65.5 14.4 0 0 1.92 1.79 2.74 4.23
Ratio 3 8
Current Ratio 0.15 0.22 0.31 0.24 0.2 0.47 2.9 3.3 3.89 2.63

Turnover Ratios
Fixed Assets 0.2 0.24 0.27 0.25 0.2 0.18 0.18 0.27 0.43 0.44
Inventory 240.4 0 0 0 0 11.35 0.55 0.61 0.61 0.35
6
Debtors 6.15 6.82 8.32 9.52 12.9 29.08 2.87 1.96 5.23 32.8
7 5
Interest Cover Ratio -1.17 -0.8 -0.5 -0.4 -0.6 -0.74 -0.7 0.05 1.21 1.03
2 6 9 4 9
PBIDTM (%) 5.12 12.5 25.8 28.5 18.3 10.85 -1.5 39.2 75.0 83.6
6 5 8 7 5 8 8
PBITM (%) -30.6 -18. -11. -12. -23. -46.8 -44. 2.29 52.5 62.8
7 92 55 04 19 2 79 2 5
PBDTM (%) -21.2 -10. 5.25 3.79 -17. -52.8 -58. -9.2 31.5 22.8
46 71 3 35 4 8
CPM (%) -21.4 -10. 5.09 3.64 -17. -54.6 -14. -9.8 25.4 22.5
8 69 71 5 71 6 5 4
APATM (%) -57.2 -42. -32. -36. -59. -112. -57. -46. 2.89 1.71
7 16 26 95 27 32 93 82
ROCE (%) 0 0 0 0 0 0 0 0 14.6 14.3
3 8
RONW (%) 0 0 0 0 0 0 0 0 3.11 2.34

Current Ratio of HFCL is 0.15 for the year 2007-2008. This means that the company is
having fewer assets to cover the liability and also the investors should be weary of the
fact that the company cannot pay off its short-term debt if necessary

Debt-to-Equity Ratio of HDCL is 0 for the year 2007-2008, which means the company,
is totally dependent on Equity.
Fixed Assets Turnover Ratio of HFCL is 0.2 for the year 2007-2008. This ratio is lower
than the industry ratio which indicates that assets are not being fairly utilized by the
company.

Inventory Turnover Ratio of HFCL is 240.46 for the year 2007-2008. So the stock
velocity of HFCL is 365/240.46 which is equal to 1.52 that is lower than the industry
standard of. Therefore, HFCL takes less than 2 days to rotate its stock.

Debtor Turnover Ratio of HFCL is 6.15 for the year 2007-2008. So the debtor velocity
is 365/6.15 which comes out as 59 days i.e. HFCL takes on an average 59 days to collect
its money back from the debtors, which is again slightly higher than as compared to the
industry standards of 57 days

Interest Cover Ratio of HFCL is (1.17) for the year 2007-2008, which means that HFCL
does not have sufficient funds to pay interest on its debts.

Gross Profit Margin Ratio of HFCL is (30.67) for the year 2007-2008, means that
HFCL has a gross loss of (30.67%)

Net Profit Ratio of HFCL is (57.27) for the year 2007-2008, which means that the
company has incurred a net loss and is the only company to incur loss among the other
players.

Return on Capital Employed Ratio of HFCL is 0 for the year 2007-2008

Return on Net Worth of HFCL is 0 for the year 2007-2008

9.3.10 Shyam Telecom Ltd

Table 9.10: Key Ratios of Shyam Telecom Ltd

Industry :Telecommunications - Equipment - Medium / Small
8 7 6 5 4- 3 2 1 M Sep-
- - - - Mar - - - ar- 98
Mar Mar Mar Mar Mar Mar Mar 00
Key Ratios
Debt-Equity Ratio 0.75 0.26 0.08 0.04 0.06 0.14 0.24 0.31 0.52 1.18
Long Term Debt-Equity 0.58 0.2 0.04 0.02 0.06 0.12 0.19 0.24 0.35 0.63
Ratio
Current Ratio 1.17 0.51 0.28 0.17 0.03 0.42 0.99 1.94 2.21 1.52

Turnover Ratios
Fixed Assets 4.47 5.44 3.54 14.2 161.8 0.97 4.68 6.04 2.59 2.91
6 9
Inventory 15.9 19.9 12.9 49.5 0 1.59 7.73 9.75 3.08 3.12
3 8 6 1
Debtors 2.94 5.23 3.1 9.6 10.83 1.53 4.57 4.18 2.13 2.27
Interest Cover Ratio 1.96 1.93 1.38 -4.1 1.48 1.2 3.38 3.35 1.42 1.33
1
PBIDTM (%) 5.6 5.25 9 -10. 19.97 17.8 11.4 13.5 18.0 11.9
87 3 1 4 3 6
PBITM (%) 4.16 4.02 7.22 -11. 19.97 17.8 10.2 12.7 15.8 9.95
6 3 3 1
PBDTM (%) 3.47 3.17 3.76 -13. 6.45 2.99 8.39 9.75 6.89 4.5
7
CPM (%) 2.51 2.24 2.92 -9.1 3.64 1.12 5.74 8.67 6.42 3.98
 2
APATM (%) 1.08 1.01 1.14 -9.8 3.64 1.12 4.55 7.83 4.2 1.97
4
ROCE (%) 11.4 5.97 4.05 -12. 1.41 1.93 8.95 11.3 7.47 10.5
2 96 1 8
RONW (%) 5.17 1.88 0.7 -11. 0.27 0.14 4.91 9.1 3 4.43
45

Current Ratio of Shyam Telecom is 1.17 for the year 2007-2008. This indicates that the
company can successfully pay off its debt while at the same time still have cash left over
to continue operating.

Debt-to-Equity Ratio of Shyam Telecom is 0.75 for the year 2007-2008, which means
that company is relying less on debt instruments while it is relying more on the
shareholders capital. This also indicates the company’s assets are primarily supplied with
equity.

Fixed Assets Turnover Ratio of Shyam Telecom is 4.47 for the year 2007-2008. This
ratio is higher than the industry ratio and highest among other major players, which
indicates that assets are being utilized to its optimum capacity in order to generate sales.

Inventory Turnover Ratio of Shyam Telecom is 15.93 for the year 2007-2008. So the
stock velocity of Shyam Telecom is 365/15.93 which is equal to 22.91 which is higher
than the industry standard of 14.23. Therefore, Shyam Telecom takes close to 23 days to
rotate its stock.

Debtor Turnover Ratio of Shyam Telecom is 2.94 for the year 2007-2008. So the debtor
velocity is 365/2.94 which comes out as 124 days i.e. Shyam Telecom takes on an
average 124 days to collect its money back from the debtors, which is much higher than
as compared to the industry standards of 57 days.

Interest Cover Ratio of Shyam Telecom is 1.96 for the year 2007-2008, which means
that Shyam Telecom has 1.96 times more income to pay interest on their debts.

Gross Profit Margin Ratio of Shyam Telecom is 5.6 for the year 2007-2008, means that
Shyam Telecom is making a profit before interest, depreciation and tax of 5.6%.

Net Profit Ratio of Shyam Telecom is 1.08 for the year 2007-2008, which is lower in
comparison with the industry ratio.
Return on Capital Employed Ratio of Shyam Telecom is 11.42 for the year 2007-2008,
which indicate that the company is earning 11.42 times the profit on the total capital
employed that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of Shyam Telecom is 5.17 for the year 2007-2008, which means it
shows a profit of 5.17 times per rupee invested by the investors.

9.4 INTER-COMPANY ANALYSIS

Inter-Company analysis have been done here on the basis of a few parameters of
evaluation for the top five companies on one hand and the bottom five companies on the
other.

9.4.1 Analysis of Top 5 companies

Table: 9.11 Inter-Company comparison of top 5 companies

(Rs in Crs)
IDEA Cellular
Parameters Bharti Reliance Vodafone BSNL +Spice
Enterprise
Value 1,62,852.92 1,25,007.91 0 0 33906.72
Sales 25,761.11 14792.05 2733.76 32359.5 6719.99
Other
Income 359.91 520.58 115.68 5878.1 199.05
EPS 32.9 12.4 7.06 4.16 3.96
Market
Capitalizatio
n 156785.52 32683.76 0 0 18504.99

• Bharti Airtel stands the market leader in the cellular market with a market share
of 24.4% as on January, 2009.
 • In terms of Enterprise value, Bharti Airtel has the highest enterprise value among
the top 5 players in the market. Reliance Communications stands next to Bharti
Airtel.

• When it comes to Sales BSNL has more sale than the market leader as it has a
wider presence in the rural market when compared with other companies.

• In terms of Other Income, BSNL has more income from other source than the
other companies.

• The market capitalization of Bharti Airtel is the highest in the telecom sector. The
market capitalization of BSNL and Vodafone is zero as they are not listed on the
BSE.

• The Earnings per Share of Bharti is the highest among all the telecom players in
the market. Earnings per Share serve as an indicator of a company’s profitability.

9.4.2 Analysis of Bottom 5 companies

Table: 9.12 Inter-Company comparison of bottom 5 companies

(Rs. in Crs)

Parameters Aircel MTNL BPL HFCL Shyam Telecom

Enterprise Value 0 2,713.29 0 1,709.44 76.23

Sales 280.72 4,722.52 729.09 248.88 223.05

Other Income 5.39 804.01 6.53 8.88

EPS 19.61 8.64 5.17 0 5.4

Market
Capitalization 0 6082.65 0 943.31 80.19

• Aircel has the highest market share of 4.6%, followed by MTNL as per Januray,
2009.
 • In terms of Enterprise value, Shyam Telecom has the lowest enterprise value
among the bottom 5 players in the market. MTNL having the highest enterprise
value among the bottom 5 companies.

• When it comes to Sales MTNL has more sale than the other bottom 5 players
even though it has only 2 circles of operations i.e. Delhi and Mumbai.

• In terms of Other Income, MTNL has more income from other source than the
other companies.

• The market capitalization of Shyam Telecom is among the lowest in the telecom
sector. The market capitalization of Aircel and BPL is zero as they are not listed
on the BSE.

• The Earnings per Share of BPL is the lowest among the bottom 5 companies in
the telecom sector while that of HFCL being zero. Earnings per Share serve as an
indicator of a company’s profitability.

9.5 CONCLUSION

With government increasing the FDI gap to 74%, more foreign companies would be
entering the Indian market and there will be stiff competition among the Indian players
with the international players and hence the Indian players have to sustain growth and
make profits. Hence, the few companies that do not meet the industry standard ratios
need to work towards attaining the same.
 Chapter 10

TRENDS
AND
FORECAST
10.1 INTRODUCTION
The recent development in information technology and science has made a great
difference in telecom industry by increasing its efficiency and opening doors to major
developments of sector. CDMA, GSM, 2G&3G SPECTRUM, WIMAX etc are some of
the technology which have discussed. Both development and problem walks hand in
hand, with increasing development the industry is facing huge challenges and problems.
The industry will have to work more efficiently in order to overcome the problems. The
industry in total has got a great future and has a lot of untapped potential market.

10.2 TECHNOLOGIES

Technology is very much related to the way we conduct business. Today everything that
we talk about in business, like, the way we conduct business, the way we do things, the
way we deliver to the customers, etc. is using some form of technology. Therefore, role
of technology cannot be defined because it is a mindset and it happens over a period of
time.

The various technologies used by the Telecom Service Providers are as follows:

10.2.1 GSM (Global System for Mobile

Communication)

GSM, first introduced in 1991, is the leading digital cellular system. It uses narrowband
TDMA (Time Division Multiple Access). Eight simultaneous calls can occupy the same
radio frequency. GSM simplifies data transmission to allow laptop and palmtop
computers to be connected to GSM phones. It provides integrated voice mail, high-speed
data, fax, paging and Short Message Services (SMS) capabilities, as well as secure
communications. It offers the best voice quality of any current digital wireless standard.

Originally a European standard for digital mobile telephony, GSM has become the
world's most widely used mobile system and is now being used in more than 100
countries. GSM networks operate on the 900MHz, 1800MHz and 1900MHz wavebands
all over the world.

10.2.2 GPRS (General packet radio service)

GPRS is a packet oriented mobile data service available to users of the 2G cellular
communication systems global system for mobile communications (GSM), as well as in
the 3G systems. In the 2G systems, GPRS provides data rates of 56-114 kbit/s.

GPRS data transfer is typically charged per megabyte of traffic transferred, while data
communication via traditional circuit switching is billed per minute of connection time,
independent of whether the user actually is using the capacity or is in an idle state. GPRS
is a best-effort packet switched service, as opposed to circuit switching, where a certain
quality of service (QoS) is guaranteed during the connection for non-mobile users.

2G cellular systems combined with GPRS are often described as 2.5G, that is, a
technology between the second (2G) and third (3G) generations of mobile telephony. It
provides moderate speed data transfer, by using unused time division multiple access
(TDMA) channels in, for example, the GSM system. Originally there was some thought
to extend GPRS to cover other standards, but instead those networks are being converted
to use the GSM standard, so that GSM is the only kind of network where GPRS is in use.
GPRS is integrated into GSM Release 97 and newer releases. It was originally
standardized by European Telecommunications Standards Institute (ETSI), but now by
the 3rd Generation Partnership Project (3GPP).

10.2.3 EDGE (Enhanced Data rates for GSM

Evolution)

EDGE, Enhanced GPRS (EGPRS), or IMT Single Carrier (IMT-SC) is a backward-

compatible digital mobile phone technology that allows improved data transmission
rates, as an extension on top of standard GSM. EDGE is considered a 3G radio
technology and is part of ITU's 3G definition,[1]. EDGE was deployed on GSM
networks beginning in 2003— initially by Cingular (now AT&T) in the United States.

EDGE is implemented as a bolt-on enhancement for 2G and 2.5G GSM and GPRS
networks, making it easier for existing GSM carriers to upgrade to it. EDGE is a superset
to GPRS and can function on any network with GPRS deployed on it, provided the
carrier implements the necessary upgrade.

EDGE requires no hardware or software changes to be made in GSM core networks.

EDGE compatible transceiver units must be installed and the base station subsystem
needs to be upgraded to support EDGE. If the operator already has this in place, which is
often the case today, the network can be upgraded to EDGE by activating an optional
software feature. Today EDGE is supported by all major chip vendors for both GSM and
WCDMA/HSPA.
10.2.4 CDMA (Code division multiple access)

CDMA is a channel access method utilized by various radio communication

technologies. It should not be confused with the mobile phone standards called cdmaOne
and CDMA2000 (which are often referred to as simply "CDMA"), which use CDMA as
an underlying channel access method.

One of the basic concepts in data communication is the idea of allowing several
transmitters to send information simultaneously over a single communication channel.
This allows several users to share a bandwidth of frequencies. This concept is called
multiplexing. CDMA employs spread-spectrum technology and a special coding scheme
(where each transmitter is assigned a code) to allow multiple users to be multiplexed over
the same physical channel. By contrast, time division multiple access (TDMA) divides
access by time, while frequency-division multiple access (FDMA) divides it by
frequency. CDMA is a form of "spread-spectrum" signaling, since the modulated coded
signal has a much higher data bandwidth than the data being communicated.

10.2.5 HSDPA (High-Speed Downlink Packet Access)

HSDPA is a 3G (third generation) mobile telephony communications protocol in the

High-Speed Packet Access (HSPA) family, which allows networks based on Universal
Mobile Telecommunications System (UMTS) to have higher data transfer speeds and
capacity. Current HSDPA deployments support down-link speeds of 1.8, 3.6, 7.2 and 14.4
Mbit/s. Further speed increases are available with HSPA+, which provides speeds of up
to 42 Mbit/s downlink

The High-Speed Downlink Shared Channel (HS-DSCH) lacks two basic features of other
W-CDMA channels—variable spreading factor and fast power control. Instead, it
delivers the improved downlink performance using adaptive modulation and coding
(AMC), fast packet scheduling at the base station, and fast retransmissions from the base
station, known as hybrid automatic repeat-request (HARQ).

10.2.6 WLL (Wireless Local Loop)

Wireless local loop (WLL), is a term for the use of a wireless communications link as the
"last mile / first mile" connection for delivering plain old telephone service (POTS)
and/or broadband Internet to telecommunications customers. Various types of WLL
systems and technologies exist.

WLL (Wireless in Local Loop) is a communication system that connects subscribers to

the public Switched Telephone Network (PSTN) using radio frequency signals as a
substitute for conventional wires for all or part of the connection between the subscriber
and the telephone exchange. It is useful for those subscribers who are located in pockets
where immediate telephone connections cannot be provided due to lack of underground
cable network but radio coverage is available.

Other terms for this type of access include Broadband Wireless Access (BWA), Radio In
The Loop (RITL), Fixed-Radio Access (FRA) and Fixed Wireless Access (FWA).

10.2.7 WiMax

WiMax (Worldwide Interoperability for Microwave Access) is a technology designed to

give people high speed access to the net over relatively long distances. A typical WiMax
system could theoretically give users in an area three to 10 kilometers wide a 40 Mbps
connection to the net.

This technology already deployed in some urban centres like Chennai (Madras) and
Mumbai (Bombay) would overcome the need to lay expensive cables or fibre optics to
villages.

At the moment there is a wired backbone throughout India but many villages are 30 to
40km away from the nearest connection. Wimax services can overcome that. One or two
WiMax base stations are enough to connect three or four villages.

The government telecoms operator BSNL is also in the process of rolling out some
WiMax services. But it is still expensive and at the moment is aimed squarely at large
businesses that need a quick-fix solution to broadband access.

10.2.8 3G TECHNOLOGIES
3G or Third Generation technology is a convergence of various Second Generation
telecommunication systems. 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 be 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.

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 Technology in Indian Telecom Industry

From the time of telegraphs Indian telecom sector has witnessed an immense growth and
has diversified into various segments like, Fixed Line Telephony, mobile telephony,
GSM, CDMA, WLL etc. The telecom industry is growing at a fast pace introducing
newer technologies. Even the network operators and handset providers are also coming
up with newer value added services and advanced technology cell phones with
multimedia applications. Now it's time to welcome the much-awaited 3G Technology.
Bharat Sanchar Nigam Limited is all set to launch the technology by December 2007.
Not only the network providers but also the handset providers in India are waiting
eagerly for the launch of 3G to earn very high revenues from the value added services
provided by the technology.

The technology is initially being launched on CDMA platform. The technology is being
tested over various platforms and cellular networks.

10.2.9 4G TECHNOLOGY

4G (also known as Beyond 3G), an abbreviation for Fourth-Generation, is a term used to

describe the next complete evolution in wireless communications. A 4G system will be
able to provide a comprehensive IP solution where voice, data and streamed multimedia
can be given to users on an "Anytime, Anywhere" basis, and at higher data rates than
previous generations.

As the second generation was a total replacement of the first generation networks and
handsets, and the third generation was a total replacement of second generation networks
and handsets, so too the fourth generation cannot be an incremental evolution of current
3G technologies, but rather the total replacement of the current 3G networks and
handsets. The international telecommunications regulatory and standardization bodies are
working for commercial deployment of 4G networks roughly in the 2012-2015 time
scale. At that point it is predicted that even with current evolutions of third generation 3G
networks, these will tend to be congested.

There is no formal definition for what 4G is; however, there are certain objectives that
are projected for 4G. These objectives include: that 4G will be a fully IP-based integrated
system. 4G will be capable of providing between 100 Mbit/s and 1 Gbit/s speeds both
indoors and outdoors, with premium quality and high security.

Many companies have taken self-serving definitions and distortions about 4G to suggest
they have 4G already in existence today, such as several early trials and launches of
WiMAX. Other companies have made prototype systems calling those 4G. While it is
possible that some currently demonstrated technologies may become part of 4G, until the
4G standard or standards have been defined, it is impossible for any company currently
to provide with any certainty wireless solutions that could be called 4G cellular networks
that would conform to the eventual international standards for 4G. These confusing
statements around "existing" 4G have served to confuse investors and analysts about the
wireless industry.

10.2.10 HOW IS 3G DIFFERENT FROM 2G AND 4G

While 2G stands for second-generation wireless telephone technology, 1G networks used

are analog, 2G networks are digital and 3G (third-generation) technology is used to
enhance mobile phone standards.

3G helps to simultaneously transfer both voice data (a telephone call) and non-voice data
(such as downloading information, exchanging e-mail, and instant messaging. The
highlight of 3G is video telephony. 4G technology stands to be the future standard of
wireless devices.
Currently, Japanese company NTT DoCoMo and Samsung are testing 4G
communication. 3G services will enable video broadcast and data-intensive services such
as stock transactions, e-learning and telemedicine through wireless communications.

All telecom operators are waiting to launch 3G in India to cash in on revenues by

providing high-end services to customers, which are voice data and video enabled. India
lags behind many Asian countries in introducing 3G services.

10.3 FUTURE PROJECTIONS

The Indian telecommunications industry is one of the fastest growing in the world and
India is projected to become the second largest telecom market globally by 2010.

India added 113.26 million new customers in 2008, the largest globally. In fact, in April
2008, India had already overtaken the US as the second largest wireless market. To put
this growth into perspective, the country’s cellular base witnessed close to 50 per cent
growth in 2008, with an average 9.5 million customers added every month. According to
the Telecom Regulatory Authority of India (TRAI), the total number of telephone
connections (mobile as well as fixed) had touched 385 million as of December 2008,
taking the telecom penetration to over 33 per cent. This means that one out of every three
Indians has a telephone connection, and telecom companies expect this pace of growth to
continue in 2009 as well. "We are extremely bullish that the growth will continue in
2009. This year, the number of additions will be in excess of 130 million," according to
T.V. Ramachandran , Director General, Cellular Operators Association of India (COAI),
an industry body that represents all Global System for Mobile communications (GSM)
players in India.

According to CRISIL Research estimates, eight infrastructure sectors, which include the
telecom sector, are expected to draw more than US$ 345.28 billion investment in India
by 2012.

With the rural India growth story unfolding, the telecom sector is likely to see
tremendous growth in India's rural and semi-urban areas in the years to come. By 2012,
India is likely to have 200 million rural telecom connections at a penetration rate of 25
per cent. And according to a report jointly released by Confederation of Indian Industry
(CII) and Ernst & Young, by 2012, rural users will account for over 60 per cent of the
total telecom subscriber base.

According to Business Monitor International, India is currently adding 8-10 million

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

It is projected that the industry will generate revenues worth US$ 43 billion in 2009-10.

10.3.1 Growth in Segments

According to a Frost & Sullivan industry analyst, by 2012, fixed line revenues are
expected to touch US$ 12.2 billion while mobile revenues will reach US$ 39.8 billion in
India. Fixed line capex is projected to be US$ 3.2 billion, and mobile capex is likely to
touch US$ 9.4 billion.

Further, according to a report by Gartner Inc., India is likely to remain the world's second
largest wireless market after China in terms of mobile connections. According to recent
data released by the COAI, Indian telecom operators added a total of 10.66 million
wireless subscribers in December 2008. Further, the total wireless subscriber base stood
at 346.89 million at the end of December 2008.

The overall cellular services revenue in India is projected to grow at a CAGR of 18 per
cent from 2008-2012 to exceed US$ 37 billion. Cellular market penetration will rise to
60.7 per cent from 19.8 per cent in 2007.

The Indian telecommunications industry is on a growth trajectory with the GSM

operators adding a record 9.3 million new subscribers in January 2009, taking the total
user base to 267.5 million, according to the data released by COAI. However, this figure
does not include the number of subscribers added by Reliance Telecom.

In WiMax, India is slated to become the largest WiMAX market in the Asia-Pacific by
2013. A recent study sees India's WiMAX subscriber base hitting 14 million by 2013 and
growing annually at nearly 130 per cent. And investments in WiMAX ventures are slated
to top US$ 500 million in India, according to a report by US-based research and
consulting firm, Strategy Analytics.

10.3.2 Manufacturing

India's telecom equipment manufacturing sector is set to become one of the largest
globally by 2010.
Mobile phone production is estimated to grow at a CAGR of 28.3 per cent from 2006 to
2011, totaling 107 million handsets by 2010. Revenues are estimated to grow at a CAGR
of 26.6 per cent from 2006 to 2011, touching US$ 13.6 billion.

10.3.3 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 September 2008. Therefore, 92 per cent
of the villages in India have been covered by the VPTs. The target of 80 million rural
connections by 2010 is likely to be met during 2008 itself. Universal Service Obligation
(USO) subsidy support scheme is also being used for sharing wireless infrastructure in
rural areas with around 18,000 towers by 2010.

10.3.4 The Road Ahead

As on October 17, 2008, there were 350 million mobile and fixed line subscribers in
India, with about 8 million subscribers being added each month. The Union Minister for
Communications and Information Technology, Mr A Raja, has stated that the target for
the 11th Plan period (2007-12) is 600 million phone connections with an investment of
US$ 73 billion. Apart from the basic telephone service, there is an enormous potential for
various value-added services. In fact, the real potential for telecom service growth is still
lying untapped.

The Indian rural market is going to be the next big thing for wireless telecom providers.
With the tele-density in rural areas being still about 10 per cent against the national
average of about 21 per cent, there seems to be huge untapped potential for mobile phone
penetration in rural India. The government also plans an investment of US$ 2 billion,
during 2008 to 2009, for the development of around 100,000 community service centres
in rural India to provide broadband connectivity.

If past trend were any guide, it would be reasonable to hope that by 2020 India would
complete transition into digital switching and transmission, VoIP, broadband and 3G.
Though there would be always a small niche market in India, which would catch up with
the cutting age of the technology, consolidation and expansion of evolving technologies
across the length and the breadth of the country will follow with a lag.

Future vision of telecom is a vision of IT. Telecom will be the springboard of future
expansion of IT heralding in an information society. ICT will spread among the masses
and will spur innovation, entrepreneurship and growth. An expanding domestic market
will deepen the synergy between the domestic and the export market and strengthen
India’s presence in the high-value segment of the global trade and investment. ICT
benefits will spread among all, the rich and the poor, the young and the old, the men and
the women, the organized and the unorganized and the government and the governed.

10.4 CHALLENGES TO BE FACED

The challenge of the day is to search for new cost-effective ways to roll out telecom
services in rural areas. It means one has to choose proper and effective technology for
deployment and leverage on the use of available infrastructure to reduce cost and time of
role out of services. Those service providers who create the right business would emerge
winners and the rest would remain spectators.
Connectivity of networks and cost of bandwidth are also important to facilitate
broadband usage. Availability of local application and content is another area of concern.
Most of the content available on website as of today is in English. The content in local
and regional language will increase interest of the local population in broadband
utilization.
The convergence of technologies and emergence of new applications is another thrilling
area. Lot of revolution is round the corner in broadcasting and entertainment industries.
The emergence of Internet protocol TV, mobile TV will all change the scenario in the
coming years.
Wireless technology is the future growth driver for which spectrum is the most important
input. The task of spectrum management in a multi user and multi usage scenario is more
daunting and crucial than ever before.

• It would be increasingly difficult for a new entrant to lure customers, as there is

nothing extra for a new player to offer.
• Return on investment or capital employed for a late entrant would be significantly
lower than the existing players.
• Expansion has to be done with a long sighted view for profitability. The ones who
would have large reserves and profits would cherish and leaving others to perish.
• It will be an era of strong regional players as every strong player will consolidate
his position in the area he is strong by eating up smaller players till he attains a
point from which the further consolidation becomes economically unviable.
• Once the fixed line market is matured, mobile will crossover fixed line market. A
mobile revolution is in the offing in India.
In summary, if the last few years in telecom were exciting, it will be even more exciting
in the coming years.

Critical Factors for Future Growth

Opportunity in rural areas: When compared to Indian metros, there is a large gap in
tele-density; - 62 percent in the metros, nearly eight times higher than 8 percent in rural
areas. To capitalize on the growing population and disposable income in rural India,
telecom operators will have to explore and expand into ‘uncovered' geographies.

Re-examining high levies: The Indian telecom sector is one of the highest taxed sectors
in the developing world, through levies, which comprise service tax, revenue share,
spectrum cess, and value added tax.

Bringing down operators' capex: To expand the telecom services, there will be greater
investment needs in the future. Telco’s will have to engage on active and passive
infrastructure sharing.

Rational policy for spectrum allocation: The allocation of adequate spectrum is an

urgent requirement for new and existing operators. A clear roadmap for future spectrum
allocation has to be drawn, whether it is a 2G or a 3G platform. Operators need to be
cautious in ‘bidding' and should not overpay for spectrum as that could disturb project
economics.

Data revenues to provide ‘buffer': India's data revolution is going to be fuelled by 3G

and WiMAX. For the data revolution to reach villages, low-cost access devices,
vernacular content, and community initiatives such as e-governance need to be in place.

Enhancing skill sets: The sector will require specialist resources to support and sustain
growth over the next four to five years. And pressure on talent is expected to increase
with the deployment of 3G and WiMAX services. The private sector will need to reorient
its focus on talent development through training schools and facilitation programs that
cater to the needs of the telecom industry.

Impact of global economic downturn: The current financial crisis could have a low-to-
medium impact on the telecom sector in terms of rising costs of capital and reduction in
discretionary spending on the part of customers, among other determinants.
10.5 CONCLUSION
The technology improvement has helped the sector to perform better and has also
expanded the meaning of the term “telecommunication” from just audio message
transformation to virtual presence of person. The sector clearly shows a great scope for
future.

BIBLIOGRAPHY
Information has been sourced from namely, books, newspapers, journals, industry
portals, government agencies, industry news and developments and through access to
database.

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• Banka Sanjoy (2006), “Mergers and Acquisitions in Indian Telecom Industry-A
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