Indian

Telecommunication
Sector
JULY 2014
2
Presentation Plan
1
5
Telecom Industry Overview
Emerging Trends in Telecom Market
3
Regulatory Framework and Its Impact
4
Telecom Investment Attracting Sector 2
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
7 Limitations and Concern Areas
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Presentation Plan
1
5
Telecom Industry Overview
Emerging Trends in Telecom Market
3
Regulatory Framework and Its Impact
4
Telecom Investment Attracting Sector 2
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
Indian Telecom Industry
In the world :
Second largest network ( Telephone users fixed & mobile)
It has the lowest call tariffs
Third largest Internet user-base
Cheapest mobile hand set
Most affordable colour phone
The fastest sale of mobile phones per week
Dr. Gajender Sharma
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2002-03 2003-04 2004-05 2005-06 2006-07 .. . 2009-10
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Revenues of Indian Telecom Industry: (USD billion)
Telecom Services India
The Indian telecom services can be divided into basic, mobile and Internet
services. The growth witnessed in the mobile services and Internet services
segments was higher as compared to basic services and radio paging services.
Registered an
annual growth of 33
percent in 200607
The Indian telecom market generated revenues of approximately USD 20 billion in
200607. It registered a CAGR of approximately 22 percent from 200203 to 2006
07. The CAGR from 200607 to 200914 is expected to stabilise at 21 percent.
Telephony services (mobile and basic) and Internet services
dominate the Indian telecom services
Dr. Gajender Sharma
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Private players account for highest subscriber base growth in the
basic telephony services segment
Basic Services
80%
9%
11%
74%
8%
18%
0%
20%
40%
60%
80%
100%
BSNL MTNL Other Private Players
As of 31 March 2005 As of 31 March 2006
Market Share* of Basic Service Operators in
India
Basic services include fixed
wireline and wireless in local loop
(WLL-fixed).
Fixed wireline services hold a
major market share of 83 percent
in basic services.
BSNL and MTNL are market
leaders in this segment.
Although, government-owned
BSNL dominates the segment in
terms of subscriber base and
market share, private players
have registered a notable growth.
WLL (F)
17%
Fixed
83%
Market Share* of Basic Services Segments in
India
* In terms of Subscriber Base
Dr. Gajender Sharma
New Telecom Policy: Facilitating
Privatization and Growth
Achieve telecom coverage of all villages in the country and provide
reliable media to all exchanges by the year 2002.
Provide Internet access to all district head quarters by the year 2000
The policy envisions providing secure, reliable, affordable and high
quality converged telecommunication services anytime, anywhere
Increase rural tele density from the current level of around 39 to 70 by
the year 2017 and 100 by the year 2020
Broadband 'Broadband For All
Convergence of Network, Services and Devices
Consumer Focus - Achieve One Nation - Full Mobile Number
Portability and work towards One Nation - Free Roaming
Dr. Gajender Sharma
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The emergence of private players and new technologies have provided a strong
impetus to the growth of Internet and broadband services. The quality and
penetration of these services have undergone changes, with significant
improvement in the telecom infrastructure. The Internet subscriber base
registered a CAGR of 60 percent for the period 199798 to 200614
Others, 14.0%
MTNL, 19.0%
BSNL, 45.2%
Bharti Airtel,
6.8%
Reliance,
6.1%
Sify, 8.9%
Market Share of Top Five Internet Service
Providers (as of quarter ending March 2007)
0.14
0.28
0.95
3.04
3.42
3.64
4.55
5.55
6.94
9.27
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Internet Subscribers
BSNL and MTNL caters to more than two-thirds of Internet subscribers in India.
Private players are catching up fast due to increased penetration of Internet and
broadband services in India.
The telecom market will experience high penetration of Internet services with the
support from government policies and introduction of novel technologies in
India.
Broadband services to drive Internet penetration in India
India had 2.52 million broadband connections at the end of June 2007.
Dr. Gajender Sharma
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Presentation Plan
1
5
Telecom Industry Overview
Emerging Trends in Telecom Market
3
Regulatory Framework and Its Impact
4
Telecom Investment Attracting Sector 2
Major Players in Telecom Sector
6
Growth Avenues
Telecom Handset Market
Dr. Gajender Sharma
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Indian telecom handset market booming along with mobile
services industry
1,610
1,966
3,231
4,750
0
1,000
2,000
3,000
4,000
5,000
200304 200405 200506 200607
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Mobile Handsets Market in India
The Indian handset market grew at a phenomenal rate in 2006
with the sale of approximately 3035 million handsets. It is
estimated that by 2011, sales of mobile handsets will reach
150 million units.
Competitive pricing has triggered the growth of coloured
handsets, which accounted for 65 percent of the market in
2006; whereas, the share of monochrome handsets has
declined to 35 percent.
Mobile phones are available at prices as low as USD 2835.
Camera phones currently occupy 15 percent of the sales
volume.
ZTE
4%
Nokia
53%
Motorola
11%
LG
11%
Sony Ericsson
6%
Huawei
1% Haier
1%
Samsung
6%
Others
7%
The CDMA category is growing faster than the GSM
category. It captured 25 percent of the market volume in
200506 as against a 20.5 percent share in the
previous year.
Market Share of GSM and CDMA Handset
Manufacturers: 200607
Overall, Nokia has a market share of 53 percent; it
dominates the GSM mobile handsets with a market
share of approximately 73 percent.
LG dominates in the CDMA handsets market with a
market share of 60 percent.
Dr. Gajender Sharma
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Presentation Plan
1
5
Telecom Industry Overview
Emerging Trends in Telecom Market
3
Regulatory Framework and Its Impact
4
Telecom Investment Attracting Sector 2
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
12
Skilled and competitive labour force
Fifth largest telecom network in the world; second largest among emerging
economies after China
On an average, about 67 million new users added per month, making India
the worlds fastest growing wireless services market
Liberal Foreign Investment RegimeFDI limit increased from 49 percent to 74
percent; the rural telecom equipment market is also open to large
investments
Among the countries offering the highest rates of return on investment
The large untapped potential in Indias rural markets1.9 percent teledensity
in rural markets as compared to the national level of 18 percent
The government promoting telecom manufacturing by providing tax sops
and establishing telecom specific Special Economic Zones
India: An Ideal Destination for Investments in Telecom Sector
Dr. Gajender Sharma
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225.21
206
140.3
98.4
76
53
19.9
5.1
7.0
9.1
12.8
18.3
0
50
100
150
200
250
200203 200304 200405 200506 200607 200708 (as
of June
2007)
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Telecom Subscriber Base Teledensity
Increasing mobile subscriber numbers and low level of teledensity
offers large opportunities to Indian companies
Even though the Indian telecom industry has exceeded a subscriber base of
200 million, its teledensity is only 18 percent. Thus, the Indian market
provides telecom service providers with a large untapped potential due to the
countrys increasing population and its low teledensity.
Large number of additions
in telecom subscribers
Low teledensity (depicting
large untapped potential)
Telecom
Advantage
Dr. Gajender Sharma
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Presentation Plan
1
5
Telecom Industry Overview
Emerging Trends in Telecom Market
3
Regulatory Framework and its Impact
4
Telecom Investment Attracting Sector 2
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
15
Presentation Plan
1
5
Telecom Industry Overview
Emerging Trends in Telecom Market
3
Regulatory Framework and Its Impact
4
Telecom Investment Attracting Sector 2
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
16
Vodafone purchased stake in Hutch
from Hong Kong's Hutchison
Telecom International for USD
11.08 billion.
Telekom Malaysia acquired a 49
percent stake in Spice
Communications for USD 179
million.
Maxis Communications acquired a
74 percent stake in Aircel for USD
1.08 billion.
Ericsson to design, plan, deploy and
manage Bharti Airtel network and
facilitate their expansion in the rural
areas, under a USD 2 billion
contract.
116
129
680
521
100
300
500
700
200304 200405 200506 200607
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Recent Deals in Telecom Sector
FDI in Telecom Sector
The Indian telecom industry has always attracted foreign
investors. In fact, the cumulative FDI inflow, during the August
1991 to March 2007 period, in the telecommunication sector
amounted to USD 3,892 million. It is the third largest sector to
attract FDI in India in the post-liberalisation era.
FDI calculation takes into account radio paging, cellular mobile
and basic telephone services in the telecommunication sector.
FDI and other M&A activities increasing in number
Reliance Communications Limited has sold a five percent
equity share capital of its subsidiary Reliance Telecom
Infrastructure Limited to international investors across the
US, Europe and Asia. The deal was worth USD 337.5
million.
The Indian telecom industry has a 74 percent FDI limit in the
telecom services segment.
The GoI has permitted 100 percent FDI in manufacturing of
telecom equipment in India.
Major trends in the telecom sector is increasing M&A activity, de-regulation of telecom policies and growing
interest of international investors.
Dr. Gajender Sharma
Dr. Gajender Sharma
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AIRTEL: Sunil Bharti Mittal

Born 23 October 1957, an Indian telecom
mogul, philanthropist and the founder, chairman and
Group CEO of Bharti Enterprises.

The US$ 8.3 billion turnover company runs India's
largest GSM-based mobile phone service and world's fifth
largest wireless company with over 190 million customers
across 19 countries in Asia and Africa.

He was awarded the Padma Bhushan, India's third highest
civilian honor.
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The $9-billion acquisition of Zain Africa transformed Airtel as the fifth largest mobile
operator in the world, with a footprint in 19 countries.

The bad news from Africa - both on costs and timelines - has come as a bigger
surprise owing to poor work culture, import constraints, logistical systems, and
Distribution and marketing networks are being overhauled.

Congested network and call drops have been a recurring problem in Africa.

Attempts to recoup losses comprise efforts to restructure planning, people,
streamlining process, better customer management and developing better
connectivity and logistics systems.
AIRTEL : facing rough weather
Dr. Gajender Sharma
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Vodafone, based in the UK, was the world's largest mobile communications company
by revenue.Vodafone operated in Europe, the Middle East, Africa, Asia Pacific, and
the US..

Vodafone wasn't the only company eyeing HEL. The fast growth of the Indian mobile
market coupled with a relatively low penetration level made it a very lucrative market.

As GOI allowed only 74% of FDI into the sector, Vodafone signed a shareholder
agreement in 2007 with its Indian partner, Essar, according to which Vodafone would
hold a 52% and Essar would continue to hold a 33% stake.

Vodafone planned to bring world class branding to India, and launched the 3G
service in the Indian market. Rather than using the 3G services as a premium
product it wanted to take 3G to the rural areas as well.

The strengths of Vodafone include great connectivity, efficient value added
services, 3 G and Wi/ fi services and several facilities and plan and options for
telecom customers.

VODAFONE HUTCH MERGER
Dr. Gajender Sharma
Dr. Gajender Sharma
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Vodafone-Hutchison Tax Case
Vodafone was embroiled in a $2.5 billion tax dispute with the Indian Income Tax
Department over its purchase of Hutchison Essar Telecom services in April 2007.

It was being alleged by the Indian Tax authorities that the transaction involved
purchase of assets of an Indian Company, and therefore the transaction, or part
thereof was liable to be taxed in India.

The crux of the dispute had been whether or not the Indian Income Tax Department
has jurisdiction over the transaction. Vodafone had maintained from the outset that it
is not liable to pay tax in India; and even if tax were somehow payable, then it
should be Hutchison to bear the tax liability.

In January 2012, the Indian Supreme Court passed the judgement in favour of
Vodafone, saying that the Indian Income tax department had "no jurisdiction" to levy
tax on overseas transaction between companies incorporated outside India.
However, Indian government thinks otherwise.
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Presentation Plan
1
5
Telecom Industry Overview
Emerging Trends in Telecom Market
3
Regulatory Framework and Its Impact
4
Telecom Investment Attracting Sector 2
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
22
Basic Services Operators
BSNL
MTNL
Major Players in different segments of Indian telecom industry
Reliance
TTSL
GSM Services Operators
Airtel
Vodafone
Idea
Reliance
TTSL
BSNL
CDMA Services Operators
Reliance
Internet Services Operators
BSNL
MTNL
Reliance
TTSL
BSNL
Airtel
TTSL Tata Teleservices Ltd.
MOBILE SERVICES
BSNL Bharat Sanchar Nigam Ltd.
MTNL Mahanagar Telecom Nigam Ltd.
Dr. Gajender Sharma
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Presentation Plan
1
5
Telecom Industry Overview
Emerging Trends in Telecom Market
3
Regulatory Framework and its Impact
4
Telecom Investment Attracting Sector 2
Major Players in Telecom Sector
6
Growth Avenues
Dr. Gajender Sharma
7
Limitations and Concern Areas
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India presents a host of opportunities for telecom companies
To reduce their network deployment costs, many service providers are considering
infrastructure sharing offers the following advantages:
Improved service quality
Increased affordability for customers
Faster roll out of services in rural and remote areas
Significant reduction in initial set up costs
Increased environmental aesthetics
Lower operating costs for service providers
Managed services is another segment that is attracting telecom companies.
On account of the rapidly growing subscriber base, service providers find it difficult
to manage their infrastructure and network management operations. In such
cases, they completely or partially outsource their infrastructure or network
management operations.
Virtual Private Network is a private data network
that provides connectivity within closed user groups via
public telecommunication infrastructure. Competition is
likely to heat up in the VPN segment as DoT has
relaxed the norms for private players.
Enterprise Telecom Services includes key
services, such as voice over Internet protocol (VoIP),
dedicated telecom communication systems, IT
infrastructure enabled unified communication services,
etc. Telecom service providers are increasingly targeting
enterprises by providing dedicated services and is
expected to witness major developments in near future.
Growth
Avenues
Infrastructure
Sharing
Managed
Services
Virtual Private
Network
Enterprise
Telecom
Services
3G
WiMax
Value-Added
Services
Rural
Telephony
Dr. Gajender Sharma
Dr. Gajender Sharma
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CONSTRAINTS, HURDLES, AND CHALLENGES

IN THE GLOBAL AND INDIAN TELECOM SECTOR


INDIAN TELECOM SECTOR: FINANCIAL CRUNCH
One of the most fragmented telecom market- 13 players competing

Firms face an unusual dilemma as they need to invest cash continuously in
spectrum and data capacity, but cash generation is limited because
EBITDA margins are shrinking.

EBITDA Margins in India one of the lowest at 35%, as against 40% in
China and 54% in Indonesia respectively.

Wireless penetration is amongst the lowest in Asia pacific, where in
Malaysia, Indonesia, and Thailand the wireless penetration is above 100%,
but In India it stands at less than 80%

The ARPU is one of the lowest in Asia, with Japan, Australia, Malaysia,
and China well ahead in the race.

Recently, India's capex/revenue ratio has dropped to below 10% ,
(20% is the norm for telecom sector), which is low in the midst of 3G rollout,


INDIAN TELECOM SECTOR: FINANCIAL CRUNCH
Telecom Firms like Bharti Airtel, Reliance Communications, Aircel are saddled with
huge debts, and Indian companies have spent around $15 billion to buy 3G and
broadband wireless spectrum and must invest continuously to ensure a decent
return.

The telecom firms need to generate cash through several other avenues to keep
retiring debt and earmark funds for spectrum allocation. Also, look at a blend of cost
reduction to squeeze out cash from the business and equity sales either in
their operation or ancillary businesses to free up cash for investment.

The uncertainty over extension of licence and the pricing of spectrum are such
a big overhang, and therefore investment plans are on hold.

Most telecom firms like Aircel, RCOM are selling off excess capacity to other
rivals to generate funds and reduce the debt burden.
INDIAN TELECOM SECTOR: POSITIVE OUTLOOK
Although, bigger firms are struggling due to liquidity overhang, the smaller
companies like Uninor and MTS ARE financially strong operators - find it attractive
to buy out one of the larger operators (M&As) instead of going for a greenfield rollout

Companies, meanwhile, are looking for new growth avenues. Vodafone recently
started a mobile money transfer scheme called M-Pesa partnering with ICICI Bank in
the east.

India has about 867 million wireless subscribers of which about 83% are active. So
there are about 500 million people in India who still do not have a mobile phone.

Data-based services still form only about 15% of the overall ARPU compared to
more than 40% in developed countries. So there is clearly a huge opportunity still
left in India.

The government/ Telecom Commission endorsed raising the FDI cap in Indian
telcos to 100%. Though there are a few hurdles, it might attract foreign players.
Dr. Gajender Sharma
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The 2G spectrum scam


Involved politicians and government officials in India illegally
undercharging mobile telephony companies for frequency
allocation licenses, which they would then use to
create 2G subscriptions for cell phones.


The shortfall between the money collected and the money
that the law mandated to be collected is estimated to
be 1,766.45 billion (US$30 billion), as valued by
the Comptroller and Auditor General of India
Dr. Gajender Sharma
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Politicians Accused


Raja: Political party DMK, four times Member of Parliament, present
constituency Nilgiris, Tamil Nadu,

Allegation In a joint investigation report prepared by Central Bureau of
Investigation (CBI) and Income Tax Department the agencies allege that A. Raja
could have received 30 billion (US$520 million) as bribe for bringing forward the
cut-off date for applications for spectrum from the initial 1 October 2007 to 25
September 2008

Pramod Mahajan: CBI decided to include the name of late Pramod Mahajan in a
separate column of the charge sheet to be filed by it soon against three cellular
companies and former officials in connection with alleged irregularities in
spectrum allocation during NDA regime causing a loss of Rs 5.08 billion to the
exchequer.

Dr. Gajender Sharma
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Why RIL-Samsung 4G handset deal failed

Reliance Industries' (RIL's) negotiation with South Korean conglomerate
Samsung for developing handsets which can provide voice
on 4G technology have hit a hurdle, with the handset maker unwilling to
match the price demanded by RIL.

Sources revealed that Reliance Jio Infocomm, an RIL subsidiary, wants
the handset for Rs 5,000 a piece.

The Korean giant is unwilling to go below Rs 8,500 per handset, and that
too only if RIL agrees to buy over 3 million handsets. Without that
commitment, Samsung has quoted a price of Rs 11,000 per handset.
Google Phone
Google phone may refer to:
A phone running Google's Android OS
One of the phones of the Google Nexus family:
Google Ion, an HTC-manufactured Android developer smartphone,
released May 2009
Nexus One, an HTC-manufactured smartphone, released January
2010
Nexus S, Samsung-manufactured successor to the Nexus One,
released December 2010
Galaxy Nexus, Samsung-manufactured successor to the Nexus S,
released November 2011
Nexus 4, LG-manufactured successor to the Galaxy Nexus, released
November 2012

Dr. Gajender Sharma
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Dr. Gajender Sharma
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Steven Paul "Steve" Jobs was an American entrepreneur and
inventor who was the co-founder, chairman, and CEO of Apple Inc.

Jobs also co-founded and served as chief executive of Pixar
Animation Studios; he became a member of the board of directors
of The Walt Disney Company in 2006, when Disney acquired Pixar.

Through Apple, he was widely recognized as pioneer of
the personal computer revolution

and for his influential career in the
computer and consumer electronics fields, transforming "one
industry after another, from computers and smartphones to music
and movies...

Steve Jobs revolutionized the Global telecom industry with
innovative mobile devices like I pod. I Phone, and I Pad offering
continuous entertainment, connectivity, mobility, portability options
Dr. Gajender Sharma
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Apple Inc. v. Samsung Electronics Co., Ltd. was the first of a series of
ongoing lawsuits between Apple Inc. and Samsung
Electronics regarding the design of smartphones and tablet computers.

Apple began litigating against Samsung in patent infringement suits,
while Apple and Motorola Mobility were already engaged in a patent
war on several fronts.

Apple's multinational litigation over technology patents became known
as part of the mobile device patent wars: extensive litigation in fierce
competition in the global market for consumer mobile communications.

By August 2011, Apple and Samsung were litigating 19 ongoing cases in
nine countries. By July 2012, the two companies were still embroiled in
more than 50 lawsuits around the globe. While Apple won a ruling in its
favor in the U.S., Samsung won rulings in South Korea, Japan, and
the UK.
Dr. Gajender Sharma
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Take away:
Student will be able to understand the basic
nitty-gritty of telecom industry in India.
Student will be able to understand the telecom
policy.
Student will be able to understand various
concurrent issues related to telecom sector.
Students will gain an insight concerning the
challenges and future prospects of the Indian
Telecom Industry