Indian

Telecommunication

Sector

August 2007

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Presentation Plan

1 Telecom Industry Overview

2 Telecom – Investment Attracting Sector

3 Regulatory Framework and Its Impact

4 Emerging Trends in Telecom Market

5 Major Players in Telecom Sector

6 Growth Avenues

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Presentation Plan

1 Telecom Industry Overview

2 Telecom – Investment Attracting Sector

3 Regulatory Framework and Its Impact

4 Emerging Trends in Telecom Market

5 Major Players in Telecom Sector

6 Growth Avenues

3
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Indian Telecom Industry – A Lucrative Option

Indian Telecom Industry

In recent years, the Indian telecom industry has witnessed phenomenal growth. A conducive business environment, favourable
demographic outlook and the political stability enjoyed by the country have contributed to the growth of the industry. India
achieved the distinction of having the world's lowest call rates (2–3 US cents), the fastest sale of million mobile phones (1 week),
the world's cheapest mobile handset (USD 19) and the world's most affordable colour phone (USD 31).

Indian Telecom Industry – Facts

 One of the fastest growing cellular markets in
the world in terms of number of subscriber
additions – 19.35 million in 3 months (April to
June 2007)
 Expected to reach total subscriber base of
about 500 million by 2010 (i.e., more than
one phone for every household)
 Total telecom subscribers – 225.21 million
(June 2007)
 Tele density – 19.86 percent (June 2007)
 Number of new mobile subscribers added
every month – 7.34 million (June 2007)
 ARPU for GSM – USD 6.6 per month

 Annual growth rate of the telecom  Telecom equipment market – USD 17,100
subscribers – 47 percent (2006–07) million (2006–07)

 More GSM subscribers than fixed-line  Handset market – USD 4,750 million (2006–
subscribers 07)

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Telephony services (mobile and basic) and Internet services
dominate the Indian telecom services

The Indian telecom market generated revenues of approximately USD 20 billion in 2006–07. It registered a CAGR of
approximately 22 percent from 2002–03 to 2006–07. The CAGR from 2006–07 to 2009–10 is expected to stabilise at 21
percent. Apart from mobile telephony services, other value-added services are also gaining importance.

Revenues of Indian Telecom Industry: 2002–07 (USD billion)

50 43

Revenues (USD billion)

Registered an
40 annual growth of 33
percent in 2006–07
30
Telecom Services – India 20
20 15
9 10 11
10

0
2002-03 2003-04 2004-05 2005-06 2006-07 ….. …. 2009-10

The Indian telecom services can be divided predominantly into basic, mobile and Internet services. It also comprises smaller segments,
such as radio paging services, Very Small Aperture Terminals (VSATs), Public Mobile Radio Trunked Services (PMRTS) and Global
Mobile Personal Communications by Satellite (GMPCS).

The growth witnessed in the mobile services and Internet services segments was higher as compared to other services, such as basic
services and radio paging services.

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Private players account for highest subscriber base growth in the
basic telephony services segment

Market Share* of Basic Services Segments in

India (2006–07)

WLL (F)
17%

Basic Services
 Basic services include fixed wireline and
wireless in local loop (WLL-fixed). In 2006–
Fixed
07, basic services subscribers exceeded 50 83%
million.

 Fixed wireline services hold a major market

share of 83 percent in basic services.

 BSNL and MTNL are market leaders in this Market Share* of Basic Service Operators in
segment. India (2005–06)
 Although the government-owned BSNL
dominates the segment in terms of 100%
80%
74%
subscriber base and market share, private 80%
players have registered a notable growth. 60%
40%
18%
20% 9% 8% 11%

0%
BSNL MTNL Other Private Players

* In terms of Subscriber Base As of 31 March 2005 As of 31 March 2006

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Mobile telecom services provide an unprecedented growth
opportunity for companies

Mobile services have led to a spectacular growth in the Indian telecom industry. Currently, 12 players are active in this segment. The total
number of wireless subscribers escalated to 185.13 million at the end of June 2007, with a monthly addition of more than 6 million wireless
subscribers. Despite the decreasing ARPU*, the minutes of usage is on a rise, which provides impetus to the mobile services growth in India.

Minutes of Usage per Month – Mobile Services

USA 838
Despite a low teledensity of approximately 19 percent, India has
the second highest minutes of usage per month. This offers huge
growth opportunity to telecom companies.
India 461

China 303

Russia 88

10 ARPU* in India – Mobile Services

ARPU (USD per month)

6 The declining ARPU implies that India Inc. is tapping a large

market at the bottom of the pyramid by reducing tariffs; thereby,
4
enhancing affordability.
2

0
Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007
GSM CDMA
* Average Revenues per User

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Number of mobile subscriber will propel the total subscriber base
to 500 million by 2010

Telecom Subscriber Base and Teledensity in India

250 24

Teledensity (in percent)

Subscribers (in million)
18.3 19.9 20
200
 The telecom subscriber base has witnessed an
12.8 16
explosive growth; the additions in the current year 150
9.1 12
225.21
registered a growth of approximately 47 percent over 100 7.0
206
5.1 8
140.3
the previous year. 50 98.4
76 4
53
 The subscriber base registered a CAGR of 40.4 0 0
2002–03 2003–04 2004–05 2005–06 2006–07 2007–08
percent for 2002–03 to 2006–07.
(As of June
2007)
Telecom Subscriber Base Teledensity

Market Share* of Wireless** Operators

(As of June 2007)
Idea
Hutch 9%
17%

Others
8% Airtel
The state-owned BSNL was the second largest service provider after Bharti 23%

Airtel (23 percent) in the Indian wireless telecom market with a market share of
approximately 19 percent for the year ending March 2007.
BSNL
17% Reliance
Communications
17%
TTSL
9%
* In terms of Subscriber Base ** Includes GSM, CDMA and WLL-F services
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 GSM surpasses CDMA in number of additions to subscriber base

Market Share* of Wireless Operators

(as of quarter ending March 2007)
GSM surpasses CDMA segment by a large
margin in terms of subscriber numbers.

CDMA, 27%
GSM, 73%

Bharti Airtel dominates the GSM segment with a

market share of approximately 31 percent for the Reliance Communications and TTSL
year ending March 2007, followed by BSNL with dominates the Indian CDMA mobile services
a share of approximately 23 percent subscribers. segment.

* In terms of Subscriber Base

Market Share GSM* Service Providers (as of Market Share* CDMA Service Providers (as of
quarter ending March 2007) quarter ending March 2007)

Reliance, 2.8% HFCL, 0.3%

Spice, 2.3% BPL, 0.9%
MTNL, 2.3%
Aircel, 4.6% TTSL, 35.9%
Bharti, 30.8% Reliance,
Idea, 11.6% 55.2%

Hutch, 22.0%
MTNL, 0.5%

BSNL, 22.8% BSNL, 8.0%

Syam Telilink,
0.2%

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 Various other services emerged by leveraging the telecom
services industry

Radio Paging

In 1995, radio paging services emerged as a

promising segment in India. However, this
segment could not compete with cellular
services in general and SMS technology in
particular, and is currently shrinking. At
present, only four radio paging service
providers are present in the Indian market.

Public Mobile Radio Trunked Services GMPCS*

PMRTS have not grown to their expected potential GMPCS services were launched in India
in India. The high licence fee leaves a very thin in 1999. These services allow a
margin for services providers; thereby, inhibiting subscriber to communicate from any
its growth. About 31,000 subscribers are currently Other Telecom point on earth through a handheld
availing this service in India from 12 different Services terminal. Moreover, the telephone
operators. number remains unchanged,
irrespective of the subscriber’s location.

Very Small Aperture Terminals

(VSAT)
The market for VSAT services increased by
5.73 percent during the quarter ending in
December 2006, and the segment had a total
subscriber base of 55,070. HCL Comnet is the
largest of the eight players functioning in the * Global Mobile Personal
Communication by Satellite
market.
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Broadband services to drive Internet penetration in India

Internet Subscribers: 1998–2007

10 9.27

Internet Subscribers (In million)

8 6.94

5.55
6 4.55
3.64
3.42
The emergence of private players and new technologies have provided a strong 4 3.04

impetus to the growth of Internet and broadband services. The quality and 0.95
2
0.28
penetration of these services have undergone changes, with significant 0.14

improvement in the telecom infrastructure. The Internet subscriber base 0

1997–98

1998–99

1999–00

2000–01

2001–02

2003–03

2003–04

2004–05

2005–06

2006–07
registered a CAGR of 60 percent for the period 1997–98 to 2006–07.

Market Share of Top Five Internet Service BSNL and MTNL caters to more than two-thirds of Internet subscribers in India.
Providers (as of quarter ending March 2007)

BSNL, 45.2% India had 2.52 million broadband connections at the end of June 2007.

Bharti Airtel,
6.8%
Private players are catching up fast due to increased penetration of Internet and
broadband services in India.
Reliance, MTNL, 19.0%
6.1%
Sify, 8.9%
The telecom market will experience high penetration of Internet services with the
Others, 14.0% support from government policies and introduction of novel technologies in
India.

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Presentation Plan

1 Telecom Industry Overview

Telecom Handset Market

2 Telecom – Investment Attracting Sector

3 Regulatory Framework and Its Impact

4 Emerging Trends in Telecom Market

5 Major Players in Telecom Sector

6 Growth Avenues

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Indian telecom handset market booming along with mobile
services industry

 The Indian handset market grew at a phenomenal rate in 2006 Mobile Handsets Market in India: 2004–07
with the sale of approximately 30–35 million handsets. It is
4,750
estimated that by 2011, sales of mobile handsets will reach 5,000

150 million units. 4,000

3,231

USD Million
 Competitive pricing has triggered the growth of coloured 3,000
1,966
handsets, which accounted for 65 percent of the market in 2,000 1,610
2006; whereas, the share of monochrome handsets has
1,000
declined to 35 percent.
0
 Mobile phones are available at prices as low as USD 28–35. 2003–04 2004–05 2005–06 2006–07

 Camera phones currently occupy 15 percent of the sales

volume.
The CDMA category is growing faster than the GSM
category. It captured 25 percent of the market volume in
Market Share of GSM and CDMA Handset 2005–06 as against a 20.5 percent share in the
Manufacturers: 2006–07 previous year.
Huaw ei Others
Haier 1% 7%
1%
ZTE Overall, Nokia has a market share of 53 percent; it
4%
dominates the GSM mobile handsets with a market
Samsung
6%
share of approximately 73 percent.

Sony Ericsson
6% Nokia
53%
LG dominates in the CDMA handsets market with a
LG market share of 60 percent.
11%

Motorola
11%

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Presentation Plan

1 Telecom Industry Overview

2 Telecom – Investment Attracting Sector

3 Regulatory Framework and Its Impact

4 Emerging Trends in Telecom Market

5 Major Players in Telecom Sector

6 Growth Avenues

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India: An Ideal Destination for Investments in Telecom Sector

 World’s largest democracy

 Independent judiciary
 Skilled and competitive labour force
 Fifth largest telecom network in the world; second largest among the emerging economies after
China
 On an average, about 6–7 million new users added per month, making India the world’s fastest
growing wireless services market
 Liberal Foreign Investment Regime–FDI 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 India’s rural markets–1.9 percent teledensity in rural markets as
compared to the national level of 18 percent
 Expected to become the second largest telecom market by 2010
 The government promoting telecom manufacturing by providing tax sops and establishing telecom
specific Special Economic Zones
 Fully repatriable dividend income and capital invested in telecom equipment manufacturing

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Increasing mobile subscriber numbers and low level of teledensity
offers large opportunities to Indian companies

Large number of additions Low teledensity (depicting Telecom

in telecom subscribers large untapped potential) Advantage

 The telecom subscriber base has witnessed an explosive growth; the additions in year 2006-07 registered a growth of
approximately 47 percent over the previous year.

 The subscriber base witnessed a CAGR of 40.4 percent during 2002–03 to 2006–07.

 The impressive growth in the subscriber base has resulted in a significant increase in teledensity. In 2006–07, India had a
teledensity of 18.3 percent, as compared to year 2005-06 figure of 12.80 percent, signifying a growth of 43 percent.

250 24

Teledensity (in percent)

Subscribers (in million)

18.3 19.9 20
200
12.8 16
150
9.1 12
225.21
100 7.0
206 8
5.1 140.3
50 98.4 4 Even though the Indian telecom industry has exceeded a
53 76
0 0 subscriber base of 200 million, its teledensity is only 18
2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 (as percent. Thus, the Indian market provides telecom service
of June
2007) providers with a large untapped potential due to the
Telecom Subscriber Base Teledensity
country’s increasing population and its low teledensity. The
government has plans to raise teledensity to 40–45 percent
by 2010; thereby, offering greater growth opportunities for
service providers.

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Presentation Plan

1 Telecom Industry Overview

2 Telecom – Investment Attracting Sector

3 Regulatory Framework and its Impact

4 Emerging Trends in Telecom Market

5 Major Players in Telecom Sector

6 Growth Avenues

17
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Regulatory Framework provides level playing field for all operators

The Department of telecommunications (Government of India) is the main

governing body for the industry.

Telephone Regulatory Authority of India (TRAI) assists the Government of

India (GoI) to take timely decisions and introduce new technologies in the
country.

Indian Telecom Industry Framework

Indian Government Bodies Independent Bodies

They formulate various policies and pass laws to They undertake various research activities and monitor
regulate the telecom industry in India. the quality of service provided in the Indian telecom
industry. They also provide various recommendations to
improve the status of telecom operations in India.

Wireless Planning and Handles spectrum allocation and Telecom Regulatory

Coordination (WPC) management Authority of India (TRAI) Independent regulatory body

Department of DoT – Licensee and frequency

Telecom Disputes Telecom disputes settlement body
Telecommunications management for telecom
Settlement and Appellate
Tribunal (TDSAT)
Exclusive policy making body of
Telecom Commission DoT

Group on Telecom and Handles ad hoc issues of the

IT (GoT-IT) telecom industry

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Various important regulations and laws have been passed in the
Indian telecom industry post-liberalisation era

Department of Telecommunication (DoT) is the main body formulating laws

and various regulations for the Indian telecom industry.

ILD services was

BSNL was Number portability
Independent opened to Intra-circle merger
established was proposed
Private players regulator, TRAI, competition guidelines were
by DoT Calling Party Pays
were allowed in was established (CPP) was
established Attempted to (pending)
Value Added Go-ahead to implemented boost Rural
Services the CDMA telephony
technology
1994 1999 2002 2005 2007
2003 2004
INDIA

1992 2000 Internet Unified Access 2006

1997
telephony Licensing
initiated (UASL) regime Broadband
was introduced policy 2004
National Decision on 3G
NTP-99 led to Reduction of was
Telecom Policy FDI limit was services (awaited)
migration from high- licence fees Reference formulated—
(NTP) was increased from
cost fixed license Interconnect targeting 20
formulated 49 to 74 percent
fee to low-cost order was million
revenue sharing issued subscribers by
regime 2010

ILD – International Long Distance

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 Important regulations and their impact on the Indian telecom
industry
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.
Cellular Tariff (INR per minute)

16 150

Number of Subscribers
Lowering of ADC 120
12 UASL, Access Deficit Charges (ADC)
Telecom Tariff CPP

(millions)
Order
90
8 ADC makes it mandatory for a service provider at the caller’s
NTP 99 WLL 60 end to share a percent of the revenue earned with the service
4
30 provider at the receiver’s end in long-distance telephony. This
subsidises the infrastructure costs of the service provider
0 0 enabling access at receiver’s end, especially because rental
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 for fixed-line services is low. Revision in the ADC regime is
Cellular Tariff Total Cellular Subscribers
expected to be followed by further tariff reduction in telecom
services.

Universal Service Obligation (USO)

The USO policy was laid along with NTP ’99 to widen the reach of telephony services in rural India. All telecom operators are
bound to contribute 5 percent of their revenues to this fund. This system was put in place to bridge the wide gap between urban
and rural teledensity, bringing it down from the current 31 percent. Initially, only basic service providers were under the purview of
USO. Later, its scope was expanded to include mobile services also. Although it increases the cost burden for the telecom
companies, USO helps in building the telecommunication infrastructure in the rural areas.

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Presentation Plan

1 Telecom Industry Overview

2 Telecom – Investment Attracting Sector

3 Regulatory Framework and Its Impact

4 Emerging Trends in Telecom Market

5 Major Players in Telecom Sector

6 Growth Avenues

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FDI and other M&A activities increasing in number

Major trends in the telecom sector is increasing M&A activity, de-regulation of telecom policies and growing
interest of international investors.

Recent Deals in Telecom Sector 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

Vodafone purchased stake in Hutch
from Hong Kong's Hutchison telecom equipment in India.
Telecom International for USD
11.08 billion. FDI in Telecom Sector

Reliance Communications Limited has sold a five percent 680

700
equity share capital of its subsidiary Reliance Telecom
Infrastructure Limited to international investors across the 521

FDI (USD million)

US, Europe and Asia. The deal was worth USD 337.5 500
million.
300
116 129
Telekom Malaysia acquired a 49
100
percent stake in Spice
2003–04 2004–05 2005–06 2006–07
Communications for USD 179
million.
The Indian telecom industry has always attracted foreign
investors. In fact, the cumulative FDI inflow, during the August
Maxis Communications acquired a
1991 to March 2007 period, in the telecommunication sector
74 percent stake in Aircel for USD
1.08 billion. 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
Ericsson to design, plan, deploy and and basic telephone services in the telecommunication sector.
manage Bharti Airtel network and
facilitate their expansion in the rural
areas, under a USD 2 billion
contract.

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Presentation Plan

1 Telecom Industry Overview

2 Telecom – Investment Attracting Sector

3 Regulatory Framework and Its Impact

4 Emerging Trends in Telecom Market

5 Major Players in Telecom Sector

6 Growth Avenues

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Major Players in different segments of Indian telecom industry

Basic Services Operators

MOBILE SERVICES GSM Services Operators
BSNL
Airtel
MTNL

Vodafone
Reliance

Idea
TTSL

Reliance

BSNL
Internet Services Operators

BSNL
CDMA Services Operators

MTNL Reliance

Reliance
TTSL
TTSL
BSNL

Airtel

MTNL – Mahanagar Telecom Nigam Ltd. TTSL – Tata Teleservices Ltd.

BSNL – Bharat Sanchar Nigam Ltd. 24
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Presentation Plan

1 Telecom Industry Overview

2 Telecom – Investment Attracting Sector

3 Regulatory Framework and its Impact

4 Emerging Trends in Telecom Market

5 Major Players in Telecom Sector

6 Growth Avenues

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 India presents a host of opportunities for telecom companies

Infrastructure
Rural Sharing Managed
Telephony Services

Value-Added
Growth Virtual Private
Services
Avenues Network

WiMax
Enterprise
Telecom
3G Services
To reduce their network deployment costs, many service providers are considering
infrastructure sharing offers the following advantages:
Virtual Private Network is a private data network  Improved service quality
that provides connectivity within closed user groups via  Increased affordability for customers
public telecommunication infrastructure. Competition is  Faster roll out of services in rural and remote areas
likely to heat up in the VPN segment as DoT has  Significant reduction in initial set up costs
relaxed the norms for private players.  Increased environmental aesthetics
 Lower operating costs for service providers

Enterprise Telecom Services includes key

services, such as voice over Internet protocol (VoIP),
Managed services is another segment that is attracting telecom companies.
dedicated telecom communication systems, IT
On account of the rapidly growing subscriber base, service providers find it difficult
infrastructure enabled unified communication services,
to manage their infrastructure and network management operations. In such
etc. Telecom service providers are increasingly targeting
cases, they completely or partially outsource their infrastructure or network
enterprises by providing dedicated services and is
management operations.
expected to witness major developments in near future.

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Emerging technologies – 3G and WiMax to assist in penetration of
telecom services in India

The Indian government plans to auction the spectrum for 3G services by inviting bids from
domestic as well as foreign players, and creating a competitive environment that offers better
services to consumers. Therefore, the 3G spectrum is among the major investment
opportunities and growth drivers of the telecom industry.
 The immense potential for 3G is reflected by the 30–40 percent annual growth in Value-
Added Services.
 Cell phone manufacturers are striving to develop USD 100 priced 3G handsets for the Indian
market.
 India expects to replicate its 2G growth in 3G services.

WiMAX has been one of the most significant developments in wireless communication in the recent
past. Since this mode of communication provides network access in inaccessible locations at a speed
of more than 4 Mbps, it is expected to be a major factor in driving telecom services in India, especially
wireless services. Thus, it will lead to the increased use of telecom services, Internet, value-added
services and enterprise services. WiMAX is expected to accelerate economic growth and assist in
providing better education, healthcare and entertainment services.
 It is estimated that India will have 13 million WiMAX subscribers by 2012.
 Aircel is the pioneer in WiMAX technology in India.
 The state-owned player, BSNL, aims to connect 74,000 villages through WiMAX.
 Bharti, Reliance and VSNL have acquired licenses in the 3.3GHz range to utilise the opportunities
offered by this domain.

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Value-Added Services and Rural Telephony holds large market
potential in India
Value-Added Services in India (2006–07)
The VAS industry was worth USD 632 million in
Person to
Application & Game & Data, 7% 2006–07. The industry is estimated to grow by 60
Application to
Others (MMS
percent in 2007–08 and become an USD 1,011
Person SMS,
15% etc.), 3% million opportunity.

Ringtone
Dow nload, 35%

Person to Person
SMS, 40%
The VAS industry is currently focussing on the entertainment sector, such as the Indian film
industry and cricket; however, there is scope for growth in other avenues as utility-based
services, such as location information and mobile transactions.

Rural Telephony Urban Rural Teledensity in India

50

As the government targets to increase rural teledensity

40

Teledensity (%)
from the current 2 percent to 25 percent by 2012, rural
telephony will require major investments. This 30

segment will boost the demand for telecom services, 20

equipment, Internet services and other value-added
10
services; thereby, offering great market opportunities
for telecom players. 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
At Year Ending March
Urban Total Rural

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DISCLAIMER

This presentation has been prepared jointly by the India Brand Equity Foundation (“IBEF”) and
Evalueserve.com Pvt. Ltd., EVALUESERVE (‘authors’).

All rights reserved. All copyright in this presentation and related works is owned by IBEF and the Authors. The
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This presentation is for information purposes only. While due care has been taken during the compilation of this
presentation to ensure that the information is accurate to the best of the Author’s and IBEF’s knowledge and
belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice.

The Author and IBEF neither recommend or endorse any specific products or services that may have been
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