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Industry Analysis Report

on

TELECOM INDUSTRY IN INDIA

Submitted By

Rajeev Kaushik
Roll No. 08 032E 00027

SCHOOL OF MANAGEMENT STUDIES


JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
Kukatpally, Hyderabad – 500 085, A.P., India

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DECLARATION

I, Rajeev Kaushik, pursuing M.B.A (PTPG) V Semester at


School of Management Studies, Jawaharlal Nehru Technological
University Hyderabad, Kukatpally, Hyderabad hereby declare that
the Industry Analysis Report entitled Telecom Industry in
India submitted by me in partial fulfillment for award of
Master of Business Administration is an original work.

Place : Hyderabad Rajeev Kaushik


Date: 15.11.2010 Roll No. 08 032E 00027
MBA V semester
SMS, JNTU.
KUKATPALLY, HYD.

2
ACCREDITED BY
NAAC WITH

A
GRADE
SCHOOL OF MANAGEMENT STUDIES

JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD

CERTIFICATE

This is to certify that Rajeev Kaushik, Roll No. 08032E00027 is

student of SMS, JNTUH and the Industry Analysis Report titled

“Telecom Industry in India” done by him is original work and is not

submitted to any other university other than JNTUH.

Place : HYDERABAD Dr. A .R. Aryasri


Director
Date: 15.11.10 School of Management Studies
JNTUH, KUKATPALLY,
Hyderabad.

3
CERTIFICATE

This is to certify that Mr Rajeev Kaushik, Roll No.08032E0027 is a


part-time student of SMS, JNTUH and the Industry Analysis Report submitted
by him titled “Telecom Industry in India” is his original work and is not
submitted to any other university other than JNTUH. This project has been
carried out under my guidance.

Place : Hyderabad Dr. M Sudhir Reddy


Associate Profecessor
School of Management Studies
JNTUH, Kukatpally,
Date: 15.11.10 Hyderabad.

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ACKNOWLEDGEMENT

I would like to express my gratitude to Dr. M Sudhir Reddy for


providing me invaluable support in writing this report. The shortcomings or
limitations of the report or errors continued therein remain my responsibility.

Rajeev Kaushik
Roll No.08032E0027
MBA PTPG V Semester
Date : 15.11.10 SMS, JNTUH.

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Contents

Sl.No. Chapter Title Page No.


I Introduction to Telecom Industry 07-11
II After Liberalization Developments in 12-19

Indian Telecom
III Reforms and Performance 20-26
IV Competition Policy 27-33
V Revenue, Sectoral Growth and Employment 34-51

Benefit
VI SWOT Analysis 52-53
VII Findings and Recommendations 54-56
VIII Conclusion 57
Bibliography

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Chapter –I
Introduction to Telecom Industry

Telecom in the real sense means transfer of information between two distant points
in space. Indian Telecommunication industry, Telecom service providers in the country
added 18.18 million new subscribers in August this year, taking the overall number of
mobile users in the country to 670.60 million, the Telecom Regulatory Authority of India
(TRAI) said. The wireless subscriber base increased from 652.42 million in July 2010
to 670.60 million by the end of August, 2010- a growth of 2.79 per cent. The growth rate is
in line with research firm Gartner's 2008 forecast that India's wireless subscriber base is set
to exceed 737 million connections by 2012 growing at a CAGR of 21 per cent in the same
period. The total number of telephone subscribers, including the mobile and the landline,
increased to 706.37 million by August-end from 688.38 million in July. With this, the
overall teledensity (telephones per 100 people) in India reached 59.63 per cent. However,
TRAI said that the wire line subscriber base declined to 35.77 million in August, 2010,
from 35.96 million at July-end. Telecom Industry is the third largest telecommunication
network in the world and the second largest in terms of number of wireless connections.
For the past decade or so, telecommunication activities have gained momentum in India.
Efforts have been made from both governmental and non-governmental platforms to
enhance the infrastructure.

Composition of Telephone subscribers

Urban w ireline Rural Wireline


Rural w ireless 5.9% 2.2%
27.1%

Urban Wireless
64.8%

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The two major reasons that have fuelled this growth are low tariffs coupled with falling
handset prices. 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 countries 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. The Ministry of Communications and Information Technology
(MCIT) is has very aggressive plans to increase the pace of growth, targeting 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.

Vodafone led the growth in the wireless category by adding 2.30 million users to take its
subscriber base to 113.77 million users followed by state-run operator BSNL, which added
2.25 million users in August, taking its total user base to 76.03 million.

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India's top telecom operator Airtel added 2.03 million users, taking its subscriber base to
141.25 million, while Idea Cellular added 1.98 million and Aircel 1.61. Reliance
Communications added 2 million new subscribers, while Tata Teleservices added 2.09
million and state-run firm, Mahanagar Telephone Nigam added 27,594 new users in
August.

As the Indian wireless subscriber base grows at a blistering pace having 670.60 million
subscribers by end August, it is not so with the broadband subscriber base, which although
increased by 3.17 per cent from 9.77 million in July to 10.08 million in August 2010.

Developments in Telecom Industry

The postal and telecom sectors had a slow and uneasy start in India. In 1850, the first
experimental electric telegraph Line was started between Kolkata and Diamond
Harbor. In 1851, it was opened for the British East India Company. The Posts and
Telegraphs department occupied a small corner of the Public Works Department, at
that time. Construction of 4,000 miles (6,400 km) of telegraph lines connecting
Kolkata (Calcutta) and Peshawar in the north via Agra, Mumbai (Bombay) through
Sindwa Ghats, and Chennai in the south, as well as Ootacamund and Bangalore was
started in November 1853. Dr. William O'Shaughnessy, who pioneered telegraph
and telephone in India, belonged to the Public Works Department. He tried his level
best for the development of telecom through out this period. A separate department
was opened in 1854 when telegraph facilities were opened to the public.
In 1880, two telephone companies namely The Oriental Telephone Company Ltd. and The
Anglo-Indian Telephone Company Ltd. approached the Government of India to establish
telephone exchanges in India. The permission was refused on the grounds that the
establishment of telephones was a Government monopoly and that the Government itself
would undertake the work. By 1881, the Government changed its earlier decision and a
license was granted to the Oriental Telephone Company Limited of England for opening
telephone exchanges at Kolkata, Mumbai, Chennai (Madras) and Ahmedabad. January 28,
1882, is a Red Letter Day in the history of telephone in India. On this day Major E. Baring,
Member of the Governor General of India's Council declared open the Telephone

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Exchange in Kolkata, Chennai and Mumbai. The exchange at Kolkata named "Central
Exchange" was opened at third floor of the building at 7, Council House Street. The
Central Telephone Exchange had 93 number of subscribers. Bombay also witnessed the
opening of Telephone Exchange in 1882.

Further developments

 1902 - First wireless telegraph station established between Saugor Islands and
Sandheads.
 1907 - First Central Battery of telephones introduced in Kanpur.

 1913-1914 - First Automatic Exchange installed in Shimla.

 July 23, 1927 - Radio-telegraph system between the UK and India, with beam

stations at Khadki and Daund, inaugurated by Lord Irwin by exchanging greetings

with the King of England.

 1933 - Radiotelephone system inaugurated between the UK and India.

 1953 - 12 channel carrier system introduced.

 1960 - First subscriber trunk dialing route commissioned between Kanpur and

Lucknow.

 1975 - First PCM system commissioned between Mumbai City and Andheri

telephone exchanges.

 1976 - First digital microwave junction introduced.

 1979 - First optical fibre system for local junction commissioned at Pune.

 1980 - First satellite earth station for domestic communications established at

Secunderabad, A.P.

 1983 - First analog Stored Program Control exchange for trunk lines commissioned

at Mumbai.

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 1984 - C-DOT established for indigenous development and production of digital

exchanges.

 1985 - First mobile telephone service started on non-commercial basis in Delhi.

While all the major cities and towns in the country were linked with telephones during the
British period, the total number of telephones in 1948 was only around 80,000. Even after
independence, growth was extremely slow. The telephone was a status symbol rather than
being an instrument of utility. The number of telephones grew leisurely to 980,000 in 1971,
2.15 million in 1981 and 5.07 million in 1991, the year economic reforms were initiated in
the country. While certain innovative steps were taken from time to time, as for example
introduction of the telex service in Mumbai in 1953 and commissioning of the first
[subscriber trunk dialing] route between Delhi and Kanpur in 1960, the first waves of
change were set going by Sam Pitroda in the eighties. He brought in a whiff of fresh air.
The real transformation in scenario came with the announcement of the National Telecom
Policy in 1994.

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Chapter-II
After Liberalization Developments in Indian Telecom

The Indian government was composed of many factions (parties) which had different
ideologies. Some of them were willing to throw open the market to foreign players (the
centrists) and others wanted the government to regulate infrastructure and restrict the
involvement of foreign players. Due to this political background it was very difficult to
bring about liberalization in telecommunications. When a bill was in parliament a majority
vote had to be passed, and such a majority was difficult to obtain, given to the number of
parties having different ideologies.

Liberalization started in 1981 when Prime Minister Indira Gandhi signed contracts with
Alcatel CIT of France to merge with the state owned Telecom Company (ITI), in an effort
to set up 5,000,000 lines per year. But soon the policy was let down because of political
opposition. She invited Sam Pitroda a US based NRI to set up a Center for Development of
Telematics(C-DOT), however the plan failed due to political reasons. During this period,
after the assassination of Indira Gandhi, under the leadership of Rajiv Gandhi, many public
sector organizations were set up like the Department of Telecommunications (DoT) ,
VSNL and MTNL. Many technological developments took place in this regime but still
foreign players were not allowed to participate in the telecommunications business.

The demand for telephones was ever increasing. It was during this period that the P.N Rao
led government introduced the national telecommunications policy [NTP] in 1994 which
brought changes in the following areas: ownership, service and regulation of
telecommunications infrastructure. They were also successful in establishing joint ventures
between state owned telecom companies and international players. But still complete
ownership of facilities was restricted only to the government owned organizations. Foreign
firms were eligible to 49% of the total stake. The multi-nationals were just involved in
technology transfer, and not policy making. During this period, the World Bank and ITU
had advised the Indian Government to liberalize long distance services in order to release
the monopoly of the state owned DoT and VSNL; and to enable competition in the long

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distance carrier business which would help reduce tariff's and better the economy of the
country. The Rao run government instead liberalized the local services, taking the opposite
political parties into confidence and assuring foreign involvement in the long distance
business after 5 years. The country was divided into 20 telecommunication circles for basic
telephony and 18 circles for mobile services. These circles were divided into category A, B
and C depending on the value of the revenue in each circle. The government threw open the
bids to one private company per circle along with government owned DoT per circle. For
cellular service two service providers were allowed per circle and a 15 years license was
given to each provider. During all these improvements, the government did face
oppositions from ITI, DoT, MTNL, VSNL and other labor unions, but they managed to
keep away from all the hurdles.

After 1995 the government set up TRAI (Telecom Regulatory Authority of India) which
reduced the interference of Government in deciding tariffs and policy making. The DoT
opposed this. The political powers changed in 1999 and the new government under the
leadership of Atal Bihari Vajpayee was more pro-reforms and introduced better
liberalization policies. They split DoT in two- one policy maker and the other service
provider (DTS) which was later renamed as BSNL. The proposal of raising the stake of
foreign investors from 49% to 74% was rejected by the opposite political party and leftist
thinkers. Domestic business groups wanted the government to privatize VSNL. Finally in
April 2002, the government decided to cut its stake of 53% to 26% in VSNL and to throw it
open for sale to private enterprises. TATA finally took 25% stake in VSNL.

This was a gateway to many foreign investors to get entry into the Indian Telecom
Markets. After March 2000, the government became more liberal in making policies and
issuing licenses to private operators. The government further reduced license fees for
cellular service providers and increased the allowable stake to 74% for foreign companies.
Because of all these factors, the service fees finally reduced and the call costs were cut
greatly enabling every common middle class family in India to afford a cell phone.

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Growth of Mobile Technology

India has become one of the fastest-growing mobile markets in the world. The mobile
services were commercially launched in August 1995 in India. In the initial 5–6 years the
average monthly subscribers additions were around 0.05 to 0.1 million only and the total
mobile subscribers base in December 2002 stood at 10.5 millions. However, after the
number of proactive initiatives taken by regulator and licensor, the monthly mobile
subscriber additions increased to around 2 million per month in the year 2003-04 and
2004-05. Although mobile telephones followed the New Telecom Policy 1994, growth
was tardy in the early years because of the high price of hand sets as well as the high tariff
structure of mobile telephones. The New Telecom Policy in 1999, the industry heralded
several pro consumer initiatives. Mobile subscriber additions started picking up. The
number of mobile phones added throughout the country in 2003 was 16 million, followed
by 22 million in 2004, 32 million in 2005 and 65 million in 2006. As of January 2009, total
mobile phone subscribers numbered 362 million, having added 15 million that month
alone. India ranks second in mobile phone usage to China, with 650 million users as of
January 2009. India has opted for the use of both the GSM (global system for mobile
communications) and CDMA (code-division multiple access) technologies in the mobile
sector. In addition to landline and mobile phones, some of the companies also provide the
WLL service. The mobile tariffs in India have also become lowest in the world.

A new mobile connection can be activated with a monthly commitment of US$0.15 only.
In 2005 alone 32 million handsets were sold in India. The data reveals the real potential for
growth of the Indian mobile market. In March 2008 the total GSM and CDMA mobile
subscriber base in the country was 375 million, which represented a nearly 50% growth
when compared with previous year. In April 2008 the Indian Department of Telecom
(DoT) has directed all mobile phone service users to disconnect the usage of unbranded
Chinese mobile phones that do not have International Mobile Equipment Identity (IMEI)
numbers, because they pose a serious security risk to the country. Mobile network
operators therefore planned to suspend the usage of around 30 million mobile phones
(about 8 % of all mobiles in the country) by April 30.

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Telephone

On landlines, intra circle calls are considered local calls while inter circle are considered
long distance calls. Currently Government is working to integrate the whole country in one
telecom circle. For long distance calls, you dial the area code prefixed with a zero (e.g. For
calling Delhi, you would dial 011-XXXX XXXX). For international calls, you would dial
"00" and the country code+area code+number. The country code for India is 91.
Until recently, only the PSU's BSNL and MTNL were allowed to provide Basic Phone
Service through copper wires in India. MTNL is operating in Delhi and Mumbai only and
all other parts are covered by BSNL. However private operators have now entered the fray,
although their focus is largely on the cellular business which is growing rapidly.

Telephony Subscribers (Wireless and Landline): 511 million (Mar 2010)


Cell phones: 471.7 million (Mar 2010)
Land Lines: 37.3 million (Mar 2010)
Yearly Cell phone Addition: 113.26 million (2007)
Monthly Cell phone Addition: 14.98 million (Mar 2010)
Teledensity: 43.5% (Sep 2009)
Projected teledensity: 686 million, 46% of population by the end of the year 2010.

Wireless Telephones
The Mobile telecommunications system in India is the second largest in the world and it
was thrown open to private players in the 1990s. The country is divided into multiple
zones, called circles (roughly along state boundaries). Government and several private
players run local and long distance telephone services. Competition has caused prices to
drop and calls across India are one of the cheapest in the world. The rates are supposed to
go down further with new measures to be taken by the Information Ministry. The mobile
service has seen phenomenal growth since 2000. In September 2004, the number of mobile
phone connections has crossed fixed-line connections. India primarily follows the GSM
mobile system, in the 900 MHz band. Recent operators also operate in the 1800 MHz band.
The dominant players are Airtel, Reliance Infocomm, Vodafone, Idea cellular and

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BSNL/MTNL. There are many smaller players, with operations in only a few states.
International roaming agreements exist between most operators and many foreign carriers.

The breakup of wireless subscriber base in India as of June 2010 is given below

Operator Subscriber base


Bharti Airtel 100 million
Vodafone Essar 74,080,707
BSNL 53,598,591
Idea Cellular 41,243,253
Aircel 20,685,711
MTNL 4,568,269
BPL 2,256,862
Spice Telecom 4,235,023
Reliance Communications 77,223,264
HFCL Infotel 382,602
Sistema Shyam 936,189
Tata Teleservices 36,486,763
All India 415,246,442

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Landlines

Landline service in India is primarily run by BSNL/MTNL and Reliance Infocomm though
there are several other private players too, such as Touchtel and Tata Teleservices.
Landlines are facing stiff competition from mobile telephones. The competition has forced
the landline services to become more efficient. The landline network quality has improved
and landline connections are now usually available on demand, even in high density urban
areas.

Internet

The total subscriber base for internet in India is 13.54 million. The number of broadband
connections in India have seen a continuous growth since the beginning of 2006. At the end
of August 2008, total broadband connections in the country have reached 4.73 million.
BSNL, Sify, MTNL, STPI, Airtel, Netcom, Reliance Communications and Hathway are
some of the major ISPs in India. TRAI has defined broadband as 256 kbit/s or higher.
However, many ISPs advertise their service as broadband but don't offer the suggested
speeds. Broadband in India is more expensive as compared to Western Europe/United
Kingdom and United States. After economic liberalization in 1992, many private ISPs
have entered the market, many with their own local loop and gateway infrastructures. The
telecom services market is regulated by TRAI. ADSL providers include:

 Tata Communications Ltd. (VSNL)


 MTNL/BSNL
 Bharti Telecom (Airtel, Bharti Televentures)
 Reliance Infocomm

Because of the increase in ISPs and the quality of service Qos, It became cheaper to call
India from around the world. Many Indians today, studying or living all around the world,
are using calling cards to India to speak with their families back home. It used to be much
more expensive prior to year 2002.

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Broadband
The current definition of Broadband in India is speeds of 256 kbit/s. TRAI on Jun 2010 has
recommended raising this limit to 2 Mbps. As of September 2010, India has 7.21 million
broadband users. In the fixed line arena, BSNL and MTNL are the incumbents in their
respective areas of operation and continue to enjoy the dominant service provider status in
the domain of fixed line services. For example BSNL controls 79% of fixed line share in
the country. On the other hand, in the mobile telephony space, Airtel controls 21.4%
subscriber base followed by Reliance with 20.3%, BSNL with 18.6%, Vodafone with
14.7% subscriber base (as per June 2005 data). Airtel and BSNL have launched 8 Mbit/s &
Reliance Communication offers 10 Mb/s broadband internet services in selected areas
recently. For home users, the maximum speed for unlimited downloads is 2 Mbit/s,
available for USD 60 (roughly , without taxes) per month.

Internet Service Providers (ISPs) & Hosts: 86,571 (2008)


Broadcasting

Radio broadcast stations: AM 153, FM 91, shortwave 68 (1998)


Radios: 116 million (1997)
Television terrestrial broadcast stations: 562 (of which 82 stations have 1 kW or greater
power and 480 stations have less than 1 kW of power) (1997)

Televisions: 110 million (2006)

In India, only the government owned Doordarshan (Door = Distant = Tele, Darshan =
Vision) is allowed to broadcast terrestrial television signals. It initially had one major
National channel (DD National) and a Metro channel in some of the larger cities (also
known as DD Metro). Satellite/Cable television took off during the first Gulf War with
CNN. There are no regulations against ownership of satellite dish antennas, or operation of
cable television systems, which led to an explosion of viewer ship and channels, led by the
Star TV group and Zee TV. Initially restricted to music and entertainment channels, viewer
ship grew, giving rise to several channels in regional languages and many in the national

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language, Hindi. The main news channels available were CNN and BBC World. In the late
1990s, many current affairs and news channels sprouted, becoming immensely popular
because of the alternative viewpoint they offered compared to Doordarshan. Some of the
notable ones are Aaj Tak (means Till Today, run by the India Today group) and Star News,
initially run by the NDTV group and their lead anchor, Prannoy Roy (NDTV now has its
own channels, NDTV 24x7, NDTV Profit, NDTV India and NDTV Imagine).New Delhi
Television.

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Chapter-III
Reforms and Performance

India, like many other countries of the world, have adopted a gradual approach to telecom
sector reform through selective privatization and managed competition in different
segments of the telecom market. To begin with, India introduced private competition in
value-added services in 1992 followed by opening up of cellular and basic services for
local area to private competition. The Telecom Regulatory Authority of India (TRAI) was
constituted in 1997 as an independent regulator in this sector. Competition was also
introduced in national long distance (NLD) and international long distance (ILD) telephony
at the start of the current decade.
The current policy stance affecting telecom sector in India is presented in the Appendix.
Two state-owned public sector incumbents with a large existing subscriber base dominate
the fixed line service. As on December 31, 2001, the two Public Sector Enterprises (PSEs),
BSNL and MTNLi owned 34.73 million Direct Exchange Lines (DELs) against 0.45
million privately owned DELs. These two PSEs were allowed belated entry into the
cellular segment in the beginning of the present decade. Consequently, their cellular
subscriber base is tiny compared to the private operators. Out of 7.3 million cellular
subscribers in the country in June 2002, they had only 0.2 million subscribers.
Government divested 25 per cent strategic stake of Videsh Sanchar Nigam Limited
(VSNL), a public sector monopoly incumbent in ILD telephony to Tata Group in the
private sector out of 52.97 per cent equity held by the government. This was followed by
opening up of ILD business to private players from April 1, 2002, terminating VSNL
monopoly two years ahead of schedule, VSNL, 16th Annual Report, 2001-2002, p.5.

Till 1986 telecommunication was a public utility owned by the Government of India.
Mahan agar Telephone Nigam Limited (MTNL) was created in 1986 as a PSE to take out
telecommunication services from the Government entirely in the cities of Delhi and
Mumbai. It was in the same year that VSNL was created in the ILD segment. Bharat
Sanchar Nigam Limited (BSNL) was formed as a PSE on October 1, 2000 as a telecom
service provider in all other places. Both these incumbents inherited the entire pre-existing
subscriber base with the Government.

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Despite asymmetry in initial market endowments between public sector incumbents and
private operators, the act of opening up of the market unleashed dynamism that was
hitherto latent in the sector. This is evident from a number of performance indicators. In
terms of overall size of main telephone lines in operation, India ranked 14th in the world in
1995. The rank improved to 7th position in 2001 (Table 1).
Table 1

Top 14 countries in the world in terms of number of main telephone lines in operation

Country No. of lines in Ranks (1995) No. of lines in Ranks (2009)


1995 2009
(‘000) (‘000)
USA 159,735.2 1 190,000.0 1
Japan 62,292.0 2 76,000.0 3
Germany 42,000.0 3 52,280.0 4
China 40,705.7 4 179,034.0 2
France 32,400 5 34,032.9 9
UK 29,411.4 6 34,710.0 8
Russia 25,018.9 7 35,700.0 6
Italy 24,845.0 8 27,303.0 10
Korea, Rep. 18,600.0 9 22,724.7 11
Canada 17,567.0 10 20,319.3 12
Spain 15,095.4 11 17,427.0 14
Brazil 13,263.0 12 37,430.8 5
Turkey 13,215.7 13 18,900.9 13
India 11,978.0 14 34,732.1 7

Source: World Telecommunication Development Report 2009, ITU

Network expansion in India was accompanied by an increase in productivity of telecom


staff measured in terms of ratio of number of main telephone lines in operation to total
number of full time telecom staff (Table 2). One way of looking at the welfare gains to
subscribers is to watch the trend in prices for telecom services, whether such prices came
down in the competitive regime. What consumer ultimately pays includes rental as well as
telecom tariffs.

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Because of complications involved in summarizing differential rates applicable to peak and
non-peak hours, a convenient proxy for the change in telecom prices could be constructed
in terms of observed trend in revenue earned from telephone services at constant prices
expressed as a ratio of number of main telephone lines in operation. Table 2 shows a
significant decline in this ratio since 1995 in Indian fixed line segment. It may be noted that
the National Telecom Policy was announced in May 1994. Steps were intensified to
introduce private competition in the basic and cellular services thereafter. The beginning of
the declining trend in per line revenue at constant prices coincided with the period, which
witnessed emergence of competitive pressure in the sector.

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Table 2
Trend in productivity and price

Number of main telephone lines Telephone service revenue


Year in operation per full-time at constant prices (CPI:
telecom staff 2009=100) per main
telephone line in operation
(Rs. ‘000)
1991 15.58 9.13
1992 17.65 10.25
1993 20.32 11.04
1994 23.38 10.17
1995 28.45 9.23
1996 33.90 6.12
1997 41.89 5.62
1998 50.93 4.92
1999 62.97 4.24
2000 70.02 4.24
2001 78.01 4.24
2002 80.21 4.52
2003 81.02 4.78
2004 82.04 5.78
2005 85.04 6.21
2006 86.04 6.24
2007 87.08 6.24
2008 88.08 6.24
2009 88.08 6.25
2010 (till Mar 10) 89.07 6.89
(Source: Computed from the data published in the Year book of Statistics: Telecommunications Source: Computed from
the data published in the Year book of Statistics: Telecommunication Services, 1991-2009, ITU)

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Table 3 below shows the long run trend in supply and demand of DELs (Direct Exchange
Lines). The number of DELs in operation (i.e., main line in operation) has been taken as
supply whereas demand has been computed by adding the number of subscribers in the
waiting list to the number of DELs in operation. However, it needs to be kept in mind that
the number in the waiting list, in certain cases, is unlikely to reflect potential demand for
telecom services in the economy. The market potential may be much more than what is
revealed through waiting list because the number in the waiting list reveals demand
registered in those areas where telecommunication facilities are available and reasonable
expectations exist for demand to be fulfilled. In the areas where telecom infrastructure is
not adequate, demand may not get registered at all and remain suppressed.
Table 3
Direct Exchange Lines (DEL) : Supply and demand
(Millions)

Year ending Direct Exchange Waiting List Demand


As on March 31st of Lines
each year (DELs)
1985 2.15 0.45 2.6
1987 2.47 0.66 3.13
1989 2.90 0.84 3.74
1991 3.49 1.12 4.61
1993 4.17 1.42 5.59
1995 5.07 1.96 7.03
1997 6.80 2.85 9.65
1999 9.80 2.15 11.95
2001 14.54 2.89 17.43
2003 21.59 1.98 23.57
2008 32.44 2.92 35.36
2009 42.44 3.92 45.36
2010 (till Mar 10) 53.23 4.20 57.39
(Source: Indian Telecommunication Statistics 2008, Ministry of Communications, Government of India. )
Table 4 below indicates tele-density for the countries included in Table 1 as measured in
terms of number of main lines per 100 inhabitants.

Table 4: Number of main telephone lines per 100 inhabitants

24
Country 1995 2009
USA 60.73 66.45
Japan 49.61 59.69
Germany 51.33 63.48
China 3.30 13.81
France 56.01 57.35
UK 50.18 57.78
Russia 16.91 24.33
Italy 43.33 47.06
Korea, Rep. 41.24 47.60
Canada 59.85 65.51
Spain 38.50 43.11
Brazil 8.51 21.69
Turkey 21.44 28.52
India 1.29 3.38

(Source: World Telecommunication Development Report 2009, ITU)

Above table indicates that despite phenomenal achievement in terms of network expansion,
the size of the population is responsible for India’s low tele-densityii. A comparison
between Table 1 and Table 4 reveals that countries with smaller network sizes than India
are having much higher tele-densities. However, in terms of total tele-density, i.e., the sum
of fixed-lines and mobile subscribers per 100 inhabitants, India’s comparative ranking in
the world improved from 160 in 1990 to 145 in 2000, an improvement by 15 positions iii.
Nevertheless, closing the digital divide in terms of tele-density remains a daunting task. It
is estimated that in order to attain the network size of USA in 2001 India has to expand its
number of operational telephone lines at a compound annual growth rate (CAGR) of 23.44
per cent between 2002 and 2020. The corresponding growth rates to reach China and
Japan’s levels are 23.06 per cent and 17.63 per cent respectively. Even that is not going to
mean much in terms of tele-densities in comparison to most of the countries cited in Table
4. Assuming no change in India’s size of population (i.e., assuming population size to
remain at 2001 level of 1.03 billion), India’s tele-density will be 18.48 lines per 100 people
even if India’s network size reaches the level of USA. Considering the fact that India’s
DEL grew at a CAGR of 19.4 per cent during 1995-2000, significant effort would be
needed to step up growth rate above 23 per cent.

25
Understanding telecom growth prospect would require understanding of the sources of
growth --- what accounts for cross-country differences in growth experiences. Countries do
differ among themselves in respect of their economic structure, sectoral policies and
technological changes. Assuming these three to be key drivers of growth it can be said that
‘Vision 2020’ of Indian telecom sector will be shaped in an important way by the evolving
economic structure, sectoral reforms including competition policy and technology trend.

26
Chapter-IV
Competition Policy

Countries often differed in pattern of sequencing and the speed of liberalization.


Competition has been controlled within limit by state policy through licensing of limited
number of market players in certain segments granting thereby a period of exclusivity to
the operators. Heterogeneity of routes to sectoral reforms, as seen from the examples of
some of the Asian countries, classified into different combination of policies and
approaches to telecom reform, are presented below:

1. Competition in the fixed line segment with state owned incumbents: China, India
and Korea.
2. Privatization of state owned incumbents but deferred competition through
exclusivity granted to private investors: Hong Kong, Indonesia, Malaysia, Pakistan
and Singapore.
3. Simultaneous introduction of privatization and competition: Japan and Sri Lanka.
4. Opening up of local market to competition first: Hong Kong, India and Singapore.
5. Opening up of competition in the international services first: Korea, Malaysia and
the Philippines.
6. Introduction of second domestic long distance carrier first: China
7. The sector ministry exercises regulatory functions: China, Indonesia, Japan, Korea,
Malaysia, Taiwan and Thailand.
8. Separate regulator with the responsibility for interconnection lying with the
dominant operator while regulator is responsible for arbitration of disputes: Hong
Kong, Pakistan and Philippines.

In most countries, restricting the number of licensees or imposing geographic limitations


has limited competition. In India, for instance, competition in cellular telephony was
allowed in a duopoly mode. This was gradually increased to licensing of four operators in
each of the four metros and thirteen circles. Basic service in India is still limited to one
private operator competing with state owned incumbents in the circles. Though private

27
sector has been licensed and they are laying infrastructure, metros are still in the grip of
public sector monopoly and it will take a while before private competition takes place.
Differences in modes of privatization have been observed in other countries. In Thailand,
private entry was allowed through Build Operate and Transfer (BOT) mode while the
network was controlled by the state. In Vietnam, network was publicly managed with
foreign operators participating in provision of training, equipment and supervision through
Business Cooperation Contracts (BCCs). China did not allow private entry in the telecom
sector and limited competition between state-owned entities of the ministries. Many
countries in Asia restricted foreign equity participation. For example, China, India,
Indonesia, Korea, Malaysia, the Philippines and Thailand limited foreign equity below fifty
per cent.

It is interesting to note that competing technological standards have also limited


competitions. Countries are divided in their technical options for mobile networks. While
Europe predominantly opted for Global System for Mobile communications (GSM)
technology and USA for Code Division Multiple Access (CDMA), within Asia, China,
India, Indonesia and Malaysia have opted for GSM in cellular mobile network, whereas
Hong Kong, Korea, the Philippines, Singapore and Thailand have opted for CDMAiv.

However, several countries are now opting for more than one standards. For example, in
USA, ‘Companies like AT&T and Cingular are increasingly moving to GSM’v. ‘China is
going with some CDMA as well.’vi India is using CDMA in Wireless in Local Loop
(WLL). Multiple technological standards fragment market rendering base stations
purchased from one company unworkable with switches bought from another company
potentially limiting the scope of exploitation of economies of scale that could accrue in a
multi-vendor environmentvii.

The way multiple technological standards may confuse regulatory stance leading to market
failures can be seen from the recent experiences of several vendors while trying to launch
3G in Europe. European Union has mandated a single technological standard called
‘Wideband CDMA’ (W-CDMA) for 3G coverage. Some of the companies that sought to

28
launch 3G services in September 2002 (deadline stipulated in the licenses for the launch of
services) faced the difficulties that networks and handsets of different vendors could not
work with each other. ‘CDMA2000’, another standard for 3G, which is working
successfully in Asia and USA could not be adopted in Europe because European operators
did not have freedom to use ‘CDMA2000’ as per their licensing restrictionsviii.

Which competition policies worked better than others? Literature cites certain
developmental experiences to draw conclusions from ‘before and after’ and ‘with or
without’ evaluations. The purpose here is to cite these references. In the absence of more
detailed information, examination of the validity of such conclusions is not intended here.

Competition with privatization

World over, there is an observable trend of growing number of state owned telecom
incumbents being privatized. In 2000, from among the member countries of the ITU, those
with fully or partially privatized incumbents outnumbered countries with fully state-owned
operators. It has been observed that ‘countries with a privately owned incumbent operator
account for 85 per cent of the world market by revenue. Those with fully state-owned
operators, in mobile as well as fixed lines, account for just two per cent.’

It has been suggested that privatization with competition works better than privatization
without competition. For example, Chile started privatization in 1988 but did not limit
competition through grant of exclusivity period or licensing obligations. Argentina, on the
other hand, privatized in 1990, but granted seven-year exclusivity period, which was
subsequently extended by three years. Moreover, Argentina imposed licensing obligation in
terms of stipulated growth rate of 6.5 per cent. In the decade following privatization, Chile
far exceeded Argentina in terms of network growth. Moreover, starting with half of the
tele-density, Chile surpassed Argentina in ten years’ time.

The issue of granting a ‘period of shared exclusivity’ versus ‘allowing more extensive
market entry’ has been discussed in the literature. Experience of UK has been cited in this

29
context. Telecom expansion was reportedly much more rapid in the United Kingdom (i)
after the expiry of exclusivity period from 1982-90, that was granted to Mercury, the
second operator and (ii) after cable TV operators were permitted to offer tele-services.
Therefore, it was concluded that open competition was better than duopoly. Both USA and
Canada lost in terms of their mobile tele-density-rankings in the world in the 90s. Two
reasons which have been cited for this are: (i) persistence with regional duopoly for too
long, and (ii) slow transition from analog to digital systems.

Notwithstanding the merits of the above conclusions whatsoever, it can be argued that
privatisation of existing state-owned incumbent operator is not the only way to promote
private investment. Opening up of new services not preoccupied by state monopoly can
attract private investors, provided regulatory policies do not inhibit growth of private
markets in such areas. Growth of private mobile operators in India is a case in point.
However, it is necessary for the regulatory authority to ensure that state incumbent does not
inhibit growth of competitionix. Operationalisation of these ideas is not without hazards. A
conflict of common occurrence relates to interconnection issues. Interconnection between
state-owned fixed line incumbent network and private mobile network has been a bone of
contention in many countries. ‘…incumbent telecommunication operator, which often
holds a monopoly…can set the price, typically at a high multiple of the actual cost’.

Independent regulator
Sound regulation is a pre-requisite to healthy competition. Therefore, issue of competition
cannot be divorced from the issue of regulation. The autonomy that a regulator enjoys from
government control has often been given primacy over many other factors in determining a
regulator’s ability to discharge regulatory role in an impartial manner. In reality, however,
it is difficult to perceive independent regulation as synonymous with impartial regulation.
There are examples of effective regulation under regulatory functions being performed by
the government departments. Similarly, there are instances of ‘independent regulators that
have been captured by market players’.

30
What about non-sector specific regulation? New Zealand experimented with non-sector
specific regulation relying on Competition Commission of the country. This led to
protracted litigations and disputes on interconnection and network access issues slowing
down the progress of the sector. Finally, New Zealand enacted ‘Telecommunication Act’ in
December 2000 and created a Telecommunication Commission within the Competition
Commissionx.

In India, TRAI Act was amended in January 2000, to remove some of the shortcomings
observed earlier. The legislation aimed at, inter alia, protection of interests of service
providers and consumers of telecom sector. With this amendment, recommendatory
functions were separated from enforcement functions. A separate Telecom Disputes
Settlement and Appellate Tribunal (TDSAT) were set up with both original and appellate
jurisdiction. It became mandatory for the central government to seek prior
recommendations of the TRAI before introduction of new services. TRAI’s power to issue
directions was restricted to only its enforcement functions. Direct appeal to the Supreme
Court of India against an order of TRAI was provided for. Thus, neutrality of Indian
telecom regulatory regime was ensured through reliance on multiple agencies for conflict
resolution. TRAI had a proven record of maintaining neutrality. It had challenged several
decisions of the Government of Indiaxi.

In tune with the international development and evolution of technology, The


Communication Convergence Bill 2001 was introduced in the Parliament and is under
consideration of the Standing Committee of Parliament on Telecom and IT. ‘The Bill aims
at promoting, facilitating and developing, in an orderly manner, the carriage and content of
communications (including broadcasting, telecommunications and multimedia), to facilitate
development of a national infrastructure for an information based society, and to enable
access thereto. It also seeks to provide a choice of services to the people with a view to
promoting plurality of news, views and information’xii. Thus, regulatory regime in 2020
will be overarching, based on convergence, which apart from paving the way to a full-
grown information society will enhance growth and productivity of telecommunications
and IT through exploitation of economies of scope and coverage.

31
Competition without privatization

Interestingly, there are other models of competition without privatization. China Telecom,
one of the world’s major Public Telecommunication Operators (PTOs) is still fully state-
owned. Both China and Vietnam followed similar policies of competition without
privatization. Competition has been allowed between ministries of the governments.
Participation of foreign investors has been allowed through joint ventures. Both these
countries have been very high achievers in terms of progress of telecom sector. ‘The key
underlying factor is the will of the state to invest in, and prioritize, telecommunication
development’. There have been instances of repeated market failures arising out of
impudent investment decisions of the private operators. In Norway, license to provide 3G
mobile services purchased for US$ 22 million was returned unused. Investment worth
several billion dollars were sunk and lost in the Iridium Global Mobile Personal
Communications by Satellite (GMPCS) network project. Global Crossing went bankrupt
with debts over US$ 12 billion for a project of construction of 160,000 km fiber optic
network. One view is that too many competitors deciding ‘to build enormous networks for
which there was little demand’ were responsible for such crashes. Market failures of such
magnitudes create backlash in the industry and can potentially risk a global crisis. Such
failures, if not avoided, would prove too costly in terms of lost investment in a country like
India. A calibrated approach through managed competition holds assurances for the
investors of a reasonable time period for consolidation and therefore, seems to be a wiser
strategy to follow. Despite differences in competition regimes across the countries, the
global trend is towards growing privatization and competition. India, with her commitment
to reforms is already a part of this process. From the perspective of business organization,
as the global experience suggests, this process is likely to undergo an alternate cycle of
differentiation and convergence. Convergent nature of technology may, by itself dictate
mergers and acquisitions between companies in certain cases. Network operators and
service providers will have to merge with content developers to add value to their services.
This is likely to create temporary oligopoly in the market till competition intensifies with
the emergence of more firms offering multiple services. India in 2020 will see competition
among big firms offering innovative value-added services to capture market through

32
creation of new digital needs and priorities. Regulatory environment will mature to allow
maximum flexibility and freedoms to encourage innovation and expansion, consistent with
this process of evolution.

33
Chapter-V

Revenue, Growth and Employment Benefit

The contribution of Indian telecom sector to the growth of India's economy is immense. It
is directly contributing more than 1.5 per cent GDP of the country, and has a multiplier
effect on growth because of connecting the people and business around it. The total
revenue in the telecom service sector was Rs. 86,720 core in 2008-09 as against Rs. 71, 674
core in 2007-2008, registering a growth of 21%. The total investment in the telecom
services sector reached Rs. 200,660 core in 2008-09, up from Rs. 178,831 core in the
previous fiscal. Telecommunication is the lifeline of the rapidly growing Information
Technology industry. Internet subscriber base has risen to 6.94 million in 2008- 2009. Out
of this 1.35 million were broadband connections. More than a billion people use the
internet globally. Under the Bharat Nirman Programmed, the Government of India will
ensure that 66,822 revenue villages in the country, which have not yet been provided with a
Village Public Telephone (VPT), will be connected. However doubts have been raised
about what it would mean for the poor in the country. It is difficult to ascertain fully the
employment potential of the telecom sector but the enormity of the opportunities can be
gauged from the fact that there were 3.7 million Public Call Offices in December 2008 up
from 2.3 million in December 2007. The value added services (VAS) market within the
mobile industry in India has the potential to grow from $500 million in 2006 to a whopping
$10 billion by 2010.

Employment benefit of ICT occurs across wide range of skill spectrum. Apart from growth
of employment and income at firm level due to ICT induced productivity growth in a large
number of industries, a whole range of ICT enabled activities and services has started
booming. Some such examples include operations like data entry, preparation and
maintenance of database, revenue accounting, preparation of payroll, processing of
insurance claims, human resource services, call center operations, running of customer
support centers, medical transcription, content development and animation, web site
services, software development, hardware repair and maintenance, systems engineering,

34
systems design and integration etc. The process of job creation and productivity growth is
expected to bring about market expansion supporting growth of domestic hardware and
software industries broadening the base of ICT development. This, in turn, will induce
R&D spontaneity enabling India to transit from the status of an importer of sub-assemblies
of IT and telecom hardware to a higher state of development endowed with strong domestic
manufacturing base of sophisticated hardware and software products booming from
indigenous ideas, innovation and comparative advantage. A modern telecommunication
infrastructure will accelerate this process through provision of high-speed communication
links. In the global IT market India will be a major player at the higher end of value chain
based on perfect synergy between the domestic and overseas market.

As in the past, state will play an important role in this development both as a proactive
policy maker and also by taking a position in the market. Major policy trust of the
government to promote IT was through provision of Technology Park, fiscal incentives,
simplification of administrative rules and procedures, promotion of institutional finance
including venture capital and liberalization of foreign equity participation. In the area of
software, policies to encourage global presence included market support, overseas
campaign for export promotion, quality certification, information security management and
R&D support. Indian IT companies have been allowed to issue ADR/GDR linked stock
options to employees under favourable tax treatment. Approval mechanism has been
simplified under automatic route permitting overseas business acquisition through
ADR/GDR route. The IT Action Plan on Hardware envisaged extending Export Oriented
Unit (EOU) status to hardware manufacturing units and deemed export status to telecom
manufacturers. Traditionally, state has been the most important source of demand for IT
industryxiii in India. The trend continues even today and government spending on IT is a
key driver of domestic demand for IT products. One reason is that the government has
significant market presence in many goods and services. The other reason is that the
government is consciously promoting the use of IT in activities within its domain of
activities. To undertake development of IT as a thrust area a separate ‘Ministry of
Information Technology’ was formed in October 1999. Recently, Ministry of

35
Communications and Ministry of IT have been merged to form a single ‘Ministry of
Communications & IT’.
Apart from encouraging use of IT in research and scientific areas, the government has also
taken major initiative to computerize work of various ministries and departments.
Ministries and departments have come up with their websites with all the relevant details.
Though computerization of many more areas within the government are under
implementation, significant results have already been achieved in computerization of
railway reservation, allocation of Permanent Account Number (PAN) for income tax
payers, processing of passport application, conduct of public examination, custom
clearance, Regional Transport Offices, schemes under implementation by the NGOs,
vigilance information, VSAT based money orders under the Department of Post, Supreme
Court, land records, Parliament questions, debates and deliberations. Different ministries
have been advised to earmark 2 to 3 percent of the budget on IT.

Next Generation

At the uppermost end of the convergent technology spectrum have already emerged Third
Generation (3G) mobile devices with the capability of access to mobile data and voice.
More than US$ 100 billion have been spent by the industry since 2000 to acquire 3G
license and spectrum. However, a full-grown market is yet to develop to assure investors’
return. Technical and commercial consolidation is expected to take quite some time. By
2020, one would expect 3G to be within reach of wider section of Indian population. The
pace at which 3G is going to proliferate in India will depend upon, inter alia, the market
demand for higher bandwidth data. There is a view that perhaps the present demand for
high speed data (greater than 64 kbps) can be met cost effectively with General Packet
Radio Service (GPRS). While pent up demand for emerging data-needs can be met by
using 2G systems like Short Message Service (SMS), GPRS etc., the drive for 3G in Indian
market can come from ‘corporate roaming traffic via international visitors. Substantial
work needs to be done in developing 3G relevant contents so as to expand its market.
Initiative has already been launched in these areas. For example, Sonera (formerly Telecom
Finland) has already launched information portal for mobile phones including Internet
localisation services. Future work in this area will be in the form of adding more value to

36
the new services. Advanced plans are necessary to develop vibrant industries for 3G
applications. This may call for investments. A synchronized growth of user industry and
3G technologies would ensure that pay-off period in investment is minimized. Developing
knowledge based industry to provide mobile applications would reduce uncertainties
regarding return from private investment in 3G technologies.

As a preparatory groundwork to usher in 3G, it is essential to demarcate areas where


massive harmonization efforts would be needed. This would entail upgrading hardware and
software for high bandwidth multimedia services. Harmonization would also be needed
between the two emerging varieties of CDMA, i.e., wideband CDMA that also supports
fixed network and CDMA – 2000. Since it is likely that both these solutions would
ultimately support fixed and mobile applications, a marriage of the two would prevent
technological fragmentation of the market. There is need to develop deeper understanding
of the evolution of new end-users in the market for the mobile multimedia services.
Multimedia service providers will emerge as important shareholders in the network value
chain. Countries should envision new partners, new entities, and new stakeholders in the
business models. Multimedia portals will be important components of such business
models. There is need for further work to match regulatory perspectives emerging as a part
of the convergence regime with the requirements of 3G. Another important area of work
will involve further thought over efficient billing model ---- a transition from time
dependent billing model to content dependent billing. The revenue model in the
telecommunications sector is going to change significantly in times to come. In many cases
PTOs have started offering free Internet to augment revenue from telephone lines. In the
Philippines, a global leader in SMS use in mobile handsets, revenue from SMS contributed
a growing share of mobile revenue. SMS proved to be much cheaper than voice call

37
The Vision of Telecommunications in 2020

The vision of telecommunications in 2020 is a vision of information society built on an


edifice where IT and telecommunications merge. Rapid technological convergence has
already implied a symbiotic overlap between the development strategies of IT and
telecommunications. Part of today’s IT is ‘telecom writ large’, it flourishes on the telecom-
network and in turn permits modern day telecommunications to use sophisticated IT-
software. Hardware is a common platform for both IT and telecom.

There is a legacy vision derived from export-success of India’s software that has given rise
to optimism regarding India’s growing pre-eminence in global IT canvas. Such a vision
builds on a much larger vision of all round development of IT that pervades wide cross-
section of Indian economy and society. Deeper analysis shows that there is need for a
comprehensive IT development strategy to ensure India’s durable presence in the global
software market. As discussion in the subsequent paragraphs will show, ‘enclave’ type
development of software with exclusive focus on export can not bring about desired
benefits if such a strategy ignores the linkages between export and the domestic market.
Vision 2020, therefore, is a much larger vision.

First, it is to be appreciated that foreign exchange contribution of software export net of


import of hardware is roughly fifty per cent. Net foreign exchange contribution will
increase if India is able to develop a strong base of hardware.

Second, scrutiny of the structure of India’s software export vis-à-vis the emerging
dynamics of the global market reveals that India has marginal presence in the fastest
growing segment of the global IT market consisting of software packages and software
products. India’s close competitors, on the other hand, have achieved greater success
through diversification of exports with software packages. There is, therefore, need for
India to climb value chain with more innovative software products in the international
market. This is possible when India is able to broad-base the development of IT with a
strong and large domestic market supporting innovation and its diffusion along with the
growth of component manufacturing base. Appropriate synergy between the domestic and

38
export market will be key to enduring success of Indian IT sector in overseas market and
development of state-of-the art telecom infrastructure is a prerequisite to both.

Finally, development of human resources through IT education, training and skill


development is fundamental to the whole process.

Two important indicators of IT penetration in Indian market are Internet use and
availability of Personal Computers (PCs). There has been significant expansion in both
during the last decade (Table 6).

Table 6

Growth in availability of Personal Computers and estimated number of Internet users

Year Estimated number of Internet users Availability of Personal


Computers
1992 1,000 410,000
1993 2,000 560,000
1994 10,000 800,000
1995 250,000 1,200,000
1996 450,000 1,500,000
1997 700,000 2,000,000
1998 1,400,000 2,700,000
1999 2,800,000 3,300,000
2000 5,00,0000 4,600,000
Note: Data for 1991 on Internet users is not available. The series start from 1992 because data on both is available from
this year.

39
Despite impressive growth in the number of Internet users and availability of PCs, India
remains on the wrong side of the divide (Table 7). Number of users of Internet is still a
negligible fraction of India’s total population. Per capita availability of PC is also very
low.

Table 7

Internet penetration and PC availability, 2005

Countries falling in Internet users per 10,000 PCs per 100 inhabitants
different income inhabitants
categories
Low income countries 62.21 0.59
Of which
India 68.16 0.58
Lower middle income 264.94 2.45
countries
Upper middle income 992.66 8.24
countries
High income countries 3992.87 37.31
Source: ITU, World Telecommunication Development Report 2005

Internet kiosks, telekiosks, telecottages and cybercafes have emerged in important roles in
expanding community access to ICT popularizing IT among the masses and promoting
domestic market. However, their expansion crucially hinges on the growth of
telecommunications infrastructure. In India, a spectrum of technologies has been unleashed
to connect remote villages, which includes Wireless in Local Loop (WLL), wireless cum
wired technology developed by C-DOT, radio systems, switching systems of different
capacities integrated with underground cables, Correct and medium capacity satellite
systems. Besides, a number of small-scale ICT initiatives are already at work in different
parts of the country (Box 1). It is envisaged that with the growth of telecom infrastructure
such examples would multiply and create an information society in not so distant a future.
The Government of India promoted center for the Development of Telematics (C-DOT) in

40
1984 to develop indigenous digital switches. C-DOT also designed ‘Rural Automatic
Exchange’ (RAX) and manufactured small meters, which became popular with the PCOs.

Growth Prospects: Telecom in India

Indian telecom industry has set an example by penetrating the market to an extent
of around 43% in a span of 10 years when analysts and experts were extremely skeptical
about India as a market. The growth has not been restricted only to the higher section of the
society, now it is driven primarily by the rural market as well and the acceptance has been
in-creasing considerably over the years. On an average approximately 8 million users are
added per month to the kitty thereby making India the world‘s fastest growing telecom
market and thus happens to be the country offering highest ROI for the telecom companies.
To support the growing telecom market, the government is supporting telecom
manufacturing by providing tax sops as well as setting up Special economic zones The
future for the Indian Telecom industry looks bright with fierce com-petition making way
for consolidation. The growth will be majorly driven by rural sector which is currently
attracting good investment not only from the players but also from the government. The
biggest challenge will be to keep in touch with the rural customers as setting up customer
touch points requires investment with not much tangible returns as the number of sub-
scribers is still pretty low. As of now the penetration in rural areas is around 10% as
opposed to around 30% in urban landscape. The industry currently is nicely poised with
great new policy changes and new players entering the market to make it more fruitful for
the consumers.

41
India’s Competitive Advantage

An analysis of the Indian telecom industry under the Porter’s Diamond Model reveals that
India offers a competitive advantage for firms operating in the country. India is the fastest
growing free market democracy in the world. It has a mature and dynamic private sector,
which accounts for 75 per cent of India’s GDP, and a market with enormous potential due
to its large size and diversity. It is also expected to achieve the highest growth rate among
the BRIC countries (Brazil, Russia, India and China). India offers significant business
opportunities to the services, as well as the manufacturing sectors. This is because India
offers benefits such as cost advantage in product development and back-office processing
and the large-scale availability of skilled English-speaking professionals. The middle class
population is also a significant market for any business entity. AT Kearney ranked India as
the second-most attractive democracy in its FDI confidence index. The success of MNCs is
a proof that India is an attractive investment destination. India’s huge domestic market and
buoyant economic growth have always attracted foreign investors.

Key trends in telecom industry


3G spectrum

3G spectrum will be the next growth wave in the industry and also the source of
additional revenues for the companies. Foreign players such as AT&T and NTT Do Como
have show great interest for the same. The spectrum allotment is a major investment
opportunity and is estimated to attract an investment of around US$8-10 billion during
2008-11. The state owned incumbent BSNL has successfully launched its 3G service under
the proposed ‘India-Golden 50’ scheme but could not create that much of buzz though for
not being aggressive in marketing the same. WiMax on the other hand promises seamless
connectivity with speed of more than 4 Mbps in tough terrains also. With the growing
number of smart phones entering the market coupled with buzz created by the social
networking websites, one can surely expect a substantial amount of people using their
mobile phones for the internet. The telecom ministry is planning to auction few slots in
WiMax in near future. VAS on the other hand is the constant source of revenue and a

42
means to en-gage subscribers. The expected revenue from VAS will be around US$ 4.0
billion by 2015. The con-current developments like M-Commerce, focus on localization,
availability of content in vernacular languages, availability of mobile TV are few out of
many growth drivers for the VAS industry. With the customer data at their disposal,
telecom companies are generating knowledge and information by churning out this data to
serve their customers better.

Mobile Number portability (MNP)

One of the most frequent definitions that prevail in the telecom circles for number
portability is: "Number portability is a circuit-switch telecommunications network feature
that enables end users to retain their telephone numbers when changing service providers,
service types, and or locations." Why mobile number portability (MNP)? When fully
implemented nationwide by both wire line and wireless providers, portability will remove
one of the most significant deterrents to changing service, providing unprecedented
convenience for consumers and encouraging unrestrained competition in the
telecommunications industry. In short, this is the best method to increase the efficiency of
the service provider by increasing the competition, thereby ensuring better services in all
respects. From the subscribers’ perspective, this is a deceptively simple and very welcome
change, because they can change wireless service providers without worrying about
notifying friends, family and business contacts that their wireless number is changing. In
addition, being able to ‘port’ a number from one provider to another eliminates the hassle
and expenses of changing business cards, stationery, invoices and other materials for
businesses. From the wireless carrier’s perspective the change is anything, but simple.
Virtually all of wireless carriers’ systems are affected. Especially any system that relies on
mobile identity numbers (MINs) or mobile directory numbers (MDNs) will be affected.
Examples of critical systems and processes that would be affected are: billing, customer
service, order activation, call delivery, roamer registration and support, short messages
service center, directory assistance, caller ID, calling name presentation, switches,
maintenance and CSC systems, home location registers (HLRs), and visiting location
registers (VLRs).

43
Mobile Virtual Network Operator (MVNO)

Mobile Virtual Network Operator (MVNO) is a GSM phenomenon where an


operator or company which does not own a licensed spectrum and generally with out own
networking infrastructure. Instead MVNOs resell wireless services under their brand name,
using regular telecom operator's network with which they have a business arrangements.
Usually they they buy minutes of use from the licensed telecom operator and then resell
minutes of usage to their customers of MVNO. Currently MVNOs are emerging in fast
pace in European markets and beginning in USA also. Slowly MVNO phenomenon is
catching up in Asia and other parts of the world also.

IPTV

IPTV (Internet Protocol Television) delivers television programming to households via a


broadband connection using Internet protocols. It requires a subscription and IPTV set-top
box, and offers key advantages over existing TV cable and satellite technologies. IPTV is
typically bundled with other services like Video on Demand (VOD), voice over IP (VOIP)
or digital phone, and Web access, collectively referred to as Triple Play.

Because IPTV arrives over telephone lines, telephone companies are in a prime position to
offer IPTV services initially, but it is expected that other carriers will offer the technology
in the future.

44
Subscriber numbers in (mn) held by Various Telecom Companies

Source TRAI:

30

25 Bharti Airtel
vodafone
20 BSNL
15 Idea
Reliance
10
Aircel
5 Tata
0 Others
Market share Sep'09 Market share Dec'09

45
Major Market players in Tele Communication

Operator Market share Market share


Aug''05 June''10
Bharti Airtel 19.06 22.49
Vodafone 21.81 16.96
Vodafonecomm 17.03 16.01
Idea Cellular 10.45 8.49

25

20

15 Bharti Airtel
vodafone
10
Reliance infocomm
5 Idea Cellular
0
Market share Market share
Aug''05 June''10

46
Findings and analysis

Age Group Graph

As we can see from the above graph, the people who are in the age group of 21-28 years
are the ones who are the maximum users of mobile phones. This segment is the one which
gives maximum business to the mobile operators. This segment constitutes the young
executives and other office going people. They are 65% of the total people who were
interviewed. The next age group are the

people who are 28-35 years old. They are 20% of the total. They are those who are at
home or have small business units etc. And the next age group is the youngest generation
who are 15-21 years old. They are school and college going students and carry mobile
phones to flaunt. They are 15% of the total interviewed people.

47
Occupation Graph

OCCUPATION

10% 15%

20%

55%

STUDENTS EXECUTIVES HOUSEHOLDS OTHERS

As the above graph shows that 55% of the total people interviewed are working. So, these
people are the ones who are the maximum users of mobile phones. They are the young
executives, managers, Tele - callers etc. who require mobile for their official purposes. The
next category is the households, who are either housewife, small units which operate from
their homes etc. They are 20% of the whole. The next segment is the students. They are
15% of the whole. And 10% of the whole is categories who are the professionals.

48
Type Of Card Graph

Cash cards seemed quite popular among the people interviewed. 85% of the total mobile
users were having cash card connections. This means that the cash cards should be easily
and readily available in the local markets. Airtel should make sure that Magic is available
in each and every nook and corner of the market. 15% of the people were having sim
connections which are the regular bill.

49
Monthly expense graph

People on an average spend RS 500 per month as their mobile phone expense. 64% people

Monthly Expense

12%
24%

Rs 600
Rs 450
Rs 200

64%

spend this amount. 24% people spend RS 300 per month as their monthly mobile expense.
And the remaining 12% had an expense more than RS 1000, they could the ones having
sim connections or having cash cards and having a lot of business calls on their mobiles.

50
Awareness About WLL Graph

WLL seemed to be a new word for many of the people. 45% of the people were not at all
aware of such a technology. So, in order to get the answer for this question they were first
explained the concept. Only, 55% people knew what WLL is all about.

51
Chapter VI

Swot Analysis

Strengths

 More Number of rural population (still growing) use cell phones .

 Easy to make them buy.

 Strong network has been building and increasing day by day.

 Young population interested at downloading mobile applications, games,

videos, music, themes and more of various such brands.

 People are open and flexible to new schemes and offers.

Weaknesses

 Limited reach of media, TV and print limited to regional.

 Long-term profit.

 Some Village are too far, so Logistics services may not be able to provide

on time.

 Poor Broadband connectivity.

 Recharge coupons are available only in Towns, still a limitation in rural

geographies or distant place.

 Connectivity problem in some of the regions.

 Doesn’t Shift to Post paid in the course of longer duration.

52
Opportunities

 There is wide scope for outdoors branding ( It is Visible like any other

business shops for the awareness purpose.

 Services and scope getting localized and customized to the customer'

 Rural members are getting educative this indicates there interest towards

entertainment aspects is increasing, where Nokia Life tools is solution for it

through (MBO).

 To diversify from the current activity to Multi Brand Outlets activities

Tele

Networking

 Surrounding villages with populations.

 Women as a potential target group

 Mobile Governance

Threats

 Lack of outgoing calls/messages

 Mobile activity may be idealized (because of lack of constant Income to

make it use)

 Rural members are getting educative..

 Awareness and knowledge is increasing, this means Competition is

increasing.

 Customer is highly price sensitive

53
 Changing attitude towards mobile as and when the income increases.

54
Chapter VII

Findings

 From the study it is found that there are many influencing factors like ads, family&
friends (word of mouth), retailer play an important role in selecting the service
provider.

 From the study it is found that advertisement media plays a important role in
selecting the service provider. Customers rely on advertisements in knowing about
the information regarding various operators.
 From the study it is found that customers exhibit different reasons which influence
the customers to switch the operator. The reasons vary from customer to customer.
 From the study it is found that there is a relationship between loyalty of the
customer and the occupation.
 The usage rate varies from customer to customer. There is a direct relationship
between usage rate and to the occupation.
 The monthly investment of the customers on their phone is depends on their
occupation and income level.
 From the study it is found that people irrespective of their satisfaction exhibited
switching. There are many reasons for this. These reasons vary from customer to
customer. The reasons are as follows low switching cost, fancy number, change in
usage pattern, variety seeking. Some of the respondents replied that they switched
voluntarily their operator.
 The selection of new service provider depended on their experience with the
previous service provider.
 The future plans of the customers regarding their service provider depend upon
their experience with their present service provider and their needs.
 From the factor analysis it is found that among all the factors better offers from
competitors is the most influencing factor in switching decision, frequent network
position in second place.

55
 Among the various influencing factors in selecting service provider the primary
preference is given for word of mouth advertisement followed by advertisements.
 Most of the respondents with the view that T.V ads play important role in knowing
about the service provider than any other media.
 Better offers from competitors, better service from competitor, frequent network
disruptions, network congestion on special occasions and long wait time for
customer service are the prominent factors influencing the customers to switch. Due
to competitive pressures, the mobile operators in India, at one point of time reduced
the call tariffs; this has led the customers to switch their operator. Core service
failures such as low network coverage, frequent net work disruptions, network
congestion on special occasions and inconvenience are forcing the customers to
switch to another operator who is perceived as better. Inconvenience caused by the
operator like long wait times for customer service is definitely a cause of concern.
 From the study it has been found that respondents are neutral towards some of the
factors like unknowledgeable call centre executives, high service charges,
unsolicited calls, messages, MMS which influence the customers to switch their
operator.
 From the study it has been found that usage rate plays an important role in
switching process. Heavy users of calls like business men are found to be more
interested in exploring the alternatives to minimize the overall cost.
 Respondents irrespective of their satisfaction exhibited switching. Among the
reasons for switching voluntary switching and low switching cost are given
prominent preference.
 From the study it is proved that there is a there is a relationship between consumer
brand switching and their occupation &income.

56
Recommendations

 Indian mobile operators have to invest in expanding network coverage and


providing technically superior quality services to retain customers.
 Mobile operators need to enhance the quality of service at all touch points to ensure
loyalty.
 Service providers need to build relationship with the customers to understand their
changing needs and design appropriate strategies to meet the changing needs.
 CRM plans can be implemented to identify the specific requirements of the
customers.
 Customized plans can be delivered to enhance customer satisfaction and loyalty.
 Loyalty program for existing, high volume users are another way to keep the
customers.
 Mobile operators in India should lay equal emphasis on retaining customers and
finding new customers.
 There is an imminent need to concentrate on customer loyalty as mobile number
portability is round the corner.

57
Chapter VIII
Conclusion

Telecom industry has been growing by leaps and bounds and from strength to strength.
Revenues also have been growing. The size of employment also has been growing. This
industry has been contributing to 7% of GDP on an average year after year. Apart from
providing employment and generation of revenue to the country this sector is also one of
the key areas which has unbound field to grow and the explored market to be tapped. Still
a lot of effort is required to reach the hinterlands and the remote areas which are still
untouched with the telecom revolution and such areas have the hidden potential to take the
telecom industry to another greater height of success in terms of employment and revenue
generation.

Also keeping in mind the India’s mammoth population and the area covered till today one
can easily imagine the potential hidden in this field for the industry players as well various
channel partners and employment seekers.

58
Bibiliography

 www.google.com

 www.scribd.com

 www.wikipedia.com

 www.dollero.com

 www.marketingteacher.com

 www.emerald.library.com

 www.trai.gov.in

 www.ibef.org

 www.wisegeek.com

 www.opparers.com

 www.trai.gov.in

59
60
i

ii
It may be noted that tele-density being an average, does not throw light on the distribution of telephones across various
income categories. If distribution is skewed, tele-density may not be an appropriate indicator of tele-accessibility of the
poor.
iii
ITU, World Telecommunication Development Report 2002, Geneva, 2002, p.56.
iv
Ibid., p.6. India has opted for CDMA in WLL.
v
Interview with Ian Goetz, published in tele.net, Vol. No.3, issue no. 4, April 2002, p.32.
vi
Ibid., op.cit., p.31.
vii
Ibid., p.31.
viii
3G telecoms: Let Europe’s operators free, The Economist, September 28th – October 4th 2002, p.15.
ix
Dasgupta, et.al. find econometric evidence to support that ‘difference in competition policies have much greater impact on
Internet intensity than differences in income’. Here competition is measured in terms of World Bank’s rating index, which
captures to what extent state inhibits a competitive private sector. The results suggest positive impact of competition. The
study also finds favourable impact of competition on mobile penet See, Dasgupta, S., Somik Lall and David Wheeler,
Policy Reform, Economic Growth and the Digital Divide: An Econometric Analysis, Working Paper No. 2567, World Bank,
March, 28, 2001.
x
Ibid., p.50.
xi
See for such instances, Sanctity of Contract and Rule of Law in Indian Power, Telecom and Infrastructure Sectors,
Conference document presented by Independent Power Producers Association of India, 12-13 September, 2001, New Delhi,
pp. 175-177.
xii
Government of India, Ministry of Communications & Information Technology, Department of Telecommunications,
Annual Report, 2001-2002.
xiii
Evans, Peter B., ‘Indian Informatics in the 1980s: The Changing Character of State Involvement’, World Development,
Vol.20, No.1, January 1992, p.2.