Telecom Industry - An Overview

Telecom Industry – An Overview

1.    Industry Details

1.1    Telecom Operators

The overall tele-density in India rose to 34.50% in Jan 2009. Thetelecom industry in India is broadly divided into three core segmentsnamely

i) fixed phone service

ii) mobile phone service

iii) broadband and internet service.

Fixed Line Phones: India had a total of 37.25 million fixed linesubscribers by October 2009. BSNL and MTNL, two major PSUs, are majorplayers in the fixed line telephone market, given their historicalpresence. But recently private players like Reliance, TataTeleservices, Airtel have also started  providing the fixed phoneconnections, primarily in urban areas.

Mobile Phones: India has been divided into 19 business regions and fourlarge city service regions in the mobile market, and to service the, 78licenses have been issued to 22 companies. Currently, there are over140 GSM and CDMA operators in India. There were 488.4 million mobilephone subscribers in India by October 2009. Airtel, Reliance, TataTeleservices, Vodaphone are the major private companies and BSNL, MTNLare the major PSUs providing mobile phone services in India

Broadband and Internet: In 1998, the Indian government announced anopen-door policy for Internet, and now more than 400 operators have gotthe ISP license.
 
1.2    Telecom Infrastructure

Infrastructure is a substantial business component in the telecomindustry. The telecom infrastructure is divided into three major areasnamely

1.    Passive Infrastructure like tower, antenna mounting structure, power supply, battery bank, inverters etc.

2.    Backhaul which is basically the network consisting of theintermediate links between the core network and various sub-networks


3.    Active infrastructure like base tower station, microwave radioequipment, switches, antenna, transceiver for processing andtransmission

In India, the big telecom operators have their own infrastructuresubsidiaries like Bharti Infratel Limited from Airtel, RelianceInfratel Limited from Reliance, Wireless TT Infoservices Limited fromTata Teleservices, Indus Tower Limited (joint venture of Airtel,Vodafone and Idea). But recently independent tower infrastructurecompanies like GTL Infrastructure, Essar Telecom Infrastrucuter, XcelTelecom and Aster Infrastructure have also entered the telecominfrastructure market to provide services to the new operators, who areaverse to incurring huge initial costs in setting up theinfrastructure.

1.3    Telecom Revenues

Though India has huge mobile phone coverage, the average revenue peruser (ARPU) is one of the lowest in the world. The average blended ARPUin India is around $5, even below a good numbers of African countries.Of this, 22% to 27% is rental revenue and 55% to 60% is the voicerevenue. The revenue from VAS is just around 7% and within this, theSMS revenue is 55% and the digital music download revenue is 35%.

2.    Trends

2.1    Technology

In India, the current telecom operators operate on GSM or CDMAtechnologies which are basically 2G technologies. There is also GPRStechnology (2.5G technology) deployed only for data transfer currentlyin India. But India will soon adopt the 3G technology (Indiangovernment is in the process of inviting bids for 3G spectrum) andWiMAX, CDMA 2000, UMTS (Universal Mobile Telecommunication System),HSPA (High Speed Packet Access) seems to be popular in the 3G space.These technologies will give a significant improvement on the downloadspeed compared to the current one. For example, the WiMAX technologyprovides 70 Mbps of download speed. The 4G technology like LTE, whichgives 160 Mbps of download speed is still in the R&D stage and isexpected to be deployed in India around 2012-2013.

2.2    Infrastructure

The telecom infrastructure business needs the economies of scale forsurvival due to its high fixed cost and low variable cost model. Due tothis factor, more and more operators are opting for renting/ sharing ofthird party infrastructure instead of purchasing and managing theirown. This also helps new operators to roll out services in newgeographies within a short time period. Besides there are acquisitionsand mergers happening in this arena apart from a substantialconsolidation of devices and development of multi-service devices tointegrate various functionalities in a single device .

2.3    Revenue

With the increase in tele-density, India is reaching a saturation pointin terms of increasing revenues by just having more and moresubscriber. The next big revenue push is expected to come from MVAS(mobile value added services). With the introduction of 3G and 4Gtechnologies, MVAS is expected to grow at a CAGR of 40% to 50%.  MobileTV, full motion video, wireless teleconferencing, multi player online,among others, are expected to be revenue earners in the next generationMVAS applications besides traditional applications like ringtones,video clips, info services etc

2.4    Others

Two other very important trends in the Indian telecom industry are theadoption of phones with multiple SIM cards and mobile numberportability. With cheap new connections and a huge chunk of pre-paidcustomers  (which logically implies they need to pay only if they use),Indian consumers prefer phones with multiple SIM cards to get thebenefits of schemes from multiple operators
Though till now mobile number portability is not operational in India,the government  plans to introduce it very soon, which will, in turnincrease competition among the operators

3.    Challenges

The Indian telecom market has two major categories of markets and the operators have different challenges in each of them.
The metro cities and the urban markets are quite saturated in terms oftele-density. So there is very little scope in terms of new customeracquisition in this market and that’s why the operators are trying tofocus more and more value added services (VAS) to add to their revenues.

In the rural markets, though, there is a huge potential customer base,a lack of proper telecom infrastructure, power shortage, lack oftrained manpower are the challenges which to the companies have tocontend with.  Additionally, due to lower purchasing power, the ARPU ispretty much low in the rural market, which acts as a disincentive tothe operators.