Contemporary Issues In Management.docx

Contemporary Issues in Management Report

Revolution in telecommunication industry

Submitted by Shreyansh Shah Roll No, 18038 Div. A

INTRODUCTION  The word telecommunication was adapted from the French word telecommunication. It is a compound of the Greek prefix tele- meaning 'far off, and the Latin communicate, meaning 'to share'.  The French word telecommunication was coined in 1904 by French engineer and novelist Edouard Estaunie.  Telecommunications is the transmission, between or among points specified by the user, of information of the user's choosing, without change in the-form or content of the information as sent and received.

World Telecom Industry  World telecom industry is an uprising industry, proceeding towards a goal of achieving two third of the world's Telecom connections.  Over the past few years information and communications technology has changed in a dramatic manner and as a result of that World Telecom industry is going to be a booming industry.  41 Substantial economic growth and mounting population enable the rapid growth of this industry.  The world telecommunications market is expected to rise at an 11 percent compound annual growth rate at the end of year 2010.  The leading telecom companies like AT&T, Vodafone, Verizon, SBC Communications, Bell South, and Qwest Communications are trying to take the advantage of this growth.  These companies are working on telecommunication fields like broadband technologies, EDGE (Enhanced Data rates for Global Evolution) technologies, LAN-WAN inter networking, optical networking, voice over Internet protocol, wireless data service etc.

Economical aspect of telecommunication industry  World telecom industry is taking a crucial part of world economy. The total revenue earned from this industry is 3 percent of the gross world products and is aiming at attaining more revenues.  One statistical report reveals that approximately 16.9% of the world population has access to the Internet.  Present market scenario of world telecom industry: Over the last couple of years, world telecommunication industry has been consolidating by allowing private organizations the opportunities to run their businesses with this industry.  The Government monopolies are now being privatized and consequently competition is developing.

Indian Telecom Industry  Indian Telecom industry is one of the fastest growing telecom markets in the world. The Indian telecommunication industry, with 638 million telephone (landline and mobile) subscribers and 584 million mobile phone connections as of March 2010.  India is ranked third worldwide in terms of having the largest telecommunication network, after China and USA.  With 42 the ongoing investments into infrastructure deployment, the country is projected to become the second largest telecom market globally in next few years.  In telecom industry, service providers are the main drivers; whereas equipment manufacturers are witnessing growth and decline in successive quarters as sales is dependent on order undertaken by the companies.

Indian Telecommunications Service (ITS)  The Indian Telecommunications Service, widely known as ITS, is an organized civil service of Government of India.  The service was created to meet the technical and managerial functions of the government in areas related to telecommunications.  The Department of Telecommunications (DOT) had been run for years by this permanent cadre of technical civil servants called the Indian Telecom Service (ITS).  Telecommunication sector in India can be divided into two segments namely Fixed Service Provider (FSPs) Fixed line services consist of basic services, national or domestic long distance and international long-distance services.  The state operators (BSNL and MTNL) account for almost 90 percent of revenues from basic services. Cellular services can be further divided into two categories: Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA).  The GSM sector is dominated by Airtel, Vodafone, and Idea Cellular, while the CDMA sector is dominated by Reliance and Tata lndicom.

GROWTH OF INDIAN TELECOM INDUSTRY  Telecom industry in India has undergone a revolution in the recent years. The country is ranked second worldwide in terms of having the largest telecommunication network, after China.  With the ongoing investments into 43 infrastructure deployment, the country is projected to see high penetration of Internet, broadband and mobile subscribers.  The Indian Telecom Analysis (2008-2012) report by RNCOS Industry Research Solutions shows that mobile telecom segment has surpassed all other segments in the Indian telecom sector.  The report also indicates that the advance of services such as Internet Protocol television (IPTV) and 3G are fuelling the growth of the Indian telecom sector.

 Additionally, with 3G auctions scheduled for February 13, 2010 is expected to set in motion the quick adoption of 3G-enabled handsets.  Indian telecom companies are following the trend of global telecom companies such as France Telecom, AT&T and Vodafone to capitalize on the excitement in the mobile applications space mobile service provider Aircel has partnered Infosys Technologies to launch the first mobile application sector in the Indian telecom sector.  Also, Airtel is considering partnering software company IBM to launch app stores in 2010.  This signals the increasing recognition among operators in the Indian telecom sector that the way ahead for mobile technology lies with independent developers.  In another development in the Indian telecom sector, Tata Teleservices Ltd (TTSL) has partnered Novatium Solutions Ltd to launch what is said to be the country's first cloud computing service over wireless broadband, 'Nova Navigator'.  The Navigator is being described as a 'zero maintenance' access device with features such as 3G support and plug and play printer support and multimedia support.  In a development that will provide fundamental benefits to services offered by the Indian telecom sector, Tata Communications and China Telecom Corp are to jointly build a 5004cm optical fiber cable network between the two countries in 2010.  Along with the investments of Tata Communications in other subsea cable investments, the India-China Terrestrial Cable will provide high-speed connectivity between Asia and Europe.

REVENUE AND GROWTH  The total revenue in the telecom service sector was Rs. 86,720 crores in 2005-06 as against Rs. 71, 674 crores in 2004-2005, registering a growth of 21%.  The total investment in the telecom services sector reached Rs. 200,660 crores in 2005-06, up from Rs. 178,831 crores 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 2005-2006.  Out of this 1.35 million were broadband connections. More than a billion people use the internet globally. Under the Bharat Nirman Programme, 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 2005 up from 2.3 million in December 2004.  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 2009.

TELECOM REGULATORY AUTHORITY OF INDIA (TRAI)  The entry of private service providers brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was, thus, established with effect from 20th February 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997.  The main aim is to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government. The TRAI Act was amended by an ordinance, effective from 24 January 2000, establishing a Telecommunications Dispute Settlement

and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes 45 functions from TRAI.  TDSAT was set up to adjudicate any dispute between a licensor and a licensee, between two or more service providers, between a service provider and a group of consumers, and to hear and dispose of appeals against any direction, decision or order of TRAI.

INDIAN GOVERNMENT ACTS FOR REGULATION OF TELECOM INDUSTRY  The various telecom related acts by the Department of Telecommunications India are: • Indian Telegraph Act 1885: This act empowered the government of India to take control of the existing telegraph lines and lay down the necessary infrastructure for further expansion of telecommunications in India.  Indian Telegraph (amendment) Rules 2004: This act set the guidelines for the set up and development of public telecom services in India.  Indian Wireless Act 1993: According to this act wireless telecom services could be set up only after due licensing from the telegraphy authority of India.  Information Technology Act 2000: The act defines the information technology-based communications in India. Telecom Industry of India was shown e-commerce way through this act in a legal manner.  Communication Convergence Bill 2001: This bill declared the establishment of Communications Commission of India to regulate the transfer of all form of communication including broadcasting, telecommunications and multimedia.

PROFILE OF SELECTED TELECOM COMPANIES IN INDIA

Aircel Cellular Ltd.  Aircel is a mobile phone service provider in India. It offers both prepaid and post-paid GSM cellular phone coverage throughout India.  Aircel is a joint venture between Maxis Communications of Malaysia and Apollo Hospital Enterprise Ltd., of India.  It is India's fifth largest GSM mobile service provider with a subscriber base of over 27.7 million, as of October 31, 2009.  As on date, Aircel is present in 18 of the total 23 telecom circles and with licenses secured for the remaining 5 telecom circles, the company plans to become a pan-India operator by 2010.  Aircel commenced operations in 1999 and became the leading mobile operator in Tamil Nadu within 18 months. In December 2003, it launched commercially in Chennai and quickly established itself as a market leader a position it has held since.  Aircel began its outward expansion in 2005 and met with unprecedented success in the Eastern frontier circles. It emerged a market leader in Assam and in the North Eastern provinces within 18 months of operations. Till today, the company gained a foothold in 18 circles.

Idea Cellular Limited  Idea Cellular is a wireless telephony company operating in all the 22 telecom circles in India based in Mumbai.  It is the 3rd largest GSM Company with over 67 million subscribers in India behind Airtel and Vodafone and ahead of state-run player BSNL.  The company is part of the Aditya Birla Group. It provides wireless and long-distance voice and internet services to consumer and enterprise markets.  IDEA Cellular is a publicly listed company, having listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in March 47 2007.  A frontrunner in introducing revolutionary tariff plans, IDEA Cellular has the distinction of offering the most customer friendly and competitive PrePaid offerings, for the first time in India.

 The company has operations in Delhi, Himachal Pradesh, Rajasthan, Haryana, Uttar Pradesh (W) & Uttaranchal, Uttar Pradesh (E), Madhya Pradesh & Chhattisgarh, Gujarat, Maharashtra & Goa, Andhra Pradesh and Kerala with the planned expansion into Mumbai, Bihar & Jharkhand.  The company was incorporated as Birla Communications Limited on March 14, 1995 and granted a certificate of commencement of business on August 11, 1995.  The following year, the company entered into a joint venture with Grasim Industries and the global telecom giant AT&T. The same year, its name was changed to Birla AT&T Communications Limited.  A merger with Tata Cellular Limited took place in 2000. In 2002, the company created the brand 'Idea' and changed its name to Idea Cellular Limited. In 2006, the Tata Group transferred all its shares to the Aditya Birla Group and the group became the largest shareholder in the company.  In 2007, Idea came with an IPO and got listed on the bourses - the same year it reached the subscriber base of 20 million.

Reliance Telecom Limited  Reliance Telecom Limited provides cellular services in India. Reliance Communications formerly known as Reliance Info COMM, along with Reliance Telecom and Flag Telecom, is part of Reliance Communications Ventures (Recoil).  Reliance Telecom Limited (RTL) is a wholly-owned subsidiary of the Reliance Communication Limited, a member of reliance ADA group, Reliance ADA group's flagship company.  RTL has undertaken a major expansion and increased its coverage to 6300 towns. This has enabled RTL to significantly scale up subscriber base to 11.5 million as of march 31, 2009. RTL.  48 The Equity Shares of RCOM are listed on Bombay Stock Exchange Limited and National Stock Exchange Limited. RTL operates in Madhya Pradesh, West Bengal, Himachal Pradesh, Orissa, Bihar, Assam, Kolkata and Northeast offering GSM services.  According to National Stock Exchange data, Anil Ambani controls 66.75 percent of the company, which accounts for more than 1.36 billion shares. Reliance Communications Limited founded by the late Shri Dhirubhai H

Ambani (1932-2002) is the flagship company of the Reliance Anil Dhirubhai Ambani Group.  RTL began its operation in 1997. The company was incorporated in 1994 and is based in Navi Mumbai, India.  As of September 8, 2006, Reliance Telecom Limited operates as a subsidiary of Reliance Communications Ltd

Tata Communication Ltd.  Tata Communications Limited Formerly known as Videsh Sanchar Nigam Limited.  It is a leading global provider of a new world of communications. The Group's principal activity is to provide global communication solutions.  The Group operates in three segments: Wholesale Voice, Enterprise and Carrier Data and Others. Wholesale Voice includes international and national voice services; Enterprise and carrier data includes corporate data transmission services like international private leased circuits (IPLC), frame relay (FR), internet leased line circuits (ILL) and national private leased circuits (NPLC).  The Group operates in India, the United Kingdom, Saudi Arabia, the United States of America, Singapore, United Arab Emirates and Other countries.  Tata Communications Limited is listed on the Bombay Stock Exchange and the National Stock Exchange of India and its ADRs are listed on the New York Stock Exchange. (NYSE: TCL). 49 In 1986, VSNL was formed as a Government of India-owned company.  In 1996 Tata Teleservices is established to spearhead the group's foray into the telecommunication sector. In the year 2000, VSNL was the first Indian PSU to be listed in the NYSE. Tata Indicom, the umbrella brand for Tata telecom services, starts operations. Later in 2002, Tata Group acquired controlling stake in VSNL which was later expanded to 46%.  In 2008, VSNL was renamed as Tata Communications Limited. The year 2009, Tata Communication and Tyco Telecommunication complete TGNintra Asia cable system.

Vodafone India Limited  Vodafone Essar, formerly known as Hutchison Essar is a cellular operator in India that covers 23 telecom circles in India based in Mumbai.  Vodafone Essar is owned by Vodafone 67% and Essar Group 33%. It is the second largest mobile phone operator in terms of revenue behind Bharti Airtel, and third largest in terms of customers. Vodafone crossed 100 million subscribers in India as on march 2010.  Despite the official name being Vodafone Essar, its products are simply branded Vodafone. It offers both prepaid and post-paid GSM cellular phone coverage throughout India with good presence in the metros. It is among the top three GSM mobile operators of India.  In 1992 Hutchison Whampoa and its Indian business partner established a company that in 1994 was awarded a license to provide mobile telecommunications services in Mumbai and launched commercial service as Hutchison Max in November 1995. In 2006, it announced the acquisition of a company  In February 2007, Hutchison Telecom announced that it had entered into a binding agreement with a subsidiary of Vodafone Group Pic to sell its 67% direct and indirect 50 equity and loan interests in Hutchison Essar Limited for a total cash consideration (before costs, expenses and interests) of approximately US$11.1 billion or HK$87 billion. Bharti

Airtel Limited Bharti  Airtel Limited, a group company of Bharti Enterprises, is among Asia's leading integrated telecom services providers with operations in India, Sri Lanka and Bangladesh.  It is known for being the first mobile phone company in the world to outsource everything except marketing and sales.  Bharti Airtel Limited is the largest cellular service provider in India, with more than 135 million subscriptions as of May 2010.  It is formerly known as Bharti Tele-Ventures LTD. (BTVL) is an Indian company offering telecommunication services in 18 countries.  The services provided by the company are Mobile Services, Telemedia Services, Enterprise Services, Digital TV Services, and Passive Infrastructure Services.

 Bharti is now the world's third-largest, single-country mobile operator and Fifth-largest integrated telecom operator.  It offers its TELECOM services under the Airtel brand and is headed by Sunil Bharti Mittal. Providing GSM services in all the 23 circles, Airtel was the first private player in telecom sector to connect all states of India. Bharti Airtel Limited ('Bharti Airtel or 'the Company') was incorporated on July 7, 1995 under the laws of India for promoting investments in telecommunication services.  Airtel is the First private operator to offer fixed line telephony in June 04, 1998. In February 18, 2002 the company became a public limited company in India.  In March 30, 2005 it grows to first telecom company to have an all India mobile footprint (Presence in all 23 telecom circles in India).  In 2000, Bharti acquired Bharti Telenet. The Group's principal shareholders at March 31, 2009 included Bharti Telecom Limited 51 and Singapore Telecommunication International Private Limited. With effect from April 24, 2006, the name of the Company has been changed from Bharti TeleVentures Limited ('BTVL') to Bharti Airtel Limited.

Uninor  Uninor is an Indian mobile network operator based in Gurgaon, India. The company holds Unified Access Service (UAS) licences to offer mobile telephony services in each of India’s 22 telecom circles, and has received spectrum to roll out services in 21 of these (excluding Delhi).  The company is a joint venture between Telenor Group, a telecommunications company headquartered in Oslo, Norway, and Unitech Group, an Indian real estate company.  Telenor owns a controlling majority stake in the company (67.25%), which has been branded Uninor in the Indian market. Uninor offers mobile voice and data services based on the GSM technology, currently on a 4.4 MHz spectrum.  Uninor services are commercially available in 13 circles across India. With a ‘value for money’ proposition in the market. Uninor targets youth and other communities within the Indian mass market.  As of December 2011, Uninor has 36 million customers and a total workforce of 17,500 people.

 The company has more than 22,000 partners in India. Uninor products and services are available from a more than 375,000 retail outlets serviced by 1,900 distributors all over the country. The company Unitech Wireless was until 2009 a subsidiary of Unitech Group, holding a wireless services licence for all 22 Indian telecom circles since 2008.  In early 2009, Unitech Group and Telenor agreed to enter a joint venture where Telenor Group would inject fresh equity investments of 52 INR 61.35 billion into Unitech Wireless to take a majority stake in the company.  This was operating capital invested directly in Unitech Wireless by Telenor Group. Telenor Group conducted these investments in four tranches, and subsequent to approvals from the Indian Foreign Investment Promotion Board (FIPB) and the Cabinet Committee of Economic Affairs (CCEA) took 67.25% ownership of Unitech Wireless.  In September, the company announced its brand name as Uninor. Uninor launched its first eight circles on 3 December, 2009, after completing one of the world’s largest GSM Greenfield launches which was also one of the fastest telecoms roll-outs ever in India.  The brand was built around an ambition to serve the young, aspiring India. Six months later, five additional circles were launched including metros like Mumbai and Kolkata, making the brand commercially operational in 13 telecom circles of India.  These circles together account for over 75% of India’s population. Uninor has facilitated rapid scaling of the company through a lean operation model, where a large share of the network infrastructure is outsourced to business partners.  With a relatively recent infrastructure in place, Uninor operates one of the most modern GSM networks in the country. Uninor’s modern equipment has enabled it to introduce targeted offerings and serve a large audience with limited spectrum. [citation needed] As the first mobile operator in India, Uninor introduced Dynamic Pricing, a concept that gives consumers discounts that are based on current network traffic at an individual site and change with location and time.  About 40% of Uninor’s customers are on a Dynamic Pricing plan. Over the summer of 2010, the company further simplified its strategy with a focus on three core areas excellence in mass market 53 distribution, basic services and cost-efficient operations.  Changes were also made to the product mix and marketing communication making them simpler, more direct and clearly positioning Uninor as an

affordable mass market service. Uninor has grown from 0 to 36 million customers (as of December 2011) within less than two years, and is now emerging as the most successful of the new entrants that obtained licenses in 2008. The company has more than double the subscribers of all of the other entrants combined.

Entry of New Players  Reliance Jio took the cellular industry by storm last immediately after its entry into the market. Ever since the Mukesh Ambani led company has entered the race, it looked like its competitors were looking at a “Us against Jio” kind of war. Jio has rolled on like a juggernaut almost squeezing out every bit from three of the largest players in India namely, Bharti Airtel, Vodafone and Idea Cellular by strongly grown its subscriber base since its launch in September last year. According to TRAI, last month the telecom subscriber base in India crossed the 1.2 billion mark and Jio led the race for the greatest number of new additions. Reliance Jio added 4.7 million users’ months on month as compared to its competitors. Airtel added 2.09 million new customers followed by BSNL, Vodafone and Idea Cellular.

How has Reliance’s entry affected the results of the top 3?

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Bharti Airtel The subscriber base for Airtel did not feels a massive blow. In the quarter that ended in September 2016, Airtel had 36308.8 crore subscribers and by the end of December 2016 there was only a marginal rise in the number and it stood at 36456.4 crore. The fourth quarter that ended In March 2017 saw Airtel have a registered user base of 37235.4 crore while in the latest quarter release (Q1) the subscriber base stood at 37987 crores. Unlike its user base, Airtel felt the shock of Jio’s entry in its total revenue earning. In the quarter ended September 2016, the total revenue was Rs 24651.5 crore and by the third quarter last financial year the revenue dropped to Rs 23335.7 crore. The total revenue dropped further in the last quarter for the financial year as Airtel recorded a revenue of Rs 21934.6 crore but saw a marginal rise in the first quarter this financial year as the total revenue stood at Rs 21958.1 crore. It looks like Airtel saw a humungous loss with the entry of Jio. The net income had the largest setback as it dropped 75 per cent year on year to Rs

367 crore while this was a marginal drop from the previous quarter which was recorded at Rs 374 crore rupees.  The net income in the quarter ended December was Rs 503 crore as compared to Rs 1460.7 crore in the quarter that ended in September.

Vodafone  On 20 March 2017, Vodafone announced an agreement to combine its subsidiary, Vodafone India (excluding its 42% stake in Indus Towers), with Idea Cellular.  During the first quarter Vodafone’s customer base grew by 2.9 million (Q4: 4.4 million) and ended the quarter with a closing customer base of 211.9 million.  Data browsing revenue declined -20.4%* (Q4: -15.9%*) reflecting further ARPU dilution from lower unitary prices, which declined -67% year-onyear (Q4: -38%).  Vodafone recorded a 14.2% decline in voice revenue in the April-June period as compared to the 13.2% fall in the prior quarter, the company said “The benefit of higher incoming revenue and a larger customer base was offset by a 32% on-year decline in voice prices as the market moved to unlimited voice tariffs.”

Idea  Idea’s subscriber base has seen a growth in all the previous quarters except Q1 this year where the customer base stood at 189 million as compared to 189.5 million in the previous quarter ended in the last financial quarter (Q4).  By the end of Q2 last financial year the customer base was 185.2 million as compared to 178.8 million in Q1. The company reported losses of Rs 385 crore between the second and third quarter while between the fourth quarter of the last financial year and the first quarter this financial year the losses were reported at Rs 815.9 crore.

 Even though Airtel and Vodafone have had a decent run in increasing their subscriber base, while Idea has just seen a marginal change there is no evidence of successful incomes and revenues.  Over and above the raging war between telecom industries customers are making the most of low call rates and data charges.  With the merger of Vodafone and Idea slated for next year and the with reports doing the round for Idea’s smartphone that will compete with Reliance’s Rs 1500 phone, the next three quarters will reveal a clearer picture of the cut-throat economic scenario in the Telecom sector

Merger

Idea - Vodafone Merger  The Idea-Vodafone merger is definitely one of the biggest deals in the telecom industry so far.  The merger, expected to be completed by 2018 marks the first consolidation in the domestic telecom market since the entry of Reliance Jio which has posed as formidable competition against the existing players.  Earlier on Friday, the Aditya Birla group firm said that the new entity born out of the Idea-Vodafone merger is named Vodafone Idea.  After merger, the entire business of Vodafone India and Vodafone Mobile Services - excluding Indus Towers' investment, international assets and IT platforms - will vest in the company.  Vodafone will own 45.1% of the combined company after transferring a 4.9% stake to the Aditya Birla Group for $579 million in cash, concurrent with completion of the merger.  The Aditya Birla Group will own 26% of the combined company and Idea's shareholders the remaining 28.9%.  The merged entity will become the world's largest telecom operator and a leading communications provider in India "with almost 400 million customers, 35% market share, and a 41% revenue market share," according to Vodafone India  The combined company will have sufficient spectrum to compete effectively with the other major operators in the market.  It would hold 1,850 MHz, including circa 1,645 MHz of liberalised spectrum acquired through auctions.  It will be capable of building substantial mobile data capacity, utilising the largest broadband spectrum portfolio with 34 3G carriers and 129 4G carriers across the country.  The merged entity will leverage Idea's leadership in semi-urban and rural telecom markets and Vodafone India's strong presence in metro cities to cater to a pan-India audience and allow for nationwide leadership within Indian Mergers & Acquisitions (M&A) guidelines.  Ahead of the merger transaction, Vodafone and Idea intend to sell their standalone tower assets and Idea's 11.15% stake in Indus Towers to reduce leverage in the combined company.  The transaction will cut Vodafone Group's net debt by nearly Rs 54,552 crore.

 The merged entity will be jointly controlled by Vodafone India and the Aditya Birla Group.  While the Aditya Birla Group will have the sole right to appoint the Chairman (as one of its three directors. Accordingly, the Group's chairman Kumar Mangalam Birla will be the chairman of the combined entity.  However, Vodafone will have the sole right to appoint the chief financial officer. The COO and CEO for the merged entity will be jointly picked by Vodafone and Idea.

Exit Exit of Telenor from Indian Telecom industry  Telenor wrapped up its ill-starred India venture by agreeing to sell the business to market leader Bharti Airtel NSE 1.94 %, which will take on some of the Norwegian telecom giant’s local liabilities in return.  The acquisition, which comes amid market consolidation, will boost Bharti’s 4G airwaves and revenue market share, strengthening its hand in the battle against Reliance Jio Info COMM.  The move marks the end of Telenor’s bid to gain a share of the world’s biggest telecom market after China.  The exercise saw the company forming a partnership that was embroiled in one of India’s most high-profile corruption scandals and having all its licences scrapped by the Supreme Court as a result.  Under pressure from competition, the parent was forced to mark down the value of its local unit by 6.3 billion kroner (Rs 5,000 crore/$760 million) last year.  Bharti will take over outstanding spectrum payments worth around Rs 1,650 crore and other operational contracts, including tower leases with Bharti Infratel and Indus Towers, besides employees and 44 million customers, taking India’s biggest phone company to 300 million subscribers.  “The decision to exit India has not been taken lightly. After thorough consideration, it is our view that the significant investments needed to secure Telenor India’s future business on a standalone basis would not have given an acceptable level of return,” Telenor Group’s global CEO Sigve Brekke said in a joint statement on Thursday  The India unit will be treated as an asset held for “sale and discontinued operations” in Telenor Group’s financial reporting from the first quarter of 2017.  Telenor has operations in the six telecom circles — Andhra Pradesh, Bihar & Jharkhand, Gujarat, Maharashtra, Uttar Pradesh (East) and UP (West).  It also has spectrum in Assam where it hasn’t started operations. These seven circles contribute about 35% to Airtel’s total revenue. “On completion, the proposed acquisition will undergo seamless integration, both on the customer as well as the network side, and further strengthen our

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market position considerably in several key circles,” said Gopal Vital, managing director, India and South Asia, Bharti Airtel. Bharti Airtel’s stock surged to a 52-week high on the BSE on the news, before ending at Rs 366.05, up 1.4%, on Thursday. Telenor’s exit reflects the underlying trend of consolidation in the India telecom market that has been spurred by the free voice and data services offered by Mukesh Ambani-controlled Jio. Anticipating tougher times with Jio’s entry, fringe players like Videocon have exited while larger ones such as Idea Cellular and Vodafone India, and Reliance Communications NSE -3.11 %, Aircel and MTS are in consolidation mode. Telenor though has had a rough ride ever since it started operations in late 2009 in partnership with real estate company Unitech under the Uninor brand. Although it won licences to offer nationwide services, all of them were cancelled in the judgement on the so-called 2G scam in 2012. The company fell out with its partner, which soon had troubles of its own, but decided to persevere in the world’s second-biggest market, taking sole ownership of the unit in 2014, after the rules were changed in 2013 to allow this. Having bought back spectrum in separate auctions in seven circles, the renamed Telenor India played the price card, offering services at almost half that of its bigger rivals to gain subscribers, even becoming EBITDA positive on the back of cost efficiencies. But with Jio looming on the horizon, it struggled to compete as all operators slashed prices and it started losing subscribers, market share and revenue, posting ebbtide losses as investments to modernise and deepen its network increased. The company didn’t participate in the October spectrum auctions, signalling that it was ready to throw in the towel. Telenor’s accumulated losses in India amount to 24 billion krone and it has assets in the country of just 0.3 billion kroner. The sale won’t lead to parent Telenor taking any impairment charges. “We believe today’s agreement is in the best interest of our customers, employees and Telenor Group,” Brekke said. Industry experts said the deal is beneficial for Bharti Airtel which will inherit a top line of close to Rs 4,800 car along with valuable spectrum estimated to be worth Rs 5,200 cr in the 1800 MHz 4G band.

 “The total value of spectrum held by Telenor is about Rs 7,000 crore at the 2016 auction prices.  Out of this, the net present value of the airwaves after deducting the amortised bandwidth is about Rs 5,200 crore,” a person with direct knowledge of the deal told ET, adding that Airtel was acquiring the spectrum for liabilities worth just Rs 1,650 crore.  Bharti Airtel, which bought nearly 174 MHz of airwaves across the 4G bands of 1800 MHz and 2300 MHz in the last auctions, hadn’t bought 1800 MHz airwaves in UP (West), UP (East), Bihar, Andhra Pradesh and Gujarat, five circles that are among the most lucrative in terms of subscriber 1/28/2019.  After the deal, Bharti’s revenue market share will increase by 2.6 percentage points at an all-India level, taking it to about 35.6%, narrowing the gap with a combined Vodafone-Idea entity that may emerge following negotiations.  It’s not clear whether contract staff will keep their jobs. “Airtel may absorb all of about 700-800 employees on Telenor’s rolls.  However, the fate of the rest of some 4,100 employees (mostly contract workers) is in doubt,” said the person cited above. Another person said that the worst hit will be those in functions such as sales and marketing, which will be duplicated in the six circles

Road Ahead Future of Indian telecom industry  India has had delayed roll-outs of 3G and 4G mobile technologies in the past. But the Narendra Modi government’s promise of Digital India requires coordinating India’s launch of 5G with its global arrival.  There is a significant hurdle, however: The telecom industry’s stressed finances are likely to play spoilsport.  Unlike 3G and 4G, which largely offered improvements in data transfer speeds on smartphones, 5G will allow a universe of connected devices to interact with each other.  The key feature is dramatically reduced latency of less than 1 millisecond (Ms) from the present 50ms, along with up to 10 gigabytes per second speed and higher bandwidth.  This will enable applications that could not have been possible with longer response times. For example, remote surgery or telepresence would not work if it took time to relay the remote user’s response over the network.  A more vivid example would be that of driverless cars, which should be able to “talk" to each other seamlessly across blind turns to prevent accidents.  There are good reasons why India should be at the forefront of the digital revolution. Future growth is going to come from applications and services based on technologies such as the Internet of Things, automation and Artificial Intelligence (AI).  Telepresence and remote servicing will be a ubiquitous substitute for people taking a flight, and driverless cars may lead to a disruption in the automobile industry.  India wants to create 100 smart cities that will have intelligent power and urban utility systems.  All these applications will provide a good opportunity for the services industry as more areas demand cloud computing, Big Data, AI and machine-learning applications.  Home-grown giants such as Ola, Flipkart and Zomato have shown that they can build competitive applications and compete with global giants on an equal footing.

 A timely roll-out of 5G will allow Indian entrepreneurs a chance to experiment alongside their global competitors.  But, of course, there are stressed finances to contend with. The arrival of Reliance Jio Info COMM has forced the widespread adoption of 4G while simultaneously stressing revenue streams.  Upgrading to 5G by 2020, as the government hopes, will require massive infrastructure investment.  The 2017-18 Economic Survey noted, “It is important to note that the telecom sector is going through a stress period with growing losses, debt pile, price war, reduced revenue and irrational spectrum costs.  If the situation wasn’t grave enough, the unfeasibility of a 2020 5G launch truly becomes apparent in light of the fact that unlike in the US and China, where most towers are backhauled using fibre, more than 75% of the towers in India still employ legacy microwave transmission systems.  Finally, since 5G works in high-frequency bands (also called millimetre waves), its range is restricted.  That necessitates the deployment of dense networks—i.e. more than twice the number of towers needed today.  Thus, the launch is likely to be spatially fragmented, avoiding areas that are uneconomical for investment.  That is ironic, given that 5G is expected to empower remote locations by providing services such as advanced healthcare, high-quality, low-cost education, constantly modulated energy use, and the ability to work remotely.  This sorry state of India’s telecom infrastructure casts serious doubts on the timely launch of 5G services. That will not, however, diminish its indispensability in the global value chain.  Given its strategic importance, the government needs to focus on accelerating the 5G roll-out.  The Bharat Net initiative to connect all of India’s gram panchayats with the fibre network is remarkable.  But if the roll-out is left for the industry to oversee in the given policy paradigm, India could lose important opportunities for growth.  Under the new National Digital Communications Policy, 2018, the government plans “optimal pricing of spectrum", and a review of levies such as licence fees and spectrum usage charges.

 If it follows through on these promises, it will ease the industry’s financial stress. Spectrum pricing in India is among the highest in the world, and an explicit move away from revenue maximization will inspire confidence in the industry.  Easing financial stress will not be enough, however. The telecom sector entails playing a long game with high up-front capital costs.  Regulatory clarity, certainty and simplicity are musts for enabling investment.  Countries such as the US and China that are leading the 5G charge recognize this and are updating their regulatory regimes. India must follow suit.  For instance, obtaining right of way (Row) permission from local governments to install fibre networks has been a bottleneck that hasn’t been resolved even after the department of telecom’s Row rules.  Many states are yet to implement the single-window system under the Row rules passed in November 2016, and local bodies are continuing to see clearances as a source of revenue rather than impediments in setting up critical infrastructure.  Effective implementation of the Row policy is critical for the expansion of fib erization from the present levels of around 20% to the target of 80% necessary for a widespread roll-out of 4G, which is a prerequisite for 5G.  Fast fib erization of existing infrastructure and reasonably priced spectrum will be critical to the deployment of a reliable 5G network, which could be the backbone of India’s future economic progress.