Telecommunication

Telecommunication Group 9 Mayank Kapur (25) Parisha Dalmiya (32) Sankalp Sharma (44) Varun Gupta (55) Vibhuti Sharma (57)

Overview: Indian Telecom Industry

Overview…Facts • Fastest growing telecom market; • To become second largest telecom market in world by 2010; • Total subscriber base: 479.07 million; • Last month additions: 14.38 million; • Tele density: 41.08%; • CAGR: more than 50% (since 2003); • Wireless subscriber base: 441.66 million; • Wire line subscriber base: 37.41 million.

Source: trai

Overview…Facts Total broadband subscriber base: 6.80 million; Monthly broadband growth rate: 2.7%; Urban region teledensity: 88%; Rural region teledensity: 16.54% (by May 2009); Expected mobile subscriber base by 2012: 690 to 700 million; • ARPU per month: INR 205 (by Mar 2009) • • • • •

Source: trai

Overview…Facts • Divided into 23 circles

Jammu & Kashmir

– 4 metros

Himachal Pradesh Punjab

– 19 circles Further divided into A, B and C category based on

Haryana

Uttar Pradesh W

DELHI Rajasthan

Uttar Pradesh E Bihar West Bengal

Madhya Pradesh

Gujarat

Orissa

Maharashtra

KOLKATA

MUMBAI Andhra Pradesh

Karnataka

METRO Circles CHENNAI Tamil Nadu Kerala

A Circles B Circles C Circles

Success story • The subscriber base grew to 464.82 millions on June 2009, registering a growth of approximately 43% over last year.

• On Jun 09, Indian teledensity stood at 41.08% as compared to 28.33% last year.

Source: trai

Paradigm Shift in Telecom scenario • Traditionally, a government owned monopoly : BSNL incumbent monopoly operator till 1992 • Characteristics of monopoly: – – – –

A single seller Unique product Blockaded entry and exit Price makers instead of takers

• Duopoly existed with bharti and BSNL being the two players.

Contd… – Bharti: cellular service – BSNL: fixed line service – NTP 94 allowed one private service provider to compete in basic services with DoT . It allowed duopoly in cellular mobile services in each circle.

• Oligopoly -> Open competition – Majors players include BSNL, MTNL, bharti, vodafone, reliance, Tata indicom, Idea. – Handful of competitors sheltered by significant barriers to entry – Price/output relationship of firms are interrelated – Sellers have homogenous or unique products.

USD

Tariffs

Local call charges decreased from Rs. 18 in 1999 to Rs. 0.5 now. • National call charges decreased from Rs. 35 pm to •

Market share • Currently 12 major players. • Bharti occupies approx. 24% of the total wireless market.

Source: trai

Internet Services • •

•

 India currently has only 13.54 million Internet subscribers, which includes broadband. There were 13.54 million Internet subscribers at the end of March 2009 as compared to 12.85 million Internet subscribers at the end of December 2008 registering a growth of 5.30%. The number of Broadband subscribers (with a download speed of 256 Kbps or more) was 6.22 million at the end of March 2009 .

Source: trai

Regulating Bodies and policies

Regulating Bodies Regulates the sector and fix tariffs

Indian Telecom Industry Framework Licensing and Frequency Management Adjudicates over disputes in telecom sector

Regulatory Framework Policy • New Telecom Policy 1994 – provision of world class services at reasonable prices; – ensuring India’s emergence as major manufacturing/export base of telecom equipment; – Availability of basic telecom services to all villages; – 1 PCO per 500 urban population and coverage of all 6 lac villages; – License distribution to private players. • The private sector entry has been slower than what was envisaged in the NTP 1994; • Actual revenue lesser than the projections; • Unable to fulfill some of the objectives.

Regulatory Framework Policy • New Telecom Policy 1999 – Strengthening of Regulator; – Strengthen research and development efforts in the country and provide an impetus to build world-class manufacturing capabilities; – Encourage development of telecommunication facilities in remote, hilly and tribal areas of the country; – Enable Indian Telecom Companies to become truly global players; – Achieve efficiency and transparency in spectrum management; – Provide Internet access to all district headquarters by 2000;

Regulatory Framework Policy • Universal Services Obligation – implemented along with NTP ’99 to widen the reach of telephony services in rural India. – All telecom operators are bound to contribute five per cent of their revenues to this fund. – Bridge the wide gap between urban and rural teledensity.

• Unified Access Licensing Regime (UALR 2003) – Eliminated the need for separate licences for different services; – Allows players to offer both mobile and fixed-line services under a single licence after paying an additional entry fee; – does not take into account the national and international long-distance services and Internet access services.

Integrated Operators

Integrated Operators • Provide services in all categories i.e. local calling, national calling, international calling, broadband as well as landline. • Example: Airtel, Reliance, BSNL etc. The typical services of an integrated operator like Reliance would include: • • • • • • •

Reliance Reliance Reliance Reliance Reliance Reliance Reliance

mobile global call- between 4 continents passport- U.K , U.S.A and Canada PCO Netconnect – broadband Hello –landline service international calling

Example.. • Advantages: – Better, cost effective services; – Improves market share through presence in all areas; – High costumer retention through integrating his all telecom related requirements; – Enjoy internal economies of scale

Competition

Degree of Competition • •

Indian mobile market much more competitive than many other countries. HHI Index for few countries (for fiscal year ending mar 2009):

HHI Analysis

HHI in mergers: • Example: Airtel + Vodafone(Combined market share 39%) •

Initial HHI: 1620 (Mod. Conc.)

•

New HHI: 2356 (High Conc.)

•

Change in HHI: 736

•

This greatly reduces competition.

Investment and Opportunities…

FDI • The Indian government allows FDI of up to 74 per cent, subject to licensing and security requirements, in the following categories: – – – –

Basic and cellular services National/international long distance Internet services (providing service gateway) Infrastructure providers (Category-II)

• The Indian government allows FDI of up to 100 per cent in the following categories: – Manufacturing of telecom equipment – Internet services (not providing international gateways) – Infrastructure providers providing dark fibre, right of way, duct space, tower (IP Category-I)

Opportunities for Growth… • 3G – Major investment Opportunity; – Expected to attract US $8–10 billion during 2008-11; – International and foreign players can enter this segment through joint-ventures with Indian companies with a stake of not more than 74 per cent; – 20 million 3G-based broadband subscribers by 2014 (ASSOCHAM).

• Worldwide Interoperability for Microwave Access (WiMax) – India is the largest single-country WiMAX opportunity in the world; – network access in inaccessible areas at a speed of more than 4 Mbps, – increased use of telecom services, Internet and value added services; – 60 million WiMax users by 2014 (ASSOCHAM).

Opportunities for Growth… • Value added Services (VAS) – The VAS industry was worth USD 632 million in 2007–08. – The industry is estimated to grow by 60 percent in 2008–09 and become an USD 1,011 million opportunity. – Major drivers: • Availability of contents in local language; • M-commerce applications; • Availability of mobile T.V.; • Development of video based applications.

• Rural Telephony – Huge untapped potential.

Current Scenario

3G • BSNL and MTNL were given the 3G spectrum last year ahead of auction; • BSNL launched 3G services on 27th Feb, 2009 in 12 cities;

3G Auction • Base price of 3G spectrum auction increased to INR 35 billion from the earlier decided INR 20.20 billion; • Govt expect to raise INR 250 billion through auction of 3G and Wi Max services; • Govt aims to sell four 3G licenses and three broadband wireless access licenses in 20 of the 22 zones.

Tax benefits • DoT is considering a proposal so that the bidders of the 3G spectrum can enjoy tax benefits; Proposal: • 100% tax benefit on the profits to 3G spectrum bidder telcos for initial 5 years; • 30% tax benefit on the profits for the subsequent 5 years;

Will India skip 3G?

4G • US Motorola is planning to next level that is the 4G in India; • Motorola is all set to start trial services of technology called Long Term Evolution(LTE) that can offer speeds up to 70Mbps; • Motorola and other telecom vendors are planning to meet DoT for trial spectrum;

Number Portability

– Local number portability (LNP) for Fixed lines, – Full mobile number portability (FMNP) for mobile phone lines, refers to the ability to transfer either an existing fixed-line or mobile telephone number assigned by a local exchange carrier (LEC) and reassign it to another carrier.

Facts about MNP • United Kingdom is yet to switch to centralized solution ( as of Jan2008). • The time taken to port a subscriber between the service providers should not be greater than the time taken to activate a new subscriber. • It takes only 3 minutes in Australia to port a subscriber successfully. • The first MNP implementation was made in 1990 Singapore.

MNP • Mobile Number Portability Details : – Delhi, Mumbai, Maharashtra and Gujarat Service comprise Zone I – MNP to be implemented by Sep 20, 2009. – Kolkata, Tamil Nadu, Chennai, Andhra and Karnataka comprise Zone 2 and details will be finalized by Sep, 2009. – Rest of the country by March 20, 2010. – Syniverse Technologies (Zone 1) and MNP Interconnection (Zone 2) are the two companies who have been licensed by the DoT to carry out the MNP exercise.

• The charges are likely to be less than Rs. 300/ and operators will take maximum 2 days to change the provider. • Analysis: – Switching cost more than the avg. monthly rent.

MNP Costs for telecom operators • Increase in churn rate directly affects the revenues of the service provider. • Increases price competition. • It may put pressure on margins, as product innovation costs and marketing costs may increase. • Increased investments in back-end services. Benefits to phone subscribers • Free mobility from one service provider to another without changing mobile number • Price competition it the market is competitive • Competition among force service providers will lead to improvement in quality of service and product innovation In order to retain and expand the customer base many value-added

80:20 Rule • 80% of the total revenue comes from 20% of the total customer base.

Pay Per Call

Pay Per Call ( just –in) • Tata Indicom launched it on Tuesday (1st sept. ‘09) • Only for Prepaid subscribers; • Fixed charge on a per-call basis regardless of the call duration; • Re 1 per local call; • Re 3 per STD call;

Thank You