Telecommunication Industry in India

History of telecom industry in India

The history of telephone services in India found its beginning when a 50-line manual telephone exchange was commissioned in Kolkata in the year 1882 in less than five years after Alexander Graham Bell invented the telephone. While India became independent in the year 1947, the country had about 82,000 telephone connections, which slowly rose up to 3.05 million by the year 1984. The telecom sector in India was a government monopoly until the year 1994 when liberalization was gradually unrolled. For the first time, cellular services were launched in India in Kolkata in the year 1995.

An Overview of the Telecommunication Industry in India

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A mobile handset

Talking of telecommunications sector in India today, we can primarily identify two segments namely Fixed Service Provider (FSPs) and Cellular Services. Some of the essential and basic telecom services forming part of Indian telecom industry include telephone, radio, television and Internet. Telecom industry in the country lays a special emphasis on some of the advanced and the latest technical innovations like GSM ( Global System for Mobile Communications), CDMA (Code Division Multiple Access), PMRTS (Public Mobile Radio Trunking Services), Fixed Line and WLL (Wireless Local Loop ). Especially, India has a flourishing market in GSM mobile service, while the number of subscribers is on rapid and dramatic increase. The Indian telecommunications industry boasts as being one among the most rapidly growing chunks on the globe. Experts around the world estimate that India holds the promise of emerging as the second largest telecom market of the world.

Figures published by the Telecom Regulatory Authority of India (TRAI), reveal that the number of telecom connection subscribers in India reached 562.21 million in December 2009, marking a 3.5 percent increase over the number 543.20 million reported in November 2009. This figure indicates that the average teledensity (number of telephones per 100 persons) has gone up to 47.89.

On account of a dramatic increase in the earnings from mobile and landline connections, the telecom industry in India made revenue of US$ 8.56 billion during the quarter ending on December 31, 2009 thereby witnessing a recovery from the economic downturn.

Business Monitor International has stated that at present, India is adding up about 8-10 million mobile subscribers every succeeding month. Estimates have revealed that by June2012, almost half India’s population will be in possession of a mobile phone. This will result in about 612 million mobile subscribers, making up a teledensity of about 51 per cent by the year 2012.

Over and above, a study undertaken by Nokia has brought out that the communications sector will grow as the single largest chunk of the India’s GDP making up about 15.4 per cent by the year 2014.

Estimates made in February 2009 show that the Indian equipment market valued at US$ 24 billion, while Nokia was glowing as the market leader reporting more than US$ 3.4 billion revenues in 2008-09. Ericsson followed Nokia with revenue of about US$ 2.11 billion.

The latest reports published by Evalueserve state that the availability of the 3G spectrum has given hopes of finding about 275 million Indian subscribers using 3G-enabled services. This will take up the number of 3G-enabled handsets to reach near to 395 million by the end of 2013.

A Frost & Sullivan industry analyst has predicted that by the year 2012, revenues from fixed line subscriptions in India will reach up to US$ 12.2 billion, while the revenue from mobile connections will reach up to US$ 39.8 billion.

In a significant step taken to boost up the auction of 3G spectrum, the Indian Government has permitted prospective bidders to call for short-term funds from the domestic market in the country, while allowing refinancing out of external commercial borrowings (ECBs) within a period of 12 months. Estimates show that the government can mop up US$ 7.53 billion from the auction of 3G spectrum to be completed shortly. The reserve price has been fixed at US$ 753.74 million.

BSNL, the state-managed telecom operator has introduced 3G services in more than 318 cities benefitting 856,000 subscribers. BSNL has been venturing to cross more than 400 cities in the near future eventually rolling this service across 760 cities by September 2010. While the debate on 3G is seen continuing, TRAI has already started consulting on the next higher level of telecom services. 4G or the fourth generation enables downloads faster than all the earlier versions.

Today, India is the largest market in the world adding up a dramatic number of about 20 million mobile subscriber lines every month in an average. On the other hand, the number of landlines is found gradually decreasing. At the end of the first quarter in 2010, we find that the overall telecom subscriber penetration has gone up by more than 52 %. Though this might occur as a relatively low volume compared with a number of other nations, this comes as a quantum leap noting the figures recorded a few years back. Mumbai and Delhi (NCR) enjoy the status among a few other metro areas around the globe boasting of more than 25 m mobile subscribers in each of these regions. At present, The FDI cap in the telecom sector in India is 74 %. In a recent move, UK’s Vodafone Group has purchased a 52 % stake in Hutchison Essar, the fourth largest mobile service provider in the country. Bharti Airtel has the credit of being the first Indian operator to cross a subscriber base of 50 million.

It is predicted that mobile number portability (MNP) will be available throughout India by the second quarter of 2010, initially in the cities of Chennai, Delhi, Kolkata and Mumbai, the four metros of India. Also, 3G (third generation) mobile services are found being introduced in all the major cities across the nation. The country has auctioned three 3G spectrum slots to private bidders. However, the number of subscribers for broadband connections is increasing at a slow pace.

A Study of Value-Added Services Market in the country

At present, mobile value-added services (MVAS) in India alone accounts for about 18 per cent of the revenue made by the operators, while a study by Stanford University and consulting firm BDA has valued the Indian MVAS at US$ 2.74 billion.

mobile tower, cell site, cell towerIn a measure to take up the revenue ensuing from add-on services, Bharti Airtel, a leading telecom service provider in India has recently launched Airtel App Central, offering over 1,250 applications across 25 categories covering games, books and social networking through its applications store. The venture is to make revenue by selling music, information and connectivity. Subscribers owning any one of the 550 specified mobile models can log on to this portal through their mobile browser and browse through more than 1,200 apps available at the store. Once they download an app, the amount is deducted from their prepaid balance or added to post paid bill as appropriate. This innovative venture by Bharti Airtel has given a platform for developers to reach out about 120 million customers subscribing to the Airtel network. Reliance Communications is fervently working in these similar lines.

Major Investments in the sector

The thriving domestic telecom market in the country has been vigorously attracting enormous amounts of investment in the sector which is most likely to shoot up once new players enter the scene to launch new services. Telenor, a Norway-based telecom operator has purchased an additional 7 per cent in Unitech Wireless paying a little more than US$ 430.70 million. At present, Telenor holds about 67.25 per cent. During last year, the firm had purchased a 60 per cent stake paying out US$ 1.23 billion.

The Indian government has recently permitted the foreign direct investment proposal submitted by the Federal Agency for State Property Management of the Russian Federation in which the firm has come forward to buy 20 per cent stake in telecom service provider Sistema-Shyam in a deal worth US$ 660.1 million.

In an yet another important move, Tata Teleservices has  decided to invest an additional US$ 1 billion in Tata DoCoMo, the GSM service recently launched by the firm. The firm has already made an investment of US$ 2 billion for the GSM services during its launch in June 2009.

Reliance Infratel, the tower subsidiary segment of Reliance Communications (RCom), is targeting to complete the installing of 56,596 telecom towers by financial year 2010, taking up the total number of towers to 100,000.

BSNL, India’s leader in telecom services in terms of revenues has decided to invest about US$ 1.16 billion in its WiMax project. Vodafone Essar has stated its plans to invest US$ 6 billion in course of the next three years in a significant measure to take up the number of its mobile subscribers from 40 million at present to more than 100 million.

Telecom Equipment Manufacturing

Global experts have revealed that India’s telecom equipment manufacturing sector is turning one among the largest around the globe. Today, the mobile phone production in India has grown at a CAGR of 28.3 per cent from 2006 to 2011, delivering 107 million handsets. Over and above, the total revenue from this sector is estimated to grow at a CAGR of 26.6 per cent to touch US$ 13.6 billion.

A rapidly increasing number of telecom firms have established their manufacturing facilities in the nation during the recent past for the production of mobile phones and a range of other telecom equipment to meet the demands of India’s fast growing telecom market and exports. Nokia’s facility, situated in a Special Economic Zone (SEZ) at Sriperumbudur near Chennai, is into the manufacturing of mobile handsets and network infrastructure equipments including base stations. On an average, Nokia’s plant manufactures about 8 m handsets a month. By virtue of its added advantages, this zone located near Chennai is attracting a number of other reputed telecom equipment manufacturers who are already here or into the process of establishing their production facilities. Some of the reputed firms working from this base include Aspocomp Group  specializing in HDI printed circuit boards; Perlos manufacturing handset mechanics/mouldings; Salcomp producing mobile phone chargers; Motorola and Foxconn specializing in mobile handsets; Flextronics enjoying a range of interests covering mobile handsets, base stations and other electronic items; Sanmina-SCI manufacturing network components; and Jabil, Wintek and Laird specializing in the manufacture of antennas, battery packs and EMI shielding products. Elcoteq has established its telecom plant near Bangalore and is manufacturing mobile handsets along with a number of similar firms. The mobile handset plant of Samsung Electronics is situated in Gurgaon, near Delhi. Alcatel and Ericsson have established their plants to manufacture base station and mobile switching equipment in Rae Bareli and Jaipur respectively. In addition, the facilities of BPL Telecom that manufactures GSM phones and the manufacturing unit of LG Electronics in Pune that produces GSM phones are famous among many others. Xenitis Group is setting up a mobile phone manufacturing plant near Kolkata.

Mobile handsets alone make up about 26 % of the total telecom equipment industry of India. The carrier equipment business in the country held the major share, while the enterprise equipment segment has grabbed the remaining 14%.

Rural Telephony in India

In its rural areas, India has already seen about 80 million fixed and Wireless in Local Loop (WLL) connections in addition to nearly 600,000 Village Public Telephones (VPT) thereby already covering more than 95 per cent of the villages in the country by the VPTs. The country is making use of Universal Service Obligation (USO) subsidy support scheme for sharing wireless infrastructure in rural areas with a target of about 18,000 towers by the end of 2010. Reliance Mobile’s network in India has already covered about 450,000 villages and 15,000 towns across the nation. The country envisages a phenomenal subscriber base of about 650 million subscribers by the year 2012.

Policy Initiatives

The India government has taken a number of significant proactive initiatives to encourage the rapid growth of the telecom industry in the country. In a historic move, the country has allowed 100 per cent foreign direct investment (FDI) in the telecom equipment manufacturing segment through the automatic route. In addition, the FDI ceiling in telecom services has been increased to 74 per cent. Some of the other notable measures by the government include launching of a unified access licensing regime for the telecom services industry on a pan-India basis and extending the mobile number portability in the nation in a phased manner, starting from the fourth quarter of 2008.

The Bharat Nirman program launched by the government is targeting to connect the remaining 66,822 uncovered villages within the very near future. The Department of Telecommunications (DoT) has invited foreign telecom companies to bid for 3G spectrum however without partnering with any of the Indian companies. It is stated that after winning a bid, they will be required to apply for unified access service license (UASL) before partnering with an Indian firm in compliance with the FDI regulations.

The Impact of Telecom Industry in India on Indian Economy

The telecom industry in India has witnessed a phenomenal and manifold growth over the recent years. In the country, personalized telecom access has become an essential necessity of life for a growing number of people. The telecom sector in India holds unlimited potential talking of future growth. In the nation, both Public as well as private firms are vigorously enhancing their technologies in a venture to take the telecom industry in the country to a much higher development. In addition to this, the manufacturers of mobile handsets are significantly contributing to the telecom industry in the country and the economy of India.

Telecom industry plays a major role in contributing to the Indian economy. As a highly encouraging factor, the Indian government is also introducing some highly beneficial and effective telecom policies and regulative measures from time to time for the growth of infrastructure connected to this industry. Owing to these measures, a large number of multinational telecommunication leaders are pouring into the nation and expressing their interest to invest in the telecom industry in India.

The Prospective Future Ahead

The target set by the Indian government for the 11th Plan period (2007-12) is to achieve 600 million phone connections making an investment of about US$ 73 billion. In addition to the basic telephone service, there is a rapidly widening potential for a range of other value-added services in the country.

The report published by CII Ernst & Young titled ‘India 2012: Telecom growth continues’ has predicted that the revenue from India’s telecom services industry will reach US$ 54 billion by the year 2012 from US$ 31 billion recorded in 2008.

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