Telecommunications in India

India is one of the world's fastest growing telecom markets, and this has acted as the primary driver for foreign and domestic telecommunication companies investing into the sector. Massive investments have been made in the telecom sector of India, both by the private and government sector.

The telecom industry has witnessed significant growth in subscriber base over the last decade, with increasing network coverage and a competition-induced decline in tariffs acting as catalysts for the growth in subscriber base. The growth story and the potential have also served to attract newer players in the industry, with the result that the intensity of competition has kept increasing.

The sector is expected to witness up to US$ 56.3 billion investments and the market will cross the US$ 101 billion mark in five years, according to consultancy firm Boston Consulting Group (BCG). BCG India's Partner and Director, Arvind Subramanian said the industry will continue to grow at 12-13 per cent annually.

 

Key Players

With new players coming in, the intensity of competition in the industry has increased, especially over the last four years. The market share of the telecom companies reflects the fragmented nature of the industry, with as many as 15 players. As of July 31, 2011, Bharti telecom led the market with 19.7 per cent share, Reliance (16.8 per cent), Vodafone (16.6 per cent), Idea (11.6 per cent), BSNL (11.9 per cent), Tata (9.9 per cent), Aircel (6.8 per cent), with the remaining share being held by other smaller operators, according to Telecom Regulatory Authority of India (TRAI) database.

 

Growth Drivers

Key factors, which will fuel the growth of the sector include increased access to services owing to launch of newer telecom technologies like 3G and BWA, better devices, changing consumer behaviour and the emergence of cloud technologies, according to BCG India's Partner and Director, Arvind Subramanian. He added that majority of the investments will go into the capital expenditure for setting up newer networks like 3G and developing the backhaul, among other things.

 

Subscriber Base

India's GSM subscriber base grew by 6.68 million subscribers in November 2011, taking the total number of GSM subscribers in the country to 632.08 million, according to the data released by Cellular Operators Association of India (COAI).

Further, the number of 3G subscriber connections in India is predicted to reach 400 million within four years, representing almost 30 per cent of the country's total mobile connections, according to a Wireless Intelligence study, “India 3G Rollout (forecasts and market shares 2011 - 2015)”. 3G connections are set to grow three-fold between 2011 and 2015 as operators ramp-up rollout of new 3G networks, according to the study.

 

Mobile Value Added Services (MVAS)

India's current MVAS industry has an estimated size of US$ 2.7 billion. The industry derives its revenues majorly from the top five to six products such as game based applications, music downloads, etc, which continue to form close to 80 per cent of VAS revenues, according to a study on the Indian MVAS industry by Deloitte., The Indian MVAS industry is estimated to grow to US$ 10.8 billion by 2015, with the next wave of growth in subscriptions expected to come from semi-urban and rural areas, according to Sandip Biswas, Director, Deloitte in India.

 

Mobile Number Portability (MNP)

As per the data reported by the service providers, by the end of October 2011 about 231.66 lakh subscribers have submitted their requests to different service providers for porting their mobile number.

 

Handsets

The mobile handset market's revenues in India will grow from US$ 5.7 billion in 2010 to US$ 7.8 billion in 2016, according to the study “The Mobile Handset and Smartphone Market in India” by business research and consulting firm Frost & Sullivan. India is the second largest mobile handset market in the world and is set to become an even larger market with unit shipment of 208.4 million in 2016 at a CAGR of 11.8 per cent from 2010 to 2016, according to the study.

Revenues of the Indian mobile handset market grew by 15 per cent to touch US$ 7.4 billion in 2010-11 from US$ 6.42 billion over the same period in 2009-10, according to an annual survey by the telecom industry journal Voice&Data.

Nokia remained the top player in the sector during 2010-11 with revenue of US$ 2.8 billion. The handset maker Nokia retained its No.1 spot with a market share of 39.0 per cent. The Finnish firm was followed by Samsung with revenues of US$ 1.2 billion and the company captured market share of 17.2 per cent. The influx of new brands led to a spurt in overall market with home grown handset makers like Micromax, Karbonn and Spice also witnessing growth.

 

Telecom Towers

Telecom towers are vital to the telecom network infrastructure. In fact, they are the most expensive to build and the valuations are heavy. The growth in subscriber base has necessitated expansion of network coverage, which in turn has driven the telecom companies to make sizeable investments in active and passive infrastructure. To reduce costs and focus on their core operations, operators have been hiving off their tower assets into separate companies.

The top six telecom tower companies hold more than 90 per cent of the country's total tower portfolio. As on September 30, 2010, leading telecom tower companies along with their market share are:

• Indus Towers Limited (ITL) – 32.2 per cent
• Bharat Sanchar Nigam Limited (BSNL) – 15.2 per cent
• Reliance Infratel Limited (RITL) – 15.2 per cent
• Viom Networks Limited (Viom) – 11.2 per cent
• Bharti Infratel Limited (BIL) – 9.7 per cent
• GTL Infrastructure Limited (GTL) – 9.5 per cent

With mobile subscribers growing at the pace of over 15 million every month, the telecom sector is likely to witness huge investments of around US$ 112.6 billion in the next five years plan (2012-2017). Of this, the two telecom PSUs - BSNL and MTNL are expected to make investments of US$ 22.5 billion during the five years to ramp up their telecom infrastructure. Private players, on the other hand, are expected to invest US$ 90 billion during the same period (2012-2017) in expanding their infrastructure, according to the Department of Telecom.

• The Indian telecom network grew by 40 per cent in 2010 wherein 17 million connections were added every month during the year. The target of 600 million connections by the end of Eleventh Five year plan has been achieved in February 2010 itself
• The National Knowledge Network (NKN)—to be established to connect 1500 educational institutes around the country through a high-speed data communication network with an outlay of US$ 1.32 billion—was approved by the Cabinet Committee on Infrastructure (CCI), chaired by Prime Minister DrManmohan Singh. The NKN would be implemented over a period of ten years by the National Informatics Centre
• Further, National Long Distance (NLD) Services have been opened for the Indian private sector with a minimum paid up equity capital of US$ 56.3 million
• Also, value-added services such as tele-education, tele-banking, call centres, radio paging, telecom infrastructure and equipment etc are garnering lot of domestic and foreign investment
• The government recently announced that it had a vision to connect the rural masses, and keeping with this goal, it is set to construct 10,000 towers connecting the remote parts of the country

Foreign direct investment limit in telecom services is 74 per cent subject to the following conditions:

• This is applicable in case of Basic, Cellular, Unified Access Services, National/ International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added Services
• Both direct and indirect foreign investment in the licensee company shall be counted for the purpose of FDI ceiling. Foreign Investment shall include investment by Foreign Institutional Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entity. In any case, the 'Indian' shareholding will not be less than 26 per cent
• FDI up to 49 per cent is on the automatic route and beyond that on the government route. FDI in the licensee company/Indian promoters/investment companies including their holding companies shall require approval of the Foreign Investment Promotion Board (FIPB) if it has a bearing on the overall ceiling of 74 per cent. While approving the investment proposals, FIPB shall take note that investment is not coming from countries of concern and/or unfriendly entities
• The investment approval by FIPB shall envisage the conditionality that the Company would adhere to licence Agreement
• FDI shall be subject to laws of India and not the laws of the foreign country/countries

Source: Consolidated FDI Policy, Department of Industrial Policy & Promotion (DIPP)