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Indian Telecom Industry

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Price War in Indian Telecom Industry An academic project submitted by students of eEPSM at IIMK eEPSM -02 Student Name Roll Number Amitabh Kumar Patnaik eEPSM-02-003 Balasubramaniam T eEPSM-02-006 Manmeet Singh eEPSM-02-023 Rahul Mishra eEPSM-02-034 Somashekar Lingaraju eEPSM-02-047 Table of Contents Table of Contents……………………………………………………………………………………………………. 2 Executive Summary……………………………………………………………………………………………………. 3

Methodology……………………………………………………………………………………………………………… 3 The Indian Telecommunications Industry………………………………………………………………………. 3 Mobile Growth – Twist in the Game………………………………………………………………………….. 3 Revenue and Growth………………………………………………………………………………………………..

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4 Beginning of Overcrowding and Price War………………………………………………………………… Industry perspectives on Price War/ Falling Rates………………………………………………………. 5 Opinions from Industry Stalwarts and Watchers…………………………………………………………. 7 3G on the Horizon…………………………………………………………………………………………………… 8 Growth at Home and Abroad……………………………………………………………………………………. 8 Conclusions……………………………………………………………………………………………………………… 0 The Indian telecom sector could be going the airline way. …………………………………………. 10 Hypothesis on future trends of structure conduct and performance of Industry……………… 10 Who wins who looses?…………………………………………………………………………………………… 10 Appendix…………………………………………………………………………………………………………………. 13 Exhibit 1: Indian Telecom Industry Key Milestones………………………………………………….. 3 Exhibit 2: India Telecommunication Industry – Facts and Figures………………………………. 15 Exhibit 3: Subscriber Base in Key States………………………………………………………………….. 15 Exhibit 4: operator wise wireless subscriber base in India ………………………………………… 16 Exhibit 5: Performance of QoS Parameters for Cellular Mobile Services …………………….. 17 List of References:…………………………………………………………………………………………………….. 17

Executive Summary This document is the result of an academic case study an attempt to analyze and understand the present dynamics of Indian Telecommunication Industry with special focus on the Price war in mobile telecom that has overwhelmed the industry. In this study we attempt to look at the causes that lead to the price war, impact thereof and also hypothesize future trends. Methodology Methodology used for the case study is as follows. We have made a set of hypothesis and arrived at key questions which are used to gather the data around the hypothesis. We have retained hypothesis hich are supported by the data and expert views and presented the hypothesis and conclusions. The Indian Telecommunications Industry The Indian telecommunication industry, with about 506. 04 million mobile phone connections (Nov 2009), is the third largest telecommunication network in the world and the second largest in terms of number of wireless connections. The Indian telecom industry is one of the fastest growing in the world and is projected that India will have ‘billion plus’ mobile users by 2015. Projection by several leading global consultancies is that India’s telecom network will overtake China’s in the next 10 ears. Looking at the Industry marked milestones for last 4 to 5 years (Exhibit 1), 2 issues are obvious – Mobile Growth and completion that will lead to a shakeout sooner or later. Mobile Growth – Twist in the Game For the past decade or so, telecommunication activities have gained momentum in India. Efforts have been made from both governmental and non-governmental platforms to enhance the infrastructure. Telecommunication as a technology not only serve all segments of India’s culturally diverse society, would play key role transforming India a country a techno savvy one.

The historical journey and the milestones of Telecom revelation in India have been shown in the Exhibit 1 of Appendix section. Currently, India’s mobile phone market is the fastest growing in the world, with companies adding some 16. 67 million new customers a month. Some of the key drivers to the exponential growth of this industry are ?A large population ?Low telephony penetration levels ?Rise in consumers’ income and spending owing to strong economic growth The first and largest operator is the state-owned incumbent BSNL, which is also the 7th largest telecom company in the world in terms of its number of subscribers.

BSNL was created by corporatization of the erstwhile DTS (Department of Telecommunication Services), a government unit responsible for provision of telephony services. Subsequently, after the telecommunication policies were revised to allow private operators, companies such as Bharti Airtel , Vodafone, , Tata Indicom, Idea Cellular, Aircel and Loop Mobile have entered the space. In 2008-09, rural India outpaced urban India in mobile growth rate. The wire line segment subscriber base stood at 37. 16 million with a decline of 0. 13 million in Nov 2009, The Cellular Operators’ Association of India forecasts the country’s mobile phones ill number one billion by 2013, up from around 500 million currently, a clear indication that the shift is happening radically to wireless handheld devices on the CDMA and GSM Platforms. This is the key trend across the country, lead by the states which have experienced high commercialization and urbanization (See Exhibit 3) – Mobile Subscriber Base in Key States Revenue and Growth The total revenue in the telecom service sector was Rs. 86,720 crore in 2005-06 as against Rs. 71, 674 crore in 2004-2005, registering a growth of 21%. The total investment in the telecom services sector reached Rs. 00,660 crore in 2005-06, up from Rs. 178,831 crore in the previous fiscal. 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 alone within the mobile industry in India has the potential to grow to a whopping $10 billion by 2010. Beginning of Overcrowding and Price War Though Indian telecom market might be growing fast, but surviving in this highly competitive market s not easy for telecom companies. Liberalization and globalization combined with the market potentiality lead to many aspirants enter in to the market in less than 7-8 years leading to a cut throat competition which manifested in a price war. Following is the list of schemes that fuelled the tariff war in India and ultimate manifestation of this was a major decline in the ARPU of the Mobile Telecom Industry itself. Product / Service / Scheme Player Description Post card or Phone call Reliance Reliance Infocomm launched mobile services in India at 40 paise per minute fulfilling Dhirubai Ambani’s dream o make a phone call cheaper than a post card in 2003. Chotta Recharge Hutch Hutch (Vodafone now) launched the chotta recharge voucher at Rs. 10 when the lowest add-on recharge card available was about Rs 50. What’s the message? Lowering the price by 20-30% to the competitors won’t help much in gaining the market share. Think five times cheaper to make an impact. Non-stop Mobile Tata Though the chotta recharge was broadly accepted , But there were issues in prepaid mobile. You need to recharge regularly as the validity period is limited. With the recharge card of Rs 200, you will get validity only for one onth. So people have to spend at least Rs2000 per year for their mobile just to receive the incoming calls. Tata Indicom launched Non-stop mobile, a scheme where you don’t need to recharge for 2 years but still get free incoming calls. Soon other players responded to Tata Indicom’s plan and then come in Lifetime validity plan by all major telecom players in India. Get Paid for Incoming Virgin Adding logs to the fire Virgin Mobile jumped into the competitive Indian mobile telecom market with the breakthrough-marketing scheme Get paid for incoming calls. 10 paisa free for every minute of incoming call.

However this campaign was not well received. Daily telephone allowance Reliance Going a step further (what if one does not get any incoming call? ) Reliance Communication launched its GSM services in Mumbai offering subscribers Rs 10 talk-time every day for the first 90 days. That’s free talk-time worth Rs 900! Directly passed on to consumer Per Second Billing TATA – DOCOMO Taking the bargain to the next level Tata Docomo introduced per second billing 29 Paisa Per Call Uninor A completely new way of pricing plan offers the customer a fixed price for every call regardless of the duration , hich is aimed at young customers who prefer long calls VAS and SMS Reliance On November 28, RCom opened another front in the price war — SMS (short message service). The company unveiled two plans charging one paisa per SMS message. Under the first, customers pay Re. 1 a day and are entitled to send an unlimited number of free SMS messages. Alternatively, you can buy a Rs. 11 monthly voucher and each SMS message will cost just one paisa. VAS and SMS Tata Docomo Tata DoCoMo has been heavily promoting its one paisa per character Diet SMS plan. Now, it is inevitable that they and other competitors will have to match RCom’s ates. This will not mean a huge drop in revenues: According to estimates, SMS brings in about 5% of total telecom revenues for Indian companies. But companies’ bottom lines will still be affected. The Telecom Regulatory Authority of India (TRAI) has found that each SMS costs the service providers less than one paisa, while they have been charging customers 60 paise to Re. 1 (depending on the plan). Industry perspectives on Price War/ Falling Rates In June this year, Indian telecom service provider Tata DoCoMo announced that it would bill at the rate of one paisa (around 0. 02 cents) per second. In a market that is cluttered with many operators and confusing options, we will offer simplicity to consumers by being the country’s most transparent, innovative and liberating telecom brand,” said Deepak Gulati, Tata Teleservices president, GSM (global system for mobile communications) Business. A few months later — in September — it unveiled the Diet SMS plan, one paisa per character with no charge for spaces between words. On November 22, it extended the one paisa per second plan to roaming services also. “When a subscriber is roaming, most telecom operators in India charge a minimum of 50 paise to 60 aise per minute, even when the call duration is less than a minute,” Gulati said in a press statement. “Under the Tata DoCoMo roaming offer, subscribers will be charged only for what he or she uses — at one paisa per second. For instance, a 15-second call made or received while roaming will elicit a charge of 15 paise only — not up to Re. 1 on a per minute basis, as is the industry norm. ” ‘We are responding as we did not have a Choice’ Bharthi Airtel On October 30, market leader Bharti Airtel took the plunge with the one paisa tariff. In November, it lso cut roaming rates to 60 paise per minute for calls within its network and 80 paise per minute for calls to other networks. On November 24, Bharti took its lowered rates overseas: U. S. customers using calling cards to make calls to India would also be billed at one paisa per second. The company was not happy about these forced countermeasures and their inevitable impact on profits. “The tariff war has not been launched by us,” Bharti chairman and managing director Sunil Mittal told journalists at the World Economic Forum meeting in Delhi in early November. “We responded as we did not have a choice.

We have always said we will never lead the price war, but responding to the needs of the market is something that every sector and industry has to do. ” Although Bharti is the market leader, it has never directly pursued market share; its focus has been share of industry revenues. A survey shows that it is holding its own. “While the telecom sector’s revenues and profits have plunged in the quarter ended September 2009, large private operators such as Bharti Airtel, Reliance Communications (RCom), Vodafone Essar, Idea Cellular and Aircel have all managed to increase heir revenue market share during this period,” according to the survey report. Bharti’s revenue market share has increased to 29. 3% as of September 2009, compared to 27. 6% in June the same year, while Vodafone Essar now accounts for 15. 7% of the total earnings of the sector as against 14. 6% in June 2009. Plunging Revenues On the losing side are the public sector telcom firms — Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL). On December 1, however, MTNL fired its own salvo by reducing its rates to half a paisa per second for in-network calls and one paisa per second for calls ade outside its network. “Our pay-per plan is the most affordable in the industry,” said MTNL chairman and managing director R. S. P. Sinha in a press statement when the new rates were announced. The price war’s impact on revenues is already apparent. The brutal tariff war that has forced all operators to slash call rates has also resulted in the sector’s sales figures dipping over the past six months despite the addition of 80 million customers in the period. The industry clocked about Rs. 38,755 crore in September 2009, which was lower than the sector’s revenues in the quarter ended December 2008, when it recorded Rs. 9,408 crore despite having 125 million fewer customers then. The report notes that 13 operators are fighting for share in a market that many believe can optimally support four or five — and four more players are planning to enter the market by next year. At this point in time, it is all about grabbing subscribers. “Industry revenue growth for the quarter ending September 2009 was 1. 7% quarter-on-quarter (Q-on-Q) and 8. 7% year-on-year (Y-on-Y), substantially lower than subscriber growth at 10. 4% Q-on-Q and 49. 6% Y-on-Y,” says a report by equity research firm Enam Securities. “The aggressive ntry by new GSM players has compelled the incumbents to reluctantly join the tariff war to protect their market share. ” At Vodafone Essar, for instance, service revenues dipped 7% from the June quarter to the September quarter. The EBITDA (earnings before interest, taxes, depreciation and amortization) margin is also down from 28. 4% in the first half of 2008-09 to 24% in the corresponding period of 2009-10. The decline in the EBITDA margin was primarily as a result of the expansion into rural areas and market price reduction offset by scale efficiencies. That this is entirely in line with industry performance; as oted by ETIG, Vodafone has actually done better than most of its competitors on the share-of-revenue metric. Vodafone has also joined the one paisa bandwagon. “One paisa per second tariff is one of the several tariff options available to our customers,” says Parida. “We continue to also offer many per minute tariff options. Our customers can make the choice. ” Giving a choice is not necessarily pro-consumer. According to Mahesh Prasad, president of RCom, Indian telecom companies combined have 2,700 different billing plans across the country. On October 5, RCom launched a 50 paise per minute plan called Simply Reliance.

Under the plan, all calls — whether local or long distance, to landline or mobile — will cost only 50 paise a minute. Currently, RCom itself has 265 plans. “Henceforth there will be just one plan,” said Prasad, though older customers will be given a six-month period to migrate. There are a couple of other reasons for this frantic activity. On November 20, TRAI announced that mobile number portability (MNP) would be introduced beginning on December 31. This allows users to move from one service provider to another or even from one technology to another. More importantly, TRAI said the maximum porting charges would be Rs. 9. This makes operator-hopping quite cheap. “MNP will add more pain to the situation,” says Mahajan of KPMG. According to a report by Anand Rathi Financial Services, the move will lead “to churn rates higher than the current 4. 5% to 8. 0% per month — at least in the short run. ” The level of satisfaction with service providers is low in the Indian telecom space. According to a July Nielsen Mobile Consumer Insights study gauging consumer attitudes and behavior towards mobile operators in India, 18% of Indian mobile phone subscribers plan to change their mobile operator when

MNP is introduced. The study found that attrition rates would be the highest for RCom and Tata Indicom. Opinions from Industry Stalwarts and Watchers “Overcapacity is a characteristic of bubbles,” said Idea Cellular managing director Sanjeev Aga. “At the national level, overcapacity implies wasteful deployment of national resources (like spectrum) and just offers falling tariffs temporarily. ” Since June, the country’s telecom players have been indulging in a price war that had seen tariffs being slashed by a large quantum. After Tata DoCoMo introduced the one-paise-per-second rate, ther competitors have had to follow suit, prompting most companies to witness a fall in profitability. Analysts too derated telecom stocks post the country’s biggest tariff war that brought down call rates. And, that’s not the end. Along with new capacity, competition is expected to rise as new players with deep pockets make a line for what was till last year, one of the India’s fastest growing sectors. Mr Aga said markets tend to be merciless in working out the sector overcapacity. “The greater the overcapacity, the greater the short-term pain. But, this is the market’s way of separating the efficient rom the inefficient, and restoring balance. The efficient usually emerge stronger from the test and are unchallengeable,” he added. The sector’s woes began when the government handed out new licenses to players in 2007, despite not having enough spectrums. Rekha Jain, executive chairman of the Telecom Centre of Excellence and professor at IIM Ahmedabad, said: “When the government knew that an operator requires a minimum amount of spectrum (4. 4 Mhz for GSM) to start services, how could it allow everybody to come in? And now, everybody is setting up networks. The government wanted competition, but it has created vercapacity, which will lead to consolidation. ” Banks have added fuel to the fire through indiscriminate lending. “Bank and vendor financing is encouraging overcapacity in the sector, despite the fact that new players’ plans look unsustainable in the long-term,” HSBC Securities and Capital Markets analyst Rajiv Sharma said in a recent report. “Some of the leading operators are now restructuring their loans,” said industry sources. “If that continues to be the case, there may be some bankruptcies in the sector within two years from now,” said a top official at a telco on condition of anonymity.

A top official at a public sector bank said telecom has received easy lending because it is an important part of infrastructure. “The current state is an aberration and will correct itself,” he opined. HSBC’s Mr Sharma, however, said: “The current scenario, with 10-11 players, is unsustainable and a reflection of poor government policies. We are of the view that market with 5-6 players is ideal in the Indian context. ” He pointed out that even if the entire spectrum were to be made available in India, it would still be insufficient to cater to all the players. “It may be more logical to promote investments in elecom infrastructure, encourage rural penetration and rural broadband rather than focus on market structure,” he added. 3G on the Horizon The second big event on the horizon is the launch of 3G (third generation) services next year. The auction for 3G licenses has been delayed. But the proceeds are needed to trim the fiscal deficit. In his budget, Finance Minister Pranab Mukherjee had estimated that Rs. 20,000 crore would come in through the sale of these licenses, so there is enough incentive for the auction to happen during this financial year (ending March 2010). The base price for these licenses has now been fixed at Rs. 4,040 piece. Analysts estimate that Rs. 30,000 crore to Rs. 40,000 crore could come in through the sale. The department of telecommunications proposes to hold the auction on January 14, 2010. “An apparent lack of interest in the auction for high-speed 3G and broadband wireless access spectrum won’t stop the government from getting bidders to cough up the cash that it needs to control a burgeoning deficit,” according to business daily Mint. “That’s because many potential bidders running 2G services, already scrambling for scarce spectrum to carry mobile phone calls, desperately want the additional frequencies that will come with a 3G license. Analysts say this is the very reason why foreign companies don’t seem too interested in bidding for the 3G licenses. “Foreign interest in the form of participation in the pre-bid conference has been low probably on account of two factors,” says K. Raman, practice head, telecom, media & technology at the Tata Strategic Management Group (TSMG). “First, there are regulatory uncertainties with respect to eligibility of 2G spectrum along with a winning 3G bid. Secondly, a pure 3G play may not be attractive for operators and would not make as much business sense as an overlay on 2G. ” Adds Alok

Shende, principal analyst at Ascentius Consulting: “A standalone 3G service is unlikely to succeed. The business will start with virtually no consumers, unlike the current players who will have the advantage of captive 2G customers. ” According to Shende, “Indian telecom markets are likely to undergo a tectonic shift with the introduction of new licensees, MNP and the launch of 3G services all scheduled in the next one year. New players will nibble at the market share of the incumbents and — with regulatory constraints on M&A activity — consolidation, a process that could have cleared the market, will be artificially estrained. The rural markets will continue on their growth trail. Today, only 28% of the subscriber base is contributed by the rural segment. ” Growth at Home and Abroad The rural market is the other problem area. This is where the growth is — but it is also where very little money can be made. “Rural markets are still under-penetrated” — at about 15% — “so there is still a strong upside merely on customer addition,” says Parida of Vodafone Essar. The hitch is that some of the plans don’t make money. The average revenue per user (ARPU) is now down to around Rs. 200 a month for the industry.

In rural areas, however, it is estimated to be in double digits. “It certainly makes it harder to ensure viability, as the bulk of users are lower-income and less tech-savvy,” says Rajesh Chakrabarti, assistant professor of finance at the Hyderabad-based Indian School of Business (ISB). “The most [celebrated] aspect of the Indian telecom revolution, as well as its prime driver, was the mind-boggling reduction of rates in a short span of time. Competition among private players was most certainly the key for this. But the model seems to have been that high-margin products would subsidize access.

It now seems that most Indian users are unlikely to use the more sophisticated and high-margin features for a long time to come. Nor is the typical handset amenable to most such features. So ARPUs are likely to stay low for a long time, and the subscriber may not move beyond the most basic functions. The per-second billing will just worsen the ongoing price war. ” If looking inwards — to rural India — doesn’t work in terms of immediate returns, there may be a solution in looking outwards. Indian companies are trying to balance their bets by foraying abroad. If the low-cost model works there, it could bring some relief to the bottom line.

The second merger attempt between Bharti and MTN of South Africa may have failed (See Now That the MTN Merger Deal Has Collapsed, What’s Next for Bharti Airtel? ), but the Essar Group (which owns a 9. 9% stake in Loop Telecom, apart from its Vodafone Essar interests) has just bought up Dhabi Telecom’s African assets. And the public sector MTNL and BSNL are eyeing Zain Telecom of Dubai. “Indian telecom companies are looking at markets outside India to be able to grow revenues at the historical pace they are used to,” says Raman of TSMG. “The markets that they have attempted to enter are ones here tariffs are relatively high and future growth through subscriber addition is possible. In other words, replicating an Indian model of telecom growth is possible in such countries. If execution is handled well, there is no reason to believe that such an approach will not work. ” “Telecom is essentially a business of scale,” says Chakrabarti of ISB. “So the bigger the scale, the lower the costs — proportionately — are going to be. Hence, venturing abroad would be natural in some sense. It may work, provided the regulatory issues and infrastructural and cross-border operational integration challenges can be handled. Chakrabarti sees problems, but he is not pessimistic. “The industry should be growing steadily in the years to come. There is likely to be a shake-up with some consolidation and exits, and rates may stabilize or even rise a bit. What we are seeing is not so uncommon for new industries — recall the dot-com bubble and bust in the first phase of Internet growth — when players overshoot on the basis of overoptimistic projections. This may be the time for a reality check and reassessment for the players as well as regulators. But in the long run, the prospects for the industry are quite good. ” The future of the industry needs to be seen across various timelines,” says Raman of TSMG. “The next six months will see new operators completing their footprint and at least three serious operators launching services in the country. All of this points to an intense phase of competition and price cuts. Factor in the 3G auction, and one would see below par profitability for [telecom companies] over the next six to eight quarters. The industry could also expect to see consolidation as much as and as fast as regulation allows it to happen. ” According to Parida, the number of players in the Indian market has led to fragmentation, and that eeds to be addressed. “We feel market forces must be allowed to have a freer play in India and that will certainly lead to a consolidation phase ahead. Telecom, particularly mobile telephony, has become an integral part of India’s social and economic fabric. As an industry, it is here to stay. ” The industry will stay, but not the large number of companies in the fray, according to Raman. “Operators with access to resources through internal accruals or credit lines will stand to gain from [any coming] consolidation. ” Conclusions The Indian telecom sector could be going the airline way.

Once the rising star of India Inc, the local telecom industry is now grappling with the problems of overcapacity created due to unregulated lending, new licensing norms and excess vendor financing. The growth is evident as mobile phones are becoming common. In a country of 1. 15 billion, the mobile subscriber base totals about 500 million people. New as well as existing operators are expanding infrastructure to service more people at lower tariffs. The same trend was witnessed in the aviation sector, which has now nose-dived from its peak in 2007. According to industry estimates, elecom operators are ready with lines to accommodate another 200 million people in the next one year. Hypothesis on future trends of structure conduct and performance of Industry Hypothesis Supporting Analysis Consolidation is the only way for further growth and there will be less than 5 players in next 3 years ?Every Players suffers from Churn Rate which would pose pressure on the players to keep growing the subscriber base ?Industry / Market which is close to maturity cannot support this many players ?Only rural markets are having lower tele density which may apparently show some potentiality owever due to very little ARPU of Rural Customers , companies will not be able to achieve revenue targets All players including the ones which maintain premium image yield to price war pressure and will experience revenue loss and high cost ?Already a no-holds-barred price war has driven down billing rates to under a cent a minute, hitting revenues and profits of market leaders such as Bharti Airtel and Reliance Communications. ?Advertising billboards have sprouted everywhere offering new per-second billing plans. Who wins who looses? Company Supporting Analysis Bharthi Airtel would stay and emerge as a igger MNC ?Having dominated the industry for the last half decade Airtel seems to have learnt the tricks of the trade and has become the market leader in a short span of time. ( see exhibit 4) ?Having adapted innovation agenda Airtel has out sourced part core activities like IT to service providers like IBM, have gained the core focus on the product development, promotion and delivery. Company is also developed long term sustainability focus by building capability on Unified Services Delivery platform to leverage on the consolidation plans ?Looking for international route for further growth and expansion hich was evident from its move to acquire MTN, though this has resulted in a set back to do duel listing policy issues , Bharti Airtel will look forward to time its future moves and will be back in action when the legislation changes ?However due to a massive subscription and growth Airtel’s quality of service has taken a serious hit due to network congestion , this could be a major weakness and lead to increased churn rate ( See Exhibit 5) Reliance Likely to Stay ? Have achieved 2nd position in the Industry in a short span of time. ?With a huge capital base Reliance will surely be one of the 4 – 5 layers who would remain in the Industry Vodafone Likely to Stay and Grow ?One of its key competence is growth by acquisition and integration ?Being a global player with financial capability Vodafone may be a major beneficiary of any shakeouts that happen and consolidations that occur in the near future Tata CDMA and GSM to Stay ?The Tatas, already have an established presence in the market through Tata Indicom. ?For the Tata Docomo, the paisa per second plan appears to have worked. According to TRAI data, the number of telephone subscribers in India increased to 525. 65 million at the end of

October, up from 509. 03 million in September. Tata DoCoMo grew 23. 16%, the highest for all operators. In absolute numbers, the Tatas added about four million subscribers against three million each for Vodafone and Bharti and two million for RCom. This is no flash in the pan; in July and August, the Tatas showed the fastest growth as well. BSNL ? Likely stay in the long term as a WireLine and Enterprise Service Provider with its cost leadership strategy. ?Unlikely to do well in the mobile space due to lack of Innovation , Flexibility , Organization Structure , Performance Management reasons. Idea Cellular ?

Having adopted few of the strategies from Airtel , Idea has also jumped into Outsourcing, technology capability development. However it is highly unlikely to stay in the market without quickly developing its international plans Other New Entrants ? Uninor, controlled by Norwegian telecom company Telenor, is the 14th player to enter India’s cellular market, where subscriber numbers are rising so fast that in October the country added a record 16. 67 million users. Through Innovative campaigns Uninor has gained quick access and a decent subscriber base, however its future plans are not clear and company will soon fail to emonstrate the uniqueness in value proposition and aggression that is required to stay in the market. ?But after soaring growth, industry revenues are flattening as rivals slug it out in a savage price battle ?Etisalat’s success in Emirates is mainly in the Enterprise Services Space. Their public sector management out look and style, Organization design and performance ?Etisalat’s Islamic Origin may become a major weakness in succeeding in Indian Market Appendix Exhibit 1: Indian Telecom Industry Key Milestones Year Key Milestone 1975 Department of Telecom (DoT) was separated from P&T. DoT was responsible or telecom services in entire country until 1985 when Mahanagar Telephone Nigam Limited (MTNL) was carved out of DoT to run the telecom services of Delhi and Mumbai. 1981 In a move towards liberalization , Prime Minister Indira Gandhi signed contracts with Alcatel CIT of France to merge with the state owned Telecom Company (ITI), in an effort to set up 5,000,000 lines per year. But soon the policy was let down because of political opposition. She invited Sam Pitroda a US based NRI to set up a Center for Development of Telematics(C-DOT), however the plan failed due to political reasons. During this period, after the ssassination of Indira Gandhi, under the leadership of Rajiv Gandhi, many public sector organizations were set up like the Department of Telecommunications (DoT) , VSNL and MTNL. Many technological developments took place in this regime but still foreign players were not allowed to participate in the telecommunications business. 1990 Telecom sector was opened up by the Government for private investment as a part of Liberalisation-Privatization-Globalization policy. Therefore, it became necessary to separate the Government’s policy wing from its operations wing 1994 The demand for telephones was ever increasing. It was during this period that he P. N Rao led government introduced the national telecommunications policy [NTP] in 1994 which brought changes in the following areas: ownership, service and regulation of telecommunications infrastructure. They were also successful in establishing joint ventures between state owned telecom companies and international players. But still complete ownership of facilities was restricted only to the government owned organizations. Foreign firms were eligible to 49% of the total stake. The multi-nationals were just involved in technology transfer, and not policy making. During this period, the World Bank and ITU had advised the Indian

Government to liberalize long distance services in order to release the monopoly of the state owned DoT and VSNL; and to enable competition in the long distance carrier business which would help reduce tariff’s and better the economy of the country. The Rao run government instead liberalized the local services, taking the opposite political parties into confidence and assuring foreign involvement in the long distance business after 5 years. The country was divided into 20 telecommunication circles for basic telephony and 18 circles for mobile services. These circles were divided into category A, B and

C depending on the value of the revenue in each circle. The government threw open the bids to one private company per circle along with government owned DoT per circle. For cellular service two service providers were allowed per circle and a 15 years license was given to each provider. During all these improvements, the government did face oppositions from ITI, DoT, MTNL, VSNL and other labor unions, but they managed to keep away from all the hurdles. 1995 The government set up TRAI (Telecom Regulatory Authority of India) which reduced the interference of Government in deciding tariffs and policy making. The DoT opposed this.

The political powers changed in 1999 and the new government under the leadership of Atal Bihari Vajpayee was more pro-reforms and introduced better liberalization policies. They split DoT in two- one policy maker and the other service provider (DTS) which was later renamed as BSNL. The proposal of raising the stake of foreign investors from 49% to 74% was rejected by the opposite political party and leftist thinkers. Domestic business groups wanted the government to privatize VSNL. Finally in April 2002, the government decided to cut its stake of 53% to 26% in VSNL and to throw it open for sale to private enterprises.

TATA finally took 25% stake in VSNL. This was a gateway to many foreign investors to get entry into the Indian Telecom Markets. After March 2000, the government became more liberal in making policies and issuing licenses to private operators. The government further reduced license fees for cellular service providers and increased the allowable stake to 74% for foreign companies. Because of all these factors, the service fees finally reduced and the call costs were cut greatly enabling every common middle class family in India to afford a cell phone. 1995 India has become one of the fastest-growing mobile markets in the world.

The mobile services were commercially launched in August 1995 in India. In the initial 5–6 years the average monthly subscribers additions were around 0. 05 to 0. 1 million only and the total mobile subscribers base in December 2002 stood at 10. 5 millions. However, after the number of proactive initiatives taken by regulator and licensor, the monthly mobile subscriber additions increased to around 2 million per month in the year 2003-04 and 2004-05. 1999 The New Telecom Policy in 1999, the industry heralded several pro consumer initiatives. Mobile subscriber additions started picking up. The number of obile phones added throughout the country in 2003 was 16 million, followed by 22 million in 2004, 32 million in 2005 and 65 million in 2006. As of January 2009, total mobile phone subscribers numbered 362 million, having added 15 million that month alone. India ranks second in mobile phone usage to China, with 506 million users as of November 2009. 2000 The Government of India corporatised the operations wing of DoT on 01 October 2000 and named it as Bharat Sanchar Nigam Limited (BSNL). Many private operators, such as Reliance Communications, Tata Telecom, Vodafone, Loop Mobile, Airtel, Idea etc. successfully entered the high potential Indian telecom market. 2005 The mobile tariffs in India have also become lowest in the world. A new mobile connection can be activated with a monthly commitment of US$0. 15 only. In 2005 alone 32 million handsets were sold in India. 2007 Going forward on its Globalization Strategy Vodafone Takes over Hutch in India for 11 Bil USD 2008 In March 2008 the total GSM and CDMA mobile subscriber base in the country was 375 million, which represented a nearly 50% growth when compared with previous year. Exhibit 2: India Telecommunication Industry – Facts and Figures Exhibit 3: Subscriber Base in Key States

State Subscriber base Wireless density'” Maharashtra 58,789,949 51. 96 Uttar Pradesh 57,033,513 26. 32 Tamil Nadu 45,449,460 63. 66 Andhra Pradesh 37,126,048 42. 58 West Bengal 32,540,049 34. 28 Karnataka 28,867,734 46. 76 Rajasthan 27,742,395 39. 09 Gujarat 27,475,585 45. 49 Bihar 27,434,896 25. 04 Madhya Pradesh 24,923,739 33. 09 All India 471,726,205 37. 71 Exhibit 4: operator wise wireless subscriber base in India As of September 2009 Operator Subscriber base Bharti Airtel 110,511,416 Reliance Communications 86,117,663 Vodafone Essar 82,846,046 BSNL 58,756,598 Idea Cellular 51,454,402 Tata Teleservices 46,796,033

Aircel 25,728,633 MTNL 4,680,141 Loop Mobile 2,495,087 MTS India 1,960,532 HFCL Infotel 379,654 All India 471,726,205 Exhibit 5: Performance of QoS Parameters for Cellular Mobile Services List of References: 1. www. airtel. com 2. www. vodafone. com 3. Trai. gov. in 4. The Indian Telecom Services Performance Indicators : July – September 2009 5. www. bsnl. com 6. www. uninor. in 7. Indian telecom news. com 8. www. indian-cellular. com 9. www. wikipedia. com 10. The Economic Times 11. Harvard Business Review 12. Wharton Publications 13. Etisalat : IT Organization Restructuring Engagement Experiences – an IBM Case Study

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