Enabling the next wave of telecom growth in India

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					Enabling the next wave of
telecom growth in India
Industry inputs for
National Telecom Policy 2011
2   Enabling the next wave of telecom growth in India
Foreword
The Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young
have collaborated on this deep review of the telecoms sector in India.

The National Telecom Policy 1999 (NTP 1999) has served the sector in India for well
over a decade, in which time we have witnessed significant changes in the socioeconomic
environment, technological advancements and business dynamics. The telecom industry
in India is ready to take the next leap forward with new developments such as launch of
third generation (3G) services by private operators, 3G and broadband wireless access
(BWA) auctions, launch of mobile number portability (MNP), and the emergence of mobile
commerce (m-commerce). In the future, rural and semi-rural markets are expected to
drive growth, especially in the wireless segment.

The Ministry of Communications & Information Technology has released the
100-day agenda for the Indian telecom sector, and announced formulation of a
new and comprehensive National Telecom Policy 2011 (NTP’11). Therefore, the
time is ripe for a comprehensive review to build a forward looking and transparent policy
that will be the backbone to achieve the ”India telecom vision 2020.”

This report focuses on specific areas where the Government of India (GoI) needs to
intervene and move the policy to the next generation of reforms. It aims to capture
developments witnessed in the telecom sector in the last decade and analyze historical
performance to estimate growth over the next ten years. It includes inputs from
stakeholders in the telecom industry, encompassing operators, telecom equipment
manufacturers, infrastructure providers, industry associations and industry practitioners.

We would like to extend our gratitude to the industry leaders who participated in the
report and helped us to present the industry’s perspective.




Amit Mitra                  Virat Bhatia                      Prashant Singhal
Secretary General           Chairman                          Telecom Industry Leader
FICCI, India                FICCI Committee on                Ernst & Young, India
                            Communications and
                            Digital Economy




                                                                Enabling the next wave of telecom growth in India   iii
Executive
summary
The liberalization of the domestic economy and increasing       new model. It aimed at making available “telephone
integration with the global economy has positioned India        on demand,” the provision of leading class services at
as the second fastest expanding economy of the world.           reasonable prices, promoting India’s emergence as a
After embracing a closed, centralized economic model for        major manufacturing and export base of telecom
four decades, India shifted to a market-oriented model.         equipment and universal availability of basic telecom
Liberalization initiatives, especially in the 1990s, resulted   services to all villages. In 1999, Government, recognizing
in an improved business climate and in an increase in           the need to overhaul its policy framework, issued the
investment across the country, boosting the industrial          NTP 1999, which had played a key role in shaping the
growth over the past decade. Indian telecom is an               sector. India has reached the goals set in NTP 1999 far
economic miracle in the making. Connecting such a vibrant       ahead of time, with the market evolving into the world’s
economy of more than a billion people together and with         second largest in terms of subscribers. Presently, there
the rest of the globe is an extraordinary achievement in        are more than 700 million subscribers in India, and the
terms of a nation’s socioeconomic development.                  overall teledensity has reached more than 60%.

India has faced challenges in liberalizing its telecom          With plenty of strong potential value remaining, the sector
industry from a monopoly to a decentralized competitive         requires much attention and a robust policy framework to
model. The announcement of the National Telecom                 address the challenges that exist in the present scenario
Policy (NTP) in 1994 marked the first steps toward the          as well as help to capture the opportunities that the sector
                                                                holds for the country.




iv     Enabling the next wave of telecom growth in India
The present challenges include the spectrum and licensing framework, Universal Service
Obligation Fund (USOF) structure, broadband, equipment manufacturing, infrastructure
segment, mergers and acquisitions scenario, taxation and aspects of foreign direct
investment (FDI). The opportunities around which the policy initiatives need to be
designed include financial inclusion, m-commerce and convergence.

The major recommendations for the policy framework for the Indian telecom industry
are as follows:

 Focus areas                 Recommendations
 Licensing                   Need to have a single universal license for all telecom services
                             There should be a uniform fee structure across all telecom circles
                             Pure internet service providers should continue to be allowed
                             without payment of any license fees
                             Provide a clear license renewal regime that includes legislation,
                             renewal procedures, reasons for refusal to renew and appeals to
                             regulatory decisions




                                                                         Enabling the next wave of telecom growth in India   v
                               Focus areas               Recommendations
                               Spectrum                  Need to re-farm available spectrum
                                                         Spectrum up to contracted limit should be ensured as initial
                                                         spectrum to the existing players
                                                         Spectrum usage charge should be identified upfront at the time
                                                         of spectrum allocation
                               USOF                      The USOF should be utilized for the following in rural and remote
                                                         areas:
                                                           
                                                         • Provision of public telecom and information services
                                                         • Provision of household telephones
                                                         • Creation of infrastructure for provision of mobile services
                                                         • Provision of broadband connectivity to villages in a phased
                                                           manner
                                                         • Creation of general infrastructure for development of
                                                           telecommunication facilities
                                                         • Induction of new technological developments in the telecom
                                                           sector
                                                         Subsidies should be distributed through transparent market-
                                                         oriented allocation strategy
                               Broadband                 Backhaul connectivity and optic fiber communication (OFC)
                                                         should be provided to all telecom towers, base station controllers
                                                         (BSCs) and base transceiver stations (BTS) from nearest block
                                                         headquarters
                                                         Make available more spectrum for wireless broadband
                                                         Make broadband connectivity mandatory for all buildings to
                                                         get completion certificate on the lines of water and power
                                                         connectivity
                                                         Create content and applications in regional languages to promote
                                                         rural broadband
                               Mergers and acquisition   
                                                         Merger should not result in less than six operators in a circle
                                                         The share of a merged entity should not be greater than 30% in
                                                         terms of sub-base or adjusted gross revenue (AGR)




vi   Enabling the next wave of telecom growth in India
 Focus areas                  Recommendations
 Taxation                     The upcoming goods and service tax (GST) regime should aim to
                              simplify the tax structure for the industry, with all services and
                              goods being taxed at a standard rate
                              Special consideration needs to be given on certain areas in the
                              backdrop of the peculiarities of the telecom sector such as “place
                              of supply rules” i.e., the state where GST will be paid for different
                              kind of telecom services; ease in state-wise compliances
 Equipment manufacturing      There is a need to set up hardware manufacturing cluster parks
                              (HMCP) across the country and upgrade localized infrastructure
                              to support large volume contract manufacturing
                              R&D should be the key focus
 Telecom infrastructure       Need to lay down a National Telecom Critical Infrastructure Policy
                              on the lines of NTP 1999 elaborating uniform procedures for land
                              acquisition, a uniform system of taxation and subsidies and other
                              incentives designed to create an environment that encourages
                              the build-out of the national telecom infrastructure and the
                              increased participation of all stakeholders
                              There is a need for a national right of way (ROW) policy for the
                              rollout of backhaul network
 Enterprise data              Upgrading encryption levels in international long distance
                              (ILD) and national long distance (NLD) licenses to allow strong
                              encryption of up to 256 bits to protect confidential information in
                              accordance with international best practices
                              Telecom Regulatory Authority of India (TRAI) and Department
                              of Telecommunications (DOT) should eliminate the cumulative
                              assessment of licensing fees on the purchase of inputs, which
                              imposes double taxation on ILD and NLD license holders
 FDI                          Given the importance of foreign investment, the policy should
                              consider raising the upper limit on foreign investment to
                              encourage more foreign players to invest in the capex-intensive
                              telecom sector

Policies should also cover areas like financial inclusion, m-commerce, convergence, security
concerns and consumer affordability. However, there is no unique, perfect model accepted
globally which can be implemented in India and leading practices across the globe should be
adopted for transforming the Indian telecom sector into the greatest possible success story.




                                                                           Enabling the next wave of telecom growth in India   vii
Methodology
In 2010, Ernst & Young conducted a research study on the Indian
telecom sector in collaboration with one of the leading business
organizations in India — FICCI. The study gives a detailed perspective
on the telecom sector in India, outlining the phenomenal growth
witnessed by the sector and recommendations for the existing policy
framework that will enable the next level of growth. It examines the NTP
1999, which is used by the Government of India (GoI) as a decision-
making guide for the Indian telecom sector. This report reflects the key
conclusions of that wider study.

The research program studies in detail all the key segments of the
telecom landscape — wireless, wireline, broadband, infrastructure,
NLD, ILD, value-added services (VAS), equipment manufacturing,
infrastructure and convergence. It identifies and evaluates the critical
success factors that are applicable across all telecom segments such
as spectrum, USOF, licensing framework, FDI, security, consumer
affordability and the role of the regulator.

As a part of the research program, Ernst & Young conducted
comprehensive interviews with senior executives in the Indian
telecom sector. These interviews provided a firsthand perspective
on the opportunities and challenges faced by various stakeholders
in the sector. These findings have been combined with secondary
research, analysis and insights provided by Ernst & Young.




viii
                                                                                             Syed Safawi
                                                                                             President
                                                                                             Reliance
                                                                                             Communications Ltd.




      List of                                                                                Vsevolod Rozanov




participants
                                                              P Balaji                       President and
                                                              Head of Communications,        Chief Executive Officer
                                                              Corporate Affairs & Business   Sistema Shyam
                                                              Development, India             TeleServices Ltd.
                                                              Ericsson India




                               Virat Bhatia
                               President,                     Mahendra Nahata                Shamik Das
                               External Affairs, South Asia   Managing Director              Chief Executive Officer
                               AT&T Communication             Himachal Futuristic            S Tel Pvt. Ltd.
                               Services India Pvt. Ltd.       Communication




                               Rajan S. Mathews               Rajat Mukarji                  Anil Sardana
  TV Ramachandran              Director General               Chief Corporate                Managing Director
  Resident Director            Cellular Operators             Affairs Officer                Tata Teleservices Ltd.
  Vodafone Essar               Association of India           Idea Cellular Ltd.




  Sanjay Kapoor                                                                              Lt. Col. HS Bedi, VSM
  Chief Executive Officer      Mahesh Uppal                   B S Shantharaju                Chairman and
   Bharti Airtel               Director                       Chief Executive Officer        Managing Director
  (India & South Asia)         Com First (India) Pvt. Ltd.    Indus Towers Ltd.              Tulip Telecom Ltd.




                                                                                             Rajiv Mehrotra
  Ashok Sharma                                                                               Chief Executive Officer
                               Brijendra K Syngal             Parag Kar
  National Head — Regulatory
                                                              Senior Director —              Vihaan Networks Ltd.
  Aircel Ltd.                  Senior Principal
                               Dua Consulting Pvt. Ltd.       Government Affairs
                                                              Qualcomm India Pvt. Ltd.




  SC Khanna                                                                                  Naresh Ajwani
  Secretary General            Himanshu Kapania               CS Rao                         Chief Regulatory &
  Association of Unified       Deputy Managing Director                                      Corporate Affairs
                                                              Head of Corporate Affairs
  Telecom Service Providers    Idea Cellular                                                 Viom Networks Ltd.
                                                              and Regulatory Division
  of India                                                                                         ix
                                                              Reliance Communications
Industry associations

Federation of Indian Chambers of Commerce and              directly with ministries, policy-makers, regulators,
Industry (FICCI): established in 1927, FICCI is one of     financial institutions and technical bodies. It provides
the largest and oldest apex business organizations         a forum for discussion and exchange of the ideas
in India. It plays a leading role in policy debates that   between these bodies and service providers, who
are at the forefront of Indian social, economic and        share a common interest in the development of
political change. FICCI is active in 39 sectors of the     cellular mobile telephony.
economy, and its stand on policy issues is sought
                                                           Association of Unified Telecom Service Providers
after by think tanks, governments and academia. The
                                                           of India (AUSPI): constituted in 1997, AUSPI is
organizations’ publications are widely read for their
                                                           a registered society that works as a non-profit
in-depth research and policy prescriptions. Home to
                                                           organization with the aim of delivering improved
400 professionals, it has joint business councils with
                                                           access, coverage and teledensity in India. AUSPI
79 countries across the world.
                                                           is the representative industry body of unified
Cellular Operators Association of India (COAI):            access service licensees providing CDMA and GSM
established in 1995, COAI is a registered, non-            mobile services, fixed–line services and VAS across
profit, non-governmental society dedicated to the          the country.
advancement of modern communication through the
establishment of a world-class cellular infrastructure.
Over the years, COAI has emerged as the official
voice for the Indian GSM industry and interacts
Association of Competitive Telecom Operators            Telecom Equipment Manufacturers Association
(ACTO): established in 2008, ACTO is an industry        (TEMA): established in 1990, TEMA is an industry
body that focuses on policies that enhance enterprise   association for telecom equipment manufacturers
telecommunications in India. The association            as well as component and cable manufacturers.
was formed by several leading non-integrated            It plays an active role in the dissemination and
long-distance carriers that provide service to          exchange of information among the GoI,
the enterprise market segment, which includes           foreign agencies, embassies, trade missions,
IT-enabled services, business process outsourcing       Indian missions abroad and leading national and
and multinational company segments.                     international trade associations.

Internet & Mobile Association of India (IAMAI):         Internet Service Providers Association of India
founded in January 2004, IAMAI is an industry           (ISPAI): founded in 1998, ISPAI acts as a collective
body representing the interests of online and           voice of the ISP community, with the mission of
mobile VAS industry. The association’s activities       promoting internet for the benefit of all. It has helped
include promoting the digital economy, evaluating       in shaping telecom policies for ISPs and internet
and recommending industry standards and                 entrepreneurs to grow their services in a supportive
practices, conducting research, creating platforms      and enabling environment.
for its members, communicating on behalf of the
                                                        Other Service Providers Association of India
industry and helping to create a favorable business
                                                        (OSPAI): established in 2008, OSPAI is the
environment for the industry.
                                                        representative industry body, functioning as an
                                                        association of companies operating in areas such
                                                        as domestic and international call centers, business
                                                        process outsourcing, knowledge process outsourcing,
                                                        information technology (IT), medical transcription,
                                                        financial services, tele-medicine, tele-education,
                                                        tele-trading, billing services and network operating
                                                        centers. It acts as an interface with government
                                                        bodies for the growth of all services covered under
                                                        the registration of other service providers.
Contents
1. Indian telecom sector                                          3
    1.1. Overview                                                  3

    1.2. Importance of telecom                                     5

2. Evolution of the telecom sector in India                       9
    2.1. History of the Indian telecom industry                   10

    2.2. Regulatory framework                                     12

    2.3. Overview of the Indian telecom industry                  14

    2.4. Wireless                                                 15

    2.5. Wireline                                                 16

    2.6. Internet and broadband subscribers                       17

    2.7. National long distance and international long distance   19

    2.8. Telecom equipment manufacturing in India                 21

    2.9. Infrastructure                                           22

    2.10. Value-added services                                    27

    2.11. Outlook                                                 28

3. Achievements and setbacks of NTP 1999                          31
    3.1. Key achievements of NTP 1999                             34

    3.2. Key challenges of NTP 1999                               41

4 Key enablers                                                    45
    4.1. Connected India: telecom vision 2020                     46

    4.2. Connected Indian: telecom mission 2020                   47

    4.3. Key enablers under existing scenario                     48

         4.3.1      Licensing                                     48

         4.3.2    Spectrum                                        50




1     Enabling the next wave of telecom growth in India
       4.3.3   Universal Service Obligation Fund (USOF)                          53

       4.3.4   Broadband                                                         55

       4.3.5   Mergers and acquisition                                           57

       4.3.6   Taxation                                                          58

       4.3.7   Foreign direct investment (FDI)                                   60

       4.3.8   Consumer affordability and rural penetration                      61

       4.3.9   Human resource                                                    63

       4.3.10 Equipment manufacturing                                            64

       4.3.11 Telecom infrastructure                                             66

       4.3.12 Enterprise data                                                    69

       4.3.13 Convergence                                                        70

       4.3.14 Security                                                           71

  4.4. Key enablers for potential opportunities                                  72

       4.4.1   m-commerce                                                        72

       4.4.2   M2M communication                                                 73

       4.4.3   Mobile money                                                      73

       4.4.4   M-health                                                          73

       4.4.5   M-education                                                       74

       4.4.6   Financial inclusion                                               74

       4.4.7   MNREGA and UID                                                    74


5. Global practices                                                            75
Conclusion                                                                     87
Glossary                                                                       89




                                                              Enabling the next wave of telecom growth in India   2
1
Indian telecom
sector
1.1. Overview
Over the past two decades, India has grown rapidly from a “command
and control” economy to a market-based economy. India is now closely
integrated with the global economy and is considered one of the pillars
of global economic growth. The process of liberalization started in the
mid-1980s and gathered momentum in the 1990s, with the further
opening of the economy and the creation of regulatory institutions to
march toward fully competitive markets. As a result of liberalization,
India’s GDP has been rising by more than 7%1 annually in the past
decade, compared with 3.5%2 annually from 1950 to 1980. The Indian
economy maintained a growth rate of more than 5% even during the
global recession.

In FY10 (financial year ended 31 March 2010), India’s service sector
was estimated to account for 56.9%3 of GDP, while the industrial sector
and agriculture sector contributed 28.5% and 14.6%, respectively, to
GDP. Within the services sector, the telecom sector has been the major
contributor to India’s growth, accounting for nearly 3.6%4 of total GDP
in FY10. In less than a decade, the mobile phone has been transformed
from being a luxury that few could own into one of the essentials of an
average Indian’s existence. The easy access to mobile services is the
outcome of positive regulatory changes, intense competition among
multiple operators, low-priced handsets, low tariffs and significant
investments in telecom infrastructure and networks.




1   India: Rising growth potential, DBS Group Research, 13 October 2010.
2   “Redefining The Hindu Rate Of Growth,” The Financial Express,12 April 2004, http://www.financialexpress.com/news/redefining-the-hindu-rate-of-
    growth/104268/0, accessed 19 October 2010.
3   “India’s Macroeconomic Indicators,” Export-Import Bank of India website, 26 August 2010, http://www.eximbankindia.com/ind-eco.pdf, accessed
    10 October 2010.
4   India 2012: telecom growth continues, Ernst & Young report, November 2008, page 8.
3       Enabling the next wave of telecom growth in India
Indian telecom model




 Outsourcing non-core
                                            Infrastructure sharing
 activities like IT, network




 Paradigm shift
 from average
                            Focus on                  Low cost
 revenue per user
                            prepaid                   distribution,
 (ARPU) to revenue
                                                      e-Charge
 per min




                                           Low acquisition cost
   Economies of scale                      (no handset subsidy)




Source: “How can carriers make 40% EBIDTA margin at 2 cents/min
tariff?,” http://www.telecomcircle.com/2009/02/carriers-ebidta/,
accessed 25 October 2010.




                  Enabling the next wave of telecom growth in India   4
1.2. Importance of telecom
Telecommunication is pivotal to a country’s socioeconomic                 1.2.1 Economic growth
growth. It is one of the main architects of the accelerated
growth and progress of different segments of the                          Indian telecom has emerged as one of the greatest
economy. Narrowing access gaps and removing barriers                      economic success stories, registering a consistent
to information dissemination are prerequisites for                        overall growth rate of more than 35% over the past decade
promoting equitable and sustainable development as well                   in terms of subscribers. According to a World Bank study,
as political and social cohesion. Increasing connectivity                 a 10%5 increase in teledensity is known to boost GDP
is highly instrumental in improving governance, business                  growth by 0.6% points. In other words, a 1% increase in
communication, security, response to emergencies                          mobile subscribers is estimated to increase per capita
and in the overall strengthening of the sociocultural                     GDP by about US$200. According to a study by the Indian
ethos of the country. The advantages of the advent of                     Council for Research on International Economic Relations
telecommunications are manifold and explicitly verifiable                 (ICRIER), states with a higher teledensity have grown faster
from the phenomenal success of the sector.                                than those with lower teledensity. States with 10%6 higher
                                                                          teledensity have grown 1.2% faster; for instance, Bihar
                                                                          could have witnessed 4% faster growth if it had enjoyed the
                                                                          same teledensity as Punjab. The well-distributed network
                                                                          of telecommunication services results in widening markets,
                                                                          creates efficient information flows, lowers transaction
                                                                          costs and is an effective substitute for infeasible
                                                                          physical transport.




There is a substantial relationship between increase in teledensity and the economic
development of a region. Mobile telephony had a profound impact on the fishing
community in the southern state of Kerala. By virtue of being a carrier and disseminator of
information, mobile telephony has made the rural and underdeveloped markets much more
efficient. The MS Swaminathan Research Foundation (MSSRF), a government organization,
has partnered with a leading telecom equipment and service provider to provide “Fisher
friend,” through which fishermen are provided free mobile handsets, shared on a rotating
basis, along with free access to information service.
The usage of mobile phones has enabled fishermen to respond quickly to market demand
and prevent wastage. Mobiles have helped to co–ordinate demand and supply, and have
helped those who catch the fish communicate with merchants and transporters in an
efficient and effective manner. It has helped to reduce the time spent by agents and owners
waiting for boats, reduced business risk and made those involved with fishing feel much
safer at sea.




5   Unfinished Business: Mobilizing new efforts to achieve the 2015 millennium development goals, World Bank, September 2010, page 17.
6   Samar Srivastava, “High-teledensity states grew faster, says study,” LiveMint, 19 January 2009,http://www.livemint.com/2009/01/19224316/
    Highteledensity-states-grew-f.html, accessed 10 October 2010.




5      Enabling the next wave of telecom growth in India
1.2.2 Job creation                                                                 RuralShores: bringing jobs to
Besides being one of the largest revenue generators,                               rural India
telecom is also a major creator of jobs. The telecom
sector has led to the growth of a range of communication                           Over the years, the lack of employment
technology-enabled activities and services. Operations                             opportunities in rural India has forced people
such as data entry, revenue accounting, processing                                 belonging to villages to move to the cities.
of insurance claims, human resource services, call                                 However, RuralShores is an initiative that aims
center operations, customer support centers, software                              to reverse the trend. It aims to introduce rural
development, systems engineering and systems design and
                                                                                   youth to BPO and to provide employment in
integration are popular examples. Further, the spread of
telecom and information services to rural areas is enabling                        their village.
the setup of rural business process outsourcing (BPO).
                                                                                   In return, corporations benefit through
                                                                                   cost-effectiveness due to the lower costs
1.2.3 Social development                                                           associated with a rural ecosystem, low
                                                                                   employee attrition and the potential for
Connectivity fosters social development, including                                 scalability. Participation in the initiative is
improved education, health and increased citizen
                                                                                   an act of corporate social responsibility.
participation in civil society. Telecommunication helps
provide access to health care and allied services. It                              Moreover, it ensures complete information
helps combat epidemics such as HIV/AIDS and malaria                                protection, guaranteed service levels, a
by supplying information on treatment and control,                                 committed workforce and business continuity.
generating awareness, improving access to and
connectivity with health centers, and establishing the
mobile testing of diseases. The current synergy between
health reform initiatives and advantages in technologies
has resulted in the proliferation of e-medicine projects.
                                                                              •    Helping to stem urban migration by generating greater
This represents an innovative approach in providing quality
                                                                                   income and employment potential in rural areas
health care whenever and wherever needed.
                                                                              •    Facilitating emergency response and access to health
                                                                                   care and allied services
1.2.4 Rural development                                                       •    Facilitating m–commerce and e-commerce through
                                                                                   trade along the agriculture supply chain, resulting in
According to FICCI and Nielsen study, Indian villages                              the organized aggregation of supply and demand
account for 70%7 of the country’s total population, 56% of
the country’s income, 64% of consumption expenditure and                      •    Providing enhancement of microfinancing, technology
33% of national savings. The provision of telecom services                         transfer and entrepreneurship
in rural areas and the obscure hinterland has made                            •    Facilitating national and regional integration,
previously abandoned areas highly accessible. With more                            creating an atmosphere of economic diversification,
untapped territories being connected through telecom, the                          employment and a strong socio-cultural ethos
hitherto dormant economic potential is being increasingly                     •    Open rural areas to foreign investment,
tapped. Communication facilities in rural areas are critical                       leading to the inclusion of rural India in the
for the development of rural India, providing the                                  global economic milieu and reducing the
following advantages:                                                              rural-urban divide. As a result, the quality of
                                                                                   life in rural area improves, thus reducing the
                                                                                   pressure of urban migration




7   Challenges Before An Integrated India: Bridging The Urban - Rural Divide, Nielsen, August 2010, page 13.




                                                                                      Enabling the next wave of telecom growth in India     6
1.2.5 E-governance                                                           •    Government to government (G2G): these services take
                                                                                  place at two levels — the local or domestic level and
E-governance that helps exploit the power of                                      the international level. G2G services are transactions
information and communication technology to                                       between the central/national and local governments,
transform accessibility, quality and the cost-effectiveness                       and between the departments and their agencies
of public services has been made possible by the telecom                          and bureaus. On a global footing, G2G services are
revolution. Since the advent of IT and communication                              transactions between governments, and can be used
technology, Indian ministries and government departments                          as an instrument of international relations
are working to computerize their operations to make them                          and diplomacy.
simpler and increasingly accessible for Indian citizens.
Most relevant information about these entities is now
available on their websites, making it easily accessible and                 1.2.6 Strengthening investments
increasing transparency. Significant progress has been
                                                                             Attractive trade and investment policies have transformed
made in the computerization of railway bookings, allocation
                                                                             the Indian telecom sector into one of the most investor-
of the Permanent Account Number (PAN) to income
                                                                             friendly markets. Between FY00 and FY10, the inflow
tax payers, processing of passport application, conduct of
                                                                             of FDI into India’s telecom sector was approximately
public examination and customs clearance, among others.
                                                                             INR407.1 billion (US$8.9 billion),8 accounting for more
The four main types of e-governance services provided are
                                                                             than 8% of approved FDI.
as follows:

•    Government to citizen (G2C): this comprises
     information dissemination to the public, as well                        1.2.7 Gender equality
     as basic citizen services such as license renewals,
                                                                             The advent of communications technology has helped
     ordering of birth/death/marriage certificates and
                                                                             overcome institutional and social barriers of mobility,
     filing of income taxes, as well as citizen assistance for
                                                                             high illiteracy and negative social norms. It is facilitating
     basic services such as education, health care, hospital
                                                                             women’s participation in the political and economic
     information and libraries.
                                                                             processes of the country. Achieving gender equality and
•    Government to business (G2B): this entails                              empowering women is crucial because of its cross-cutting
     services between government and the business                            influence. It is an irreplaceable component for achieving
     community, including the dissemination of policies,                     most developmental goals, including the “Millennium
     memos, rules and regulations. Business services                         Development Goals.” Mobile telephones and the internet
     offered include obtaining current business information,                 can advance gender equality by:
     downloading application forms, renewing licenses,
     registering businesses, obtaining permits and the                       •    Empowering women and surmounting gender
     payment of taxes. The services offered through G2B                           inequality: this is being achieved by promoting
     transactions also assist in business development,                            the awareness among women about their social
     specifically the development of small and medium                             and political status, and creating new economic
     enterprises (SMEs). Simplifying the application and                          opportunities for women through digital
     approval procedures process for SME requests would                           empowerment.
     encourage business development.                                         •    Delivering literacy and education to women wherever
•    Government to employee (G2E): this includes                                  they live or work: this opens up new avenues and
     G2C services as well as specialized services that cover                      allows for flexible learning times. One prime success
     only government employees, such as the provision of                          story of communication technology promoting
     human resource training and development that could                           women’s education is India’s “Distance education for
     improve the day-to-day functions of the bureaucracy                          women’s development and empowerment” jointly run
     and dealings with citizens.                                                  by the Department of Women and Child Development




8 “Fact Sheet on Foreign Direct Investment (FDI) from August 1991 to March 2010,” Department of Industrial Policy & Promotion, http://dipp.nic.in/,
   accessed 10 October 2010.




7       Enabling the next wave of telecom growth in India
    and the Indira Gandhi National Open University.                          (R&D). In pursuance of the NTP 1999’s objective toward
    This program provides a multimedia training                              R&D, organizations such as Telecom Centers of Excellence
    package to make women’s self-help groups                                 (TCOE), the Center of Excellence in Wireless Technology
    sustainable by developing their decision-making ability                  (CEWIT) and the Broadband Wireless Consortium of India
    and resource management skills in 150 low-literacy                       (BWCI) have been established. These organizations have
    districts. This is one of the most befitting instances of                helped to create synergy among academia, the telecom
    the telecom and internet revolution, taking relevant                     industry and the Government for the creation of new
    education that is well aligned to the needs of the                       services and applications, the generation of intellectual
    communities to their doorstep, thus overcoming                           property right (IPR), the development of manufacturing
    cultural and language barriers.                                          capability, focus on global telecom standardization
•   Helping lower child mortality and improve maternal                       activities and the promotion of entrepreneurship. For
    health: this is done by providing information on                         instance, the TCOEs have focused on the technological
    nutrition, strengthening health networks, monitoring                     and management challenges that Indian operators face in
    health trends and provisioning primary health care.                      reaching all sections of society while offering affordable
                                                                             solutions, leading class services and a global presence.

1.2.8 m–commerce
                                                                             1.2.10 Provide impetus to initiatives such
This is the next revolution that is expected to emerge
                                                                             as MNREGA and Aadhaar
through the use of mobile phones, as these become a
tool for commerce. Mobile phones provide consumers                           The GoI has undertaken programs such as the
an opportunity to transact anytime and anywhere.                             Mahatma Gandhi National Rural Employment
m-commerce finds its applications across various end                         Guarantee Act (MNREGA) and AadhaaR — Unique
markets such as banking and financial institutions, paying                   Identification Authority of India (UIDAI), which aim to
bills for utilities such as power and gas, booking tickets                   provide inclusive growth. The challenges surrounding these
for transportation services such as trains and taxis and                     programs include job cards for those demanding work, the
online shopping. Mobile banking enables customers of                         elimination of ghost workers, the introduction of electronic
banks and other financial institutions to access their                       muster rolls, wage payments and the authorization of
account information, transfer funds, trade stocks and                        wages electronically. Furthermore, the introduction of
purchase financial products such as insurance. According                     GPS-enabled biometric systems at the grass-roots level
to Cybermedia India Online Limited, the value of mobile                      continues to remain a challenge. The integration of such
payment transactions in India is expected to reach                           programs with mobile telephony is expected to benefit
approximately US$1.3 billion by 2013.9                                       such programs of national importance. For instance,
                                                                             an integrated system for taking biometric attendance
                                                                             through handheld devices and transmitting it through
1.2.9 Facilitating research and                                              mobile phones for authentication is expected to solve the
development                                                                  challenge of attendance. Once a worker has logged in, this
                                                                             data could be transmitted to MNREGA, making sure the
The growth in high-speed communication and advances                          worker is paid for the day.
in internet technology are making India a major R&D
hub. Efforts are constantly being made to devise more
affordable technology for the masses. In India, there is
a significant focus on technology with the potential to
improve rural connectivity. NTP 1999, formulated by the
GoI, places great emphasis on research and development




9   “Nokia to rollout mobile banking in India,” CyberMedia India Online Ltd., 14 April 2010, http://www.ciol.com/News/News/News-Reports/Nokia-to-roll-
    out-mobile-banking-in-India/134910/0/, accessed 12 October 2010.




                                                                                     Enabling the next wave of telecom growth in India                   8
    Evolution of the

2
9
    telecom sector
    in India
    Enabling the next wave of telecom growth in India
                                                       2.1. History of the Indian
                                                               telecom industry

                           The Indian telecom sector has evolved from the bygone days of “telephone on
                           demand” to the advent of 3G telephony. Its history begins with the laying down of the
                           first experimental electric telegraph line in Kolkata. In 1881, telephone services were
                           introduced, with exchanges being opened in Kolkata, Mumbai, Chennai, Karachi and
                           Ahmedabad. Following independence, all foreign telecommunication companies in India
                           were nationalized to constitute the Posts, Telephone and Telegraph (PTT), and were under
                           government control.

                           In the early 1980s, the sector underwent its first wave of change. DoT was established in
                           1985 to provide domestic and long-distance services in India. Further, in 1986, two wholly
                           government-owned companies — Videsh Sanchar Nigam Limited (VSNL), which is now
                           known as Tata Communications, and Mahanagar Telephone Nigam Limited (MTNL) were
                           formed. VSNL and MTNL aimed at providing services to international and metropolitan
                           areas, respectively.

                           The introduction of the New Industrial Policy 1991 initiated the liberalization process in
                           India. Telecom equipment manufacturing was also de–licensed in 1991, and the NTP was
                           announced in 1994. The formulation of NTP 1994 was followed by the launch of mobile
                           telephony in India in 1995. However, growth in the initial years was very slow due to
                           high mobile handset prices as well as the high tariff structure of service providers. The
                           introduction of NTP 1999 heralded pro-consumer policies. NTP 1999 enabled the telecom
                           sector to reach an average subscriber growth rate of more than 35%, primarily due to
                           initiatives taken by the regulator and service providers. The liberalization of the sector
                           resulted in the need for a regulator, and the TRAI was established in 1997. In January
                           2000, the Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) was
                           established to take over the adjudicatory and disputes functions from TRAI.




Brief history of the Indian telecom sector

                                                                                                          • 2006: DoT announces
                                                                                                            criteria for additional
                                                                                                            spectrum
                                                                                                          • 2007: Cap on number
                                                       • 1991: Telecom         • 2003: Unified Access        of players in a circle
                                                         equipment manufac-      Service License            removed
                                                         turing completely       (UASL); Interconnect     • 2008: New licenses
                                                         deregulated             Usage Charges (IUC);       granted by DoT
                                                       • 1992: VAS opened to     and calling party pays   • 2010: 3G and BWA
                                                         private sector          (CPP)                      spectrum auction
                                                         participation         • 2004: Broadband          • 2011: MNP launched
                           • 1981: Contracts with a    • 1994: NTP 1994          policy; universal          Pan-India
                             French company to         • 1997: Establishment     licensing regime; and
                             merge with the              of TRAI                 guidelines for
 • 1947: Nationalization     state-owned ITI, to set   • 1999: NTP 1999          intra-circle M&A
   of all foreign            up 5 million lines per    • 2000: Establishment                                    2005–11
   telecommunication         year                        of TDSAT
   companies to            • 1985: Establishment
   constitute the posts      of DoT                                                  2000–05
   and telegraph           • 1986: Establishment
 • 1950: Telephone           of VSNL and MTNL
   exchanges taken over                                     1990–2000
   from the princely
   states
                                1980–90


      1947–80




                                                                       Enabling the next wave of telecom growth in India         10
In 2002, the Universal Service Support Policy came into        the sharing of infrastructure among mobile operators.
effect, providing statutory status to the USOF in December     Operators were allowed to share infrastructure in their
2003. The fund was introduced to provide access to             tower installations. In March 2008, the TRAI abolished the
telegraph services to people in rural and remote areas         access deficit charge (ADC), which covered the levy paid by
at affordable prices. In May 2003, the calling party pays      mobile operators to the state–run operator, BSNL. ADC was
(CPP) regime was introduced, through which all local           the fee paid by private mobile operators to the state-owned
incoming calls were made free. During the same year, the       BSNL, which mainly used the proceeds of ADC to develop
GoI introduced the Unified Access Service (UAS) licensing      rural telephony services. In July 2010, telecom towers
regime, which permitted an access service provider to offer    were accorded “Infrastructure Status” by the Reserve Bank
both fixed and/or mobile services under the same license,      of India (RBI), as these constitute an essential and possibly
using any technology. The GoI subsequently issued licenses     the most expensive component in the entire telecom
in November 2003, January 2004, December 2006,                 service delivery infrastructure.
March 2007 and January 2008.
                                                               The GoI commenced the auction for 2x5MHz in the
The GoI also introduced the Broadband Policy 2004,             2100MHz band for 3G services in April 2010, which
which recognized the ubiquitous potential of broadband         witnessed fierce bidding for spectrum. The reserve price
services and their contribution toward the GDP growth          for 3G services was categorized on the basis of circles —
and improved quality of life through e–governance,             INR3.2 billion for the more populated A and Metro circles;
e–commerce, entertainment, education and medicine,             INR1.2 billion for the B circles; and INR300 million for the
among others. The Broadband Policy 2004 specified              rural C circles. The auction aimed at allotting three
targets in terms of subscribers. In 2004, mobile services      to four 3G licenses for each of the 22 regional circles.
had outpaced fixed-line services with nearly 45 million        The bidding process continued for 34 days, reaching
mobile subscribers. Further, in February 2004, the DoT         the final stage in May 2010. The seven winners were
issued guidelines for the intra-circle merger of cellular      required to pay INR509.7 billion to the GoI. Additionally,
mobile telephone service (CMTS)/UAS licenses.                  the amount payable by BSNL and MTNL for 3G services
                                                               pushed the total auction revenue to INR677.2 billion
In November 2005, new UASL guidelines were issued. The
                                                               (US$14.6 billion). Following the auction of 3G mobile
licenses were to be issued on continuous basis without
                                                               services, the Government concluded the auction of BWA
any restriction on the number of entrants in a circle and
                                                               services across India. The GoI offered two 20MHz blocks in
applications were to be processed within 30 days of
                                                               the 2.3GHz range in each of the country’s 22 circles. The
submission. Allocation of spectrum and grant of wireless
                                                               bidding process continued for a period of 16 days, raising
license was subject to availability and, in case UASL was
                                                               INR385.4 billion (US$8.2 billion) in auction revenues. Thus,
not allocated spectrum due to non-availability, the licensee
                                                               the GoI raised in excess of INR1 trillion from the auction of
was required to endeavor to rollout services using wireline
                                                               3G and BWA services.
technology. FDI limit in the telecom sector was increased
from 49% to 74%. In February 2008, the DoT approved



11     Enabling the next wave of telecom growth in India
2.2. Regulatory framework
A number of positive regulatory changes have driven growth in the sector. The key feature
of India’s regulatory regime is transparency in industry information, an open approach and
encouragement of consultation with stakeholders. The key stakeholders as a part of the
regulatory environment in the telecom ecosystem include the Ministry of Communications
& Information Technology (MICT), Department of Telecommunications (DoT), the Telecom
Commission, the Telecom Regulatory Authority of India (TRAI) and the Telecom Dispute
Settlement & Appellate Tribunal (TDSAT).




 MICT


 •     The MICT is part of the Indian Government. The key departments of the ministry include the Department of
       Telecommunications, the Department of Information Technology, and the Department of Posts
 •     The MICT formulates policies with respect to telecom, post, telegraph and other means of communication
 •     The laws governing the telecom sector include the Indian Telegraph Act, 1885; the Indian Wireless Telegraphy Act, 1933; and
       the Telecom Regulatory Authority of India Act, 1997




 DoT


 •     The DoT is a part of the MICT. Its key responsibilities include:
       •    Policy, licensing and coordination matters relating to telegraphs, telephones, wireless, data, facsimile and telematic
            services and other like forms of communications
       •    International cooperation
       •    Promotion of standardization and R&D
       •    Promotion of private investment




 Telecom Commission


 •     The Telecom Commission was set up in 1989 by the GoI to deal with various aspects of telecommunications
 •     The commission consist of four full-time members that are ex-officio Secretary to the GoI in the DoT, and four part-time
       members that are secretaries to the GoI of the concerned departments
 •     The Telecom Commission is responsible for policy formulation, licensing, wireless spectrum management, administrative
       monitoring of public sector undertakings (PSUs), R&D and standardization and validation of equipment, among other matters




                                                                               Enabling the next wave of telecom growth in India     12
TRAI


 •     TRAI was established as an independent statutory regulatory authority under the TRAI Act in 1997. The key powers and
       functions of the authority include:
       •   Recommending the need for a new service provider, and the terms and conditions of license to a service provider
       •   Ensuring technical compatibility and effective inter-connection between different service providers
       •   Regulating revenue-sharing arrangements among service providers
       •   Ensuring compliance with the terms and conditions of license
       •   Setting and enforcing the time frames for providing local and long-distance telecommunication circuits
       •   Recommending revocation of licenses for non-compliance of their terms and conditions
       •   Facilitating competition and promoting efficiency in the operation of telecommunication services
       •   Protecting the interests of the consumers
       •   Monitoring the quality of service and conducting periodical surveys
       •   Inspecting the equipment used in the network and recommending the type of equipment to be used by service providers
       •   Settling disputes between service providers
       •   Advising the central government in matters related to the development of telecommunication technology and the
           telecom industry
       •   Levying fees and other charges
       •   Ensuring compliance with universal service obligations
       •   Performing other functions, such as administrative and financial functions, that may be entrusted to TRAI by the central
           government, or as may be necessary to carry out the provisions of the TRAI act




TDSAT



 •     In April 2000, the GoI established the Telecom Dispute Settlement & Appellate Tribunal (TDSAT), as an authority separate
       from the TRAI to handle disputes in the telecom sector
 •     The functions of TDSAT are to adjudicate any dispute between a licensor and licensee, between two or more service providers,
       and between a service provider and a group of consumers; and to hear and dispose of appeals against any decision or order
       of TRAI
 •     The appellate tribunal consists of a chairperson and two other members




13     Enabling the next wave of telecom growth in India
2.3. Overview of the Indian
telecom industry
India is the world’s second-largest telecom market. The total subscriber base (including
wireline and wireless) reached 723.3 million10 in September 2010. The wireless segment
has been registering monthly mobile additions of about 15 to 2011 million subscribers.


Subscriber base and teledensity (wireless and wireline)


                              800                                                                                        61.0%   70%
                              700                                                                                52.7%           60%
Total subscribers (million)




                              600                                                                                                50%




                                                                                                                                      Teledensity (%)
                              500                                                                       37.0%            723.3
                                                                                                                                 40%
                              400
                                                                                                26.2%                            30%
                              300                                                                                621.3
                                                                                        18.2%
                                                                                12.9%                   429.7                    20%
                              200
                                                                  7.0%   9.0%                   300.5
                              100   2.9%   3.6%    4.3%   5.1%                          205.9                                    10%
                                    28.5           45.0                  98.4   140.3
                               0           36.3%          54.6    76.5
                                                                                                                                 0%
                                    FY00   FY01    FY02   FY03    FY04   FY05   FY06    FY07     FY08    FY09    FY10 Sep-10
                                                    Total subscribers                           Teledensity
Source: TRAI


According to TRAI, the total subscriber base grew from                                          with US$200–US$350 per subscriber for wireline.
FY00 through FY10 at a compound annual growth rate                                              Lower costs and the additional benefit of mobility that
(CAGR) of 36.1% to reach 621.3 million subscribers. In                                          is associated with wireless subscribers have led to the
the past decade, the total teledensity has risen above                                          stagnation of the wireline subscriber base.
50%, with the mobile segment leading this growth. Such
phenomenal growth can be attributed primarily to the                                            Urban and rural subscriber base, September 2010
country’s large population, high economic growth, hyper-                                        100%= 723.3 million
competition in the sector, affordable handsets, reduced
tariffs, infrastructure sharing and the introduction of
positive and enabling regulatory reforms. The telecom                                                                                                   Rural
revolution in the country has impacted both the urban                                                                                                   Urban
                                                                                                               32.3%
and rural population. However, urban subscribers account
for more than 65% of the overall subscriber base, leading
toward a huge urban–rural digital divide.

As of September 2010, wireless subscribers constitute                                                                                   67.7%
the majority of the total subscriber base, accounting for
95.1%,12 whereas wireline subscribers account for 4.9%.
The capital cost to provide mobile service varies in the
range of US$50–US$90 per subscriber,13 in comparison
                                                                                                Source: TRAI


10 “TRAI Press Release No. 63 /2010,”TRAI website, http://www.trai.gov.in/Default.asp, accessed 10 December 2010.
11 Shauvik Ghosh, “Telcos to recoup 3G bid money in 5-6 years: Analysys Mason,” LiveMint, 30 May 2010, http://www.livemint.
   com/2010/05/30230743/Telcos-to-recoup-3G-bid-money.html, accessed 12 October 2010.
12 Ernst & Young analysis.
13 “Position paper on the Telecom sector in India,” Department of Economic Affairs – Ministry of Finance, December 2009, page 4, http://pppinindia.com/
   pdf/ppp_position_paper_telecom_122k9.pdf, accessed 10 October 2010.


                                                                                                        Enabling the next wave of telecom growth in India       14
2.4. Wireless
India has emerged as one of the world’s fastest-growing                                        FY10. Mobile services were commercially launched in
telecom markets, and this growth is primarily attributed to                                    India in 1995. In the initial years of mobile telephony,
the growth in wireless services. India’s mobile market is the                                  the growth in the number of subscribers was very low,
second largest in terms of subscribers in the world after                                      with average monthly subscriber additions in the range
China. The wireless subscriber base in India grew from                                         of 0.05–0.1 million16 subscribers. The advent of NTP
FY00 through FY10 at a compound annual growth rate                                             1999 paved the way for aggressive growth in the wireless
(CAGR) of 77.5%14 to reach 584.3 million15 subscribers in                                      subscriber base.


Wireless subscribers in India

                                  800                                                                                                70%

                                  700                                                                                        58.0%   60%
                                                                                                                     49.6%
                                  600                                                                                                50%
Wireless subscribers (millions)




                                  500
                                                                                                             33.7%                   40%




                                                                                                                                           Teledensity (%)
                                  400
                                                                                                                             687.7   30%
                                  300                                                               22.8%
                                                                                                                     584.3
                                                                                            14.6%                                    20%
                                  200                                                                       391.8
                                                                                     9.0%
                                                                              4.8%                  261.1                            10%
                                  100            0.4%   0.6% 1.2% 3.2%                      165.1
                                        1.9      3.6    6.5  13.0 33.7        52.2   98.8
                                   0                                                                                                 0%
                                        FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Sep-10
   Source: TRAI
                                                           Wireless subscribers                Teledensity


Wireless subscribers: GSM vs. CDMA, September 2010                                             GSM subscribers constitute about 84.1% of the total
100% = 687.7 million                                                                           wireless subscriber base. Over an extended period, the
                                                                                               gap between GSM and CDMA has widened as the GSM
                                                                                               subscriber base has grown more rapidly. The road ahead
                                                                        CDMA
                                                                                               for the Indian telecom sector is expected to be more
                                         15.9%                          GSM
                                                                                               eventful, primarily due to the advent of new services such
                                                                                               as 3G, VAS, mobile number portability (MNP) and the
                                                                                               growth of manufacturing.




                                                        84.1%



Source: TRAI




 14 Ernst & Young analysis.
 15 “TRAI: The Indian Telecom Services Performance Indicators (January - March 2010),” TRAI website, July 2010, http://www.trai.gov.in/Default.asp,
    accessed 10 October 2010.
 16 “Penetration of Mobile Telephony in India & Value added services in Indian Mobile Telephony market,” Zinnov Research and Consulting, October 2006,
    http://www.zinnov.com/presentation/Mobile_VAS.pdf, page 2, accessed 15 October 2010.


15                                  Enabling the next wave of telecom growth in India
2.5. Wireline
The Indian wireline market grew at a CAGR of 3.3%17 during                                          wireless infrastructure, there is a significant opportunity
the period between FY00 and FY10. In the recent past, the                                           for future growth, driven by the immense potential for
wireline subscriber base has declined due to lower mobile                                           data growth.
tariffs, cheaper handsets, improved mobile coverage,
                                                                                                    In FY10, the wireline subscriber base was 37 million,18
the advantage of mobility among wireless networks
                                                                                                    with a teledensity of 3.1%. Over the years, the urban
and inadequate infrastructure of the wireline network.
                                                                                                    market has dominated the wireline subscriber base,
Furthermore, the major wireline operators in India also
                                                                                                    accounting for 73.1% of the subscribers in FY10. As of
operate mobile networks, where they see higher revenue
                                                                                                    September 2010, there were 3.5 million19 public call
growth and continue to invest extensively. Although
                                                                                                    offices (PCOs) and 0.6 million village public telephones
wireline infrastructure in India is not as extensive as
                                                                                                    (VPTs) in India.


Wireline subscribers

                                  50             22.7%                                                                                        25%
                                  45    18.9%                       41.3              41.4   41.5   40.8
                                                          38.3%              40.1                            39.4                             20%
                                                                                                                     38.0
Wire line subscribers (million)




                                  40                                                                                         37.0
                                                                                                                                     35.6
                                  35              32.7                                                                                        15%
                                                                    7.9%




                                                                                                                                                    Growth rate (%)
                                  30    26.7              17.1%
                                                                                                                                              10%
                                  25
                                                                                      3.3%
                                  20                                                                                                          5%
                                                                            -3.0%            0.3%
                                  15                                                                -1.9%                    -2.6%            0%
                                                                                                            -3.3%    -3.7%
                                  10
                                                                                                                                              -5%
                                   5
                                   0                                                                                                          -10%
                                        FY00      FY01    FY02     FY03     FY04     FY05    FY06   FY07    FY08     FY09    FY10    Sep-10
                                                                  Wire line subscribers                Growth rate
Source: TRAI



Change in the composition of subscribers                                                            In FY00, the wireline market accounted for 93.4% of
                                                                                                    the subscribers; in FY10, it accounted for 5.9%. The
                         100%                                           5.9%                        wireline market is dominated by the government-
                                  80%
                                                                                                    controlled incumbent players. Apart from these two
                                                                                                    players, additional private players have also ventured into
                                  60%                                                               the fixed-line market. Although fixed-line operators are
                                                93.4%
                                                                       94.1%                        trying to offer VAS such as high-speed internet access,
                                  40%
                                                                                                    video on demand and videoconferencing, besides other
                                  20%                                                               new technologies, wireline service continues to face stiff
                                   0%            6.6%                                               competition from wireless services. In the future, the
                                                FY00                    FY10                        emergence of new technologies such as fiber to the home
                                               Wireless           Wireline                          is expected to drive the growth of the wireline market
Source: TRAI; DoT                                                                                   in India.


17 Ernst & Young analysis.
18 “TRAI: The Indian Telecom Services Performance Indicators (January - March 2010),” TRAI website, July 2010, http://www.trai.gov.in/Default.asp,
   accessed 10 October 2010.
19 “TRAI: The Indian Telecom Services Performance Indicators (July - September 2010),” TRAI website, January 2010, http://www.trai.gov.in/Default.asp,
   accessed 15 January 2011.


                                                                                                            Enabling the next wave of telecom growth in India         16
2.6. Internet and broadband

The internet has revolutionized the lifestyle of many                      broadband subscribers has increased at a CAGR of
Indians by creating a new means of communication,                          23.9%20 and 117.5% to reach 16.2 million and 8.8 million,
knowledge sharing, governance, employment and the                          respectively in FY10. This falls short of a Broadband
delivery of services. Although the internet is a function                  Policy’s goals of 40 million internet subscribers and
of various factors such as literacy, access to personal                    20 million broadband subscribers by the end of 2010.
computers and electricity, it has made significant
                                                                           Broadband infrastructure plays a vital role in a country’s
inroads in the urban market. Further, the evolution of
                                                                           achievement across domains such as social progress and
technology and increase in bandwidth has given rise to
                                                                           economic development. According to Booz & Company, it is
internet connections at speeds faster than traditional
                                                                           estimated that a 10%21 increase in broadband penetration
dial–up connections. The minimum threshold speed for a
                                                                           translates to a 1.5% increase in labor productivity in a
broadband connection is 256 kilobits per second (kbps)
                                                                           country. Also, a 10%22 increase in broadband penetration
or more, whereas traditional internet connections have a
                                                                           leads to a 1.3% increase in GDP. Broadband brings a
speed of less than 256 kbps.
                                                                           number of benefits, such as opportunities for education,
The DoT formulated the Broadband Policy 2004, which                        governance, entrepreneurship and services. The
envisions the creation of a framework through various                      opportunities hold a much larger promise for India’s large
access technologies such as optical fiber, digital subscriber              low-income population and a growing economy.
lines (DSL) on copper loop, cable television networks,
satellite media, terrestrial wireless and future technologies.
From FY05 through FY10, the number of internet and


Internet and broadband subscribers (million)

  20                                                                                                                           17.9
                                                                                                          16.2
  15                                                                                   13.5
                                                                    11.1
                                                                                                                                      10.3
                                                  9.3                                                            8.8
  10
                               6.9                                                            6.3
            5.6
     5                                                                     3.9
                                                        2.3
                                     1.4
                  0.2
     0
               FY05             FY06              FY07                FY08           FY09                   FY10                 Sep 10
                               Internet subscribers                       Broadband subscribers
Source: TRAI




20 Ernst &Young analysis.
21 Bringing Mass Broadband to India: Roles for Government and Industry, Booz & Company, June 2010.
22 “Broadband Commission Presents Report to United Nations,” International Telecommunications Users Group website, September 2010, http://intug.
   org/2010/10/09/international-insights-%E2%80%93-september/, accessed 25 October 2010.



17       Enabling the next wave of telecom growth in India
Market share by subscribers of technologies in internet        Market share by subscribers of technologies in
access, September 2010                                         broadband, September 2010

                       0.5%                                                    1.6% 0.8%
                3.6%
                                         DSL
                                                                              4.5%                      DSL
               4.0%                      Dial-up
                                                                                                        Cable modem
                                         Wireless                       6.5%
       10.3%                                                                                            Ethernet
                                         Cable modem
                                                                                                        Wireless
                                         Ethernet
                                         Others                                                         Others
                              50.5%

     31.0%


                                                                                      86.6%



Source: TRAI
                                                               Source: TRAI




Digital subscriber line (DSL) is the preferred technology
among service providers for both internet access and
broadband services. As of September 2010, DSL
constituted 50.5% of the market share in internet access,
and 86.9% of the market share in broadband access. The
share of wireless technology continues to be negligible
and remains to be fully exploited, especially in the case of
broadband services.

Broadband penetration continues to be very low in India,
despite a structured framework that included ambitious
goals to be met in 2010. Currently, broadband users are
concentrated in urban areas, primarily in business districts
or high–end residential areas of the larger cities. The
key factors responsible for the widespread adoption of
broadband include affordability and availability.
2.7. National long distance and
international long distance
The Indian enterprise data connectivity market is growing     Voice over Internet Protocol (VoIP) is considered a key
at 10% annually and annual revenue is expected to near        enterprise application for lowering operating costs. It has
the US$10 billion mark in the next five years. The growing    spurred the demand for IP-based virtual private network
demand for connectivity is coming primarily from the          (IP-VPN) services in India. The other services relevant
IT and IT-enabled services sectors (ITeS), the financial      to this segment are international private leased circuits,
services sector and the government. Most large global         internet connectivity, multiprotocol label switching (MPLS)
players have set up operations in India to cater to the       based IP-VPN services, and national and international data
connectivity needs of their customers. With telecom and       connectivity. A majority of global operators in this space
IT converging, managed services and network security          are also offering VAS such as network security, network
services are provided by global operators in partnership      integration, network management, network storage and
with Indian IT companies.                                     enterprise voice solutions.


                                              Enterprise segment revenues23
 Activity                                 FY08               FY09                    FY10                     FY11E
 Private line                              829                930                    1,064                     1,200

 VPN                                       423                480                     495                       510
 Ethernet                                   40                 70                       92                      130
 Managed business VoIP                      92                110                     125                       150
 Managed IP telephony                       51                 65                       75                        80
 Hosting services                          161                210                     260                       350
 Application services                      170                250                     370                       600
 Security                                  110                130                     150                       180
 Continuity and recovery                    20                 30                       45                        52
 Managed storage                            40                 56                       61                        72
 Outsource task                          1,600               1,900                   2,251                     2,800
 Contact center                             20                 31                       39                        45
 Total (US$ million)                     3,556               4,262                   5,027                     6,169




23 Industry estimates.




19      Enabling the next wave of telecom growth in India
  NTP 1999 opened up the NLD service for private
  operators, without any restriction on the number of
  operators. As of December 2009, the GoI had issued 29
  NLD24 service licenses. In FY10, the Indian market for NLD
  grew by 13.7% to reach total revenues of INR164 billion.25
  However, the market slowed in FY10, primarily due to a
  decline in ARPU across all operators.


  Market size of NLD

                            180                                              60%
                            160                             48.3%
Market size (INR billion)




                                                                             50%
                            140
                            120                35.3%                         40%
                                                                                    Growth (%)



                                                                    164.0
                            100    25.0%                                     30%
                             80                            144.3
                             60                                              20%
                                               97.3
                             40     71.9
                                                                    13.7%    10%
                             20
                              0                                              0%
                                   FY07        FY08        FY09     FY10
                                     Market size (INR billion)      Growth (%)
   Source: Voice and Data



  In 2002, India’s ILD services were opened up for private
  players, with the sale of the strategic stake in VSNL to
  the Tata Group. ILD has witnessed steady growth, with
  its revenues reaching INR176 billion26 in FY10. As of
  December 2009, the GoI had issued 24 ILD27 service
  licenses, with the annual license fee being reduced to 6% of
  the AGR.
      Market size of ILD

                            200                            30.0%             35%
                                                                             30%
Market size (INR billion)




                            150                                              25%
                                                                    17.3%
                                                                                   Growth (%)




                                                                             20%
                            100
                                                                             15%
                                  115.1       115.3       150.0     176.0
                            50                                               10%
                                              0.2%
                                  1.0%                                       10%
                             0                                               0%
                                  FY07        FY08           FY09    FY10
                                   Market size (INR billion)        Growth (%)
       Source: Voice and Data




  24 DoT Annual Report 2009–10,Department of Telecommunications, FY10.
  25 “India’s NLD market has grown by 13.6% in FY 2009-10,” Voice & Data, http://voicendata.ciol.com/content/vnd100_2010vol-II/110070520.asp,
     accessed 18 October 2010.
  26 “India among the Top Few Fastest Growing Telecom Markets,” Voice & Data, http://voicendata.ciol.com/content/vnd100_2010vol-II/110070519.asp,
     accessed 18 October 2010.
  27 DoT Annual Report 2009–10,Department of Telecommunications, FY10.



                                                                                                 Enabling the next wave of telecom growth in India   20
     2.8. Telecom equipment manufacturing
     The telecom equipment industry comprises products                                                       Value of telecom equipment imports to India
     such as cell phones, chipsets, wireless and landline
     infrastructure equipment, DSL and cable modems and                                                                            10
                                                                                                                                                                                 8.9
     networking devices, including routers and switches. India is




                                                                                                           Imports (US$ billion)
                                                                                                                                   8
     a strong market for global telecom equipment vendors.
                                                                                                                                   6
                                                                                                                                                            3.7
     Telecom equipment manufacturing and exports                                                                                   4

                                                                                                                                   2       1.3       1.7
                       600                                                                                                                                           1.2
                                                                      518.0 140
Production (INR billion)




                                                                                                                                   0
                       500
                                                                                   Exports (INR billion)



                                                                      110.0 120                                                         2005         2006   2007     2008        2009
                                                              412.7
                       400                                                    100                             Source: International Trade Centre
                                                               81.3
                       300                                                    80
                                                      236.6
                                       178.3                                  60
                       200 140.0 160.9
                                                                              40                             Share of imports by country of origin, 2009
                                        15.0          19.0
                       100        4.0                                         20
                            2.5                                                                              100%=US$8.9 billion
                           0                                                  0
                               FY04    FY05 FY06       FY07    FY08 FY09
                                         Production             Exports
     Note: Includes both indigenous and offshore production
     Source: DoT; “Indian telecom firms may get DoT boost,” LiveMint,                                                                         19.4%                          China
     http://www.livemint.com/2010/04/01215017/Indian-telecom-
     firms-may-get-D.html, accessed 02 August 2010; “Policy recommenda-                                                                                                      South Korea
     tions to increase domestic telecom growth and exports of telecom                                                               3.3%
                                                                                                                                                                            Sweden
     equipment and service,” “Telecom Equipment & Services Export Promotion                                                        3.4%                      59.1%
     Council (TEPC), Ministry of Communications and IT, GOI.”                                                                                                               US
                                                                                                                                    3.9%
     According to industry estimates, the demand for                                                                                4.5%                                    Singapore
     telecom equipment is expected to be worth US$70–100                                                                                6.4%                                Hong Kong
     billion28 in 2015. From 2005-09, the manufacturing and                                                                                                                 Others
     exports of telecom equipment grew at a CAGR of 33.9%
     and 112.1%,29 respectively. Furthermore, according to
     a leading telecom equipment manufacturer, the market                                                     Source: International Trade Centre

     for wireless infrastructure equipment is estimated to be
     US$8–10 billion,30 and equipment worth INR190 billion                                                   Although a few Indian mobile operators have a significant
     was imported in 2009. Despite the growth of a localized                                                 presence globally, companies in the manufacturing
     manufacturing environment in India, only 40% of the                                                     segment are yet to feature in the global telecom
     requirement for equipment is met through local sourcing,                                                landscape. Manufacturers in India face challenges such
     with the remainder coming from global companies                                                         as high logistics costs, an unreliable power supply,
     manufacturing in India. The majority of telecom segments                                                inadequate tax benefits and competition from low-cost
     are highly dependent on imports, with the exception of                                                  Chinese equipment.
     telecom towers and cables.




     28 “Telecom equipment manufacturing in India needs help urgently,” India Climate Portal, 21 July 2010, http://www.climatechallengeindia.org/telecom-
        equipment-manufacturing-in-india-needs-help-urgently-21-july-2010-t, accessed 12 October 2010.
     29 Ernst & Young analysis.
     30 “Time to go local in telecom equipment purchase,” CyberMedia India Online, 02 September 2010, http://www.ciol.com/News/News/News-Reports/
        Time-to-go-local-in-telecom-equipment-purchase/140758/0/, accessed 10 October 2020.


     21                        Enabling the next wave of telecom growth in India
2.9. Infrastructure
The Indian telecom success story is built around the                         availability. The components of mobile networks include
wireless segment. The wireless sector has charted an                         the electronic infrastructure, the civil infrastructure
impressive growth trajectory, growing at a CAGR of                           and backhaul. Typically, civil infrastructure forms about
more than 75%31 in the past decade in terms of the number                    60% of the cost of setting up a network, while electronic
of subscribers. Infrastructure development plays a crucial                   infrastructure forms the remaining 40%.34
role in the development of the wireless sector. The high
                                                                             Electronic infrastructure consists of the electronics
level of growth in the Indian wireless telecommunications
                                                                             needed to run a wireless network such as a BTS or cell site,
market will continue to drive huge investment in
                                                                             radio antennas, feeders, radio access network, cables,
infrastructure as well as a speedy rollout of networks
                                                                             node B, core network and other transmission equipment.
into new areas. As of March 2010, there were 425,45532
                                                                             Civil infrastructure includes the complementary elements
telecom towers in the country.
                                                                             of a cellular network that ensure that the electronic
The development of the telecom infrastructure depends                        components are operational. However, it does not play
on four key factors: rollout, competition, price, and                        any role in carrying wireless signals. Civil infrastructure
safety and aesthetic concerns. The rollout of services by                    includes components such as tower site, steel tower,
operators takes place only on the back of robust telecom                     shelter room, power regulation equipment, battery backup,
infrastructure. Competition will give further impetus                        
                                                                             air conditioner, fire extinguisher, diesel generator set
to the development of infrastructure. Falling prices of                        and security cabin. It is not influenced by the type of the
telecom services will help to increase their affordability,                    communication technology being used, whether it is GSM,
and the demand for more services will translate into the                       CDMA, 3G or BWA. However, the number of operators
development of more telecom infrastructure. Finally, as the                    providing their services from a particular site influences the
safety and aesthetic issues related to the setup of towers                     extent of civil infrastructure installed at the site. Backhaul
are addressed, the rollout of infrastructure will become                       consists of the intermediate links between the core of the
easier. The National Telecom Critical Infrastructure Policy                    network and the various sub-networks. It connects the
is expected to address these concerns as well as the issues                    electronic infrastructure at the tower site with the BSC
affecting telecom providers on the state level, including                      and MSC.
ROW related issues, hurdles to the erection of cellular
                                                                             Infrastructure Provider-I (IP-I) can provide assets
towers and value added tax (VAT) levies on broadband
                                                                             such as dark fiber, ROW, duct space and tower through
services delivered through fiber media. The policy should
                                                                             simple registration without paying any license
clearly define the role of the Central Government and the
                                                                             fee. It can also create active infrastructure, on behalf
states to help catalyze telecom sector growth.
                                                                             of the licensee.


2.9.1 Mobile network
                                                                             2.9.2 Towers and in-building solutions
Typically, a mobile network in a circle consists of mobile
                                                                             Telecom towers are broadly classified as ground-based
switching centers (MSCs), each of which is connected
                                                                             and rooftop towers. Ground-based towers (GBT) are
to base station controllers (BSCs), with each BSC being
                                                                             200 to 40035 feet high and are mostly used in rural and
connected to a base transceiver station (BTS). The BTSs
                                                                             semi-urban areas because of the easy availability of real
are installed in a contiguous manner, so as to facilitate the
                                                                             estate. GBTs involve a capital expenditure in the range of
handing over of signals from one BTS to another like a
                                                                             INR2.4 to 2.8 million, depending on the height of the
chain. The radius of each BTS varies from 500 meters to
                                                                             tower. GBTs can accommodate up to six tenants. Rooftop
as much as 8-10 km,33 depending upon subscriber usage,
                                                                             towers (RTTs) are placed on the roofs of high-rise buildings,
topography, frequency band of operation and spectrum


31   Ernst & Young analysis.
32   “Growth of Telecom Sector,” Lok Sabha, http://loksabha.nic.in/, accessed 28 October 2010.
33   Telecom towers and allied infrastructure, Crisil Research, December 2008, page 9.
34   Telecom infrastructure industry in India, ICRA Rating Feature, March 2009, page 5.
35   Telecom infrastructure industry in India, ICRA Rating Feature, March 2009, page 6.


                                                                                     Enabling the next wave of telecom growth in India    22
are shorter than GBTs and are common in urban and highly                     2.9.3 Telecom infrastructure in India
populated areas, where there is paucity of real-estate
space. Typically, these involve a capital expenditure of                     Initially, operators used their tower infrastructure for
INR1.5-2 million. RTTs can accommodate two to three                          competitive advantage. However, over the past few
tenants. Over the past couple of years, telecom operators                    years, the leading operators have opted to share their
have hived off their telecom towers into separate entities.                  infrastructure. Today, there are an estimated 425,455
As a result, there are three types of tower companies —                      telecom towers in India, implying a subscriber-per-tower
pure-play tower companies, operators with towers and                         ratio of 1,460. Currently, tenancy level for the industry
operator-owned tower companies.                                              stands at 1.55.36

In recent years, the growth of mobile communications                         In July 2010, telecom towers were accorded Infrastructure
has made the provision of radio coverage within airports,                    Status37 by the RBI. This constitutes an essential and
mass transit systems, shopping malls, stadiums and office                    possibly the most expensive component in the entire
buildings an essential requirement. Coverage is required to                  telecom service delivery infrastructure. The GoI provides
meet the needs of both the general public, which expects                     certain benefits specifically to infrastructure companies.
its mobile phones to work at all times, and emergency                        The tax benefit encourages the participation of private
services, which need reliable communications for efficient                   sector through investment. Extending Infrastructure
incident management and personal safety. In-building                         Status to telecom towers and the resultant income tax
solutions are designed to improve the reception of radio                     benefits should certainly encourage tower companies to
frequency signals indoors to meet the increasing demand                      expeditiously set up more towers in underserved areas.
for high-quality mobile services.


 State-wise number of towers
 States                                                              Public sector                Private sector                    Towers
 Rajasthan                                                                  2,028                         23,322                    25,350
 Gujarat, Daman and Diu                                                     2,271                         26,121                    28,392
 Maharashtra and Goa                                                        3,608                         41,494                    45,102
 Karnataka                                                                  2,154                         24,766                    26,920
 Madhya Pradesh and Chhattisgarh                                            1,854                         21,323                    23,177
 West Bengal, Orissa, Sikkim, Andaman and Nicobar                           3,337                         38,371                    41,708
 Assam and Arunachal Pradesh                                                  720                          8,275                     8,995
 Delhi, Haryana and Chandigarh                                              2,008                         23,090                    25,098
 Uttar Pradesh and Uttarakhand                                              4,577                         52,630                    57,207
 Andhra Pradesh                                                             2,752                         31,644                    34,396
 Punjab and Himachal Pradesh                                                1,512                         17,387                    18,899
 Jammu and Kashmir                                                            488                          5,614                     6,102
 Tamil Nadu and Pondicherry                                                 3,071                         35,321                    38,392
 Bihar and Jharkhand                                                        1,794                         20,634                    22,428
 Nagaland, Meghalaya, Manipur, Mizoram and Tripura                            369                          4,242                     4,611
 Kerala and Lakshadweep                                                     1,494                         17,184                    18,678
 Total                                                                    34,037                        391,418                   425,455
 Source: “Growth of Telecom Sector,” Lok Sabha, http://loksabha.nic.in/, accessed 28 October 2010.




36 “TRAI: Consultaion paper on issues related to telecommunication infrastructure policy,” TRAI website January 2011, http://www.trai.gov.in/Default.
   asp, accessed 01 February 2011.
37 “Master Circular - Exposure norms,” Reserve Bank of India, http://www.rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx, accessed
   20 September 2010.
23        Enabling the next wave of telecom growth in India
2.9.4 Energy requirements                                         Spectrum constraints and network quality: for operators
                                                                  in urban areas, superior network quality is a sustainable
Currently, telecom towers consume an average of about             differentiating factor that helps to reduce customer churn
5-6 kilo watt of energy coupled with an average of 8 hours        and command premium prices. Tower sharing could help
of diesel generator running time due to power outages.            operators maintain quality network coverage throughout
On average, 27 million units of electricity are consumed          the city.
per day. Average diesel consumption per site per hour is
about 2.5 liters, translating to 6 million liters of diesel per   Capital expenditure (capex) and operating expenditure
day. This translates to consumption of more than 2 billion        (opex) savings: the setting up of a countrywide cellular
liters of diesel per year for cell sites, which is subsidized     network requires substantial capex. A significant part of
by GoI. The dependence on diesel could be reduced if the          the network rollout is likely to come in the untapped rural
Government utilized that subsidy to support a move toward         areas, where mobile teledensity is barely in the double
renewable energy options such as solar, fuel cells or wind        digits. Since many rural areas are far-flung, more ground-
power by treating these toward renewal effort as a part           based towers will be needed, further increasing capex
of the overall effort to reduce greenhouse gases and the          requirements. With sharing, massive amounts of funds
country’s carbon footprint.                                       can be saved, and newer operators can build an asset-
                                                                  light model. It is estimated that infrastructure sharing in
                                                                  its current form has helped achieve savings of INR557.6
2.9.5 Future growth potential,                                    billion resulting from savings in infrastructure provisioning
                                                                  fee (IPF), energy, capital and interest costs.
investments required and emerging trends
The industry faces low profitability, and has a pre-tax
margin of 7%–8%. Overall, the industry has pumped in               Estimated cost savings resulting from
INR1 trillion and another INR400–500 billion is expected           infrastructure sharing39
to be invested in the next two years. It is estimated that         Component                                           Savings
tenancy levels will rise to between 2–2.5x in the course of                                                        (INR billion)
this decade.38                                                     Capex (including interest)                            476.0
                                                                     Opex saving as a result of infrastructure    71.4
                                                                     provisioning fee savings
2.9.6 Goals of infrastructure sharing
                                                                     Opex saving as a result of shared energy     10.2
The key beneficiary of infrastructure sharing is
                                                                     costs
the subscriber. Infrastructure sharing serves the
                                                                   Total opex savings                                        81.6
following goals:
                                                                   Total savings (capex and opex)                        557.6
Optimal use of scarce resources: infrastructure sharing in
its simpler forms will lead to better use of scarce national      Reduction in execution risks: erecting towers carries
resources, such as land and energy. In its more complex           with it significant execution risks and requires as many
forms, it will allow a better use of spectrum.                    as 40 clearances from separate authorities such as
Rollouts in rural and semi-urban areas: as wireless service       the Standing Advisory Committee on Radio Frequency
providers penetrate rural and semi-urban areas, significant       Allocation (SACFA), state electricity boards, land owners
investments will be required, and infrastructure sharing          and so on before the tower and electronic infrastructure
will act as an important tool to achieve faster rollouts and      can be completed. Against this background, the concept of
save operating and capital expenditure in these areas.            infrastructure sharing assumes special importance. Such
Due to higher costs of land development, additional               an arrangement works well for both partners, as the tenant
security, insurance costs, power shortages, a higher              paying a higher rent to the tower company accelerates
proportion of ground-based towers, unclear land ownership         the time-to-market process, while the tower company
and expensive backhaul connectivity costs in the rural            earns revenues.
areas, service providers have strong incentives to share
infrastructure.

38 Industry estimates.
39 Industry estimates.



                                                                         Enabling the next wave of telecom growth in India          24
Revenue stream for incumbents: sharing enables                  2.9.7 Models of infrastructure sharing
incumbents to earn revenues from a new source,
apart from improving capex and opex efficiencies,               As India’s mobile networks have expanded over the past
freeing up significant resources and management time            few years, coverage is no longer a source of competitive
to focus on their core business. The tower business can         advantage. Operators have realized that the industry needs
become a profit center by itself, rather than just leading to   significant capital expenditure, which can be reduced by
cost savings.                                                   sharing their networks. What started off as arrangements
                                                                between two telecom operators has evolved into the
Expeditious time-to-market for new players: sharing             creation of tower companies. Commercial considerations
significantly speeds up the time-to-market, as operators        appear to be driving the increasing trend to adopt a
can dramatically reduce site acquisition times and load         variety of infrastructure models. The level of sharing
their electronics and electronic network elements onto          among wireless service providers varies depending on the
the civil infrastructure of incumbent operators in a civil      complexity of the arrangements and the interdependence
sharing model.                                                  of the wireless service providers. Infrastructure sharing can
Government initiatives on infrastructure sharing:               take the following forms40:
regulators favor faster deployment and investment               Civil infrastructure sharing: this refers to the sharing of
optimization in the telecom sector. Infrastructure              physical sites, buildings, shelters, towers, masts, power
sharing limits duplication and gears investment toward          supply and battery backup. This is by far the most common
underserved areas, product innovation and improved              form of infrastructure sharing in India now.
customer service. There are many government initiatives
that support infrastructure sharing. These provide              Electronic infrastructure sharing: this refers to the sharing
incentives for companies to participate in infrastructure       of electronic elements such as antennas, feeders, radio
sharing, thus contributing to the growth of the industry        access network (RAN), cables, node B and transmission
as a whole.                                                     equipment.

Local restrictions and environmental benefits: as               RAN sharing: this is the simplest type of electronic
local authorities become more concerned about the               infrastructure sharing. It involves all the access
environmental and aesthetic effects of the number and           network elements to the point of connection with the
location of antennas in an area, zoning regulations may         core network, including radio equipment, mast and site.
start to play an important role in driving service providers    An extended version of RAN can be in the form of
to share civil infrastructure.                                  intra-circle roaming. Service providers can agree to
                                                                provide mobile services to each other’s subscribers to
Less negative environmental impact: although                    ensure converage wherever their own network signal is
environmentalists show limited support for telecom              not available or weak. This can increase the coverage area
network deployment, infrastructure sharing typically            and improve the quality of service. Usually, operators
receives the backing of many conservation groups                either establish a joint venture company to operate the
because less network buildup means fewer negative               shared network or establish an agreement on the use of
environmental impacts.                                          each other’s networks.
Thus, infrastructure sharing reduces operating costs and        Node B sharing: in the Node B sharing model, one physical
provides additional capacity in congested areas where           unit is shared by two distinct nodes B. The radio network
space for sites and towers is limited. It also provides an      controller (RNC) and core network are not shared in this
additional source of revenue but may be limited by differing    model, so that each service provider can maintain control
strategic objectives. It helps to expand coverage into          of its equipment and spectrum use. The separation of the
previously unserved geographic areas. For operators who         core network also allows each service provider to offer
have been awarded 3G licenses and will be launching 3G          differentiated services to its subscribers.
operations, it provides an opportunity to reduce capital and
operational expenditure by sharing infrastructure from the
start of the build-out.




40 “Mobile infrastructure sharing,” GSMA, page 12.




25      Enabling the next wave of telecom growth in India
Core network: the most complex form of network sharing        National roaming: mandatory national roaming is a form
involves both radio and core network elements, permitting     of infrastructure sharing that allows new operators, who
one or more partner service providers to access some or       have yet to complete their network deployment to provide
all of the mobile network, including electronic components    national service coverage through sharing incumbents’
such as optic and feeder fiber cables, radio links, network   networks in specific areas. National roaming accelerates
elements, backhaul, antenna and transmission equipment.       competition by allowing new players to launch their
This can be implemented to various levels depending on        services within a shorter time frame.
which platforms operators wish to share.
                                                              Distributed antennae sharing (DAS): over the past few
Radio and core sharing: all electronic components in the      years, DAS has emerged as a powerful tool for wireless
access and core network as well as civil infrastructure are   carriers to bolster their coverage and boost their capacity,
shared. In Sweden, there are five operators, four of whom     especially with the advent of smartphones and 3G.
have formed two consortiums of two operators each. Each       Essentially, DAS is a collection of small antennas spread
consortium has built out a joint network. The regulator       over a specific geographic area and connected by fiber to
permitted this level of sharing, but required each operator   a central location or power source, usually a base station,
to maintain 30% of its network separately.                    to provide wireless service within a geographic area or
                                                              structure. DAS technology can be used to boost signal
Backhaul sharing: common backhaul sharing will be very        coverage in large buildings, stadiums and shopping malls
useful in rural environments where traffic from BTS to        as well as for outdoor purposes. The benefits of DAS are
BSC is very low. A common RF or optical fiber medium can      twofold — the technology allows carriers to fill in coverage
be utilized, reducing cost and maintenance efforts. Exits     gaps and dead spots in their macro network and, by
from such sharing arrangements can easily be provided if      breaking down the macro cell site into smaller pieces, it
warranted due to an increase of traffic or other reasons.     helps add much-needed capacity to operators’ networks.
Mobile virtual network operators (MVNOs): these typically
do not have their own network and have no rights to
spectrum. They typically rely on operator network sharing
to get access to subscribers and offer services.




                                                                     Enabling the next wave of telecom growth in India   26
2.10. Value-added services (VAS)
According to the Internet and Mobile Association of India                                                (10%–20%) and content aggregators (10%–15%). Content
(IAMAI), the mobile VAS in India was estimated to be                                                     owners end up getting approximately 5%–10% of the
worth INR145.0 billion41 in 2010, growing at a CAGR                                                      overall revenues.
of more than 50% during 2006–10. The rollout of 3G
                                                                                                         The demand for mobile VAS is driven by the increase in the
services is expected to drive the mobile VAS market in the
                                                                                                         mobile subscriber base, which has exceeded the
future, creating opportunities for both telecom operators
                                                                                                         700 million44 mark, as well as aggressive marketing efforts
and companies engaged in VAS. Entertainment mobile
                                                                                                         by telecom operators to spread awareness about their
VAS constitutes 57% of the overall revenues followed by
                                                                                                         services such as updates and alerts. Moreover, the decline
information mobile VAS (39%) and m-commerce (4%).42
                                                                                                         in ARPU has compelled mobile operators to focus on
The key mobile VAS include person-to-person (P2P) SMS,                                                   mobile VAS to generate additional revenues. The rollout
monotones, polytones and truetones as well as caller                                                     of 3G services in the near future is expected to provide
ring-back tones (CRBT), person-to-application (P2A) SMS,                                                 consumers with new and improved services such as high-
application-to-person (A2P) SMS, games and services                                                      speed data transfer.
such as m–commerce and m–radio. The key participants in
                                                                                                         The demand for mobile VAS is mostly driven by the youth,
the mobile VAS market include content owners, content
                                                                                                         with India being one of the leading mobile markets for the
aggregators or developers, media companies, technology
                                                                                                         young. The mobile VAS revenues in the country are driven
enablers, short-code providers, handset manufacturers and
                                                                                                         by the P2P SMS service, followed by music. The growth
content converters.
                                                                                                         of m–commerce, which provides services such as mobile
In terms of revenue distribution among various market                                                    banking, mobile payments and money transfer, is also
participants, out of the total amount paid by end users                                                  expected to drive the market for mobile VAS.
(excluding P2P SMS), approximately 60%–80%43 is captured
by mobile operators, followed by technology enablers


Market size of VAS                                                                                         Revenue distribution of VAS services (%)

                            160                                                                                                                                     100
                                                                                  145.0
                            140                                                                                                                            10
                                                                                                                                            15
Market size (INR billion)




                            120
                                                                                                                              15
                            100                                        93.0
                                                                                            Growth (%)




                                                                                                                60
                             80                             75.1
                             60                 45.6
                             40
                                    28.5
                             20
                                                                                                            Operator     Technology        Content        Content   Total
                              0                                                                             revenue       enabler         aggregator       owner
                                    2006        2007       2008       2009        2010F
                                                                                                           Source: Mobile VAS in India: 2010, IAMAI, July 2010
 Source: Mobile VAS in India: 2010, IAMAI, July 2010




41                          Mobile VAS in India: 2010, IAMAI, July 2010.
42                          Mobile VAS in India: 2010, IAMAI, July 2010.
43                          Mobile VAS in India: 2010, IAMAI, July 2010.
44                          “TRAI Press Release No. 63 /2010,” TRAI website, http://www.trai.gov.in/Default.asp, accessed 10 October 2010.



27                              Enabling the next wave of telecom growth in India
2.11. Outlook
2.11.1 Wireless
At the end of December 2010, there were 752.2 million45 mobile subscribers, with a
significant number of multiple and inactive Subscriber Identity Module (SIM) owners.
According to Ovum, during the period 2010–15, the number of wireless subscribers in
India is expected to increase at a CAGR of 10.1%,46 to reach 1,217.1 million47 subscribers
in 2015. Further, the country’s wireless teledensity is expected reach 97.2% and 110% in
2015 and 2020, respectively. Future subscriber growth is likely to hinge upon rural and
low-income users. Although the telecom sector is witnessing strong customer additions
every month, the ARPU continues to shrink, leading to falling profit margins of mobile
operators. The presence of as many as 14 mobile operators in certain parts of the country
and rising financial pressures are expected to drive consolidation in the sector.

Wireless subscribers in India

                                 1,600                                                                                                         109.9%       120%
Wireless subscribers (million)




                                                                                          92.9%                     95.9%        97.2%
                                 1,400                                 87.1%                                                                                100%




                                                                                                                                                                  Teledensity (%)
                                 1,200                    77.7%
                                 1,000           63.2%                                                                                                      80%
                                   800   44.7%                                                                                                              60%
                                                                                                                                               1,516.8
                                   600                                           1,134.5                            1,185.3      1,217.1
                                                                                                                                                            40%
                                                          923.8       1,049.1
                                   400           752.2
                                   200   525.1                                                                                                              20%
                                    0                                                                                                                       0%
                                         2009    2010     2011F        2012F          2013F                         2014F        2015F         2020F
                                                         Wireless subscribers                                            Teledensity
Source: TRAI; DoT; Ovum; Ernst & Young analysis


2.11.2 3G subscribers
                                                                                    3G subscribers forecast
3G is the next generation mobile technology which is
capable of delivering broadband content, including a host
                                                                                                           350                                                                      25%
                                                                                                                                                                                          3G subscribers as a percentage of




of rich multimedia services such as video calling, video                                                                                                          20.0%
on demand, location based services and remote access/                                                      300
                                                                                                                                                                                               wirless subscribers (%)




                                                                                                                                                                                    20%
                                                                                3G subscribers (million)




VPN applications. 3G services will drive the expansion of                                                  250
wireless services in future. 3G subscribers are expected                                                                                                                            15%
                                                                                                           200                                           11.7%
to reach 142 million by 2015, accounting for 12% of the                                                                                       10.0%
total wireless subscriber base. Further, 3G subscribers are                                                150                         8.9%                       303.4 10%
                                                                                                                          6.9%
expected to be more than 300 million by 2020, accounting                                                   100
                                                                                                                 3.8%                                   142.0                       5%
for 20% of the total wireless subscriber base.                                                                                                118.0
                                                                                                            50                    101.0
                                                                                                                          72.0
                                                                                                                 35.0
                                                                                                            0                                                                       0%
                                                                                                                 2011F 2012F 2013F 2014F 2015F 2020F
                                                                                                                    3G subscribers 3G subscribers as a % of
                                                                                                                                   wireless subscribers
                                                                                     Source: Ovum; Ernst & Young analysis
45 “TRAI: The Indian Telecom Services Performance Indicators (January - March 2010),” TRAI website, July 2010,
   http://www.trai.gov.in/Default.asp, accessed 10 October 2010.
46 Ernst & Young analysis.
47 Ovum: Mobile regional and country forecast pack: 2010–15, Ovum website, http://www.ovumkc.com/, accessed 16 October 2010.



                                                                                                                 Enabling the next wave of telecom growth in India                  28
2.11.3 Wireline
There were 35.1 million48 wireline subscribers at the end of December 2010. The wireline
market is in decline, a trend that is expected to continue. According to Ovum, during the
period 2010–15, the number of wireline subscribers in India is expected to decrease at a
CAGR of nearly 4%,49 to reach 29.1 million50 by 2015. Further, the wireline subscribers are
forecasted to reach 26.3 million in 2020. The growth in the mobile market is seen as the
cause of the decline.
Wireline subscribers in India

                                  40
Wire line subscribers (million)




                                  35
                                  30
                                  25
                                        37.1       35.1       34.9       33.5
                                  20                                                   32.1         30.5       29.1
                                                                                                                       26.3
                                  15
                                  10
                                  5
                                  0
                                        2009       2010      2011F      2012F          2013F       2014F      2015F    2020F
Source: TRAI; DoT; Ovum; Ernst & Young analysis




2.11.4 Broadband
As of September 2010, there were 10.3 million broadband subscribers in India. The
growth of broadband is expected to increase with uptake of 3G and BWA services.
Considering increasing broadband demand, the broadband connections are estimated to
reach 150 million by 2020.

   Broadband subscribers forecastc
   Year                                     Number of           % of households to be          Number of broadband
                                            households          covered for broadband          connections (million)
   2010                                           236                        5%                               11.5
   2012                                           241                      20%                                  48
   2014                                           250                      40%                                 100
   2020                                           275                      55%                                 150
   Source: “TRAI: Consultation Paper on National Broadband Plan,” TRAI website, June 2010,
   http://www.trai.gov.in/Default.asp, page 16, accessed 10 October 2010; Ernst & Young analysis




48 “TRAI: The Indian Telecom Services Performance Indicators (January - March 2010),” TRAI website, July 2010,
   http://www.trai.gov.in/Default.asp, accessed 10 October 2010.
49 Ernst & Young analysis.
50 Ovum: Fixed voice connections forecast pack: 2008–15, Ovum website, http://www.ovumkc.com/, accessed 16 October 2010.



29                                 Enabling the next wave of telecom growth in India
2.11.5 Revenue and capex
Over the years, the Indian telecom sector has witnessed an increase in revenues and
contribution toward GDP. The growth in revenues is driven by cheaper mobile handsets,
lower tariffs, the increase in mobile penetration in both urban and rural areas, and the
adoption of VAS. According to Ovum, during the period 2009–15, industry revenues and
capital expenditure are expected to increase at CAGR of 8.1%51and 7.0%, respectively,
to reach US$51.0452 billion and US$14.97 billion by 2015. Further, industry revenues
and capex are expected to increase to US$57.2 billion and US$ 13.9 billion, respectively
by 2020. The future revenue growth and increase in capex is expected to be driven by
the rollout of 3G services and the increase in broadband penetration across the country,
including BWA penetration. Other services such as ILD, NLD and VAS are also expected
to drive revenue growth.

Revenue and capex forecast

                                  70
Revenue and capex (US$ billion)




                                  60
                                  50
                                  40
                                  30                                                                                                57.2
                                                                                            45.9 15.1   48.4          51.0
                                  20                               38.7 11.8   43.1 13.8                       14.8          15.0
                                        32.0 10.0     34.5                                                                                 13.9
                                                             7.3
                                  10
                                   0
                                         2009          2010F        2011F       2012F        2013F       2014F         2015F         2020F
                                                                    Revenues                              Capex

Source: Ovum; Ernst & Young analysis




Over the years, with the introduction of 3G and BWA services, the contribution of
non-voice services towards the industry revenues is expected to reach 38% by 2020.

 Revenue break-up: voice and non-voice

                                  10%      17%          22%         27%        32%         38%


                                  90%      83%          78%         73%        68%         62%



                            2011F         2012F         2013F      2014F    2015F          2020F
                                                    Voice               Non-voice
  Source: Pyramid Research; Ernst & Young analysis




 51 Ernst & Young analysis.
 52 Ovum: Forecast of service provider revenue and capex, 2009-2014, Ovum website, http://www.ovumkc.com/, accessed 16 October 2010.




                                                                                                         Enabling the next wave of telecom growth in India   30
Achievements

3
and setbacks of
NTP 1999
31   Enabling the next wave of telecom growth in India
The NTP 1999 aims at making India competitive in the global telecom market through
growth in exports, FDI and domestic investment. The key objectives of the policy include
telecommunication for all and within the reach of all, achieving universal service across
all villages, global standards in the quality of service, the emergence of India as a major
manufacturing base and a major exporter of telecom equipment, and protection of the
country’s security interests. The policy includes specific targets:

•   Make available telephone on demand by 2002 and sustain it thereafter so as to
    achieve a teledensity of 7% by 2005 and 15% by 2010
•   Encourage the development of telecom in rural areas, making it more affordable by
    fixing a suitable tariff structure and making rural communication mandatory for all
    fixed service providers
•   Increase rural teledensity from 0.4% to 4% by 2010, and provide reliable transmission
    media in all rural areas
•   Achieve telecom coverage of all villages in the country and provide reliable media to
    all exchanges by 2002
•   Provide internet access to all district headquarters by 2000
•   Provide high-speed data and multimedia capability, using technologies including
    international services digital network (ISDN), for all cities with a population greater
    than 200,000 by 2002




                                                      Enabling the next wave of telecom growth in India   32
 NTP 1999 has been a catalyst for the telecom sector:
 • Growth in the subscriber base (723.3 million) and in
   teledensity (61.0%)
 • Contribution of telecom to overall GDP of almost 3%, up
   from 1.5% in 2000
 • Creation of jobs across sales and marketing, technology,
   R&D and customer care, among others
 • Among the lowest tariffs in the world, and the adoption of
   per-second billing by various operators
 • Robust growth in revenues — industry revenues recorded
   at US$35 billion
 • Increased FDI in the telecom sector — accounts for more
   than 8% of cumulative FDI inflows in the past decade
 • The promotion of manufacturing of telecom equipment in
   India and the growth of telecom exports
 • Growth of the telecom industry has led to the development
   of new business ecosystems, e.g., mobile value-added
   services (MVAS) encompass mobile operators, content
   creators, providers, aggregators and technology enablers




                                                                Sector still faces challenges for growth:
                                                                • Spectrum re-farming and effective management of
                                                                  spectrum in a transparent manner
                                                                • Creation of an effective licensing framework where
                                                                  amendments are carried out in consultation with
                                                                  service providers
                                                                • “Critical” Infrastructure Status along with uniform policy
                                                                  and single window clearance
                                                                • Energy requirements, especially reliability, resulting in
                                                                  huge operating expenditure
                                                                • Effective utilization of USOF to increase rural penetration
                                                                • Increasing broadband penetration and rural connectivity
                                                                • Overcoming security concerns over the use of mobile
                                                                  handsets and telecom equipment
                                                                • Limited availability of talent, especially telecom specialists
                                                                • Fixed mobile convergence (FMC)




33    Enabling the next wave of telecom growth in India
3.1. Key achievements of NTP 1999

3.1.1 Teledensity                                                                      poses a critical challenge due to low population density,
                                                                                       geographical spread, low per capita income and the cost
Reforms in the telecom sector have been encouraged by                                  of maintaining phones in rural areas. As a result, there is
the active participation of the public and private sector.                             an uneven distribution of teledensity among Indian states
Following independence, the teledensity level in the                                   resulting in slow economic development of the states and
country was 0.02%53; by 1998, the level had increased                                  their surrounding regions.
to only 1.9%. NTP 1999 has been instrumental in the
growth of telecom in both urban and rural areas, and its                               Currently, about 70% of the population in India lives in
targets have been achieved well in advance. The overall                                rural areas, and mobile penetration stands at a meager
teledensity target of 15% by 2010 was achieved in FY07.                                28.4% in rural India. There is a significant opportunity for
Furthermore, the overall teledensity as of September 2010                              service providers to increase penetration in rural areas
stood at 61.0%.54 Urban teledensity and rural teledensity                              and generate revenues. The impact of mobile telephony
at the end of September 2010 were 137.3%55 and 28.4%,                                  on rural areas has been profound. It has helped reduce the
respectively, with rural teledensity being far ahead of the                            cost and time of transactions and has visibly compensated
NTP 1999 target, which was set at 4% by 2010.                                          for the poor infrastructure. According to a study by Robert
                                                                                       Jensen, a Harvard University economist, the introduction
Although India has witnessed a steep rise in teledensity                               of mobile telephony in Kerala increased the fishing
over the past few years, the disparity between urban and                               community’s profits by 8%,56 decreased fish prices by 4%
rural areas in terms of mobile penetration has increased                               and consumption of fish increased by 6%.
significantly. The improvement in rural teledensity

Urban and rural teledensity

             140%                                                                                                                    137.3%
                                                                                                                            119.7%
             120%

             100%
                                                                                                                 89.4%

                  80%
Teledensity (%)




                                                                                                       65.9%                         61.0%
                  60%                                                                                                       52.7%
                                                                                             47.3%
                                                                                  38.0%                             37.0%
                  40%                                                                                                                28.4%
                                                                        26.2%                            26.2%               24.3%
                                                                20.8%                          18.2%
                  20%               10.4%              14.3%                       12.9%                            14.9%
                                              12.2%                                                     9.2%
                         8.2%       2.9%                                 9.1%                 5.8%
                                                        4.3%    5.1%                4.0%
                        2.3% 0.7%    0.9%    3.6% 1.2% 1.5%     1.6%     1.8%
                   0%
                          FY00      FY01       FY02      FY03   FY04     FY05      FY06        FY07      FY08       FY09    FY10 Sept 10
                                           Urban teledensity       Rural teledensity            Total teledensity

 Source: TRAI




 53 “Rural Telecom and IT,” Indian Institute of Kanpur website, http://www.iitk.ac.in/3inetwork/html/reports/IIR2007/04-Rural Telecom.pdf, page 76.
 54 “TRAI Press Release No. 63 /2010,” TRAI website, http://www.trai.gov.in/Default.asp, accessed 10 December 2010.
 55 “TRAI: The Indian Telecom Services Performance Indicators (July – September 2010),” TRAI website, January 2010,
    http://www.trai.gov.in/Default.asp, accessed 15 January 2011.
 56 Jensen, R., “The Digital Provide: Information (Technology), Market Performance and Welfare in the South Indian Fisheries Sector,” The Quarterly Journal
    of Economics, 2007.




                                                                                              Enabling the next wave of telecom growth in India       34
Total teledensity by state in India, FY10                                   The Indian telecom industry employs more than 430,00057
                                                                            direct employees, with the majority of these employees
                                                                            being a part of the public sector undertakings (PSU). The
                                                                            ratio of the number of subscribers per employee is very
                                                                            high in the case of private operators in India.


                                                                            Mix of private and PSU operators, by subscriber base

                                                                            100%=          98.4       140.3      205.9      300.5    429.7
                                                                            million
                                                                                                                            26.5%    20.8%
                                                                                                                 34.7%
                                                                                                     43.5%
                                                                                          52.9%



                                                                                                                            73.5%    79.2%
                                                                                                                 65.3%
                                                                                                     56.5%
                                                                                          47.1%



                                                                                          FY05        FY06       FY07       FY08         FY09
                                 Low teledensity: 0%–50%
                                 Medium teledensity: 50%–100%                                Private operators           PSU operators
                                 High teledensity: 100% and above           Source: TRAI; Dun & Bradstreet

Source: TRAI


3.1.2 Teledensity and employment                                            Employees of private and PSU operators

Over the past decade, private telecom players have                           100%=     436,891         429,400        432,771
considerably expanded their operations, which has
resulted in an increase in employment opportunities                                      9.7%           11.0%            14.7%
in the telecom sector. The sector has created direct
employment across various business areas such as sales                                  90.3%           89.0%            85.3%
and marketing, technology, R&D and customer care, as well
as indirect employment. The expansion of the Indian BPO
                                                                                        FY05            FY06             FY07
industry is a classic example of indirect employment.
                                                                                       Private operators       PSU operators


                                                                             Subscribers per employee ratio in India
                                                                                                              FY05          FY06         FY07
                                                                             PSU operators                    132           158          193
                                                                             Private operators                1,089         1,678        2,110

                                                                            The development of telephony in India has played an
                                                                            important role in altering the structure of the economy. It
                                                                            has paved the way for a knowledge- and information-based
                                                                            economy, which augurs well for sectors such as IT/ITES,
                                                                            media, technology, education, R&D and financial services.




57 Overview of Telecom Industry, Dun & Bradstreet website, December 2009.




35      Enabling the next wave of telecom growth in India
  3.1.3 Size of the telecom sector and
  contribution to GDP
  The revenues of the Indian telecom sector have                                                          The contribution of the telecom sector to India’s GDP
  increased by almost fivefold from US$7 billion in FY00                                                  is estimated to increase from 1.5% in 2006 to 2.8%59 in
  to US$35 billion58 in FY09. The growth in revenues has                                                  2010. The Indian economy is expected to sustain an 8%
  been driven by favorable factors such as the availability                                               or a higher growth rate in the future. As the country aims
  of cheaper mobile handsets, lower tariffs, the increase in                                              to achieve higher teledensity, the contribution of the
  mobile penetration in both urban and rural areas and the                                                telecom sector in GDP is expected to increase. According
  adoption of VAS. In addition, infrastructure sharing has                                                to an ICRIER study, a 10%60 increase in mobile penetration
  enabled operators to improve margins by bringing down                                                   results in a 1.2% increase in GDP.
  costs significantly.
                                                                                                          Contribution of telecom to GDP
  India’s telecom sector is a voice-centric market
  characterized by high MoU and ARPU. A sharp decline in                                                  3.0%                                                           2.6% 2.8% 2.4%
  call charges and the cost of services has enabled the rise of                                           2.5%                               2.2% 2.2% 2.3% 2.3%
  mobile subscribers and revenues.                                                                        2.0%            1.7% 1.6% 1.6%
                                                                                                                   1.5%
                                                                                                          1.5%
  Indian telecom sector gross revenues                                                                    1.0%
                                                                                                          0.5%
                        40
                                                                                            35            0.0%
                        35                                                                         33
                                                                                                                 FY00

                                                                                                                        FY01

                                                                                                                               FY02

                                                                                                                                      FY03

                                                                                                                                             FY04

                                                                                                                                                    FY05

                                                                                                                                                           FY06

                                                                                                                                                                  FY07

                                                                                                                                                                         FY08

                                                                                                                                                                                FY09

                                                                                                                                                                                       FY10
                                                                                     31
                        30
Revenue (US$ billion)




                                                                              25                          Source: TRAI; Ernst & Young estimates
                        25
                                                                       20
                        20                                                                                The contribution of the telecom sector also has a
                                                                17
                                                         15                                               multiplier effect on growth, due to associated individuals
                        15
                                                                                                          and businesses. Further, the GoI’s aim to reach rural
                                    8      8      9
                        10   7                                                                            teledensity of 40%61 by 2014 from the current levels
                        5                                                                                 and achieve broadband coverage of all 250,000 village
                                                                                                          panchayats under the Bharat Nirman Program is
                        0
                                                                                                          expected to enhance the contribution of the telecom
                             FY00

                                    FY01

                                           FY02

                                                  FY03

                                                         FY04

                                                                FY05

                                                                       FY06

                                                                              FY07

                                                                                     FY08

                                                                                            FY09

                                                                                                   FY10




                                                                                                          sector to India’s GDP.
    Source: TRAI; Ernst & Young analysis




58 Transfer Pricing Report — Telecom (general), Ernst & Young, 2010.
59 Ernst & Young analysis.
60 “High-teledensity states grew faster, says study,” LiveMint, http://www.livemint.com/2009/01/19224316/Highteledensity-states-grew-f.html, accessed
   10 October 2010.
61 “Bharat Nirman: A business plan for rural infrastructure,” Bharat Nirman website, http://www.bharatnirman.gov.in/page2.html, accessed
   20 October 2010.

                                                                                                                    Enabling the next wave of telecom growth in India                     36
3.1.4 FDI in the Indian telecom sector                                       From FY08 through FY10, FDI equity inflows in the
                                                                             telecom sector increased at a CAGR of 42.3%65 to reach
In the past decade, India has witnessed a considerable rise                  US$2.6 billion. Higher levels of FDI in the telecom sector
in FDI. During the last decade, FDI in India increased at a                  have intensified competition and strengthened market
CAGR of 28.0%62 to reach US$37.2 billion63 in FY10. The                      penetration. They have also opened up opportunities for
telecom sector is among the leading sectors attracting FDI,                  telecom manufacturing and related business areas in
accounting for 8.1% of the cumulative FDI equity inflows                     the sector.
from FY00 to FY10. Over the past few years, a number of
foreign ownership and equity regulation reforms have been
introduced in the telecom sector. These reforms have led to                  3.1.5 Restructuring mobile tariffs
an increase in FDI inflow in the sector.
                                                                             The decline in tariffs has enabled the industry to reach a
 FDI limits in telecom64                                                     phenomenal size in terms of subscribers, while at the same
                                                                             time diluting the ARPU. In the early days, mobile tariffs
 • 100% FDI is permissible in the case of infrastructure
   providers that offer dark fiber, ROW, duct space, tower, email,           were targeted toward both the calling and receiving party,
   and voice mail:                                                           with the regime popularly known as “receiving party pays.”
      • FDI of up to 49% can be done on the Automatic Route                  In January 2003, TRAI announced the implementation of
        (without prior government approval); beyond that, prior              the “calling party pays” regime, with incoming calls being
        approval is required                                                 free of charge for the receiving party.
 • 74% FDI is permissible in the case of basic, cellular, unified
   access services, NLD/ILD, V-Sat, public mobile radio trunked
   services (PMRTS), global mobile personal communications
   services (GMPCS) and other VAS
      • FDI of up to 49% can be done on the Automatic Route
        (without prior government approval); beyond that, prior
        approval is required
 • 74% FDI is permissible in the case of ISPs with gateways,
   ISPs not providing gateways, radio paging and end-to-end
   bandwidth
      • FDI of up to 49% can be done on the Automatic Route
        (without prior government approval); beyond that, prior
        approval is required


Cumulative FDI equity inflow in India, FY00-10



                                                         Services sector
                           21.4%
                                                         Computer hardware and software           FDI equity inflow in the telecom sector
                                                         Telecommunications                       (US$ billion)

                                        9.0%             Housing and real estate
     38.3%                                               Construction activities
                                        8.1%             Power                                                             2.6              2.6
                                                         Automobile                                      1.3
                                    7.6%
                                                         Others
                 4.1%     7.3%
                     4.2%                                                                               FY08             FY09              FY10


Source: Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce and Industry

62 Ernst & Young analysis.
63 “Fact Sheet on Foreign Direct Investment from August 1999 to July 2010,” Department of Industrial Policy & Promotion, http://dipp.nic.in/, accessed
   10 October 2010.
64 Department of Industrial Policy & Promotion: Consolidated FDI policy effective from April 2010, Department of Industrial Policy & Promotion,
   April 2010, page 58.
65 Ernst & Young analysis.

37       Enabling the next wave of telecom growth in India
The effective price per minute for an outgoing mobile                       GSM operators: ARPU and MoU
call has declined from approximately INR16.4066 in 1995                                600                                                          600
to almost INR0.30 today. Since the formulation of NTP
                                                                                                                  493        484
1999, the industry has experienced a decline of about                                                   471
                                                                                       500                                                          500
                                                                                                                                      410   423
95% in mobile tariffs. The entry of new service providers




                                                                                                                                                        MoU (minutes)
                                                                                                 395
                                                                                       400                                                          400




                                                                          ARPU (INR)
has resulted in a tariff war, as the market entrants have
used pricing to grab market share. Per-second billing has                                        366
                                                                                       300                                                          300
emerged as an industry norm, thereby creating a win-win
                                                                                                        298
situation for subscribers.                                                             200                        264                               200
                                                                                                                             205
The intense competition in the telecom sector
                                                                                       100                                                  164     100
has led to declining ARPU among mobile operators.                                                                                   131
From FY06 through FY10, the ARPU of GSM and                                             0                                                           0
CDMA operators decreased by 64.2% and 70.3%,                                                 FY06      FY07      FY08    FY09      FY10     Sep10
respectively. The average annual decrease for GSM and
                                                                                                    ARPU               MOU
CDMA operators was 22.1% and 25.8%, respectively.
ARPU levels are estimated to continue declining over                         Source: TRAI

the next few years, though the rate of decline is expected                 CDMA operators: ARPU and MoU
to be slow. Following the introduction of the NTP 1999,                            600                                                              600
the MoU among telecom service providers have also
witnessed an increase. Although India has recorded one of                          500        550                                                   500




                                                                                                                                                        MoU (minutes)
the highest MoU globally in the past few years, the sector
                                                                                                        471
                                                                          ARPU (INR)




has also experienced a decline in MoU, especially in the                           400                                                              400
case of CDMA operators. In addition, the rate per minute                                                          364
                                                                                   300        256                            352                    300
(RPM) has declined due to the increase in competition in                                                                                     308
                                                                                                        202                           307
the sector.                                                                        200                            159                               200
                                                                                                                              99
3.1.6 Handset prices                                                               100
                                                                                                                                      76     78
                                                                                                                                                    100
The Indian mobile handset market is estimated to be
                                                                                        0                                                               0
worth INR500 billion.68 The market has witnessed the                                         FY06      FY07      FY08    FY09      FY10     Sep10
entry of a number of mobile manufacturers, raising
                                                                                                 ARPU              MOU
the total number of manufacturers to about 30 from
approximately 5 in 2008.                                                    Source: TRAI

                                                                            GSM and CDMA operators: RPM
The Indian mobile handset market is dominated by
established global brands. The market is characterized                                 1.0     0.9
by the presence of both high–end and low–end mobile                                    0.9
phones, with a wide gap between handset prices. The                                    0.8
market is also inundated with unbranded and cheap                                      0.7                 0.6
imported mobile phones, which are primarily Chinese in                                 0.6                         0.5
                                                                           INR




origin. The growing mobile subscriber base in India has led                            0.5                                   0.4
                                                                                               0.5                                           0.4
to the entry into the market of a number of “homegrown”                                0.4                                            0.3
                                                                                                        0.4      0.4
mobile handset manufacturers.                                                          0.3
                                                                                       0.2                               0.3                 0.3
                                                                                       0.1                                         0.2
                                                                                       0.0
                                                                                              FY06      FY07      FY08   FY09      FY10     Sep10

                                                                                                                 GSM           CDMA
                                                                             Source: TRAI

66 “One Minute at a Time,” Outlook India, http://business.outlookindia.com/printarticle.aspx?266748, accessed 21 October 2010.
67 Ernst & Young analysis.
68 “Small handset makers making big strides,” Business Standard, 15 April 2010, http://www.business-standard.com/india/news/small-handset-makers-
   making-big-strides/391912/, accessed 5 October 2010.



                                                                                             Enabling the next wave of telecom growth in India          38
   Average selling price (ASP) of mobile handsets

                               200
                               180
 Average selling price (US$)




                               160
                               140
                               120
                               100
                                80
                                60
                                40
                                20
                                   0
                                          1Q08           2Q08          3Q08         4Q08        1Q09                          2Q09          2Q09E     4Q09E    1Q10E       2Q10E
                                                 Nokia           Motorola             Samsung                               Sony Ericsson           Others
      Source: Company data; Macquarie Capital


   In the past decade, mobile handsets have evolved                                                                       3.1.7 Global outreach of Indian telecom
   rapidly, adding numerous features ranging from                                                                         companies
   monochrome screens to touch screens, monotone
   ringtones to MP3 ringtones, Video Graphics Array                                                                       In the early 1990s, greenfield investments were a
   (VGA) to 8-to-12-megapixel cameras, enhanced memory,                                                                   popular mode of overseas investment among Indian
   Global Positioning System (GPS), email, 3G and an                                                                      firms, and foreign affiliations were formed through joint
   improved user interface. Globally, the average selling price                                                           ventures, usually with a minority ownership. Over the
   (ASP) of both feature phones and smartphones has been                                                                  period, India has witnessed prominent diversification in
   on the decline. However, the price of feature phones is                                                                the industry composition of overseas activities of Indian
   declining at a faster rate than smartphones. Over the next                                                             firms. Over the past decade, FDI by firms belonging to
   few years, the ASP of feature phones is expected to be                                                                 developing countries has gained momentum and has
   US$50, and the ASP of smartphones is expected to drop                                                                  become an integral part of globalization. Indian companies
   below US$200.                                                                                                          have reached overseas destinations to tap new markets
                                                                                                                          and have acquired technologies. The market has witnessed
  Indian mobile handset market
                                                                                                                          investment in the form of greenfield projects, and the
                    120                                                                         7
                                                                                                                          majority of this capital value has been used to acquire
                                                                6.0                                                       companies. M&A provide benefits such as expansion of
                                                                              5.4     5.6       6                         global footprint, access to niche technologies, new product
                    100
                                                     4.7                                                                  mix, a wider customer base and growth momentum. In
                                                                                                5
                                                                                                                          line with the change in the pattern of investments, the
Volume (million units)




                               80
                                                                                                    Value (US$ billion)




                                                                                                4                         structure of ownership has also shifted toward majority and
                                          3.2                                                                             full ownership.
                               60
                                                                          101.5       108       3
                                                                95.6                                                      According to the National Council of Applied
                               40
                                                    71.8                                        2                         Economic Research (NCAER), India’s FDI outflows (debit)
                               20                                                                                         have grown at a CAGR of 47.5% to reach a projected
                                          33.4                                                  1
                                                                                                                          US$18.6 billion69 in FY09, from US$0.8 billion in FY01.
                               0                                                                0                         The share of manufacturing in the investment activity has
                                         FY06       FY07        FY08      FY09       FY10
     Source: Voice & Data



  69 “NCAER: FDI in India and its growth linkages,” Department of Industrial Policy & Promotion, August 2009, http://dipp.nic.in/, page 13, accessed
     10 October 2010.




  39                                   Enabling the next wave of telecom growth in India
declined considerably, whereas the share of services has
increased. The Indian telecom sector has actively been a
part of the global M&A activity, leading to the emergence
of telecom giants from India.



 Key overseas M&A by Indian firms
 Year       Target company                          Acquirer company               Deal value
                                                                                   (US$ million)
 2010       Zain Africa BV                          Bharti Airtel Ltd                  10,700.0
 2010       Warid Telecom, Bangladesh               Bharti Airtel Ltd                     300.0
 2003       FLAG Telecom Group Ltd                  Reliance Gateway Net Pvt Ltd          194.8
 2005       Teleglobe International Holdings Ltd.   TCL                                   177.0
 2010       Telecom Seychelles                      Bharti Airtel Ltd                       62.0
 2000       Astratel Nusantara PT                   CDC Capital Partners                    30.0
 Source: Thomson ONE Banker




                                                                           Enabling the next wave of telecom growth in India   40
3.2. Key challenges of NTP 1999
NTP 1999 envisaged the affordability and availability of                 Globally, broadband penetration is accepted as a measure
telecommunication services for the common populace,                      of a country’s ability to compete as an economic power.
along with the benefit of VAS such as internet for the                   Despite India’s status as an IT superpower, broadband
urban and rural population and the abolition of the digital              penetration levels in India are far below other emerging
divide. However, the telecom sector continues to face                    countries such as Brazil, Russia and China. According to
various issues that act as impediments to its growth.                    Boston Consulting Group, India has an internet penetration
                                                                         of 7%,72 in comparison with 33% in Brazil, 31% in Russia
                                                                         and 28% in China. The Broadband Policy 2004 has failed to
3.2.1 Growth of wireline                                                 keep pace with advances in technology and failed to boost
                                                                         the telecom sector.
The wireline segment has added just 10 million users since
the introduction of the NTP 1999, and the number of
wireline subscribers has fallen from 41.5 million in FY06                3.2.3 Spectrum challenges
to 37 million in FY10. Although wireline infrastructure
in India has been in place for an extended period, the                   The Indian telecom industry has witnessed phenomenal
growth of wireline phones is not in sync with the rise in                growth in the number of subscribers, with a CAGR of 77.5%
the number of wireless subscribers. The decline has been                 during the period FY00–10. Furthermore, according to
due to lower mobile tariffs, cheaper handsets, improved                  TRAI, the Indian telecom industry is expected to reach
mobile coverage, the advantage of mobility among wireless                1 billion73 wireless subscribers by March 2014. In line
networks and the inadequate infrastructure of the wireline               with the growth of subscribers, the need for spectrum to
network. However, wireline and wireless complement                       service these subscribers has also increased. According to
each other. The stagnancy in the growth of wireline                      TRAI, the bandwidth required by 2014 may be as high as
networks has an impact on the overall growth of the                      800MHz.74 Spectrum bands such as the 900MHz band are
telecom sector and other services such as internet and                   of great value to mobile operators due to the longer ranges
broadband services.                                                      these can support, therefore requiring lesser BTSs density
                                                                         and lower capital and operating expenditure.

3.2.2 Growth of broadband                                                Currently, in the absence of a long-term plan to meet
                                                                         future requirements, the advent of new technologies is
As of September 2010, there were 17.9 million70                          expected to create conflicts for spectrum. The availability
internet subscribers and 10.3 million broadband                          of spectrum for commercial services in India is below the
subscribers in India; the Broadband Policy 2004 had                      required levels. Despite being the second-largest market in
anticipated 40 million71 internet subscribers and                        terms of the subscriber base, India lags behind in terms of
20 million broadband subscribers by 2010. The sluggish                   availability of spectrum for commercial use.
growth in broadband services is attributable to the absence
of low-cost devices, inadequate content and applications
in regional languages, the affordability and availability of
broadband services and inadequate infrastructure.




70 “TRAI: The Indian Telecom Services Performance Indicators (July - September 2010),” TRAI website, January 2010, http://www.trai.gov.in/Default.asp,
   accessed 15 January 2011.
71 “Broadband Policy 2004,” DoT website, http://www.dot.gov.in/ntp/broadbandpolicy2004.htm, accessed 10 October 2010.
72 The Internet’s New Billion, Boston Consulting Group, September 2010, page 7.
73 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, page 339, May 2010, http://www.trai.gov.in/Default.asp, accessed
   10 October 2010.
74 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, May 2010, page 18, http://www.trai.gov.in/Default.asp, accessed 10 October 2010.


41      Enabling the next wave of telecom growth in India
Spectrum and license allocation timeline in India
                                                    •    In 1995, the GoI auctioned 2x4.4MHz of start–up spectrum for GSM-based services
  First stage: 1995–2003                            •    Two operators were selected for each License Service Area (LSA). Subsequently,
                                                         in 2001, the third operator license was awarded, along with 2x4.4MHz of start-up
  Auctioning scarce spectrum                             spectrum in the 900MHz band, to the government operator on a pro bono basis
                                                    •    In 2001, the fourth operator license was issued using a three-stage auction
                                                         procedure. Start-up spectrum of 2x4.4MHz in 1,800MHz was given to the
                                                         winning bidder:
                                                         •    In addition to the entry fees, licensees were required to pay a percentage of
                                                              annual revenue as spectrum charges
                                                    •    In 2002, subscriber based norms (SBN) was introduced. It laid down a roadmap for
                                                         the allotment of 2x12.5MHz of spectrum per operator in each LSA



                                                    •    In November 2003, GoI announced UASL that allowed basic service license holders
 Second stage: 2003–06                                   to provide full mobility-based services with a stipulated entry fee based on the bid
                                                         price paid by the fourth operator in 2001
 Unified Access Service (UAS)                       •    The fixed fee-based license allowed any number of mobile licenses to be provided and
 licenses                                                implicitly de-linked spectrum allocation from licensing. Although firms were awarded
                                                         licenses after paying the required entry fee, they were given start-up spectrum only
                                                         as and when available
                                                    •    Following the entry of two or three CDMA-based mobile operators in each LSA, one
                                                         or two new firms also paid the stipulated entry fee and obtained a license to operate
                                                         GSM services in certain LSAs


                                                    •    3G services were treated as a separate service from 2G, and TRAI continued to
 Third stage: 2006–08                                    maintain that there was a shortage of 2G spectrum
                                                    •    A new SBN policy was defined, and incumbents were kept out of fresh allocations.
 Criterion for allocation of                             The GoI allocated spectrum to new telecom players in service areas across India
 spectrum                                           •    The defense services agreed to vacate 2x20MHz in the 1,800MHz band, in addition
                                                         to 25MHz in the 2.1GHz UMTS band
                                                    •    The DoT proposed new 2G spectrum usage charges for all operators. All operators
                                                         were expected to pay higher spectrum usage charges, irrespective of the quantity
                                                         they held. This differed from the earlier strategy of increasing spectrum charges only
                                                         for those operators who held more than 6.2MHz per circle in case of GSM players
                                                         and above 5MHz for CDMA


                                                    •    In August 2008, the GoI announced the policy for 3G mobile services, in line with
 Fourth stage: 2008–10                                   TRAI’s recommendations, and opted for the auction of a start–up spectrum of
                                                         2x5MHz in the 2.1GHz band with reserve prices for different categories of LSAs
 Policy on 3G and 3G auctions                       •    In May 2010, the e–auction of 3G mobile services was concluded after 183 rounds
                                                         of bidding across all service areas. All of the 71 blocks up for auction across the 22
                                                         service areas were sold:
                                                         •    All the winners of the auction were required to pay INR509.7 billion to the GoI
                                                              within 10 days of the closing of the auction. Including the amount paid by
                                                              state-owned BSNL and MTNL, it totalled to INR677.2 billion
                                                         •    Following the completion of the 3G auctions, the bandwidth for broadband
                                                              services (WiMAX) was auctioned by the GoI. It auctioned two 20MHz blocks
                                                              in the 2.3GHz range in each of the country’s 22 service areas. The GoI raised
                                                              INR385.4 billion from the broadband wireless auction

Source: “A peep into RF spectrum allocation process in India,” Integrated Defense Staff http://ids.nic.in/tnl_jces_Sep_2009/Spectrum%20allocation%20
procedure.pdf accessed 02 August 2010




                                                                                      Enabling the next wave of telecom growth in India                42
3.2.4 Licensing challenges                                               3.2.6 Infrastructure
NTP 1999 permitted Cellular Mobile Service Providers                     Telecommunications infrastructure, despite being a
(CMSPs) to provide all types of mobile services, including               “key infrastructure,” is far from ubiquitous. There are
voice and non-voice messages, data services and PCOs, in                 huge gaps in low-income or sparsely populated areas,
their service area of operations, using any type of network              especially away from cities and towns, where telecom
equipment that met the International Telecommunication                   companies see poor returns on the expensive investment
Union (ITU) or Telecommunication Engineering Center                      required in setting up the infrastructure. Completing the
(TEC) standards. Prior to this, licensees were required                  important task of connecting the remaining areas therefore
to use GSM technology. The policy made the cellular                      requires an all-round effort by improving the economics
license technology neutral, and also allowed licensees to                of rolling out networks and addressing any other
migrate from a fixed license regime to a revenue-sharing                 stakeholders’ concerns that act as a barrier.
arrangement starting in August 1999. In November 2003,
                                                                         Telecom infrastructure service providers face several
the GoI introduced the UAS licensing regime, permitting
                                                                         challenges, which are highlighted below:
an access service provider to offer either fixed or mobile
services or both. Since the introduction of the UAS                      Role played by multiple state agencies: there is no
licensing regime, the total number of licenses in a circle               uniform approval process across the states, and the
ranges from 12 to 14.75                                                  biggest barrier to setting up telecom towers and other
                                                                         infrastructure is the wide variation in the approval
Globally, the allocation of spectrum is separate from the
                                                                         process adopted by local bodies. Several demand
grant of license to provide service. However, in India,
                                                                         prohibitive fees; others require dealing with multiple
licenses are bundled with the allotment of a certain amount
                                                                         agencies; some treat infrastructure business in the same
of spectrum.
                                                                         way they treat petty commercial undertakings; and some
                                                                         look at infrastructure companies as a means to finance
3.2.5 Equipment manufacturing                                            deficits. Tower companies, therefore, incur huge costs
                                                                         and delays because several state agencies are involved in
The Indian telecom sector has witnessed rapid growth.                    granting approval for setting up towers.
However, telecom manufacturing in India has not been
                                                                         Inadequate utilization of towers: towers are not fully
able to keep pace. Currently, there is a limited number
                                                                         utilized as no law ensures that no new tower is built in an
of telecom equipment manufacturers and providers tend
                                                                         area where an existing tower is under utilized.
to be highly dependent on imported equipment during
the setup of mobile networks. Moreover, the country lags                 Civic issues: there is a need to address civic issues
behind in terms of telecom R&D and continues to be reliant               such as zoning regulation, single window clearance,
on imports.                                                              preferential treatment for sharing and incentives in a
                                                                         timely manner.




75 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, May 2010, page 59, http://www.trai.gov.in/Default.asp, page 59, accessed
   10 October 2010.




43      Enabling the next wave of telecom growth in India
Taxation on towers: multiple levies and high taxes are         Power consumption: one of the major problems faced is
imposed for setting up mobile towers. For instance, the        the lack of reliable grid power. Without it, service providers
Municipal Corporation of Delhi (MCD) charges INR100,000        are forced to use diesel generator sets at tower sites most
per tower and the New Delhi Municipal Council (NDMC)           of the time. Secondly, the power connection to telecom
charges INR200,000 per tower as a one-off registration         towers is treated as one to a “commercial establishment,”
fee in Delhi.                                                  and thus, the highest tariff is applied to the telecom site.
                                                               In large parts of India, the power is either unavailable or
Delays and cumbersome processes for the SACFA
                                                               erratic. This increases the dependence on diesel, which
clearances: the SACFA gives siting clearance of all wireless
                                                               is not only more expensive but also polluting. Further,
installations in the country. The site clearance basically
                                                               there is no clarity on the rates to be paid by infrastructure
requires examination from the point of safety for flight
                                                               companies. Some agencies charge them “industry” rates,
navigation and interference with existing wireless systems.
                                                               while others charge “commercial” rates, and there are
Utilization of USOF and incentives: since the next level       other options as well. This adds avoidable uncertainity in
of growth is expected to come from rural areas, there          an already tough business.
is a need to accelerate the pace of setting up the tower
                                                               Energy consumption: cell sites account for most of the
infrastructure in these areas. Although the USOF was
                                                               energy consumed by mobile networks, as these are
created with the sole aim of promoting rural telephony,
                                                               dependent on diesel generators to keep running. Diesel
the fund rules are too cumbersome and lack focus. They
                                                               fuel is subsidized, and it is estimated that India as a country
do not reflect the fact that USOF subsidies are perhaps
                                                               consumes more than 2 billion liters of diesel per year for
most urgently required to defray the cost of infrastructure
                                                               cell sites.
creation in rural areas.
                                                               Environmental issues: diesel consumed by towers results
Grievance redressal: there is no clear grievance escalation/
                                                               in about 17,000 tonnes of CO2 and 24,000 tonnes of
redressal mechanism that infrastructure companies can
                                                               carbon equivalent. The cumulative carbon footprint of
seek when a conflict arises.
                                                               telecom towers due to diesel consumption in a year is more
Safety: the construction of telecom towers is still a          than 5.5 million tonnes.76 The thrust in increasing rural
self-regulated activity throughout India. Currently all the    telephony will further aggravate the diesel dependence by
telecom operators are following IS codes, namely IS:800,       telecom towers.
IS:802 and IS:875, for the design of towers. The above IS
                                                               Misplaced apprehensions on health hazards of
codes are primarily meant for electric/power transmission
                                                               electromagnetic radiation from mobile antennas:
line tower design, and the load criteria for telecom towers
                                                               many state governments and municipalities have barred
and transmission line towers are different.
                                                               towers in residential areas, citing concerns over alleged
                                                               health hazards relating to BTS.




76 Industry estimates.




                                                                      Enabling the next wave of telecom growth in India    44
4Key enablers
     As we enter the second decade of the 21st century, India’s telecom industry
     is at a crossroad. This is the appropriate time to look again at the NTP 1999
     and customize it to meet current and future needs. The NTP 1999 has
     served the sector well for more than a decade, which witnessed significant
     changes in the socioeconomic environment, technological advancements
     and business dynamics of telecommunications. Therefore, the time is
     ripe for a comprehensive review to build a forward-looking, strong and
     transparent policy framework that will be the backbone to achieving the
     India Telecom Vision 2020. India needs a principle and objective-based,
     transparent, efficient, independent and competitively neutral policy that will
     accelerate the pace of growth in telecom services and manufacturing.

     •    A principle- and objective-based policy that provides a clear roadmap of
          the telecom sector and is reviewed regularly to keep abreast with rapid
          technological developments in the sector
     •    A transparent approach to policy formulation, providing interested
          parties with concrete opportunities to navigate the growth of the
          telecom sector
     •    The creation of an efficient mechanism to implement regulatory
          decisions. It needs to identify and address barriers to growth
     •    The functioning of the regulator in an unbiased manner, and the
          formulation of a competitively neutral policy that is not discriminatory
          toward any of the stakeholders




45       Enabling the next wave of telecom growth in India
4.1. Connected India:
telecom vision 2020
The policy initiatives should focus on achieving the vision for connected
Indian Telecom 2020: India should have a convergence services enabled
network with voice, data, video, media, broadband and internet services
delivery to subscribers with high quality of experience. It should be
supported by different metrics of quality of services at affordable tariffs
meeting the needs of different segments of society, with inclusive
participation from rural India to ensure telecom coverage for all.




                                 Enabling the next wave of telecom growth in India   46
4.2. Connected India: telecom mission 2020

                                                   Connected India: telecom mission 2020 should aim to achieve the
                                                   following objectives:

                                                   •     To recognize and treat telecom infrastructure as critical
                                                         infrastructure to accelerate the pace of growth of the sector and
                                                         increase its contribution to the Indian economy
                                                   •     To connect the unconnected at affordable prices to ensure 100%
                                                         telecom coverage of the country; achieve rural penetration of 100%
                                                         and reach overall wireless penetration of 110%
                                                   •     To strengthen broadband penetration to reduce the digital divide;
                                                         achieve total broadband connections of 150 million
                                                   •     To earn revenues of around US$60 billion
                                                   A two-pronged strategy is needed to achieve connected India
                                                   Telecom Mission 2020. First, the existing challenges faced by various
                                                   stakeholders need to be addressed. This involves key enablers such as
                                                   licensing framework, spectrum, USOF, broadband penetration, M&As,
                                                   equipment manufacturing and infrastructure development. Second,
                                                   the policy should be able to meet future opportunities. This will, among
                                                   other things, include the unique identification number (UID) scheme,
                                                   financial inclusion and m-commerce.




47   Enabling the next wave of telecom growth in India
4.3. Key enablers under existing scenario
4.3.1 Licensing77
The telecom sector has evolved from a monopolistic regime in the early 1990s to 12–14
licensees in a circle now. In November 2003, the GoI introduced the UAS licensing regime,
which let the provider offer fixed, mobile or both services under the same license, using
any technology. The GoI has issued many new UAS licenses since the introduction of the
UAS regime. Globally, the number of incumbent telecom service providers varies from
four to six, with the allocation of spectrum separate from the allocation of a license.
However, in India, under the UAS regime, a licensee is entitled to obtain a certain amount
of spectrum, subject to its availability and efficient usage.


 Parameters                         Recommendations
 Spectrum and license               Need to have a single universal license for all telecom services.
                                    The policy must preserve competition and ensure that no service is
                                    given a price arbitrage over others.
 Fee                                There should be a uniform license fee across all telecom circles.
                                    Multiple levies, including service tax and license fees (such as universal
                                    service obligation fees and spectrum charges), are currently imposed
                                    on the industry. Moreover, states levy additional taxes such as octroi,
                                    VAT, stamp duty, entry tax and levies on towers, which aggregate to
                                    30% of the revenues earned by telecom companies. A uniform revenue
                                    share license fee of 1%, excluding the USOF, should be fixed. Since
                                    there is a significant cash reserve lying unutilized in the USOF, DoT
                                    should consider lowering the contribution from 5% of AGR to 1%
                                    of AGR.
                                    Pure internet service providers should continue to be free of any
                                    license fees.




77 See 5.1. for global practices.




                                                                                  Enabling the next wave of telecom growth in India   48
License renewal               Ensure regulatory certainty and ease investor concerns:
                              • Provide a clear license renewal regime that includes legislation,
                                renewal procedures, reasons for refusal to renew and appeals to
                                regulatory decisions
                              • Provide details along with the license, if the legislative framework is
                                not comprehensive
                              • Create a balance between certainties in the renewal process
                              • Regulatory discretion to clear parameters of license renewal with
                                appropriate checks and balances
                              Procedures for license renewal:
                              • Initiate renewal process well in advance of expiry
                              • Perform periodic forward review of market and needs
                              • Disclose and publish reasons for non-renewal of licenses
                              • Adopt a public consultation process
                              • Guarantee a right to appeal
                              In the event of non-renewal:
                              • Provide minimum notice period
                              • Delay vacancy of spectrum to give enough time for operators
                                to adapt strategies
                              • Ensure exit strategies for operators and continuity of service
                                to consumers
                              Change in license conditions and obligations:
                              • Renewal process is a good occasion to review license conditions
                              • Ineffective mandatory service obligations create an anti-competitive
                                impact, if the burden is not kept at a manageable level
Amendments                    Currently, amendments to license agreements are carried out
                              unilaterally. Service providers should be consulted before provisions in
                              license agreements are amended.




49    Enabling the next wave of telecom growth in India
4.3.2 Spectrum78
Spectrum, being a scarce natural resource, plays a critical role in the provision of mobile
telecom services. In India, the National Frequency Allocation Plan (NFAP) is the basis
for spectrum utilization and development and the manufacturing of wireless equipment.
The next five years are going to see the spread of telecom services enabling subscribers
to benefit from voice, data and other application services. An increasing availability of
smart-phones with significant processing capacity and a wide array of applications are
resulting in higher requirements of spectrum. It is estimated that the total requirement of
spectrum in the next five years would be of the order of 500-800MHz including 275MHz
for voice services alone. In line with estimated demand of approximately 500-800MHz
spectrum across various bands out of a total 1,161MHz79 of identified spectrum by TRAI,
a minimum of 287MHz and a maximum of 454MHz is currently available. A mechanism to
ensure transparent and non-discriminatory spectrum management is needed.



Spectrum available for telecom operators in different frequency bands80
Frequency band                      Spectrum available in the               Spectrum available
(in MHz)                            band (in MHz)                           for telecom sector
450-470                                          20                                            -
698-806                                         108                                            -
806-824                                          18                                            -
824-844                                          20                                         20
869-889                                          20                                         20
890-915                                          25                                 18.6-21.8
935-960                                          25                                 18.6-21.8
1,710-1,785                                      75                                      35-75
1,785-1,805                                      20                                            -
1,805-1,880                                      75                                      35-75
1,880-1,900                                      20                                       0-20
                                                                           (after coordination)
1,900-1,910                                      10                                            -
1,920-1,980                                      60                                       0-60
2,010-2,025                                      15                                            -
2,110-2,170                                      60                                         60
2,300-2,400                                     100                                         40
2,500-2,690                                     190                                         40
3,300-3,400                                     100                                 100 (ISPs)
3,400-3,600                                     200                                            -
Total                                        1,161                               287.2-453.6




78 See 5.2. for global practices.
79 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, May 2010, page 22, http://www.trai.gov.in/Default.asp,
   accessed 10 October 2010.
80 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, May 2010, page 22, http://www.trai.gov.in/Default.asp,
   accessed 10 October 2010.



                                                                                 Enabling the next wave of telecom growth in India   50
 Country-wise spectrum availability
 Country                    Total licensed              Wireless subscribers,      Subscriber/MHz
                            spectrum for mobile         2008 (million)             (million/MHz)
                            services, MHz (2008)
 Argentina                             170                      46.5                         0.27
 Brazil                                200                    150.6                          0.75
 Canada                                265                    150.6                          0.57
 Chile                                 140                      14.8                         0.11
 Colombia                              120                      41.4                         0.35
 Mexico                                120                      75.3                         0.63
 Spain                                 358                      49.6                         0.14
 UK                                    353                      77.4                         0.22
 US                                    294                    270.3                          0.92
 Source: “Digital Dividend Pavilion - Latin America Wireless Roadmap,” 3g Americas website, February 2009,
 http://www.3gamericas.org/documents/MWC%202009%20Digital%20Dividend%20Pavilion-3G%20Americas%20
 Erasmo%20Rojas.pdf, accessed 14 January 2011; ITU - ICT Statistics 2008; Ernst & Young analysis.

 Circle-wise spectrum allocated in India81
 Circle                           Allocated spectrum (MHz)                No. of operators                    Subscriber       Subscriber/MHz
                                                                                                              (million)        (million)
                                  GSM            CDMA        Total        GSM        CDMA       Total
 Delhi                            53.6           15          68.6         12         4           16                33.5               0.49
 Mumbai                           72.4           15          87.4         11         4           15                31.3               0.36
 Kolkata                          60.4           13.75       74.15        10         4           14                19.2               0.26
 Maharashtra                      69.4           15          84.4         12         4           16                50.7                 0.6
 Gujarat                          60.4           12.5        72.9         11         4           15                38.9               0.53
 Andhra Pradesh                   69.4           13.75       83.15        12         4           16                52.7               0.63
 Karnataka                        69.4           13.75       83.15        12         4           16                43.1               0.52
 Tamil Nadu                       67             12.5        79.5         11         4           15                62.2               0.78
 Kerala                           61.2           15          76.2         11         4           15                28.1               0.37
 Punjab                           63.2           15          78.2         12         5           17                   24              0.31
 Haryana                          63.8           12.5        76.3         12         4           16                17.2               0.22
 Uttar Pradesh — West             61.2           13.75       74.95        11         4           15                37.2                 0.5
 Uttar Pradesh — East             62.4           13.75       76.15        11         4           15                53.3                 0.7
 Rajasthan                        63.8           15          78.8         12         4           16                37.6               0.48
 Madhya Pradesh                   63             12.5        75.5         11         4           15                37.3               0.49
 West Bengal                      53             11.25       64.25        10         4           14                   31              0.48
 Himachal Pradesh                 57.6           10          67.6         11         4           15                  6.1              0.09
 Bihar                            66.8           13.75       80.55        12         4           16                44.7               0.55
 Orissa                           59.4           11.25       70.65        11         4           15                18.6               0.26
 Assam                            55             10          65           10         4           14                10.2               0.16
 North East                       53.2           10          63.2         10         4           14                  6.2                0.1
 Jammu & Kashmir                  49.4           10          59.4         10         4           14                  4.7              0.08


81 “TRAI: Spectrum Management and Licensing Framework,” TRAI website, May 2010, page 22, http://www.trai.gov.in/Default.asp,accessed
   10 October 2010; “TRAI: The Indian Telecom Services Performance Indicators (July-September 2010),” TRAI website, January 2010, http://www.trai.
   gov.in/Default.asp, accessed 15 January 2011; Ernst & Young analysis.



51        Enabling the next wave of telecom growth in India
Operator spectrum holdings
Country/Region/Operator                               Spectrum holding per operator, MHz
India                                                                               28-37
Denmark                                                                             118.4
EU average                                                                           92.6
France                                                                              138.5
Germany                                                                                 65
Italy                                                                                72.7
Spain                                                                               100.6
Sweden                                                                                  92
UK                                                                                   82.2
US                                                                                  75-96
Source: “Digital Dividend Pavilion - Latin America Wireless Roadmap,” 3g Americas website, February 2009,
http://www.3gamericas.org/documents/MWC%202009%20Digital%20Dividend%20Pavilion-3G%20Americas%20
Erasmo%20Rojas.pdf, accessed 14 January 2011; “Presentation to the DoT committee on spectrum allocation
criteria,” Communications Today, http://www.communicationstoday.co.in/images/1-pdotfinal.pdf, accessed 14
January 2011.




Parameters                        Recommendations
Availability                      Align spectrum bands with globally harmonized bands to achieve interference-free coexistence and
                                  economies of scale.
                                  Identify and vacate new spectrum bands for future use.
Re-farming                        Need to bring in additional spectrum for commercial telecom services.
                                  Need to review the present usage of spectrum available with government agencies so as to identify
                                  the possible areas where spectrum can be re-farmed, and to draw up a suitable schedule.
                                  Regular spectrum audits should be carried to oversee the efficient utilization of spectrum.
Spectrum allocation               Spectrum allocation should be based on technology neutrality, service flexibility, timely allocation,
                                  timely spectrum reconciliation and enhanced transparency.
                                  Need to lay down a clear roadmap for spectrum management which should state the requirement and
                                  availability of spectrum for each circle as well as for the whole country. This roadmap should be made
                                  available publicly to ensure transparency.
                                  
                                  National frequency allocation plan should be reviewed every two years.
Spectrum allocation to            2G spectrum up to the contracted limit should be ensured as initial spectrum.
existing players
                                  Allocation of spectrum beyond the contacted limit should be based on market mechanisms.
                                  The contacted limit of spectrum will be 6.2MHz for GSM operators and 5MHz for CDMA operators.
Spectrum allocation to new        Allocation of spectrum should be based on auctions. Spectrum should be provided to the highest
players                           bidder, based on a transparent auction mechanism to determine the price.
Spectrum usage charges            The criteria for levying spectrum usage charges should be identified upfront at the time of allocation
                                  of spectrum.
Spectrum sharing and              Service providers should be allowed to enter into arrangements for transfer/sharing of spectrum
trading                           among themselves so as to effectively utilize it and attain maximum spectral efficiency in the sector.
                                  It should be based on market price and not administered pricing.




                                                                                 Enabling the next wave of telecom growth in India         52
 4.3.3 Universal Service Obligation Fund
 (USOF)82
 NTP 1999 envisaged access to basic telecom services for                           VPT and RCP: around 570,000 VPTs are currently eligible
 all, especially those in rural and remote areas, at affordable                    for financial support for operation and maintenance. As of
 prices. In 2002, the Universal Service Support Policy came                        31 December 2009, BSNL has provided VPTs to 61,186
 into effect, with a universal service levy of 5% being levied                     out of 62,302 uncovered villages. Out of the target of
 on the adjusted gross revenue (AGR) earned by all telecom                         40,705 rural community phones (RCPs), 40,694 have
 operators except on VAS such as internet service, voice                           been provided as of December 2009.
 mail and email. The USOF is estimated to hold around
 INR180 billion,83 at the end of FY10. However, rural                              Tower infrastructure: provide infrastructure support to
 teledensity is at 28.4%, whereas urban teledensity is about                       set up and manage 7,436 infrastructure sites spread over
 137.3%, resulting in a huge digital divide. The USOF has a                        500 districts in 27 states. As of 31 December 2009, about
 long way to go to provide impetus to rural telephony and                          6,950 towers have been set up under this scheme.
 bridge the gap between the funds collected and disbursed
                                                                                   Rural broadband: 95,011 broadband connections out of
 in an effective manner.
                                                                                   the proposed 888,832 wireline broadband connections
 The USOF covers rural and remote areas with public access                         have been provided as of 31 December 2009.
 telephones and individual rural household telephones in net
                                                                                   Multi access radio relay (MARR)-based VPT: out
 high cost rural and remote areas. The USOF has enabled
                                                                                   of 185,121 MARR-based VPTs installed before
 telecom development in rural areas through the following
                                                                                   April 2002, about 184,500 have been replaced as of
 key developments:
                                                                                   31 December 2009.

 Disbursement of the USO levy to the operators

                60                                                                       54.1                 55.2

                50
                                                                    39.4
                40        34.6
(INR billion)




                                               32.2
                30
                                                      17.7                                                                                    18.5
                20                                                          15.0                                      16.0
                                  13.1                                                          12.9
                10
                                                                                                                                     N/A
                 0
                             FY05                 FY06                   FY07               FY08                 FY09                   Dec-09
                         Funds collected          Funds disbursed

  Source: DoT




82 See 5.3. for global practices.
83 “Minister Sachin wants to ‘Pilot’ IT revolution in northeast,” Indo-Asian News Service, 7 March 2010, via Dow Jones Factive, © 2010 HT Media Limited.




 53                  Enabling the next wave of telecom growth in India
Parameters             Recommendations
Objectives             The USOF framework needs to be reviewed regularly to effectively utilize the funds to achieve universal
                       service. The USOF should aim to achieve the following:
                       • 100% rural teledensity by 2015
                       • 25-30 million broadband subscribers in rural areas over the next five years
                       • Data coverage to all villages through cable modem termination system (CMTS) data technology
                         by 2015
                       • Broadband connectivity for 250,000 gram panchayats by 2012
                       • At least 20 active public information kiosks with at least 256 kbps speed in every district
                         headquarters by 2015
Potential usages       The USOF should be utilized for the following:
                       • Provision of public telecom and information services
                       • Provision of household telephones in rural and remote areas as may be determined by GoI from time
                         to time
                       • Creation of infrastructure for provision of mobile services in rural and remote areas
                       • Provision of broadband connectivity to villages in a phased manner
                       • Creation of general infrastructure in rural and remote areas for development of telecommunication
                         facilities
                       • Induction of new technological developments in the telecom sector in rural and remote areas
Method of allocation   Subsidies should be distributed through transparent market-oriented allocation methodology.
Fund collection        There is a significant cash reserve lying unutilized in the USOF, so DoT should lower the contribution
                       from 5% to 1% of AGR.




                                                                        Enabling the next wave of telecom growth in India        54
4.3.4 Broadband84
India trails all developing Asian countries, as well as                    Broadband services should be encouraged using wireless
its BRIC counterparts, with a broadband penetration                        media because the laying of fibers block by block at district
of just 0.74%.85 There were just 8.8 million broadband                     headquarters would be costly and time-consuming. To
connections at the end of FY10, against the target of 20                   kick-start the broadband penetration in rural and far-flung
million by 2010 set in the Broadband Policy of 2004. The                   areas, deployment of wireless access should be given
net broadband addition per month is just 0.1 to 0.2 million.               preference and fiber media should be utilized from the
The growth of broadband is restricted by several factors                   already available fiber capacity across nation. The last mile
such as its perceived utility, application, connectivity, lack             access issue can be addressed through the deployment of
of vernacular content, cost of device and affordability.                   wireless technology.
Today, socioeconomic growth is dependent on the spread
                                                                           Broadband should be redefined and clauses such
of broadband services across the country. India has set
                                                                           as ‘’always on’’ and minimum speed should be removed
a target of 100 million broadband connections by 2014,
                                                                           from National Broadband Policy, 2004, in order to
connecting 40% of the households in the country. The
                                                                           encourage broadband.
drivers for broadband services are broadly classified
as technological, economic, social, behavioral and                         The 3C’s — customer, cost and competition — are
government initiatives. India lags behind in terms of ITU’s                essential for improving broadband penetration. The
ICT Development Index (IDI),86 with a ranking of 129, 106,                 need to provide broadband services in rural areas should
and 118 out of 154 countries in terms of ICT access, use,                  be met with the help of easy financing and the means
and skills, respectively. This calls for a critical review of the          to share capital expenditures. Further, there should
Broadband Policy 2004 and the creation of appropriate                      be balanced competition to ensure the quality and
infrastructure to support broadband growth.                                affordability of services.




84 See 5.4. for global practices.
85 “TRAI: Consultation Paper on National Broadband Plan,” TRAI website, June 2010, page 3, http://www.trai.gov.in/Default.asp, accessed 10 October 2010.
86 “TRAI: Consultation Paper on National Broadband Plan,” TRAI website, June 2010, page 28, http://www.trai.gov.in/Default.asp, accessed 10 October 2010.




55      Enabling the next wave of telecom growth in India
Parameters           Recommendations
Infrastructure       Optic fiber communication (OFC), high-capacity microwave and satellite connectivity should be
                     extended to rural, remote and inaccessible areas.
                     Backhaul connectivity and OFC should be provided to all telecom towers, BSCs and BTS from the
                     nearest block headquarters.
                     The development of the customer premises equipment (CPE) model should be supported for the
                     interoperability of broadband. There is a case for private-public partnership (PPP) in broadband
                     along the lines of highway construction in India through the build, operate and transfer route.
                     The Government should foster competition to improve the pace of penetration. More than two
                     service providers with a rollout obligation should be funded.
Wireless broadband   More spectrum should be made available.
                     Since growth will be through wireless broadband, the government and private sector should
                     collectively work toward developing low-cost mobile applications.
Regional content     Content and applications in regional languages should be created to promote rural broadband.
                     Investments should be made in key content development and services such as e-health and
                     e-education. The support for local access and content delivery to towns should extend beyond the
                     150 commercially viable towns.
PC penetration       Workshops by local entrepreneurs should be promoted under the common services centers (CSC)
                     scheme, which is a part of the National e-Governance Plan (NeGP).
                     Computer usage by government employees should be encouraged. Online fee payments should
                     be encouraged for land records, vehicle registration, driving licenses, payment of electric and
                     water bills.
                     Discounts should be provided for online payments.
Fiscal incentives    Tariffs need to come down. This can happen only if there are incentives to build infrastructure and
                     provide broadband services.
                     The GoI should consider a differential tax to encourage the private sector to set up common access
                     points. The tax status for expenditure on connectivity/usage should be similar to policies on other
                     public welfare services such as education and medical allowance.
Right of way (ROW)   ROW procedures should be uniform, and charges for broadband services should be rationalized
                     across all states.
                     Broadband connectivity should be made mandatory for all buildings requiring a completion
                     certificate, on the lines of water and power connectivity. In addition, building and cooperative
                     society bylaws can be effectively modified to make it mandatory for such entities to invite
                     broadband service providers to broadband-enable buildings by at least 10 Mbps per household.
                     Similarly, all national and state highway projects should include the laying of an optic fiber
                     backbone.




                                                                Enabling the next wave of telecom growth in India          56
4.3.5 Mergers and acquisitions87
At present, intra-circle M&A is allowed subject to the
following conditions:

•    The total number of operators in a circle should not fall
     below four
•    Market share and revenues of the merged entity should
     be less than 40% in each circle
•    A three-year lock-in for owner’s equity in the new
     operators that have been given licenses recently (no
     lock-in if fresh equity)
•    Maximum spectrum of the merged entity will be
     capped at 15MHz for Metros and A circle and 12.4MHz
     for B circle and C circle
•    No one entity can hold equity stake of 10% or
     more in more than one licensee company in the
     same circle
The Government should continue to follow the policy
to permit mergers but at the same time retain enough
competition in the market so as to protect the consumer
interest. The TRAI recommendations dated 11 May 2010
should be followed to maintain the balance between the
interests of consumers and service providers.


 Parameters                         Recommendations
 Number of operators                Mergers should not result in less than six operators in the circle.
 Service area and license           Merger of licenses shall be restricted to the same circle.
 stipulations
                                    Merger of license(s) shall be permitted in the following category of licenses: cellular mobile
                                    telephone service (CMTS) license with CMTS license, unified access services license (UASL) with
                                    UASL, CMTS license with UASL, and UASL with UASL.
                                    Merged licenses in all the categories above shall be in UASL category only.
 Market share of merged entity      The share of a merged entity should not be greater than 30% in terms of sub-base or AGR.
 Lock-in period                     The stipulation regarding the minimum period of three years from the effective date of license for
                                    merger or acquisition should be done away with.




87 See 5.5. for global practices.




57      Enabling the next wave of telecom growth in India
4.3.6 Taxation
Over the years, the significance of the telecom sector                     •    Recharge coupon vouchers (RCVs): the Indian
to the Indian economy has grown immensely. Currently,                           telecom sector is also characterized by a large prepaid
the sector contributes significantly to GDP, as well as tax.                    subscriber base. As of September 2010,89 96.4%
According to TRAI, the operators pay up to 30%88 of their                       of the GSM subscribers and 94.1% of the CDMA
total revenues toward different levies, which is 23%–25%                        subscribers were prepaid subscribers. RCV is one of
higher than their counterparts in other Asian countries.                        the most popular ways to pay for telecommunication
The Indian telecom sector is subject to numerous taxes                          services, which account for 80%–85% of the operator
and levies. This includes the uniform license fee, 5% levy                      revenues. Over the years, the bouquet of services has
for USOF, VAT, custom duty and other taxes. Currently,                          changed, as the RCVs are witnessing liberalization
the revenue share license fee (including the USOF) is                           in the flexibility of their usage, such as to procure
prescribed as follows:                                                          merchandise, or other services. The issue whether
                                                                                the sale of RCVs should attract service tax or VAT has
•    6% to 10% of AGR for access services, depending on                         been a subject of constant debate and discussion. It
     the category of circle                                                     is important to note that currently industry players
•    6% of AGR for NLD/ILD services                                             are paying service tax on RCVs, while the dominant
                                                                                purpose for selling these RCVs is provision of telecom
•    6% of AGR for internet service providers for revenues
                                                                                services to subscribers. The levy of VAT on the sale of
     accruing from internet telephony service
                                                                                RCVs to subscribers would result in double taxation,
Despite the significant contribution of the Indian telecom                      thereby leading to greater financial burden on the
sector to the growth of the GDP and the tax revenue of the                      telecom sector.
Indian economy, there are certain key challenges faced by
                                                                           •    Central value-added tax (CENVAT) position on tower
the sector which are outlined below:
                                                                                materials and shelters: telecom operators are availing
•    Sale of light energy: broadband services also continue                     CENVAT credit on goods such as angles, channels
     to face taxation-related concerns. Various states across                   and beams, which are used for building transmission
     India have issued show cause notices, or passed orders                     towers. Towers and shelters fall under Chapter 73 and
     demanding VAT/sales tax on the activity of providing                       94 respectively of the Central Excise Tariff Act 1985.
     broadband connectivity by use of optical fiber cables                      The classification of tower, tower material and shelters
     treating it to be sale of “artificially created light                      has been an industry issue on which even the service
     energy” under the respective state VAT legislation. The                    tax authorities in different jurisdictions have taken
     issue was first taken up in the case of a leading telecom                  a different stand and have sought to deny credit on
     player by the state of Karnataka, with the matter                          these goods treating such goods as not qualifying as
     going up to the Supreme Court. The Supreme Court                           “capital goods” under the CENVAT Credit Rules 2004.
     without going into the merits of the case has ordered                      However, these goods could be treated as “component/
     a relook at the matter by the state VAT authorities. It                    spare/accessories” of “capital goods” (i.e., BTS etc.)
     is important to note that currently the industry players                   and accordingly they can be treated as capital goods
     are paying service tax on such broadband services.                         in the hands of an operating company given that
     The levy of VAT on the activity of providing broadband                     towers and shelters are essential for the provision of
     connectivity services would lead to double taxation                        telecommunication services. This position has been
     of such services, thereby leading to greater financial                     adopted by industry players. Denial of credit on such
     burden on the telecom sector.                                              goods would lead to an increase in the financial burden
                                                                                on telecom operators.




88 “Telecom firms want lower tax burden,” The Economic Times, http://economictimes.indiatimes.com/news/news-by-industry/telecom/telecom-firms-want-
   lower-tax-burden/articleshow/2753840.cms, accessed 10 January 2011.
89 “TRAI: The Indian Telecom Services Performance Indicators (July – September 2010),” TRAI website, January 2010, http://www.trai.gov.in/Default.asp,
   accessed 15 January 2011.



                                                                                    Enabling the next wave of telecom growth in India            58
                                                                                 •    Levy of entertainment tax on VAS products: there is
                                                                                      a proposal in certain states to levy entertainment tax
                                                                                      on VAS products as such products to entertain
                                                                                      the caller. It is important to note that as per the
                                                                                      current proposal, entertainment tax is not proposed
                                                                                      to be subsumed in goods and services tax (GST).
                                                                                      In case entertainment tax is levied on VAS products,
                                                                                      the non-subsumation of entertainment tax in GST
                                                                                      could impose a significant financial impact on the
                                                                                      telecom industry.
                                                                                 •    Upcoming GST regime: according to industry experts,
                                                                                      in view of the exponential growth witnessed by
                                                                                      the telecom sector, GST should not translate into
                                                                                      an ambitious target to generate higher service tax
                                                                                      revenues from the telecom sector. The upcoming GST
                                                                                      regime should aim to simplify the tax structure for
                                                                                      the industry, with all services and goods being taxed
                                                                                      at a standard rate. Further, special consideration has
                                                                                      to be given on certain areas in the backdrop of the
                                                                                      peculiarities of the telecom sector such as “place of
                                                                                      supply rules90” i.e., the state where GST will be paid
                                                                                      for different kind of telecom services; ease in state-
                                                                                      wise compliances. The upcoming GST regime should,
                                                                                      thus, aim to rationalize the tax structure in the Indian
                                                                                      telecom industry, along with the creation of a roadmap
                                                                                      for a single unified levy. The sector should be provided
                                                                                      tax benefits and incentives in recognition of being a
                                                                                      key contributor to the socioeconomic development and
                                                                                      GDP of the country.




90 Place of supply rules define the place (state) which has the right to tax a service transaction.




59       Enabling the next wave of telecom growth in India
4.3.7 Foreign direct investment (FDI)
In the past decade, globalization has led to a rapid increase   among countries for the benefit of trade liberalization
in FDI, thereby enhancing economic growth in developing         and to prevent discrimination between domestic and
countries. The telecom sector has been among the sectors        foreign suppliers. Together, the WTO and the ITU
that have witnessed substantial growth in FDI. The telecom      encourage the development of a global telecommunication
sector has a substantial impact on a nation’s economic          infrastructure and the formation of an integrated global
development, social stability and national security.            telecommunication market.
Hence, the balance between economic gains from foreign
                                                                In the Asia–Pacific region, the telecommunications
investment and national telecommunications sovereignty
                                                                market reform has continued, with countries such as the
presents a challenging task.
                                                                Philippines, Taiwan and Thailand opening their markets
FDI in telecom brings advanced technological skills and         to foreign investment. In Latin America, several countries
large amounts of funds, and enhances market competition.        that first privatized their domestic operators in the early
However, many countries control FDI in telecom                  2000s are now preparing for a second round of market
according to their economic and developmental needs,            openings. Foreign private investment has entered the
and due to its influence on national security. As a result,     developing markets through joint ventures with local
telecommunication industries are often state-operated and       telecommunication operators or the sale of equity stakes
monopolized in many countries.                                  in state-owned telecommunication entities to private
                                                                foreign investors.
The Indian telecom sector needs to foster a suitable
environment where investment and entrepreneurship,              FDI in developing countries enables the development of
including the development of new forms of electronic            a local telecommunication infrastructure and universal
commerce, prosper together. Globally, major FDI in              access. It results in substantial progress in meeting such
the telecom sector is facilitated by two international          countries’ basic telecommunication requirements. Given
organizations — the World Trade Organization (WTO) and          the importance of foreign investment, the policy should
the International Telecommunication Union (ITU). The            consider raising the upper limit on foreign investment to
WTO aims to promote foreign and domestic investment,            encourage more foreign players to invest in the capex-
and the ITU allocates global spectrum to particular             intensive telecom sector.
services and manages scarce communications resources




                                                                       Enabling the next wave of telecom growth in India     60
4.3.8 Consumer affordability and
rural penetration
The Indian telecom market has some of the lowest tariffs
in the world, with a large majority of people using low-cost
mobile handsets. The DoT has been successful in providing
world-class telecom infrastructure at globally competitive
tariffs and has reduced the digital divide by extending
connectivity to unconnected areas.

Mobile tariffs per minute in US$

0.3

0.2

0.2
          0.23
0.1                   0.19
                                  0.17         0.16
0.1                                                           0.11
                                                                           0.09
                                                                                      0.05       0.04       0.03      0.01
0.0
       Belgium        UK         France       Brazil       Phillipines   Malaysia   Thailand   Pakistan    China       India
Source: DoT; India Telecom 2010 brochure



In February 2006, a leading operator launched the                    followed up by incumbent operators introducing cheaper
“One India Plan.” It was considered affordable,                      tariffs, giving India some of the lowest tariffs in the
customer friendly and innovative for both local and long             world. Furthermore, the increase in subscriber base and
distance calls. It also removed the distinction between              teledensity has enabled telecom companies to achieve
fixed-line and cellular tariffs. The plan enabled customers          economies of scale and, at the same time, provide
to make calls to any phone from one end of the country               leading class services.
to the other for INR1 any time during the day. This was




61     Enabling the next wave of telecom growth in India
Drivers of affordable mobile communication


                                                                                              •   Transparent regulation
                                                                                              •   Easy market entry
                                                 Policy and regulatory approach               •   Lower tax burden
                                                                                              •   Low risk
                                                                                              •   License reforms to permit
              Affordable mobile                                                                   mobile resale
              communications
                                                                                              •   Innovative business model
                                                                                              •   Reduction in capex and opex
                                                 Operator strategies
                                                                                              •   Increased usage
                                                                                              •   Highly utilized networks



Affordable mobile communication is driven by policy and         There is a need to create a regulatory framework that
a regulatory approach and operator strategies. Factors          enables greater sharing. In order to drive penetration in
such as transparent regulation, easy market entry, lower        rural and remote areas, it is important that alternative
tax burden, and low risk enable the creation of policy and      models such as mobile resale be introduced. Resale of
a regulatory approach that helps to drive down tariffs. On      mobile services will allow an entity to resell mobile services
the other hand, operator strategies such as innovative          after buying connections in wholesale from the underlying
business models, reduction in capital expenditure and           service provider. The entity will sell the connections to
operational expenditure, increased usage and highly             their end customer and contract and bill them in their
utilized networks also help lower tariffs. Pakistan has taken   own capacity for the services provided. The entity will not
initiatives on the policy and regulatory front by removing      replicate the efforts of service provider. The services will be
import duties on mobile handsets and reducing SIM               provided only by the underlying access provider who will
card activation charges to make mobile communication            continue to address the related compliance requirements.
more affordable. Similarly, operators in Bangladesh have        For the service provider, the entity buying connections in
designed products and services such as micro prepaid top-       wholesale will be the customer. This arrangement will allow
ups, which are available in very small increments, and also     SMEs, small office, home offices and other organized/
allow consumers to transfer airtime between each other          unorganized groups in rural and remote areas to serve the
and use it as currency.                                         needs of the population in a holistic way.




                                                                       Enabling the next wave of telecom growth in India        62
   4.3.9 Human resource                                                                                         Number of students by field of study in India

   India has the benefit of a huge population, which is
                                                                                                                                   1% 2%
   characterized by a dynamic young population base– more                                                                                                            Arts
                                                                                                                                   3%
   than half of which is under 25 years old. However, only                                                                    3%                                     Science
   17%91 of those in their mid–20s or older have completed
                                                                                                                                                                     Commerce/
   their secondary education. India possesses a developed                                                                7%                                          Management
   higher education system that offers training in many fields.                                                                                                      Engineering/
                                                                                                                                                     45%             Technology
   In terms of size and diversity, India has the largest
                                                                                                                   18%                                               Medicine
   number of higher education institutions, followed by the
   US and China. As of December 2009,92 there were 504                                                                                                               Law
   universities and university-level institutions, including 243                                                                                                     Agriculture
   state universities, 53 state private universities, 40 central                                                                                                     Others
   universities, 130 deemed universities and 33 institutions of                                                                21%
   national importance. However, India lags behind China and
   the US in terms of student enrollment.
                                                                                                                Source: Making the Indian higher education system future ready,
                                                                                                                Ernst & Young, 2010

   Number of higher education institutions and
   student enrollment                                                                                           In keeping with the NTP 1999’s R&D objective,
                                                                                                                organizations such as the Telecom Centers of Excellence
                             30,000                                        30                                   (TCOE), the Center of Excellence in Wireless Technology
                                                                25.4
                                                                           25
                                                                                                                (CEWIT) and the Broadband Wireless Consortium of
Number of higher education




                                                                                 Student enrollment in higher




                                        21,213                                                                  India (BWCI) have been established. Such organizations
                             20,000                  17.8                  20                                   promote R&D and help in creating a talented workforce.
                                                                                      education (million)
         institutions




                                          12.9
                                                                                                                For instance, in May 2007, a committee comprised of the
                                                                           15
                                                                                                                DoT, COAI, and AUSPI submitted a report that suggested
                             10,000                                        10                                   ways to form seven TCOEs across India in a PPP mode.
                                                     6,706
                                                               21,213
                                                                                                                Each TCOE is sponsored by a telecom operating company
                                                                           5
                                                                                                                and is hosted by a premier technical or management
                                   0                                       0                                    institute. The main funding for a TCOE comes from
                                         India        US        China                                           the sponsoring telecom operators, while the GoI provides
    Source: Making the Indian higher education system future ready,                                             basic and research infrastructure.
    Ernst & Young, 2010




   91 Unleashing India’s Innovation, World Bank website, October 2007, page xv.
   92 Ministry of Human Resource Development, Government of India — Annual Report 2009–10, Ministry of Human Resource Development, FY10.




   63                        Enabling the next wave of telecom growth in India
4.3.10 Equipment manufacturing93
The production of telecom equipment in India has                          •    Significant export potential: according to the Telecom
increased at a CAGR of 29% from FY04 to FY09, reaching                         Equipment and Services Export Promotion Council
a value of INR518 billion94 in FY09 during the last five                       (TEPC), the segment holds an export potential of
years. The value of telecom equipment exports was                              INR450-500 billion96 by FY14, further strengthening
INR81 billion in FY09 during the last five years. According                    the case for a robust telecom manufacturing industry.
to DoT estimates, the requirement for telecom equipment
                                                                          •    Increased competitiveness in the global market: a
in India is expected to be about INR5 trillion95 by 2015.
                                                                               technologically advanced manufacturing ecosystem
However, the share of locally manufactured equipment
                                                                               in India prospectively offers an international platform
has declined to 30% in FY09 from 74% in FY04. India
                                                                               to telecom manufacturers. Thus, localized players
needs to position itself as a telecom manufacturing hub in
                                                                               can expect to compete globally with established
the long term, and policy initiatives should be focused on
                                                                               manufacturers and make their own mark in foreign
encouraging localized manufacturing.
                                                                               markets in the long run.
The case for a growing telecom electronics and equipment
manufacturing industry is as follows:

•   Employment generation: given the right impetus,
    growth in the segment holds the potential to triple the
    country’s current employment base by FY14.


 Parameters                        Recommendations
 Manufacturing hub                 There is a need to set up hardware manufacturing cluster parks (HMCP) across the country and to
                                   upgrade localized infrastructure to support large volume contract manufacturing.
                                   The policy should provide encouragement to localized manufacturers for products designed and
                                   manufactured in India as well as products that are manufactured but not designed in the country.
 Fiscal incentives                 Domestic telecom equipment manufacturers may be allowed to have access to external commercial
                                   borrowing for capital expenditure and working capital requirements.
                                   In addition, financial institutions should lend money for the capital expenditure and working capital
                                   requirements of the telecom equipment manufacturers at the rates they use when lending to telecom
                                   service providers or infrastructure providers.
                                   It is necessary to ensure the free movement of the equipment/raw materials. In addition, the
                                   provision of a single window clearance for all state-level approvals would be a vital fiscal measure.
                                   Other significant incentives would encompass the removal of withheld tax on the fee for transfer of
                                   technology and software import.
                                   The tax on the payment of royalty should be as low as possible. In order to encourage technology
                                   transfer, royalty payments of up to 5% on domestic sales and 8% on exports should be exempted from
                                   income tax. In order to reduce transaction costs, customs clearance for imports and exports should
                                   be done on a self-declaration basis.
                                   There should be provision for round-the-clock customs clearance, supported by the banking system.
 Export promotion                  The Government could create a sizable export promotion fund for the Telecom Equipment and
                                   Services Export Promotion Council (TESEPC), resulting in the significant growth of exports to
                                   developing nations.
                                   There is a need to align product certification with international standards and to facilitate global
                                   accreditation for the testing facility.




93 See 5.6. for global practices.
94 “Indian Telecom: A Tale of Stupendous Growth,” The Viewspaper, 28 February 2010, http://theviewspaper.net/indian-telecom-a-tale-of-stupendous-
   growth/, accessed 20 October 2010.
95 “Indian telecom firms may get DoT boost,” LiveMint, 01 April 2010, http://www.livemint.com/2010/04/01215017/Indian-telecom-firms-may-get-D.
   html, accessed 02 August 2010.
96 Policy Recommendations to Increase Domestic Telecom Growth and Exports of Telecom Equipment & Services - Telecom Equipment and Services Export
   Promotion Council (TEPC), page 4.

                                                                                  Enabling the next wave of telecom growth in India           64
Bilateral trade programs      Telecom exports from India may be included in bilateral trade agreements with emerging markets in
                              regions such as South Asia, Africa, Latin America, Russia and Eastern Europe.
                              Indian trade missions in these regions should proactively seek opportunities in the telecom electronics
                              and equipment domain and facilitate business interactions.
Taxation                      The current taxation structure for mobile handsets must be maintained for long-term growth.
Financial support             Set up an autonomous body, similar to the Telecom Finance Corporation, to assist and provide
                              guidance to those who want to set up a manufacturing facility.
Investments for accessories   A detailed program should be created to attract investment in the manufacturing of accessories such
                              as batteries and chargers for mobile handsets.
R&D                           R&D should be the key focus. The active participation of the private sector in multiple projects is
                              expected to lead to R&D benefits that will flow to both the public and the private sector.
                              A fund for R&D and product development for the segment should be created. Leading class R&D
                              centers in the PPP mode should be promoted.
Service hubs                  Telecom equipment manufacturers should be encouraged to create service hubs to develop a global
                              network and strengthen their presence across India.




65    Enabling the next wave of telecom growth in India
4.3.11 Telecom infrastructure97
Infrastructure growth is critical to the rollout of services.           scale and spread of the tower portfolio and the ability to
For India to achieve 85% teledensity, it needs 95%                      raise capital. The biggest barrier to setting up telecom
coverage. At present, there is no uniform approval process              towers and other infrastructure is the wide variation in the
across states for setting up telecom infrastructure. The                approval process adopted by local bodies.
telecom infrastructure service provider needs to apply to
                                                                        Given the challenges that the industry faces, there is a
the local municipality or panchayats for permission to build
                                                                        need to lay down a National Telecom Critical Infrastructure
a tower. But the lack of guidelines or standard procedures
                                                                        Policy on the lines of NTP 1999 elaborating uniform
results in enormous delays and huge cost implications.
                                                                        procedures for land acquisition, creating a uniform taxation
Moreover, the tower business is characterized by high
                                                                        regime, and extending subsidies and other packages to
initial capital investments, stable and predictable cash flow,
                                                                        create a conducive environment to boost national telecom
low working capital requirements and high incremental
                                                                        infrastructure building and thereby ensure the increased
profitability. The profitability is dependent on the ability
                                                                        participation of all the stakeholders.
to increase tenancy on the tower, the rents charged, the


 Parameters                         Recommendations
 State subject                      There is an urgent need for simplification and harmonization of complex rules and processes so that
                                    unreasonable barriers do not impede the rollout of infrastructure. GoI should announce a National
                                    Telecom Critical Infrastructure Policy (NTCIP). If legislative amendments are needed, they should be
                                    adopted in a timely manner.
                                    There is a need for national ROW policy for rollout of backhaul network.
                                    Tower infrastructure needs to come under the Indian Telegraph Act, and GoI should declare mobile
                                    and tower infrastructure as “Critical Infrastructure Services.”
                                    Tower infrastructure should be erected in accordance with the NTP and licenses granted by the
                                    GoI under the Indian Telegraph Act. These are not matters of local self-government or municipal
                                    departments, but are matters liable to be governed by the GoI or regulatory authority constituted by
                                    it in accordance with the NTP.
                                    Telecom/broadband connectivity should be considered a necessity such as water and power in every
                                    housing facility. This mandate should be included in bylaws of the local and state governments.
                                    There is also a need for an empowered committee or similar structure to engage with roads and
                                    power ministries, which are directly connected with the growth of tower infrastructure.
 Full utilization of towers—        There should be laws governing the rollout of towers. A 70-meter tower could service an area of 2-3
 optimum sharing                    square kilometers, and there could be distance guidelines for the same.
                                    The rollout subsidy could be fixed at a flat amount based on the approved tower design for a period of
                                    five years.
                                    Every tower should be fully utilized. If an existing tower is not operating at 100% capacity, then
                                    no new tower should be allowed in that zone, which avoids duplication of capex. Once the existing
                                    tower is at capacity, a new tower could be awarded through a bidding process. Such practice is being
                                    followed in developed countries such as the US.
                                    Technological approaches that can potentially reduce the direct and indirect costs of creating telecom
                                    infrastructure should be encouraged. The march of technology-IP/converged platforms is leading to
                                    integrated technology-neutral host platforms. Also, in-building solutions and DAS make it possible to
                                    conserve spectrum and reduce the visual impact of towers.
 Civic issues                       Civic issues such as zoning regulation, single window clearance and preferential treatment for sharing
                                    and incentives need to be addressed in a timely manner.




97 See 5.7. for global practices.




                                                                                Enabling the next wave of telecom growth in India          66
Taxation on towers            Rationalize the tax structure across states in the form of tax cuts, fiscal incentives and subsidies. The
                              fee levied on tower companies should not be viewed as a source of income to fund the development
                              of a municipality.
                              
                              The Central Government should not impose a cess on tower operators. Since tower operators do not
                                directly serve the end consumer, a cess should not be levied on them. Currently, there is no cess on
                                handset manufacturers, call centers (with about 40,000 employees) and BTS manufacturers.
                              
                              The immediate cost of infrastructure creation can be brought down significantly by reducing
                                government duties and taxes, which account for 60% of infrastructure companies’ outgo.
                                Infrastructure companies are akin to players such as equipment vendors and network management
                                companies. There is little justification for imposing costs such as lincense fees on these players,
                                because they do not interface directly with end users.
SACFA clearances              Telecom service providers coordinate with a variety of departments for site clearances which is a
                              time-consuming process. The SACFA Committee should be revamped as part of a faster and simpler
                              site clearance process.
Utilization of USOF and       USOF subsidies are required to defray the cost of infrastructure creation in rural areas.
incentives
                              The USOF contribution toward the setup of telecom infrastructure and its role for rural rollouts should
                              be specified.
                              Time-related incentives ought to be provided to tower infrastructure providers to speed up
                              deployment.
Grievance redressal           A broader framework should be created to handle and settle grievances involving infrastructure
                              companies in the event of a conflict.
Safety concerns               Each tower should have a structural certificate, which should be approved by a competent authority.
                              Tower specification and standardization requirements should be clearly spelled out. There could be
                              6-10 standard designs for a tower, which would be approved by a “design approving authority.”
                              The development of specific IS code of telecom towers will help the industry to follow optimized
                              design parameters, which will make towers safer. Standardized design across operators and
                              geography would further help optimize sharing and potentially reduce cost.
Power tariffs and             Telecom services should be treated as a public utility service, and the industrial rate structure should
consumption                   be made applicable to towers across all states.
                              The state electricity boards should be advised to place a priority on applications for utility connections
                              from telecom infrastructure service providers.
                              Grid power supply should be made available.
Energy consumption            Indian mobile operators and equipment vendors need to develop energy-efficient networks by
                              designing and deploying low-energy BTSs that are powered by renewable energy.
                              Operators should reduce their existing diesel generator run times by deploying the latest fast-
                              charging batteries and improving their partial-state-of-charge capabilities.
                              The energy used by tower companies should fall under a uniform classification in all states.
                              The dependence on diesel could be reduced if the Government utilizes the current diesel subsidy to
                              support a move toward renewable energy options such as solar, fuel cells or wind power, and treating
                              these efforts as part of the overall effort to reduce greenhouse gases and the country’s carbon
                              footprint.
                              There should be a method to cash in carbon credits.




67    Enabling the next wave of telecom growth in India
Aesthetic concerns          There could also be special consideration made for camouflaging towers in and around certain
                            specific urban areas having heritage or other architectural significance; and not for all generic
                            urban areas.
                             Even for limited camouflaging, there should be a joint endeavor between civic agencies and other
                            related departments.
Environmental issues        If these BTSs can be run on renewable energy resources, annual carbon emissions could be reduced.
                            118,000 renewable energy base stations could reduce annual carbon emissions by up to
                            6.3 million tonnes.
                            Alternative sources of energy need to be developed and deployed wherever found feasible. Service
                            providers are using green shelters or deploying outdoor BTS wherever found feasible to reduce power
                            consumption. Operators are also experimenting with the use of non-conventional sources of energy
                            wherever feasible for meeting energy requirements. The feasibility of using biofuels is also being
                            studied. These measures have the potential to reduce the carbon footprint significantly, increase the
                            energy efficiency of new network equipment and optimize network technology to increase energy
                            efficiency. There should be incentives for tower companies to optimize fuel and power costs.
                            Operators should be encouraged to use green technologies.
Misplaced apprehensions     International institutions like the World Health Organization, the British Medical Association, the
on health hazards of        International Commission on Non Ionizing Radiation Protection (ICNIRP) and the GSM Association
electromagnetic radiation   have opined that there is no conclusive evidence of any health hazards due to radiation from mobile
from mobile antennae-BTS    towers. Local authorities and consumer groups should be made more aware of this. While the
                            operators are making their best efforts to educate the general public, a positive public stand by the
                            regulator would be extremely helpful. Furthermore, there is a need to fix the feed strength to control
                            radiation emissions.
                            Recent surveys have shown that the radio frequency exposure from base stations ranges from
                            0.002% to 2% of the levels of international exposure guidelines, depending on a variety of factors
                            such as the proximity to the antenna and the surrounding environment. In fact, due to their lower
                            frequency, at similar radio frequency exposure levels, the body absorbs up to five times more of the
                            signal from FM radio and television than from base stations. This is because the frequencies used in
                            FM radio (around 100MHz) and in TV broadcasting (around 300 to 400MHz) are lower than those
                            employed in mobile telephony (900MHz and 1,800MHz) and because a person’s height makes the
                            body an efficient receiving antenna. Further, radio and television broadcast stations have been in
                            operation for the past 50 or more years without any adverse health consequence being established.




                                                                         Enabling the next wave of telecom growth in India           68
4.3.12 Enterprise data
The share of data service in India’s total telecom revenue is             The Indian enterprise sector requires the ability to provide
about 11% as compared with many other countries where                     sophisticated IP-based and other data communications
it ranges from 20% to 40%. India does not rank in the top                 services to meet needs of enterprise and multinational
10 data revenue earning countries.                                        customers. However, current ILD and NLD licenses
                                                                          were drafted before the development of current GTS
 Ranking of subscribers, data revenue, and                                services and technologies, and are largely premised on
 service revenue98 by country                                             the provision of mass market consumer voice services.
 Rank     By                By data              By service               Therefore, these licenses do not allow the use of adequate
          subscribers       revenue              revenue                  encryption in accordance with current commercial
 1        China             US                   US                       standards to protect confidential information. They also
                                                                          do not address the contracting and billing arrangements
 2        India             Japan                China
                                                                          required by enterprise and multinational customers and
 3        US                China                Japan                    do not clearly set forth licensee obligations regarding data
 4        Russia            UK                   France                   services required by customers. Despite the large number
 5        Brazil            Italy                Italy                    of players entering the enterprise data segment, telecom
                                                                          licenses are voice-centric. Therefore, most regulations
 6        Indonesia         Germany              UK
                                                                          are voice-centric and do not cover issues related to
 7        Japan             France               Germany
                                                                          enterprise service providers. Regulatory restrictions
 8        Germany           Korea                India                    related to interconnection of data and public switched voice
 9        Pakistan          Spain                Spain                    networks interfere with the realization of these services’
 10       Italy             Australia            Brazil                   full potential.


 Focus area                         Recommendations
 Encryption                         Encryption levels in ILD and NLD licenses should be upgraded to allow strong encryption of up to 256
                                    bits to protect confidential information in accordance with international best practices.
                                    In the interest of national security, the customer should undertake to make its encryption key
                                    available to the licensed entity on demand.
 Lawful interception                
                                    The proper treatment of data services under the ILD and NLD licenses, including lawful interception
                                      and monitoring conditions, should be clarified.
                                    The security/lawful monitoring and interception requirements applicable to enterprise data services
                                    should be specified, with attention given to MPLS and IP-VPN services, which do not connect to a
                                    public network.
 International private leased       Indian BPOs are addressing contact center requirements globally to collect voice calls outside of India
 circuit (IPLC) regime              and transporting them over an IPLC or MPLS link provided by the authorized service providers. In line
                                    with international practice, BPO customers need variable per minute usage-based pricing model both
                                    for inbound and outbound calls.
                                    To promote competition in the IPLC segment, a wholesale pricing regime should be introduced. It
                                    should be retail minus and avoid vertical price squeeze by the incumbent.
 Interconnection regime and         Access charges under existing Reference Interconnect Offers (RIOs) should be fair, non-discriminatory
 cable landing station (CLS)        and cost-based.
 access
                                    Access charges under new RIOs for accessing new cables should represent only the actual
                                    incremental network costs of providing the access services.
                                    Costing should be in place for RIO charges to ensure proper cost-oriented charges, specifically LIRC.
 Taxation                           Need to eliminate the cumulative assessment of licensing fees on the purchase of inputs, which
                                    imposes double taxation on ILD and NLD license holders.



98 Enterprise Sector, Association of Competitive Telecom Operators, November 2010.




69      Enabling the next wave of telecom growth in India
4.3.13 Convergence99
                                                                Market-related convergence arises due to consumer
The ITU defines convergence as the integration of
                                                                expectations of one-stop service availability and
customer end terminal equipment, or access devices such
                                                                bundling of services. Today, most of the telecom
as the telephone, television and personal computer. Triple
                                                                operators provide broadband services in addition to voice
play is also used to define the end result of convergence,
                                                                communication services. As a result, the convergence of
which refers to the combination of three services —
                                                                voice and data has created a trend for tariff plans based
internet, telecom and telephone. Convergence has evolved
                                                                on the volume of data transferred with common billing
due to the processes of digitalization and computerization.
                                                                for interchangeable use of voice calls and data services.
Technological convergence has made way for business
                                                                Convergence has led to increased competition in the
convergence, with a service provider offering a bundle of
                                                                marketplace, impacting both the telecommunications
services. Hence, a telco provides video, data and telephone
                                                                and broadcasting sector as a whole.
through separate channels, whereas another telco provides
triple play through a single channel.

In the US and Hong Kong, commercial power lines have
been used to provide telecommunication and internet
services. In the near future, it is expected that these lines
will become an alternate medium for providing information
services, taking convergence to a new level. Convergence
creates opportunities such as the combination of
either equipment or businesses to provide multiple
telecommunications, broadcasting and internet-based
services by a single operator. At the same time, it poses
challenges that need to be addressed from a regulatory
perspective. It is essential to create a regulatory framework
that addresses the issues arising from both technological
and business convergence.




99 See 5.8. for global practices.




                                                                      Enabling the next wave of telecom growth in India   70
4.3.14 Security
In the recent past, India has witnessed a series of terrorist   manufacturers, as the requested information is considered
attacks, with terrorism being primarily attributable to         sensitive and proprietary.
religious communities and radical movements. The
                                                                In 2009, the DoT blocked calls to mobile devices without
key stakeholders associated with security concerns
                                                                a 15-digit International Mobile Equipment Identity (IMEI)
surrounding telecom equipment include the DoT, the
                                                                number, which is a unique number allotted to every mobile
Ministry of Home Affairs, Indian intelligence agencies,
                                                                phone for the identification purposes. The IMIE number
telecom equipment manufacturers and telecom operators.
                                                                helps intelligence agencies track mobile phone users and
As a result, the GoI has taken steps regarding telecom
                                                                curb anti–national activities. This move is expected to have
infrastructure equipment, issuing guidelines related
                                                                impacted approximately 25 million users, with Chinese
to the import of network equipment from foreign
                                                                mobile phones being the major category.
telecommunications vendors. The key players that have
been impacted by the security concerns include one of       Although the GoI has initiated these steps to enhance
the world’s leading mobile handset manufacturers, virtual   security and curb terrorism with the help of mobile
private networks (VPNs), internet service providers and     telephony, other issues remain that continue to raise
one of the world’s leading internet search engines.         concerns over security. Firstly, Know Your Customer (KYC)
                                                            verification process for a mobile connection faces issues
The guidelines mandate the sharing and monitoring of
                                                            such as forged documents, leaving the telecom system
source code and design along with Indian security agencies.
                                                            highly vulnerable. Secondly, with the rapid growth in
Further, the guidelines put the onus for compliance on the
                                                            voice and data traffic, modern data mining and network
mobile operator, with penalties for non-compliance. The
                                                            management infrastructure that is able to monitor
DoT has also mandated thorough inspection of hardware,
                                                            terabytes and exabytes of data need to be set up, along
software and facilities at the time of procurement and
                                                            with a trained workforce. Thirdly, any suspicious equipment
periodic review thereafter. The guidelines outlined by the
                                                            that is active in a network should be liable to being disabled
GoI impact the commercial viability of telecom equipment
                                                            via government-approved encryption.




71     Enabling the next wave of telecom growth in India
4.4. Key enablers for potential
opportunities
Telecom will find its immense use in schemes and                  in India is expected to boost market growth, driven by the
initiatives aimed at socioeconomic development in the             uptake of services such as mobile web browsing, mobile
years to come such as m-commerce, the UID scheme and              banking and multimedia messaging service (MMS).
financial inclusion.
                                                                  The m-commerce service umbrella in India has been limited
                                                                  primarily to payment and transfer systems, with each
4.4.1 m-commerce100                                               broad category providing an array of services.

                                                                  Going forward, the rollout of 3G services and
The next revolution that is expected through the use of
                                                                  increasing usage of WAP, web-enabled phones
mobile phones is the emergence of m-commerce. Mobile
                                                                  and smartphones by mobile subscribers is expected to
phones provide the consumer an opportunity to transact
                                                                  play an important role in the growth of m-commerce.
anytime and anywhere. m–commerce finds its applications
                                                                  It is forecasted to overtake e-commerce in terms of the
across various end markets such as banking and financial
                                                                  number of transactions, with synergy existing between
institutions, paying bills for utilities such as power and gas,
                                                                  e–commerce and m–commerce, especially in the case of
booking tickets for transportation services such as trains
                                                                  banking and internet-based purchases.
and taxis and online shopping. The rollout of 3G services


                                                       m-commerce
     Mobile banking                          Mobile payments                          Mobile transfer
     • Inter–account fund transfer           • Information services, including        • Prepaid card top-up
     • Account inquiry                         current affairs, tourism and           • Person-to-person transfers
                                               search engines
     • Stock trading                                                                  • International remittances
                                             • Ticketing (e.g., train, cinema)
     • Bill payment
                                             • Shopping (i.e., purchase of goods
                                               and services)




100 See 5.9. for global practices.




                                                                          Enabling the next wave of telecom growth in India   72
4.4.2 M2M communication                                                     monetary settlements. Mobile payment technology will
                                                                            transform the nature of physical interaction between
According to Ericsson, the world is expected to witness                     consumers, merchants and banks. The initial application
50 billion101 connected devices in 2020, with machine–                      will focus on mobile banking, to look at account information
to–machine (M2M) communication being the key driver                         and transfer small amounts of money between various
behind this exponential increase in connected devices.                      accounts; over a period of time, bill payment related
Utilities, government, health care, education, finance,                     to utility and others will become a major application;
transportation and other emerging industries are expected                   thereafter, adoption of other services such as ticketing,
to be at the forefront in adopting M2M communication.                       coupons and advertising would pick up, with mobile
M2M is characterized by small amounts of data between                       money becoming a truly rich and integrated application for
the device and network, and will enable networks to                         consumer convenience. This will cause a reduction in the
support automated machine communications. The key                           cost of transactions, owing to increased volume, disruptive
advantages provided by M2M include cost and spectrum                        business models and reduced legal and professional fees.
efficiency, service quality and security, redundancy and
coverage.
                                                                            4.4.4 M-health
4.4.3 Mobile money                                                          M-health applications include the use of mobile devices in
                                                                            collecting community and clinical health data, delivery of
Mobile communication and secure mobile transaction                          health care information to practitioners, researchers and
opportunities will bring a transformation in the manner                     patients, real-time monitoring of patient vital signs and
in which money is managed, mobilized and generated in                       direct provision of care via mobile tele-medicine. It offers a
future. It will significantly impact the banking industry,                  huge potential for health care delivery in India. There are a
where the ability to conduct transactions from anywhere                     number of government schemes and other initiatives from
and at any time inherently lends itself to real-time                        medical service providers offering tele-medicine services,
                                                                            to extend affordable health care to all in the country.



101 The World of 50 billion connections, Ericsson, December 2010, page 2.




73      Enabling the next wave of telecom growth in India
4.4.5 M-education                                              4.4.7 MNREGA and UID
M-education offers innovative use of mobile and wireless       MNREGA and UID strive for providing inclusive growth.
technologies for education. It aims to bridge the supply-      MNREGA aims at enhancing the livelihood security of
demand gap of high-quality teachers in the country. It         people in rural areas by guaranteeing 100 days of wage-
enables a virtual community to facilitate the learning         employment in a financial year to a rural household whose
activities of teachers, students and peers through             adult members volunteer to do unskilled manual work.
collaboration in a distributed environment.                    MNREGA achieves twin objectives of rural development and
                                                               employment. The UID program is critical to improving the
                                                               delivery of social services, subsidies and other government
4.4.6 Financial inclusion                                      programs while also strengthening national security.

Financial inclusion is central to the overall task of          The integration of such programs with mobile
inclusive growth. Financial inclusion aims to bring            telephony will benefit the nation. For instance, an
the unbanked and under-banked population into the              integrated system for taking biometric attendance through
organized financial services framework and assist in growth    hand-held devices and transmitting it through mobile
of the electronic payments market in India. In India, about    phones for authentication is expected to solve the
80% of households do not have bank accounts. The ability       challenge of attendance. Once workers have logged in, this
of the Indian telecom sector to reach the masses owing         data could be transmitted to MNREGA, and help them earn
to its scale and built-in affordability will help to achieve   their daily wages.
financial inclusion.




                                                                     Enabling the next wave of telecom growth in India   74
5. Global practices




 75   Enabling the next wave of telecom growth in India
5.1. Licensing
                 In February 2001, the Hong Kong Government released its 3G licensing framework. Following the
Hong Kong        pre–qualification exercise, the Government decided to issue four licenses through auctions.
                 The pre–qualification criteria included investment, network rollout, quality of service and financial
                 capability.
                 The Government selected a royalty-based proposal that required the bidder to pay a certain
                 percentage of its annual 3G revenue turnover determined by the auction, with a guaranteed minimum
                 payment. The royalty auction included the following:
                 • Bidders were asked to bid for a level of annual royalty of the percentage of turnover from their 3G
                   services network operations.
                 • Successful bidders were expected to pay a minimum royalty fixed by the Government for the
                   first five years of the license. From the sixth year on, the successful bidders were required to pay
                   royalties according to the royalty percentage determined at the time of auction, with the same
                   royalty percentage applying to all licensees.
                 • Successful bidders were required to provide a five-year rolling guarantee of the minimum royalty
                   payment for the entire license period.



                 • In May 2000, Sweden issued an invitation to provide network capacity for UMTS mobile
Sweden             telecommunications services. The Government decided to issue four licenses for up to
                   31 December 2015.
                 • The selection of applicants was based on the “beauty contest” criteria (i.e., allotting licenses to
                   operators who best meet stated pre-set criteria).
                 • The Government focused on rapid rollout and nationwide coverage. Further, the Swedish law
                   states that licenses are allocated based on specific criteria, which is to the advantage of operators
                   and consumers, as operators do not pay expensive fees to the state for the issue of licenses.




                 • In 1998, the Japanese Ministry of Posts and Telecommunications (MPT) published the draft for
Japan              the introduction of 3G services and solicited public comment. In March 2000, the MPT established
                   the technical regulations and publicized the licensing policies.
                 • The number of 3G operators was fixed at three per region, with new as well as incumbent
                   opeartors — but not fixed regional operators — being eligible.
                 • Since the 3G license allocation in Japan was straightforward, with the number of applicants
                   matching the number of licenses, the policy for comparative selection was not invoked.
                 • The three-license limit was driven by a shortage of spectrum, with the regulator having a total of
                   60MHz of spectrum for 3G services.




                                                             Enabling the next wave of telecom growth in India           76
 Allocation of 3G mobile licenses102
 Country                   Number of         Mobile            Method                                   Date                   Sum paid
                           licenses          incumbents                                                                        (US$ million)
 Austria                            6                 4        Auction                                  November 2000                 610.0
 Australia                          6                 4        Auction                                  March 2001                    351.7
 Canada                             5                 4        Auction                                  January 2001               1,482.0
 Finland                            4                 3        Beauty contest + nominal fee             March 1999                 Nominal
 France                             4                 3        Beauty contest + nominal fee             July 2001                  4,520.0
 Germany                            6                 4        Auction                                  July 2000                 45,870.0
 Italy                              5                 4        Auction                                  October 2000              10,070.0
 South Korea                        3                 2        Beauty contest + fee                     End 2000                   3,080.0
 Netherlands                        5                 5        Auction                                  July 2000                  2,508.0
 New Zealand                        4                 2        Auction                                  January 2001                    51.4
 Norway                             4                 2        Beauty contest + fee                     November 2000                   44.8
 Portugal                           4                 3        Beauty contest + fee                     December 2000                 360.0
 Spain                              4                 3        Beauty contest + fee                     March 2000             120.0 each
 Sweden                             4                 3        Beauty contest                           December 2000                 44.08
 Switzerland                        4                 2        Auction                                  December 2000                 116.0
 UK                                 5                 4        Auction                                   April 2000               35,390.0
 Note: The “beauty contest” approach purports to allocate licenses to operators who best meet stated pre-set criteria.




Policy-makers and regulators should focus on creating
interest among providers and providing incentives for
                                                                               5.2. Spectrum
long-term investment. This is done through the principle
of renewal expectancy, and through promoting regulatory                        Re-farming of spectrum
certainty through a fair, transparent and participatory
renewal process. It is essential to provide details about                      •    The US Government created the Spectrum Relocation
license renewal or reissue, and ensure sufficient lead times                        Fund (SRF) in December 2004, which provides a
and transitional arrangements in the event of non-renewal                           funding mechanism through which federal agencies
or changes in licensing conditions. Public consultation                             can recover the costs associated with relocating their
procedures and the right to appeal also increase the                                radio communications systems from certain spectrum
prospects for a successful renewal process.                                         bands, which were authorized to be auctioned for
                                                                                    commercial purposes. In September 2006,103 the
                                                                                    Federal Communications Commission (FCC) concluded
                                                                                    the auction of Advanced Wireless Services (AWS) in
                                                                                    the 1,710–1,755MHz band paired with the 2,110–
                                                                                    2,155MHz band. The 1,710–1,755MHz band used by
                                                                                    federal agencies was reallocated to AWS under the
                                                                                    provisions of Commercial Spectrum Enhancement
                                                                                    Act (CSEA), including the use of the SRF to facilitate
                                                                                    relocation of federal communications systems. The



102 “3G Mobile Licensing Policy,” ITU website, page 50, http://www.itu.int/osg/spu/ni/3G/casestudies/GSM-FINAL.pdf, accessed 22 October 2010.
103 “1710–1755MHz spectrum band relocation,” National Telecommunications and Information Administration website, page 1, http://www.ntia.doc.
    gov/reports/2008/SpectrumRelocation2008.pdf, accessed 12 October 2010.




77       Enabling the next wave of telecom growth in India
     AWS auction raised US$13.7 billion in net winning                            is guaranteed the moment it is needed, the possibility
     bids, and facilitates the provision of innovative new                        exists to use the spectrum for other applications
     wireless services in the commercial market.                                  the primary user does not need. Spectrum could be
•    In March 2007, the UK Department of Trade
                                                                                 shared on a short-term or long-term basis under the
       and Industry’s spectrum strategy committee, in                             condition that the use is vacated immediately when
       consultation with the Office of Communications                             the need arises.
       (Ofcom), formulated policies and a strategic plan                     •    Geographical sharing: in certain situations, spectrum
       for the future allocation of spectrum to meet the                          is needed only in certain geographical areas. Spectrum
       needs of users in both the public and the private                          assigned to the maritime sector may need to be used
       sector. The committee formulated the strategic plan                        for maritime radio services only near the coastline,
       for the Ministry of Defense (MoD), civil aeronautical,                     inland waterways and rivers. Such spectrum could be
       civil maritime, emergency and public safety                                made available for other applications inland.
       services (E&PSS) and science services. The MoD has
       management rights to 35%104 of the spectrum
                                                                             Spectrum trading
     bands listed in the UK Frequency Allocation Table
     (UKFAT), and it has begun a program to identify                         •    Spectrum trading gives public and private sector entities
     which spectrum can be released and time frame for                            the opportunity to decide which spectrum to release
     releasing it.                                                                or share. It also provides the terms and flexibility to
•    In 2006, the Australian Communications and Media
                                                                                 enter into leasing arrangements for a limited time if
       Authority (ACMA) reviewed government spectrum                              the bodies do not wish to dispose of the spectrum
       holdings, sharing or reallocation opportunities for                        permanently. The critical success factors for spectrum
       spectrum, and spectrum regulation. One of the key                          trading include a large number of buyers and sellers; an
       recommendations of the Independent Review of                               inefficient primary mechanism of spectrum allocation
       Government Spectrum Holdings (IRGSH) was a regular                         that makes it necessary to move to a market-based
       review of all defense band allocations.                                    method of secondary allocation; and innovation in the
•    In 2010, the Brazilian telecommunications regulator,                         supply and demand for radio-based technologies.
     ANATEL, agreed to re-allocate spectrum in the 2.6GHz                    •    In 1989, New Zealand was the first country to introduce
     band to support the nationwide deployment of next-                           open market trading of spectrum. The secondary
     generation mobile broadband services. The 2.6GHz                             trading of spectrum provided benefits such as economic
     band had previously been allocated to multichannel                           efficiency, promotion of innovation and flexibility.
     multipoint distribution service (MMDS) operators to                     •    In 2003, the FCC formulated rules for spectrum trading,
     support pay-per-view TV services. The re–allocation                          simplifying them in mid-2004. The FCC distinguished
     benefits the country’s mobile operators, giving them                         between de jure rights, i.e., assignment of the license
     the option to deploy LTE immediately.                                        to another party, and de facto control, i.e., transferee
•    In Italy, as a part of spectrum re–farming, the Ministry                     retains the license and legal responsibilities, but
     of Communications and the Ministry of Defense have                           transfers management control of the spectrum. Further,
     agreed to make 2x75MHz spectrum available for                                in 2004, the FCC proposed the concept of developing
     WiMAX in the 3.4–3.6GHz band.                                                smart devices that adjust to the spectrum they use and
                                                                                  take advantage of underused spectrum.

Sharing of spectrum

•    Time sharing: defense needs to use part of the
     spectrum only in crisis situations during exercises.
     While it is important to ensure that access to spectrum




104 “A Strategy for Management of major Public Sector Public Holdings,” UK Department for Business, Innovation and Skills website, page 28, http://www.
    bis.gov. uk/files/file38572.pdf, accessed 12 October 2010.




                                                                                      Enabling the next wave of telecom growth in India             78
5.3. Universal Service
Obligation Fund
In many countries, a separate universal service fund has                    In Greece, USO services were provided by incumbent
been set up, with the aim of increasing overall teledensity.                operators. However, after liberalization of the telecom
                                                                            sector, a competitive tender mechanism was used. In the
Most European countries, with a relatively small                            UK, BT is the designated USO provider. In Mexico, the
geographical area and high population density, have                         incumbent operator was required as part of its privatization
not considered the creation of a universal fund. On the                     to install payphones in 20,000 rural areas over a five-year
other hand, countries with large geographic areas and                       period to meet the policy goal of ensuring some telephone
consequently much higher costs to serve rural areas have                    access in all villages with at least 500 residents.
funds that aim to cater for the rural population.
                                                                             Universal service levies by country105
Communication service providers are obliged to contribute
to this fund in many countries. The contribution rate                        Country             Contribution by operators
ranges from 0.1% in France to 6% in Malaysia. In most                        Malaysia            6%
countries, subsidies are granted according to formulas for                   India               5% of license fee
compensating operators already serving high-cost rural
                                                                             Colombia            5%
areas within their operating territory, or proposing to
expand into high-costs areas.                                                US                  Less than 4% (plus state levies)
                                                                             Russia              2%
Brazil has developed a mechanism that achieves universal
objectives through obligations imposed on its licensees.                     Canada              1.5% (plus federal contributions)
The Brazilian legal framework uses a variety of tools                        Peru                1%
to achieve universal service. As a result, the telecom                       Uganda              1%
regulator, ANATEL has imposed a coverage obligation
                                                                             Nigeria             1%
rather than a funding mechanism.


Considering USOF for rural wireless broadband services
With the rising importance of broadband, governments should consider whether they should create a USOF for
broadband services. The key reasons include:

•    Considering whether broadband is an essential service of significant “social importance”
•    Estimating the degree of expected market penetration of broadband service
•    Assessing the nature and extent to which broadband will not be made available by the market and the
     associated reasons
•    Identifying and specifying the objectives and desired outcomes
•    Assessing the extent to which market demand and delivery will meet the specified objectives
•    Considering the social and economic disadvantages incurred by those without access to broadband if there
     is no government intervention
•    Estimating the costs of intervention to widen broadband deployment through the use of the USO
     mechanism
•    Estimating the costs of intervention through the use of the USO mechanism compared with the use of other
     approaches


105 Organization for Economic Co-operation and Development: Working Party on Telecommunication and Information Services Policies, page 19, http://
    www.oecd.org/dataoecd/59/48/36503873.pdf, accessed 20 October 2010.




79      Enabling the next wave of telecom growth in India
 Methods of utilizing USOF across various countries106
 Developed countries
 Country                                   Source of revenue                                  Method of allocating funds
 Australia                                 Levy on licensed operators depending on            The Government determines the level of subsidy
                                           market share of eligible revenue.                  paid to the USO provider.
 Canada                                    Both fixed and mobile operators pay a fixed        Universal service fund compensates costs
                                           percentage of eligible telecom revenue.            estimated on the basis of long run marginal
                                                                                              costs, and additionally 15% for joint and
                                                                                              common costs.
 France                                    Operators contribute a percentage of               Compensation for costs incurred by USO
                                           revenue i.e., 0.1%.                                provider.
 Italy                                     Major operators contribute 1% of revenue.          The USO provider makes an offer to provide
                                                                                              services at specified cost, and the regulator
                                                                                              decides what part to accept.
 Japan                                     Telecommunications carriers contribute to          The telecommunication carriers are eligible to
                                           the USOF.                                          receive universal service funds.
 Developing countries
 Country                                   Source of revenue                                  Method of allocating funds
 Argentina                                 1% of all operators’ gross revenues.               Government to determine based on its goal to
                                                                                              increase wireless and wireline teledensity.
 Brazil                                    1% of service providers’ gross operational         Universal service fund supports ICT projects
                                           revenues earned from telecom services.             consistent with the Government’s development
                                                                                              objectives.
 Chile                                     Government budget.                                 Subsidies distributed through competitive
                                                                                              bidding, with the lowest bidder being the winner.
 Colombia                                  5% of national and long distance operators’        Subsidies distributed through competitive
                                           revenues, plus funds from license fees.            bidding, with the lowest bidder being the winner.
 Malaysia                                  Fixed and mobile network operators                 Starting in 2002, operators invited to submit
                                           contribute 6% of their weighted revenue            proposals for universal service provider and
                                           from designated services to the fund.              to be compensated from the fund through a
                                                                                              competitive process.
 Nepal                                     2% levy on the revenues of the incumbent           Subsidies distributed through competitive
                                           operators, ISPs and mobile operators.              bidding, with the lowest bidder being the winner.
 India                                     5% levy on the revenue of                          Subsidies distributed through competitive
                                           telecommunication operators.                       bidding, with the lowest bidder being the winner.
 Peru                                      1% of all operators’ gross revenues.               Subsidies distributed through competitive
                                                                                              bidding, with the lowest bidder being the winner.
 South Africa                              0.16% of all operators’ revenues.                  Subsidies mainly awarded to tele–center projects
                                                                                              and areas of greatest need.
 Uganda                                    1% levy on all sector participants, including      Subsidies distributed through competitive
                                           telecom operators, the postal service,             bidding, with the lowest bidder being the winner.
                                           couriers and ISPs.




106 Organization for Economic Co-operation and Development: Working Party on Telecommunication and Information Services Policies, April 2006, page 19.




                                                                                    Enabling the next wave of telecom growth in India             80
5.4. Broadband
Broadband networks are an essential infrastructure for the                    23%,108 in comparison with 4% in developing economies.
global economy, as they provide businesses and consumers                      Furthermore, it declined to just 2%, if China is excluded
with fast and continuous access to internet–based                             from the developing world. Although the world is
services, content and applications. Broadband services                        witnessing a rise in broadband penetration, the growth
have economic benefits both in developed and developing                       rate is much higher in the developed world. For instance,
nations. However, infrastructure, regulatory environment,                     during 2005–08, Eastern Europe added 19.5 million fixed
urban–rural divide and other factors that impact broadband                    broadband subscribers, whereas African countries were
penetration are very different in developing nations.                         able to add 2.4 million fixed broadband subscribers.
Emerging markets such as India need to adopt leading
practices that facilitate rapid and cost-effective deployment                 Broadband penetration by country 2009
of broadband technologies.

The essential leading practices that enable countries                         Netherlands                                                            37.1%
to increase broadband penetration include: adoption of                               Korea                                                     33.5%
regulations that embraces innovation and competition;                                   UK                                                 29.5%
form PPPs, invest in infrastructure and latest technology;
                                                                                   Finland                                            26.7%
encourage competitive ecosystems; and release spectrum
for the sustainable deployment of broadband services.                                   US                                            26.4%
The firm combination of national objectives toward                                Australia                                     23.3%
broadband services with leading practices is expected to                             China                 7.7%
enable developing nations to achieve benefits of
                                                                                      India        0.7%
broadband growth.
                                                                                              0%          10%          20%           30%            40%
                                                                              Source: OECD; TRAI; Intel


Monthly broadband charges on a purchasing power parity basis (US$)

60
50
40
30         56
20                     35           34          32           29
10                                                                       23           22            20           18          16
                                                                                                                                             7
 0
          UAE       Germany      Saudi         China       Japan         UK         Canada          US          Hong         India         Israel
                                 Arabia                                                                         Kong
Source: “Measuring the Information Society,” ITU, 2010; Booz & Company analysis


There are more than 497.8 million107 broadband
subscriptions across the world. However, a large digital
divide exists between the developed and the developing
1. Investment in information                2. Increased security aware-                                   3. The number of organiza-
world in terms of broadband penetration. The broadband
security has increased:                     ness controls will be imple-                                   tions currently evaluating the
The survey revealed developed
penetration rate ingrowth in theeconomies is nearly to mitigate new or
                                            mented                                                         use of virtualization
organization’s annual investment in                  increased risks:                                      techniques is growing:
information security. Of all                             The survey revealed that more                       A total of 34 % of respondents
participants, 61% (46% globally)                         than 60% of the respondents are                     revealed that they are either
agreed that their organization will                      implementing security awareness                     evaluating or planning to evaluate
spend more this year in information                      controls to mitigate new or                         virtualization techniques in the
security than it did last year.                          increased risks. Other top trends                   next 12 months. However, 23% of
107 World Broadband Statistics: Short report, Point Topic Ltd., page 4.
                                                         that emerged were increases in                      the global respondents stated that
108 “Intel: Realizing the benefits of broadband,” Intel website, page 2, http://www.intel.com/Assets/PDF/Article/WA-323857001.pdf, accessed 12
     October 2010.                                       auditing capability and stronger                    they have embraced cloud
                                                         identity and access management                      computing, as against only 8% by
                                                         systems.                                            Indian organizations.


81      Enabling the next wave of telecom growth in India
 4. The trend of actions that                          5. The Information Security
 organizations have taken to                           Management System (ISMS),
 control the leakage of                                which covers the overall
South Korea
Policy element               Action
Objectives                     
                             • The South Korean Government created an action plan for the emergence of a knowledge-based
                                 society, with each citizen having access to a personal computer. The Korean Digital Divide Act
                                 created the five–year master plan to close the digital divide, formulated the action plans, and
                                 launched the Korean Agency for Digital Opportunity and Promotion (KADO)
Priorities                     
                             • Encourage infrastructure investment by incumbents and market entrants
                             • Support construction of new high-capacity digital broadband backbone, through funding
                             • Financial support for R&D, technology demonstration projects, subsidies for purchase of personal
                               computers by low-income citizens
                             • Promote digital literacy
                             • Support e–governance, e–commerce, education and other information and communications
                               technology (ICT) services
Incentives and initiatives     
                             • Offer a 30%-50% discount on telecom service charges to low-income and disabled users
                             • Provide low-interest loans for communications infrastructure development in less-advantaged
                               regions, as well as funding for information society–related R&D
                             • Plan to implement number portability for both wireline and wireless services
                             • Create fund for promotion of digital literacy
                             • Develop content for disabled people and elderly people
                             • Create and support ICT



United Kingdom
Policy element               Action
Objectives                   • Create a “digitally rich” UK, where all have the confidence to access the new and innovative
                               services delivered by computer, mobile phone, digital television or any other device
                             • Bridge the digital divide arising due to access cost related to internet services
                             • Establish the UK as a world leader in digital excellence with public services that are responsive,
                               personalized and efficient
                             • Use ICT to reduce social exclusion
Priorities                   • Transform learning with ICT
                             • Set up a digital challenge for local authorities to achieve both excellence and equity in ICT
                             • Make the UK a safe place to use the internet
                             • Promote the creation of innovative broadband content
                             • Create a strategy for the transformation of delivery of key public services
                             • Have Ofcom (the independent regulator and competition authority for the UK telecom industry)
                               set out regulatory strategy
                             • Improve access to technology for the digitally excluded and ease technology use for the disabled
Incentives and initiatives   • Ensure that ICT is embedded in education to improve the quality of the learning experience for all,
                               re-engage those who have been disaffected and equip children with skills increasingly essential in
                               the workplace
                             • Have Ofcom research the prospects for home broadband adoption, focusing on adoption among
                               the more disadvantaged
                             • Provide support to BBC and commercial market for experimentation in broadband content using
                               commissions and partnerships




                                                                          Enabling the next wave of telecom growth in India         82
5.5. Mergers and acquisitions

The telecom sector has evolved at different rates           In the UK, the telecom regulator, Ofcom, has proposed a
around the world, with different views on each              cap on the award of spectrum to a mobile operator. The
regulatory issue. The emergence of new technologies         spectrum under 1GHz is the obvious choice for mobile
and applications worldwide has forced mobile operators      broadband as the airwaves have higher propensity which is
to expand their global footprint through mergers and        needed for high data rate services. Ofcom has proposed a
acquisitions, especially in emerging markets. However,      cap on the amount of spectrum held by any operator in the
there is a lack of regulatory consistency at the            spectrum range under 1GHz. In March 2010, the merger
international level, which would help overcome the          of the UK operations of two mobile operators was cleared
challenges posed by globalization.                          by the European Commission. The combined amount of
                                                            spectrum held by the two parties — at 1,800MHz — was
In any country, the key to the telecom sector is radio
                                                            larger than that of their competitors. As a result, the
spectrum management. A spectrum cap refers to the
                                                            parties offered to surrender 15MHz of spectrum, allowing
amount of spectrum any operator or group of operators
                                                            other competitors to rollout services.
can hold in a geographic area. The US and the UK have
gradually eased their respective spectrum caps.             Similarly, a spectrum cap has been implemented in
                                                            Canada, Mexico and Guatemala. However, other countries,
In the US, a spectrum cap was in place from 1994 to 2003.
                                                            such as Australia, have abstained from the implementation
It placed a limit of 45MHz on the commercial mobile radio
                                                            of a spectrum cap.
spectrum (CMRS) that a single entity could acquire in any
geographical area across the US. In 2001, the cap was
raised to 55MHz, and it was abolished in 2003. After the
elimination of the spectrum cap, the FCC used a cap of
70MHz in deciding mergers. After the auction in 700MHz
band, the spectrum cap in the US stands at 95MHz.




83    Enabling the next wave of telecom growth in India
5.6. Equipment manufacturing

 Finland: Market openness, liberalization and innovation drive the telecom equipment industry109
 Background                         • Prior to the 1990s, the Finnish economy was dominated by forest-related industries. However,
                                      in the late 1990s, the economy shifted to ICT and consumer electronics, with electronics and
                                      electrotechnics accounting for about 25% of the country’s exports. These changes were primarily
                                      driven by higher education and the emergence of knowledge-based industries. Further, the
                                      country’s ICT sector has benefitted from investment in R&D, which more than doubled between
                                      1985 and 2005.
 Strategic initiatives              • First-mover advantage: in the 1970s, Finland’s state-owned post, telegraph and telephone (PTT)
                                      operator developed the Nordic mobile telephony standard in collaboration with Sweden-, Norway-,
                                      and Denmark based PTTs. In 1991, the first GSM network was launched in Finland, with Nordic
                                      countries benefitting from the first-mover advantage in the mobile telecom industry worldwide.
                                    • Deregulation and increased competition: in the late 1980s and early 1990s, Finland lowered the
                                      entry barriers through the introduction of reforms. After the collapse of the Soviet Union in 1991,
                                      the country redirected its trade to the West, and joined the European Union in 1993. From 1987
                                      to 1997, Finland deregulated the telecom sector by the adoption of the Telecommunications Act
                                      and a new Radio Act, and in 1991, networks were opened to free competition.
                                    • Foreign direct investment: in 1993, Finland removed the restriction on foreign ownership
                                      in Finnish firms and restrictions on capital inflows. The country witnessed more than fivefold
                                      growth in FDI from 1990 to 2000, particularly in the ICT sector. An increase in FDI has resulted in
                                      technology transfer and cooperation that has helped to fuel the telecom sector.
                                    • Specialization in telecom: Finland’s ICT sector has developed specialization in the
                                      manufacturing and export of telecom equipment, with telecom equipment manufacturing
                                      accounting for 90% of the ICT manufacturing in 2003. It employed more than 80,000 people in
                                      over 4,000 firms in 2000.
                                    • Development of clusters: the development of the Finnish telecom industry is also attributed
                                      to the emergence of an ICT cluster, which encourages cooperation among a wide range of
                                      manufacturers and suppliers. The mobile telecom cluster, which is also known as Finland’s Wireless
                                      Valley, includes a wide range of stakeholders, including mobile application developers, equipment
                                      manufacturers, component manufacturers and electronics contract manufacturers, content
                                      owners and content providers for mobile applications, mobile network operators, academic and
                                      research institutions, consulting firms, public certification and standardization authorities and
                                      financial service providers.
                                    • Skilled workforce: Finland has a strong skilled workforce, primarily driven by a robust educational
                                      system in which basic, secondary and tertiary education is free of charge. The country has
                                      invested in a number of technical universities, which has facilitated the emergence of Finland in
                                      the telecom sector by providing a large pool of engineers.




109 Caroline Lesser, “Market Openness, Trade Liberalisation and Innovation Capacity in the Finnish Telecom Equipment Industry,” OECD Publishing,
    29 July 2008.




                                                                                      Enabling the next wave of telecom growth in India            84
 China: Emergence of a global manufacturer and innovator110
 Background                         • China’s telecom sector has witnessed rapid growth in the last two decades, with the emergence of
                                      Chinese firms that have successfully competed in the global marketplace, despite the presence of
                                      multinationals.
                                    • Over the years, Chinese manufacturers have evolved from producing cheap and low-quality
                                      imitations to products that use high-end advanced technology.
                                    • The emergence of a strong telecom sector in China has also been driven by a burgeoning domestic
                                      market with the highest number of mobile subscribers in the world, government support to
                                      domestic telecom enterprises and the presence of a well–qualified technical workforce.
 Strategic initiatives              
                                    Since 1978, China has implemented numerous reforms that have boosted the country’s
                                      manufacturing and trade. The key reforms undertaken by the country include development of a trade
                                      policy, reduction in tariff barriers and development of an enabling environment to attract FDI.
                                    • Export processing: in the late 1970s and 1980s, China established an export processing policy.
                                      Under the policy, raw materials such as parts and components and other intermediate imported
                                      goods do not have any duty imposed, as long as they are used to produce export goods. This
                                      enabled the country’s domestic and foreign-owned firms to compete, worldwide.
                                    • Tariff barriers: during the 1980s and early 1990s, the country reduced its tariff barriers
                                      drastically. In the 1980s, some of its tariff rates were above 50%. The implementation of the
                                      export processing regime facilitated the reduction of tariff rates. In 2001, the tariffs reached less
                                      than 15%. Additionally, the US granted China the most favored nation status in 1980, and the
                                      country joined the WTO in 2001.
                                    • Foreign direct investment: in 1979, China implemented policies that favored the inflow of FDI,
                                      along with technological expertise. This helped the country to produce products rapidly.
                                    • Research and development: during the late 1990s, leading global telecom manufacturers
                                      launched their R&D centers in China. These centers have helped global players to understand
                                      the local market and helped in the overall development of the telecom sector. Furthermore,
                                      R&D led to the emergence of Chinese manufacturers that spend a significant portion of their
                                      revenues on R&D.



                                                                                 time limited. National roaming was permitted in rural
5.7. Telecom infrastructure                                                      areas for a longer period than for urban areas.
                                                                            •    Other European NRAs followed the Commission’s
•    Brazil is split into 11 licensing areas with 4 operators in                 approach and as such active infrastructure sharing was
     each licensing area. These operators are encouraged                         limited. The operators challenged the Commission’s
     to share both civil and electronic infrastructure,                          decision. The European Court of First Instance ruled
     particularly in rural areas that may be costly to                           in favor of the operators and stated that the EU had
     serve otherwise.                                                            overplayed the competition concerns. This has led
                                                                                 to greater opportunities for operators to engage in
•    Infrastructure sharing has been well accepted globally.
                                                                                 infrastructure sharing.
     In the EU, individual national regulatory authorities
     are required to notify the EU Commission of decisions                  •    In Australia, operators have commercially
     regarding infrastructure sharing. The awarding of 3G                        negotiated for 3G site and RAN sharing. An
     licenses led to an increase in applications to share                        administrative group has been established to own
     infrastructure and in particular for new 3G operators                       and operate existing RAN and fund future network
     to be permitted to use national roaming to provide full                     rollout plans as agreed with operators.
     geographic coverage. Initially, the EU took a negative                 •    In Sweden, there are five operators, four of whom
     view of the benefits versus costs of infrastructure                         have formed two separate consortiums of two
     sharing and saw it as having a potential negative                           operators each. Each consortium has built a joint
     impact on competition. As a result, although national                       network. The regulator permitted this level of sharing,
     roaming was permitted for new entrants, it was often


110 Behzad Kianian and Kei-Mu Yi, “China’s Emergence as a Manufacturing Juggernaut: Is It Overstated?” Federal Reserve Bank of Philadelphia,
    2009.


85      Enabling the next wave of telecom growth in India
     but required each operator to maintain 30% of its                   •    In Canada, the Canadian Radio-television and
     network separately.                                                      Telecommunications Commission (CRTC) is an independent
•    In Norway, a number of commercially negotiated and                       public authority to regulate and supervise all aspects of
     regulated agreements exist between the two main                          the Canadian broadcasting system, as well as to regulate
     operators and the MVNOs. There are commercial                            telecom common carriers and service providers.
     agreements between the main operators. The main                     •    In Canada in 2002, the regulatory functions of the
     operator is obliged to provide national roaming                          Broadcasting Standards Commission, Independent
     and MVNO access, publish tariffs and reference                           Television Commission, Office of Telecommunications,
     offers, implement accounting separation and is                           Radio Authority and Radio Communications Authority
     subject to price and accounting controls for national                    were combined to form Ofcom. It is also the regulator of
     roaming. All operators may share sites and masts.                        the UK communications industries, with responsibilities
     Radio network controllers (RNC) may be shared                            across television, radio, telecommunications and wireless
     physically, but operators must retain logical control                    communications services.
     over their networks and spectrum. All transmission                  •    In July 2005, the Australian Broadcasting Authority and
     routes (i.e., optic fiber, cables, P-P radio lines) may                  the Australian Communications Authority merged to form
     be shared. For core networks, the mobile switching                       the Australian Communications and Media Authority.
     center (MSC) may not be shared. The Ministry of
     Transport and Communications may, subject to an
                                                                         •    
                                                                              In July 2000, the Independent Communications Authority
                                                                                of South Africa was established. It is the regulator of the
     individual consideration, allow fulfillment of the
                                                                                telecommunications and the broadcasting sectors, and
     coverage requirements through roaming in networks
                                                                                took over the functions of two previous regulators – the
     based on other technologies than Universal Mobile
                                                                                South African Telecommunications Regulatory Authority
     Telecommunications System (UMTS), provided such
                                                                                and the Independent Broadcasting Authority.
     networks can offer sufficient capacity and that the
     arrangement is without substantial disadvantage
     to subscribers.                                                     5.9. m-commerce
5.8. Convergence                                                         Globally, the rollout of 3G has provided the required impetus
                                                                         to drive widespread adoption of m-commerce services. Mobile
                                                                         networks in North America witnessed growth in data services
•    In the US, the Federal Communications Commission                    that were also driven by the introduction of smartphones.
     (FCC) is an independent agency that regulates                       After smartphones were released, networks’ packet data grew
     interstate and international communications by                      nine times larger than voice services. In India, voice revenues
     radio, television, wire, satellite and cable and content.           are expected to decline at a CAGR (2008–15) of 1.1% to reach
     However, cable TV services require approvals at the                 US$19.5 billion111 in 2015, but data revenues are expected
     municipal level. Telecom operators that provide IPTV                to increase at a CAGR of 16.7% during the same period.
     services on their broadband networks have demanded                  m-commerce is very popular in countries where most of the
     amendments to the regulations to allow them to                      population is unbanked. Countries such as Sudan, Ghana, the
     provide national franchise and rollout of services. The             Philippines and South Africa have been the largest adopters
     cable industry has opposed this demand, as the cable                of this service. Latin American countries such as Uruguay,
     industry underwent the time-consuming and expensive                 Paraguay, Argentina, Brazil, Venezuela, and Mexico have also
     process to secure city-by-city franchises over the last             implemented m-commerce successfully.
     three decades. Recently, the state of Texas passed
     a bill deregulating the telecom markets. This has
     made it possible for telephone companies to receive
     a statewide franchise to provide video services that
     compete with cable.




111 Ovum: Mobile regional and country forecast pack: 2010–15, Ovum website, http://www.ovumkc.com/, accessed 16 October 2010.




                                                                                 Enabling the next wave of telecom growth in India   86
                                   Multiple reforms in the Indian telecom sector have
                              coalesced to produce a remarkable decade of continued
                            success. Looking ahead, progressive policies will become
                             increasingly important to guide unparalleled growth and
                                                         transformation in the sector.




87   Enabling the next wave of telecom growth in India
                                                Conclusion
The telecom sector in India has witnessed a series of        •   The USOF should be utilized for the provision of public
fundamental structural and institutional reforms over the        telecom, information services, household telephones
past decade. The best feature of India’s regulatory regime       and broadband connectivity in rural and remote
has been its open and transparent approach, with which           areas. It should be used for creating infrastructure
the regulatory authorities make industry information             for the provision of mobile services and development
public and accessible, and encourage a healthy level of          of telecommunication facilities, and inducting new
consultation with stakeholders. This approach has helped         technological developments in rural and remote
the sector grow by leaps and bounds. The report is an            areas. The distribution of funds should be through
attempt to help understand the viewpoints of various             transparent market-oriented allocation methodology.
stakeholders and to arrive at reasonable and practical           DoT should also consider lowering the contribution to
recommendations to help overcome the challenges that             1% of AGR toward the fund.
the sector faces and harness its opportunities.              •   Operators must be allowed to merge intra-circle while
                                                                 being allowed to combine spectrum. The share of a
The key recommendations for improving the existing
                                                                 merged entity should not be greater than 30% in terms
scenario focus on licensing framework, spectrum,
                                                                 of subscriber base or AGR.
USOF, broadband, M&A, equipment manufacturing and
infrastructure sharing.                                      •   HMCP should be set up across the country, and
                                                                 fiscal incentives should be provided to promote local
•   A single license should cover all telecom services.          manufacturing. R&D initiatives should be encouraged.
    There should be uniform fee structure across all
    telecom circles.
                                                             •   A National Telecom Critical Infrastructure Policy
                                                                 on the lines of NTP 1999 should establish uniform
•   Future policy should encourage identifying and               procedures for land acquisition, a uniform taxation
    vacating spectrum bands for future use. Spectrum             regime, and subsidies and other packages for creating
    allocation should be based on technology neutrality,         an environment conducive to boosting the construction
    service flexibility, timely allotment, timely spectrum       of national telecom infrastructure and ensuring the
    reconciliation and enhanced transparency. Spectrum           increased participation of all the stakeholders.
    sharing and trading should be allowed.
                                                             The key recommendations for advancing the sector to
•   Broadband infrastructure — OFC, high-capacity            the next level of growth focus on financial inclusion,
    microwave and satellite connectivity — must be           m-commerce, convergence, security concerns and
    extended to rural, remote and inaccessible areas.        consumer affordability.
    Content and applications in regional languages should
    be created to promote rural broadband.




                                                                   Enabling the next wave of telecom growth in India   88
Glossary
AWS              Advanced Wireless Services
A2P             Application-to-person
ACMA             Australian Communications and Media Authority
ACTO             Association of Competitive Telecom Operators
ADC              Access deficit charge
AGR              Adjusted Gross Revenue
ARPU             Average Revenue Per User
AUSPI            Association of Unified Telecom Service Providers of India
BSCs             Base Station Controllers
BTS              Base Transceiver Stations
BWA              Broadband Wireless Access
BWCI             Broadband Wireless Consortium of India
CAGR             Compound annual growth rate
CDB              Cut-out Distance Band
CEWIT            Center of Excellence in Wireless Technology
CLS              Cable Landing Station
CMRS             Commercial Mobile Radio Spectrum
CMSPs            Cellular Mobile Service Providers
CMTS             Cellular Mobile Telephone Service
CMTS             Cable Modem Termination System
COAI             Cellular Operators Association of India
CPE              Customer Premises Equipment
CPP              Calling party pays
CRBT             Caller Ring Back Tones
CRTC             Canadian Radio-television and Telecommunications Commission
CSC              Common Services Centers
CSEA             Commercial Spectrum Enhancement Act
CVD              Countervailing Duty
DAS              Distributed Antennae Sharing
DoT              Department of Telecommunications
DSL              Digital Subscriber Lines




89      Enabling the next wave of telecom growth in India
E&PSS    Emergency & Public Safety Services
FCC      Federal Communications Commission
FDI      Foreign direct investment
FICCI    Federation of Indian Chambers of Commerce and Industry
FY       Financial Year
G2B      Government-to-business
G2C      Government-to-citizen
G2E      Government-to-employee
G2G      Government-to-government
GBT      Ground-Based Towers
GMPCS    Global Mobile Personal Communications Services
GoI      Government of India
GST      Goods and Services Tax
HMCP     Hardware Manufacturing Cluster Parks
IAMAI    Internet & Mobile Association of India
IBA      Independent Broadcasting Authority IBA
ICASA    Independent Communications Authority of South Africa
ICNIRP   International Commission on Non Ionizing Radiation Protection
ICRIER   Indian Council for Research on International Economic Relations
ICT      Information and Communications Technology
IDI      ICT Development Index
ILD      International long distance
IMEI     International Mobile Equipment Identity
IPF      Infrastructure Provisioning Fee
IP-I     Infrastructure Provider-I
IPLC     International Private Leased Circuit
IP-VPN   IP-based Virtual Private Network
ISPAI    Internet Service Providers Association of India
IT       Information Technology
ITeS     IT-enabled Services Sectors
ITU      International Telecommunication Union




                                                                           90
KADO            Korean Agency for Digital Opportunity and Promotion
kbps            kilobit per second
KYC             Know Your Customer
MARR            Multi Access Radio Relay
MCD             Municipal Corporation of Delhi
MMDS            Multichannel Multipoint Distribution Service
MMS             Multimedia Messaging Service
MNP             Mobile number portability
MNREGA          Mahatama Gandhi National Rural Employment Guarantee Act
MoD             Ministry of Defense
MoU             Minutes of usage
MPLS            Multiprotocol Label Switching
MSCs            Mobile Switching Centers
MTNL            Mahanagar Telephone Nigam Limited
NCAER           National Council of Applied Economic Research
NDMC            New Delhi Municipal Council
NeGP            National e-Governance Plan
NFAP            National Frequency Allocation Plan
NLD             National long distance
NRAs            National Regulatory Authorities
NTCIP           National Telecom Critical Infrastructure Policy
NTP             National Telecom Policy
OFC             Optic fiber communication
P2A             Person-to-application
P2P             Person-to-person
PAN             Permanent Account Number
PCOs            Public Call Offices
PMRTS           Public Mobile Radio Trunked Services
POPs            Point of Presence
PPP             Private-public Partnership
PSU             Public Sector Undertakings
PTT             Posts, Telephone and Telegraph
RCP             Rural Community Phones
RCV             Recharge Coupon Voucher
RIOs            Reference Interconnect Offer




91      Enabling the next wave of telecom growth in India
RKM      Route Kilometer
RNC      Radio Network Controllers
ROW      Right of way
RPM      Rate per minute
RTT      Roof-top tower
SACFA    Standing Advisory Committee on Radio Frequency Allocation
SATRA    South African Telecommunications Regulatory Authority
SIM      Subscriber Identity Module
SRF      Spectrum Relocation Fund
TCOE     Telecom Centers of Excellence
TDSAT    Telecommunications Dispute Settlement and Appellate Tribunal
TEC      Telecommunication Engineering Center
TEMA     Telecom Equipment Manufacturers Association
TESEPC   Telecom Equipment and Services Export Promotion Council
TRAI     Telecom Regulatory Authority of India
UAS      Unified Access Service
UID      Unique identification number
UIDAI    Unique Identification Authority of India
UKFAT    UK Frequency Allocation Table
UMTS     Universal Mobile Telecommunications System
USOF     Universal Service Obligation Fund
VAS      Value-added services
VoIP     Voice over Internet Protocol
VPNs     Virtual Private Network
VPTs     Village Public Telephones
VSNL     Videsh Sanchar Nigam Limited
WMO      Wireless Monitoring Organization
WPC      Wireless Planning & Coordination Wing
WTO      World Trade Organization




                                                                        92
Notes




93   Enabling the next wave of telecom growth in India
Enabling the next wave of telecom growth in India   94
Notes




95   Enabling the next wave of telecom growth in India
Enabling the next wave of telecom growth in India   96
                                                         About Federation
                                                         of Indian Chambers
                                                         of Commerce and
                                                         Industry (FICCI)
                                                         FICCI, set up in 1927, is the largest and oldest apex
                                                         organization of Indian business. With a nationwide
                                                         membership of over 1,500 corporates and over 500
                                                         chambers of commerce, FICCI espouses Indian businesses
                                                         and speaks directly and indirectly for over 250,000
                                                         business units. FICCI maintains the lead as the proactive
                                                         business solutions provider through research, interactions
                                                         at the highest political level and global networking.

                                                         FICCI organizes a large number of exhibitions, conferences,
                                                         seminars and meets for promoting business.




97   Enabling the next wave of telecom growth in India
Ernst & Young’s Global
Telecommunications
Center
Telecommunications operators are facing the challenges
of growth, convergence, business transformation,
technological change and regulatory pressures in
increasingly difficult economic conditions. Operators choose
Ernst & Young because they value our industry-based
approach to addressing their assurance, tax, transaction and
advisory needs. They know that they have much to gain from
our clear understanding of the opportunities, complexities
and commercial realities of the telecommunications industry —
wherever in the world they’re operating.

What gives us this understanding is our Global
Telecommunications Center. Operating from Paris, Cologne,
Johannesburg, Riyadh, Delhi, Beijing and San Antonio, the
Center brings together people and ideas from across the
world, to help our clients address the challenges of today
— and tomorrow. Our clients benefit from our insights on
key trends and emerging issues. These may relate to the
economic downturn, next-generation services, infrastructure
sharing, outsourcing, revenue assurance, operational
efficiency, regulations, future growth markets or mergers and
acquisitions. We help our clients react to trends in a way that
improves the financial performance of their business.

Learn more about our approaches and services by visiting our
website: www.ey.com/telecommunications




                                                                  Enabling the next wave of telecom growth in India   98
         Contacts
         Global Telecommunications Center
         Vincent de La Bachelerie
         Global Telecommunications Leader
         vincent.de.la.bachelerie@fr.ey.com

         Jonathan Dharmapalan
         Global Deputy Telecommunications Leader
         jonathan.dharmapalan@ey.com

         Marc Chaya
         Global Telecommunications Markets Leader
         marc.chaya@fr.ey.com

         Adrian Baschnonga
         Global Telecommunications Senior Analyst
         abaschnonga@uk.ey.com

         Steve Lo
         Global Telecommunications Center — Beijing
         steve.lo@cn.ey.com

         Holger Forst
         Global Telecommunications Center — Cologne
         holger.forst@de.ey.com

         Prashant Singhal
         Global Telecommunications Center — Delhi
         prashant.singhal@in.ey.com

         Serge Thiemele
         Global Telecommunications Center — Johannesburg
         serge.thiemele@ci.ey.com

         Wasim Khan
         Global Telecommunications Center — Riyadh
         wasim.khan@sa.ey.com

         Mike Stoltz
         Global Telecommunications Center — San Antonio
         michael.stoltz@ey.com




99   Enabling the next wave of telecom growth in India
Enabling the next wave of telecom growth in India   100
Ernst & Young                                                               About Federation of Indian Chambers of
                                                                            Commerce and Industry (FICCI)
Assurance | Tax | Transactions | Advisory

About Ernst & Young                                                         FICCI, set up in 1927, is the largest and oldest apex
Ernst & Young is a global leader in assurance, tax,                         organization of Indian business. With a nationwide
transaction and advisory services. Worldwide, our                           membership of over 1,500 corporates and over
141,000 people are united by our shared values and                          500 chambers of commerce, FICCI espouses Indian
an unwavering commitment to quality. We make a                              businesses and speaks directly and indirectly for over
difference by helping our people, our clients and our                       250,000 business units. FICCI maintains the lead as
wider communities achieve their potential.                                  the proactive business solutions provider through
Ernst & Young refers to the global organization of                          research, interactions at the highest political level
member firms of Ernst & Young Global Limited, each                          and global networking.
of which is a separate legal entity. Ernst & Young                          FICCI organizes a large number of exhibitions,
Global Limited, a UK company limited by guarantee,                          conferences, seminars and meets for promoting
does not provide services to clients. For more                              business.
information about our organization, please visit
www.ey.com

© 2011 EYGM Limited.
All Rights Reserved.

EYG no. EH0091

           In line with Ernst & Young’s commitment to minimize its
           impact on the environment, this document has been printed
           on paper with a high recycled content.

This publication contains information in summary form and is therefore
intended for general guidance only. It is not intended to be a substitute
for detailed research or the exercise of professional judgment. Neither
EYGM Limited nor any other member of the global Ernst & Young
organization can accept any responsibility for loss occasioned to any
person acting or refraining from action as a result of any material in
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The opinions of third parties set out in this publication are not
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