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									Telecom sector analysis


          Sr. No          Topic                                   Page
          1               Industry overview                       5
          2               Drivers of telecom industry             7
          3               TRAI and reform policies                9
          4               FDI investment                          13
          5               Cellular services providers             15
          6               Telecom manufacturing companies         17
          7               Value added services                    19
          8               Tower infrastructure                    20
          9               Internet                                22
          10              Union Budget 2008-09 – Telecom sector   25
          11              Rural Telephony                         31
          12              3G technology                           34
          13              New Generation Technology               36
          14              Vision for the future                   39
          15              Bibliography                            41

Telecom sector analysis

The telecom services have been recognized the world-over as an important tool for socio-
economic development for a nation. Telecommunication is one of the prime support
services needed for rapid growth and modernization of various sectors of the economy.
Telecom infrastructure is treated as a crucial factor to realize the socio-economic
objectives in India.

The country‟s telecom market is the 4th largest in the world in terms of wireless
subscribers and 5th largest in terms of total telecom subscribers.

India's telecom sector has shown massive upsurge in the recent years in all respects of
industrial growth. From the status of state monopoly with very limited growth, it has
grown in to the level of an industry. Telephone, whether fixed landline or mobile, is an
essential necessity for the people of India. This changing phase was possible with the
economic development that followed the process of structuring the economy in the
capitalistic pattern. Removal of restrictions on foreign capital investment and industrial
de-licensing resulted in fast growth of this sector

With government of India setting up the Telecom Regulatory Authority of India, and
measures to allow new players in the country, the featured products in the segment came
in to prominence. Today the industry offers services such as fixed landlines, WLL, GSM
mobiles, CDMA and IP services to customers. Increasing competition among players
allowed the prices drastically down by making the mobile facility accessible to the urban
middle class population, and to a great extends in the rural areas. Even for small
shopkeepers and factory workers a phone connection is not an unreachable luxury. Day
by day, both the public players and the private players are putting in their resources and
efforts to improve the telecommunication technology so as to give the maximum to their

With seven to eight million new phone connections being added to the network each
month, India has emerged as the fastest growing telecom market in the world, attracting
not just global service providers like Britain-based Vodafone and Virgin Mobile but also
big handset manufacturers like Finland's Nokia that not too long ago was reluctant to
make an entry because of low volumes

Indian economy is on a fast track since the last 2-3 years. We are now among the fastest
growing economies of the world. The GDP has grown by 8.1 per cent in the year 2007-
08, helped by a strong growth of 10 per cent in the Services Sector and 8.7% in
Manufacturing Sector. IT and Telecom Sector have made substantial contribution to the
growth of the economy. The growth of Telecom Sector in particular has been
phenomenal. We have crossed 208 million subscriber mark now and have the third
largest subscriber base. We have progressed from a very credible growth of 5 million
subscriber additions per month at the beginning of 2006 to a stupendous addition of about
7-8 million subscribers per month for the past 3 months. In fact, we are adding one

Telecom sector analysis

customer per second during the working hours. Now the growth of Telecom Sector in
India has surpassed that of China. It took 25 years for us to reach the 1st 1 million mark
of telephones in our country and today we add 7 million phones in just 25 days.

The telecom revolution has contributed enormously to the increased efficiency in the
economy. It has reduced transaction costs and has increased connectivity across the
length and breadth of our vast subcontinent. It has brought us closer to each other. Today,
India has emerged as a major base for the telecom industry worldwide and it is the
endeavor of the Government to facilitate further growth of this vital industry as it is not
just the growth of a sector but it has a „multiplier effect‟ on the entire economy.

Gross revenues for the sector have grown at a compound annual rate of about 21 percent
and currently stand at 26 billion US dollars. This accounts for about 3 percent of the
national GDP.

India's annual telecom services gross revenue was over Rs 1, 00,000 crore in 2006,
exhibiting a CAGR of over 21 per cent since 2004, notes the report, titled Telecom -
Catalyzing India's New Economy. This is expected to grow at an annual rate of 26 per
cent to reach nearly Rs 3, 50,000 crore by 2012. The estimates translate into direct
revenue contribution of nearly Rs 2, 40,000 crore to the GDP between 2007 and 2012,
and gross value added (GVA) of around Rs 1, 44,000 crore to the Indian economy.

Moreover, it is estimated that a one per cent growth in the number of telephone
subscribers will lead to an exponential growth of close to two per cent in its contribution
to the service tax revenue collected by the government.

Telecom sector analysis


Drivers for increasing mobile coverage are:

   1. Infrastructure sharing: The government‟s decision of providing support from USO
      Fund will open up the vast untapped market in rural areas. By 2007 rural areas
      saw sharing of 8000 towers for mobile telephony as well as broadband coverage
      and an increase in urban area from current 25% to 40%.
   2. Research and Development: India will play a pre-eminent role as a technology
      solution provider. Affordable technology for masses and a comprehensive
      security infrastructure for telecom network will be major focus areas in 2008.
   3. Government Policies - Facilitating the availability of adequate bandwidth at
      competitive prices to roll out advanced technologies like 3G and Wimax.

The telecom equipment sector is expected to hit the $100 billion mark within next three
years according to according to P S Ramesh, president, Telecom Equipment
Manufacturers Association of India (TEMA). The current size of the sector is $26 billion.

Major drivers would be

   1. High rate of investment - Already $1.5 billion has been committed and the next
      year is likely to see another $2 billion of investment.
   2. Government initiatives like 100% FDI in telecom equipment manufacturing
      sector, proposed setting up of Telecom Equipment and Services Export Promotion
      Council and Telecom Testing and Security Certification Centre (TETC) makes
      the sector very attractive for the investors.
   3. India as centre seat - Companies like Cisco are making India their global center
      while Indian concerns are very upbeat the sector growth.
   4. Exports will form a sizeable component of the domestically manufactured
   5. High-end Technology - 3G mobile services, expected to roll out in 2008, will see
      approx $6 billion investment in the infrastructure. Domestic manufacturing
      centers will be major source of the 3G network equipment. WiMax services will
      require WiMax compatible high-end technology equipment for its networks. This
      will lead to increasing domestic production to reduce costs.
   6. India as a manufacturing base - Major telecom companies like Nokia, Motorola
      and LG have already set up their manufacturing facilities in the country to cater to
      the massive domestic demand. Decreased cost of production, high volume of sales
      and increasing research to produce equipment to suit the Indian reality has led to
      drop in the cost of entry level mobile handsets which fuels greater demand for it

Average Revenue per User:

GSM: all India Average Revenue Per User (ARPU) declined by 7.4 % from Rs. 297 to
Rs. 275. Post-paid ARPU declined from Rs. 655 to Rs. 632, 3.5 percent.

Telecom sector analysis

Prepaid ARPU declined from 7.2 %, from Rs. 248 to Rs. 230.
CDMA: ARPU (prepaid + postpaid) at Rs. 173, down significantly from Rs. 206. Lowest
ARPU is in West Bengal (Rs.127) while the highest blended ARPU is in Mumbai (Rs.
274. (September 2007)

Value Added Services will boost the falling ARPU in the mobile sector. Messaging
revenues passed 1$bn annually in 2007. (Stats from Wireless World Forum).

   Numbers say it all!

   Telecom Statistics: (January 2008)

      Total telephone subscriber base : 281.62 million
      Cell phones: 242.4 million
      Land Lines: 39.2 million
      New Subscriber Additions in January : 8.74 million
       Over all Tele-density : 24.63 %
       Fixed-line user base : 39.22 million (down from Dec figure of 39.25)
       Wireless user base (GSM, CDMA and WLL (F) ): 242.40 million
       Total broadband subscriber base : 3.24 million
      Projected teledensity: 500 million, 40% of population by 2010
      Broadband connection: 2.67 million (September 2007)

Telecom sector analysis


In 1999, the Government of India authored a very forward looking National Telecom
Policy 1999 (NTP-1999), which acknowledged that access to telecommunications is of
utmost importance for the achievement of the country‟s social and economic goals.
Availability of affordable and effective communication for the citizens was the core
vision and goal of this telecom policy. Since the announcement of the Policy, the
Government has undertaken various concrete steps to achieve the policy objectives.
The Government of India has virtually deregulated every segment of the Indian Telecom
industry over the past two years

Policy initiatives
The migration from a fixed to a revenue share license regime provided the desired relief
to the private operators – earlier burdened by huge debts that they had to service owing to
their license fee commitments. This was the starting point of the cellular revolution being
witnessed in the country today, wherein almost 7-8 million subscribers are getting added
to the network every month.

Liberalization of the national and international long distance sector by the Government
led to the setting up of private companies in both service segments, and the consequent
competition that has emerged has led to reduction in tariffs, which are lower than 80 per
cent of the pre-liberalization days. The reduced tariffs are now almost at par with world
benchmarks. In fact our tariffs are the lowest in the world. We have plans for just $1.
Recognizing the convergence of markets and technologies, the Government, in December
2003, came out with the Unified Access Licence allowing both basic and cellular service
providers to provide access, using any technology in a specified service area. The
Government also announced the Interconnection Usage Charge (IUC) regime in January
2003, implemented from May 2003, to facilitate cost-oriented interconnection in the
Indian telecom market with multiple operators - both public and private, with multiple
service offerings.

In tax related announcements made in January 2004, the Government further rationalized
the customs duty structure on imports related to telecom and specified infrastructure
equipment for basic/cellular/Internet, V-SAT, radio paging and public mobile radio trunk
services. Parts of such equipment are being exempted from basic customs duty.

In 2003, the Government announced two significant initiatives
1. Regulatory structure
2. TDSAT: Telecom Disputes Settlement Appellate Tribunal

Later in the year 2004, the Government announced reduction in performance bank
guarantees for Internet service providers, national long distance providers and domestic
call centers; thus, reducing their cost of operations to enable them to offer more
affordable pricing.

Telecom sector analysis


     Pre-reform            Partial Deregulation     Further Deregulation                Take-off

      Pre-1994             1994-1999                1999 - 2002                         2002 onwards

 •        MTNL -           •    4 private fixed     •     Licenses converted to         •    Calling Party
          Mumbai and            service providers         revenue sharing                    Pays
          Delhi; DTS            with less than 1%   •     Private sector share less     •    CDMA launch
          elsewhere             market share              than 5% in revenue terms      •    3-6 operators in
 •        No mobile        •    2 GSM mobile        •     Competition in NLD and             each circle
          service               players in each           ILD
                                circle                                                  •    Intra-circle
 •        NLD - DoT per/                            •     Licenses on Revenue share          merger guidelines
          BSNL ILD -       •    13 players start
                                                    •     4 mobile operators / circle   •    Unified Licensing
          VSNL                  mobile service

                           •   National Telecom     •    NTP 1999
                               Policy (NTP) 1994    •    BSNL formed 2001               •   Broadband policy
                           •   TRAI constituted                                             2004
                                                    •    Internet Telephony 2002
                                                    •    FDI - 49 %
                                                                                        •   FDI - 74% 2005

                           National Telecom             New Telecom
                           Policy, 1994                 Policy, 1999                    Unified Licensing

Important policy initiatives

      •     Broadband policy unveiled in 2004 - Targets 20 million broadband subscribers by
      •     Focus on making India a regional Telecom manufacturing hub
      •     FDI limit increased from 49% to 74%
      •     100% FDI permitted under automatic route in the manufacturing sector
      •     Deregulation virtually complete and Unified Licensing regime
      •     Interconnection Usage Charge framework in place
      •     Exemption from customs duty for import of Mobile Switching Centers
      •     Comprehensive Spectrum policy and 3G policy on the anvil

Independent regulation has been a critical factor in growth
        ILD opened to competition
        Internet Telephony allowed.
        Reduction in License fees

    Calling Party Pays Regime
    Unified Access Licensing
    Reference Interconnect Order

Telecom sector analysis

    Intra-circle merger guidelines
    Internet / broadband penetration

    Unified Licensing
    Quality of Service regulation
    Rural Telephony

    Number portability
    Convergence

Impact of policy initiatives on growth

                                                                                                                                    Share ADC
                                                                    3rd & 4th               CPP                    FDI
                                                                    Cellular                Introduced             Increased
                                            35                                                                                                  80
                                                               31                                                Lowering of
                                            30                                                                   ADC                       69.2 70
         Effective Charge (US Cents/ min)

                                            25   NTP-99

                                                                                                                                                     Subscribers in Million
                                                                                                                               41               40
                                                                                13                                                              30
                                            5                                                            13.1
                                                                                                                   3.5                          10
                                                                           3.6                           4.4
                                                  1.2       1.9                                                                0.44
                                            0                                                                                             0.4   0
                                                 1999      2000         2001         2002           2003        2004      2005         2006
                                                                                     Year Ended March

                                                          Effective Charge (US Cents/min)         Subs

Department of Telecom

The Department of Telecom has been formulating developmental policies for the
accelerated growth of the telecommunication services. The Department is also
responsible for grant of licenses for various telecom services like Unified Access Service
Internet and VSAT service. The Department is also responsible for frequency
management in the field of radio communication in close coordination with the
international bodies. It also enforces wireless regulatory measures by monitoring wireless
transmission of all users in India.

Telecom sector analysis

Telecom Commission

The Telecom Commission was set up by the Government of India vide Notification dated
April 11, 1989 with administrative and financial powers of the Government of India to
deal with various aspects of Telecommunications. The Commission consists of a
Chairman, four full time members, who are ex-officio Secretary to the Government of
India in the Department of Telecommunications and four part time members who are the
Secretaries to the Government of India of the concerned Departments.

The Telecom Commission and the Department of Telecommunications are responsible
for policy formulation, licensing, wireless spectrum management, administrative
monitoring of PSUs, research and development and standardization/validation of
equipment etc. The multi-pronged strategies followed by the Telecom Commission have
not only transformed the very structure of this sector but have motivated all the partners
to contribute in accelerating the growth of the sector.

Regulatory framework in the Telecom Sector

In early 1997, the Telecom Regulatory Authority of India (TRAI) was established to
regulate the telecommunication services and for matters connected therewith or incidental
thereto. The establishment of the Regulator was considered necessary in the context of
liberalization and private sector participation in the Telecom Sector and to provide a level
playing field for all operators.

With the opening of Telecom sector to private investment and establishment of an
independent regulator, the matter of separation of service provision functions of the
Department of Telecommunications (DOT) and providing a level playing field to various
service providers including the government service provider, has been achieved. By
amendments made to the TRAI Act, the entire telecom regulatory framework, including
the disputes settlement mechanism were strengthened.

Telecom sector analysis

Foreign Direct Investment (FDI) was permitted in the telecom sector beginning with the
telecom manufacturing segment in 1991 - when India embarked on economic
liberalization. FDI is defined as investment made by non-residents in the equity capital of
a company. For the telecom sector, FDI includes investment made by Non-Resident
Indians (NRIs), Overseas Corporate Bodies (OCBs), foreign entities, Foreign Institutional
Investors (FIIs), American Depository Receipts (ADRs)/Global Depository Receipts
(GDRs) etc.

he telecom sector received foreign direct investment (FDI) of Rs 2,580 crore ($650m) in
the first two months of 2008. This is more than half of the total FDI received by the
sector last year. FDI rose from a mere Rs 600 crore in 2004 to a whopping Rs 4,354 crore
in 2007.

Present FDI Policy for the Telecom sector:

Sector/Activity: Basic and cellular, Unified Access Services, National/International Long
Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS) Global Mobile
Personal Communications Services (GMPCS) and other value added telecom services

FDI cap/equity: 74% (including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible
preference shares, and proportionate foreign equity in Indian promoters/Investing

Entry route: Automatic up to 49%. FIPB beyond 49%.

Sector/Activity : ISP with gateways, radio-paging, end-to-end bandwidth.

FDI cap/equity: 74%

Entry route: Automatic up to 49% FIPB beyond 49%

Sector/ Activity: a) ISP without gateway, *

b) Infrastructure provider providing dark fibre, right of way, duct space, tower
( Category –I);

c) Electronic mail and voice mail

FDI cap/equity: 100%

Entry route: Automatic upto 49% FIPB beyond 49%

Telecom sector analysis

Subject to: Subject to the condition that such companies shall divest 26% of their equity
in favor of Indian public in 5 years, if these companies are listed in other parts of the
world. Also subject to licensing and security requirements, where required.

Sector activity: Manufacture of telecom equipments

FDI cap/ equity: 100%

Entry route: Automatic

* The government has revised guidelines for ISP's on 24-8-2007 and new guidelines
provide for ISP licenses with gateway component only and with 74% FDI.

Total FDI inflow from August 1991 to July 2007: Rs 207,178 million

Telecom sector analysis


        The structure and composition of telecom growth has undergone a substantial
change in terms of mobile vs. fixed phones and public-private participation. The growth
of wireless services has been phenomenal, with wireless subscribers growing at a
Compound Annual Growth Rate (CAGR) of 87.7 per cent per annum since 2003. Today,
the wireless subscribers are not only much more than the wire line subscribers in the
country, but also increasing at a much faster pace. The share of wireless phones has
increased from 24.3 per cent in March 2003 to 85.15 per cent in November 2007.
Improved affordability of wireless phone has made universal access objective more

        The liberalization efforts of the government are evident in the growing share of
private sector in total telephone connections, which has increased to 71.85 percent in
November 2007 from a mere 5% in 1999.

Key players (GSM + CDMA)

   1. Bharti Airtel Limited
   2. Aircel Limited
   3. BPL Cellular limited
   4. Vodafone group
   5. Idea cellular limited
   6. Reliance telecom limited
   7. Spice communication limited
   8. MTNL
   9. BSNL
   10. Virgin Mobile
   11. Tata Indicom

       The total subscribers of private and public sector Telecom Companies in the
country and the number of subscribers of public and private sector Telecom Companies
separately as on 31.1.2008 are given below.

        SL      Name of the Company              Total Phones         Shares in %
        1       BSNL                             69593752             24.71
        2       MTNL                             6872942              2.44
                Total Phones PSUs                76466694             27.15
        1       Bharti Airtel                    59627937             21.17
        2       Reliance Telecom. Ltd.           43380206             15.40
        3       Vodafone                         41145413             14.61
        4       TATA Teleservices Ltd.           23229484             8.25
        5       Idea Mobile Communication        21954685             7.80
        6       Aircel                           9933815              3.53
        7       Spice Communication              3942828              1.40

Telecom sector analysis

        8           BPL Mobile                    1256534             0.45
        9           HFCL Infotel Ltd.             420263              0.15
        10          Shyam Telelink Ltd.           261776              0.09
                    Total phones Pvt              205152941           72.85

                     Total (PSUs+Pvt)              281619635             100.00

                                Share of % as on 31.1.2008

                   3.53.4                       MTNL
                                24.71           Bharti Airtel
     8.25                                       Reliance Telecom. Ltd.
                                                TATA Teleservices Ltd.
                                                Idea Mobile Communication
                                                Spice Communication
                                                BPL Mobile
                                                HFCL Infotel Ltd.
                                                Shyam Telelink Ltd.

Telecom sector analysis


Apart from being the world‟s fastest growing telecom market, India is also emerging as a
handset super-power as more manufacturers set up base in the country. India is expected
to register a handset production of around 100 million cell phones units in 2008 to record
the highest growth in the Asia-Pacific region, technology research firm Gartner has

India produced nearly 31 million mobile phones in 2006 worth about $5 billion. This
represented the largest contribution to overall electronics production revenue and to the
total available market for semiconductors. Mobile phone production in India is expected
to reach 107 million units by 2011 from 31 million units in 2006 a compound annual
growth rate (CAGR) of 28.3%. Mobile phone production revenue is expected to reach
$13.6 billion (Rs 55,760 crore) by 2011 from $ 4.9 billion (Rs 20,090 crore) in 2006, a
CAGR of 26.6%, says a research by Gartner According to new research by Gartner,
mobile phone production in India is expected to grow from 31 million units in 2006 to
107 million units per year by 2011, with revenues reaching $13.6 billion in 2011, up from
$4.9 billion in 2006.

According to the report, the growth in production will be due to both an expanding
subscriber base in India as well as favorable government policies toward local

Ganesh Ramamoorthy, principal research analyst with Gartner, said in a statement,
"Existing global handset vendors as well as new entrants will outsource their production
to EMS [electronics manufacturing services] vendors to reduce 'time to market' and
achieve faster penetration for their own branded handsets. This will raise EMS vendors'
share of total mobile phone production in India to nearly 40 percent by 2011."

The report does cite India's lack of a "mature" component supply base to support the
boom in mobile phone manufacturing. Establishing a reliable component supply base will
be vital for the Indian handset manufacturing industry to stay competitive in both the
domestic market and the export market.

Low mobile penetration and favorable government policies are driving mobile phone
original equipment manufacturers to set up manufacturing facilities in India. Nokia
started its unit in Chennai in January 2006 and produced a record 25 million handsets in
the first year of operation. The vendor is also exporting mobiles from India to Sri Lanka.
Motorola and electronics manufacturing service vendors (EMS) like Foxconn and
Flextronics have also set up plants in India.

Gartner said though the world‟s top five handset makers (Nokia, Motorola, Samsung, LG
and Sony Ericsson) will retain a major share of production volume, it expects local
manufacturers to capture up to a fifth of India‟s overall mobile phone production volume
by the end of 2011. “We believe that growing demand for low-cost and ultra-low-cost
mobile phones and the need for EMS vendors to reduce their revenue exposure to Nokia,

Telecom sector analysis

Motorola and Sony Ericsson, for whom they are now manufacturing in India, will
contribute to the growth of local-brand mobile phones in the Indian market,” said the

Simultaneously, India's surging domestic market is also providing excellent investment
opportunities in other segments of telecom equipment industry. For example, TRAI
estimates that the country will need about 350,000 telecom towers by 2010, as against
125,000 in 2007. This has in turn attracted many leading global telecom equipment
manufacturers to set up their base in India.

      Nokia set up its manufacturing plant in Chennai.
      Samsung has set up its GSM mobile manufacturing base in Manesar.
      Motorola has established a manufacturing plant in Sriperumbedur.
      Sony Ericsson has set up GSM Radio Base Station Manufacturing facility in
       Jaipur and R&D centre in Chennai.
      LG Electronics set up plant of manufacturing GSM mobile phones near Pune.
      Elcoteq has set up handset manufacturing facilities in Bangalore
      Elextronics has set up an SEZ in Chennai.

Other major companies like Foxconn, Aspcomomp, and Solectron among others have
decided to set up their manufacturing base in India. In 2007 alone, US$ 2 billion is made
in the telecom manufacturing segment.

Facts & Figures:

74% rise in Q3 mobile handset sales: Gartner the total number of mobile handsets sold in
India touched 2.45 crore units in the quarter ended September 2007, about 74 per cent
higher than the 1.41 crore units sold in the corresponding quarter a year ago. (The Hindu
Business Line)

Telecom sector analysis


India's runaway success in mobile telephony has also given a boost to the mobile value
added services (MVAS) market. According to a study by Stanford University and
consulting firm BDA, the Indian MVAS touched US$ 926.3 million in 2007 and is likely
to grow at a CAGR of 44 per cent to US$ 2.74 billion by 2010.

Echoing similar sentiments, research firm Gartner estimates data services to account for
22 per cent of the total revenues by 2010 from 12 per cent in 2007. Significantly, India's
share in Asia-Pacific (excluding Japan) data revenue is estimated to almost double from
about 6 per cent in 2007 to 11.5 percent by 2011.

The mobile services industry generates an annual GDP contribution of Rs 71,000 crore,
according to industry figures. The major drivers of VAS are:

   1. Local content development - Increasing focus on localization and development of
      local content will make the VAS services more attractive. Decreasing revenue
      from voice services will be padded by revenue from availability of local content
      especially the local language songs as ring tones/hello tunes, localized wallpapers,
      screensavers, contests.
   2. Development of local language compatibility - Development of tools and fonts in
      all major Indian languages.
   3. M-commerce: Increasing development of applications like M-Ticketing for
      movies, Air Travel, Electricity bill payment.
   4. Mobile TV - Telecom ministry‟s target of making Mobile TV available in top 20
      cities/towns by 2008
   5. Entertainment: Release of the first bollywood film for mobile and expected flow
      of more such films, mobile episodes of TV soaps, conversion of popular content
      like Mahabharat, Malgudi days for mobiles.
   6. M-education: Projects like LILA ˜Learn Indian Language through Artificial
      Intelligence”™ are the precursors of the development and usage of the medium in
      an economy like India.
   7. Advertising: The availability of complete profile data of subscribers along with
      tracking via GPRS makes it possible to deliver message to the niche audience.
      This unique feature in combination with the untapped potential of the will see
      increasing focus of advertisers and a growth in revenue from advertising.
   8. Video based applications: With 2.5G networks and expected roll out of 3G in
      2008, video based applications like video SMS, accessing and sharing of video
      clips, podcasts and others

Facts & Figures :

      FY '06-07 the VAS market stood at around Rs 2,860 crore and grew 29% with
       respect to FY '05-06 (Voice n Data)
      FY 07-08 we saw many new services being introduced & still its continuing so
       VAS market at the end of this year will grow more.

Telecom sector analysis

The future & savior of all telecom operators will be VAS only so the companies working
behind VAS will have good times ahead


This is just a new concept introduced in Indian Telecom Market and slowly is gaining
momentum. It is a sharing concept where in these companies build towers and rent them
to service providers. One tower can have more than one operator‟s antenna & BTS. This
segment will have good business as this concept will play a significant role in future
Indian mobile services growth.

At present we have about 230 million mobile users and the number of towers are about
1,10,000. This means if by 2010 we have 460 million subscribers we will require
3,00,000 towers. This shows the potential of the growth that this sector has.

      New entrants especially will click this option, as they will be loaded with burden
       of high investments. Now in such situation if they get an option which saves their
       money, then we think they will definitely click it.

Chart showing growth in Indian Cellular Infrastructure

Sharing infrastructure

Network sharing‟ has been one of the most frequently used buzzwords in the mobile
Industry today. Though often used as a synonym for any strategy aiming at cost reduction
of network expenditures related to the rollout and operation of 3G networks, it has been
used at site level during the second half of the 2G rollout, fuelled both by the limited
availability of new sites as well as increasing environmentalist pressure on operators and

Telecom sector analysis

Infrastructure sharing can be used in either the start-up phase to build coverage quickly
or, longer term, to build more cost effective coverage in rural areas. Sharing
arrangements provide the highest savings in cases of low traffic demand and more
efficiency is achieved by pooling resources. Sharing can be broadly classified into two

   1. Passive Elements Sharing
   2. Active Elements

Benefits to Cellular Telecom Operators

      By outsourcing their infrastructure requirements, operators are able to save on
       capex and opex.
      Availability of ready infrastructure enables the operators to reduce their time to
      By outsourcing their infrastructure requirements, operators are able to focus on
       their core activities of providing quality service, brand building and customer
      Operating and maintaining the passive infrastructure in the cell sites is a
       cumbersome task, particularly in rural and semi-urban areas where power supply
       is intermittent.
      Tower Infrastructure companies serves as a single window one-stop-shop
       provider of infrastructure and services to telecom operators by undertaking the
       full range of responsibilities in building and maintaining the sites.

Telecom sector analysis


There were 9.63 million wire line Internet subscribers at the end of September 2007 as
compared to 9.22 million at the end of June 2007, a growth of nearly 4.37%. Readers will
remember that the number of subs had declined by 0.5 percent in the previous quarter.

The number of broadband subscribers increased by 10.33 percent, to 2.67 million. 72
broadband service providers had a subscriber base of 2.67 million, with 98.3 percent of
those subs with 13 service providers.

Internet Telephony: Total minutes of the use (MoU) for Internet Telephony during the
quarter were 129.43 million as compared to 112.26 million for the last quarter registering
an increase of 15.29% over the previous quarter (2007)

Telecom sector analysis

Key Points
Supply           Intense competition has resulted in prompt service to the subscribers.
                 However, smaller towns and villages continue to have waiting periods
                 on account of non-availability of adequate infrastructure.

Demand           Given the low penetration levels in the country and continuously falling
                 tariffs, demand will continue to remain higher in the foreseeable future
                 across all the segments.

Barriers to entry High capital investments, older and well-established players who have a
                  nation wide network, license fee, continuously evolving technology and
                  falling tariffs.

Bargaining       Improved competitive scenario and commoditization of telecom services
power of         has led to reduced bargaining power for services providers.
Bargaining       A wide variety of choices available to customers both in fixed as well as
power of         mobile telephony has resulted in increased bargaining power for the
customers        customers.

Competition      The entry of fourth cellular player and commencement of WLL services
                 has resulted in intense competition in the bigger cities. Reducing tariffs
                 will hurt the new entrants, as they will be unable to recover their high
                 capital investments.

Financial Year '07
FY07 saw the continuance of strong growth for the Indian telecom market, which added a
net of 66.5 m subscribers during the 12-month period. At the end of March 2007, the
country‟s total telecom subscriber base (fixed plus mobile) stood at 207 m, which
indicates a teledensity of 18.3%.

Growth remained robust in the GSM mobile space, with the same growing its subscriber
base by 52 m, thus contributing to 78% of the total incremental subscriber addition for
the entire Indian telecom market. After a strong 73% YoY increase in subscriptions
during FY06, the GSM industry recorded another stupendous performance during FY07,

Telecom sector analysis

growing subscriber base by 75% YoY to over 121 m.

There was a decline in both the tariffs as well as Average Revenue Per User (ARPU) in
during FY07. While the fall in tariffs was to the order of about 15% YoY, ARPUs
declined by nearly the same amount. However, the decline in tariffs led to a strong rise in
the average Minutes of Use (MOU) per subscriber.

The year also saw a strong 70% YoY rise in the Internet broadband subscriber base. The
current base stood at 2.3 m users by the end of March 2007, against 1.4 m at the end of
March 2006.

As far as the fixed line business goes, the low penetration levels in the country and the
increasing demand for data based services such as the Internet will act as major catalysts
in the growth of this segment, which had a subscriber base of over 40 m at the end of
FY07. The huge market share of public sector behemoths, MTNL and BSNL (together
they account for 82% of the total fixed line connections) is likely to get reduced further as
the penetration by private players spreads. In spite of this the PSUs will continue to retain
their dominant position this is on account of high capital investments required in setting
up a nation wide network. As a result, the private sector players will have to rely on key
business centers and pockets of high urbanization for their growth.

Increasing choice and one of the lowest tariffs in the world have made the cellular services
an attractive proposition for the average consumer. The segment has grown by over 75%
YoY in FY07. Policy measures like lowering of taxes on the cellular industry and benefits
of enhanced FDI limits shall further the prospects of the cellular industry.

The International Long Distance (ILD) telephony business is expected to witness
increased competition with the entry of private players. Already, private players like
Bharti, Reliance and Data Access have started providing ILD services and this has pulled
the tariffs significantly down. Although increased competition will result in depressed
revenues in the near term, low tariffs would ultimately result in increased volumes and
higher usage.

Telecom sector analysis

Telecom sector
Budget measures

   1. Roll out of national rural employment guarantee scheme to all 596 districts in
      India with a provision of Rs 160 bn.

   2. Specified inputs and raw materials for manufacture of specified electronics/ IT
      hardware items have been exempted from excise duty.

   3. Additional duty of 1% to be levied on imported mobile phones towards national
      calamity contingency reserve.

   4. Countervailing duty on wireless data modem cards with exempted by way of
      excise duty exemption. These goods are already exempt from customs duty.
      However, 4% additional duty of customs will be attracted.

   5. Internet telecommunication service brought under the service tax net.

   6. Customs duty on convergence products to be reduced from 10% to 5%.

   7. Parent company allowed to set-off the dividend received from its subsidiary
      company against dividend distributed by the parent company; provided that the
      dividend received has suffered DDT and the parent company is not a subsidiary of
      another company

Budget impact

   1. Roll out of national rural employment guarantee scheme to all 596 districts in
      India to aid faster penetration of mobiles.

   2. Exemption from excise duty for specified inputs and raw materials for
      manufacture of specified electronics/ IT hardware to lower the network cost for
      telecom service providers.

   3. Additional duty on imported mobile phones to make handsets expensive thus
      prohibits a faster acceptance.

   4. Imposition of service tax on Internet telecommunication services to make them

   5. Reduction in customs duty on convergence products to help establish parity
      between devices used in the information/communication sector and the
      entertainment sector.

Telecom sector analysis

   6. Parent company allowed to set-off the dividend received from its subsidiary
      company against dividend distributed by the parent company; provided that the
      dividend received has suffered DDT and the parent company is not a subsidiary of
      another company

Company impact

   1. Wider rollout of national rural employment guarantee scheme to aid faster
      penetration of mobiles and consequently faster growth of Bharti Airtel, Reliance
      Communications and Vodafone in these areas.

   2. Lower network equipment costs to benefit mobile service players like Bharti
      Airtel, Vodafone, Idea and Reliance Communications.

   3. Additional duty on imported mobile phones to restrict volume (subscriber) growth
      for mobile services companies, though not in a major way.

   4. Reduction in customs duty on convergence products to help companies like Bharti
      Airtel and reliance Communications in lowering their costs for DTH expansion

Industry wish list
COAI - Cellular Operators Association of India's wish list
   1. The revenue share license fee should be reduced to 6% as is applicable in the case
       of NLD/ILD license. Since the revenues to the government are protected because
       of increase in revenues of the telecom sector, even this levy of 6% should be
       progressively brought down in the coming years.

   2. Multiple levies imposed on the sector should be replaced with simple investor
      friendly and industry friendly tax structure. Some recommendations with respect
      to various taxes are as hereunder:

   TDS should not be applicable on interconnect charges paid by companies and
   necessary clarification / notification should be issued in this matter.

   Tax holiday benefits in case of mergers/ amalgamations should be continued.

   Section 80-IA benefits should be available to companies undergoing amalgamation or
   demerger after 31st March 2007.

Telecom sector analysis

   The period during which 80-IA can be claimed by the telecom operators should be
   extended to 20 years in place of existing 15 years; 100% exemption for successive 10
   years out of the 20 years.

   Fringe Benefit Tax should not be applicable on ESOPs. Reduce FBT from 20% to 5%
   on boarding & lodging in consonance with other service industry.

   3. Accelerated depreciation benefits should be further extended to new plant &
      machinery capitalized by assesses engaged in providing telecom services and
      either setting up a new undertaking on or after April 1st 2002 or undertaking
      existing prior to April 1st 2002 and achieving substantial expansion during any

Key positives

   1. Connecting India: The telecom sector has been one of the fastest growing sectors
      in the Indian economy in the last 4 years. This has been witnessed due to strong
      competition that has brought down tariffs as well as simplification of policy
      environment that has promoted healthy competition among various players. Due
      to this reason, telecom density in the country has risen above 20% at the end of
      January 2008, from 3.5% in January 2001.

   2. Its ringing mobile: The Indian mobile sector has been growing rapidly and has
      emerged as the fastest growing market in the whole world. Currently of a size of
      over 200 m subscribers (GSM plus CDMA), this sector is expected to reach a size
      of nearly 500 m subscribers by the year 2010. The increasing monthly addition to
      the subscriber base (currently at around 7 to 8 m) is indicative of the same.

   3. Broadband push: The government is expected to increase its thrust on the use of
      Internet. This will come about as PC penetration increases. We expect to see some
      positive measures being initiated to increase broadband usage in the country

   4. Sharing infrastructure: With infrastructure sharing, the investment to roll out rural
      telecom infrastructure would be lower and also increase the competitive
      efficiency of rural markets by bringing in private operators to access rural areas
      and hence assist government in getting to the 650 million number well before the
      proposed date of 2012.

Key negatives

   1. Spectrum woes: The telecom sector continues to expand at a rapid pace adding
      coverage and increasing teledensity as more and more people get connected.

Telecom sector analysis

       However, as subscriber base continues to swell and the need for wireless data
       transfers over mobile grows, the operators are likely to face increased shortage of
       spectrum availability (as they are facing now). This problem is especially acute in
       urban areas, which have got higher teledensity.

   2. Highly taxed sector: The COAI (Cellular Operators Association of India) has
      indicated that the telecom sector, especially the cellular services segment,
      continues to pay very high duties and levies. Currently, the sector is paying duties
      and levies under various heads including annual license fees, spectrum charges
      and access deficit charge (this has been partly reduces of late). In addition to the
      above, significant levies are also imposed on the industry on account of sales tax,
      service tax and import duties on handsets and other telecom hardware

The primary challenges of this sector are:
Constant need of updating knowledge, skills and attitudes. Increasing need for trained
professionals and the training sessions. Need for domain experts as well as experts in
non-technological areas like customer care. Rapid technological changes, network
security threats, mobile application development, and growing IP deployment in the
sector have renewed focus on training and development

The impact of telecom growth is multi-fold -- ranging from employment generation to
economic benefits in key sectors such as agriculture. For every one per cent increase in
tele-density, for instance, it is estimated that the GDP growth rate goes up 0.6 per cent.

Mobile telephony in urban areas is growing at a very high rate (50%) as compared with
mobile telephony in rural areas (around 5 per cent). The main reason for low tele-density
in rural areas is lack of infrastructure and lack of initiatives from both the government
and the telecom service providers.

The main issues with rural deployment are infrastructure (tower and power),
affordability, availability of skilled resources and access devices. The current
infrastructure is not adequate to meet the needs of an additional 400 million subscribers.

The state of wireless technology is slightly better with 1,10,000 mobile base stations in
place. However, there is a need of about 1,00,000 towers to achieve the subscriber target.

Currently, BSNL and MTNL combined have in excess of 37,000 towers across India, 80
per cent of which are within B & C circles.

Rural telephony will be the new mantra.

Incentives to Promote Telecom Equipments Manufacturing
   1. Custom duty on ITA-I product reduced to zero w.e.f. 01.03.2005.
   2. 4% additional duty on import of ITA products to countervail the state
      level taxes.

Telecom sector analysis

   3. No industrial license for manufacturing of telecom equipment. Simple
      Industrial Entrepreneur Memorandum (IEM) has to be filed with SIA.
   4. 100% Foreign Direct Investment (FDI) through automatic route.
   5. Fully repatriable dividend income and capital invested
   6. Payment of technical know-how fee of upto US$ 2 million and royalty up
      to 5% on domestic sales and 8% on export sales, net of taxes, through
      automatic route.
   7. Imposition of additional import duty, at the rate not exceeding 4% ad-
      valorem, to countervail sales tax, value added tax, local taxes and other
      charges leviable on like goods on their sale or purchase or transportation
      in India
   8. Promotion of telecom product specific SEZs.
   9. Modification of Electronic Hardware technology Park (EHTP)/Special
      Economic Zones (SEZs) scheme to allow 100% sales in the Domestic Tariff
      Area (DTA) for the purpose of meeting export obligations.

Incentives for Promotion of Service Sectors

   1. Any undertaking which has started or starts providing telecommunication services
      whether basic or cellular, including radio paging domestic satellite service,
      network of trunking, broadband network and internet services on or after the 1st
      day of April, 1995, but on or before the 31st day of March 2005, will be allowed
      in computing the total income, a deduction of, an amount equal to hundred
      percent of profits and gains derived from such business for ten consecutive
      assessment years.
   2. Import of specified telecom equipment (ITA1 Products) is permitted at zero
      customs duty rates.
   3. Import of all capital goods for manufacturing telecom equipment does not require
      any license.

Incentives for Exporters

   1. 10 year income tax holiday for EOU/EPZ/STP/EHTP units.
   2. Export income is exempt from income tax for all exporters.
   3. Under the Export Promotion Capital Goods Scheme (EPCG) capital goods
      for pre production and post production (including CKD/SKD thereof as
      well as computer software systems) at 5% Custom duty is permitted
      subject to an export obligation equivalent to 8 times of duty saved on
      capital goods imported to be fulfilled over a period of 8 years. However,
      for SSI units, import of capital goods at 5% Customs duty shall be allowed
      subject to a fulfillment of an export obligation equivalent to 6 times the
      duty saved (on capital goods imported under the Scheme) over a period of
      8 years from the date of issue of licence provided the landed CIF value of
      such imported Capital goods under the Scheme does not exceed Rs.

Telecom sector analysis

        Twenty Five Lakhs and the total investment in plant and machinery after
        such imports does not exceed the SSI limit.
   4.   However, in respect of EPCG licences with a duty saved of Rs.100 crore or
        more, the same export obligation, as the case may be shall be required to
        be fulfilled over a period of 12 years.
   5.   Tax holiday 100% for five years and 30% for next five years in a block of
        15 years.
   6.   Infrastructure Telecom equipment exempted from customs duty.
   7.   Reduction of customs Duty on Mobile Phones to 5%.
   8.   Exemption from Excise duty on Cellular Phones and it components,
        Pagers, Radio Trunking Terminals and Parts.
   9.   Telecom services sector allowed the benefit of carry forward of losses on

Telecom sector analysis


       Promotion of rural telephony and accessibility of telephones to remote areas is an
important thrust area of the department. The Universal Service Obligation Fund (USOF)
of India is one of the few operational USO Funds in the world. The scope of USOF
covers rural and remote areas with public access and individual household telephones in
Net High Cost rural and remote areas.

         Under USOF, a scheme has been launched by the Government to provide support
for setting up and managing 7871 number of infrastructure sites spread over 500 districts
in 27 states of the country for the provision of mobile services. The infrastructure so
created, shall be shared by three service providers for provision of mobile services
including other Wireless Access Services like Wireless on Local Loop (WLL) using
Fixed/Mobile terminals in the specified rural and remote areas, where there is no existing
fixed wireless or mobile coverage. Mobile services through these shared towers are
targeted to be made operational in a phased manner by May 2008. An additional capacity
of 24 million new lines has been estimated through the infrastructure so created under
this scheme.

       A separate scheme is also proposed to be launched for the provision of mobile
services in Andaman & Nicobar Islands, Lakshdweep & Minicoy Islands and Leh &
Laddakh area in Jammu & Kashmir.

Extension of telecom sector in rural areas

In order to give more attention to telecom services in rural areas, Government has
undertaken the following schemes:

   1. Provision of Village Public Telephones (VPTs) in 66,822 uncovered villages
      under Bharat Nirman through subsidy support from Universal Service Obligation
      Fund (USOF).
   2. Setting up of 7871 Sharable Infrastructure Sites in 500 districts for provision of
      mobile services in rural and remote areas through subsidy support from USOF
   3. Second Phase of the Mobile Infrastructure Scheme for setting up 11,049
      additional towers to cover the remaining uncovered rural and remote areas of the
      country is likely to be launched shortly.
   4. For creation of general infrastructure for development of telephone facilities,
      Government has proposed to improve the OFC network between the Block
      Headquarters and District Headquarters.
   5. Subsidy support through USOF for Rural Director Exchange Lines (RDEL).

The details of private sector companies, which have come forward for making investment
in rural and remote areas in the field of telecom sector particularly in the mobile sector
under USO Fund Scheme of shared infrastructure, are given below:

Telecom sector analysis


      Sr.No.   Name of Company                              Public/Private Sector
      1.       Bharat Sanchar Nigam Limited                 Public
      2.       GTL Infrastructure Limited                   Private
      3.       Hutchison Essar Cellular Limited             Private
      4.       Hutchison Essar South Limited                Private
      5.       National Information Technologies Limited    Private
      6.       Quipo Telecom Infrastructure Limited         Private
      7.       Reliance Communications Infrastructure       Private


Sl.No.     Name of Company                      Group Company      Public/Private sector
1.         Bharti Airtel Limited                Bharti             Private
2.         Bharti Hexacom Limited               Bharti             Private
3.         Bharat Sanchar Nigam Limited         BSNL               Public
4.         Aircel Limited                       Dishnet            Private
5.         Dishnet Wireless Limited             Dishnet            Private
6.         Aircel Digilink India Limited        Vodafone           Private
7.         Fascel Limited                       Vodafone           Private
8.         Hutchison Essar Cellular Limited     Vodafone           Private
9.         Hutchison Essar South Limited        Vodafone           Private
10.        BTA Cellcom Limited                  Idea               Private
11.        Idea Cellular Limited                Idea               Private
12.        Idea     Mobile     Communications   Idea               Private
13.        Reliance Communications Limited      Reliance           Private
14.        Reliance Telecom Limited             Reliance           Private


Recognizing the potential of Broadband service in the growth of GDP through enabling
the development of knowledge based society, the government has announced Broadband
Policy 2004. Several measures have since been taken to promote broadband in the
country. As a result of these measures, broadband subscribers grew from a meager 0.18
million as on 31, March 2005 to 2.61 million, up to September 2007.

Research & Development

The increased use of new technologies, the move towards corporatisation, competition
and the separation of regulatory functions from operational services require advanced
level of policy, regulatory, managerial and technological expertise. In order to develop
and strengthen the capability to generate this expertise, the Telecom Centers of
Excellence (TCOE) concept is being established in a Public-Private Partnership (PPP)
mode with all stake holders onboard. Apart from application oriented research, the

Telecom sector analysis

Centers are designed to assist and offer training to both high level decision makers of
telecommunication entities to manage sector reforms and to corporate managers for
management of networks and services. There will be eight TCOEs at the premier
academic institutes of the country with the seven major telecom operators supporting one
center each. The spectrum management center is being developed in an autonomous
model with the support of an industry consortium.

        To provide a further boost to our manufacturing and R&D efforts, it has been
further decided to set Telecom Testing and Security Certification Center (TETC) for
communication security, research and monitoring. A large number of companies like
Alcatel, Cisco etc. have also set up their research & development (R&D) centers in India.

Telecom sector analysis


Third Generation (3G) is a name for a set of mobile technologies to be available in India
by early ‟08. These use a host of high-tech infrastructure networks, handsets, base
stations, switches and other equipment to allow cell phones to offer broadband wireless
internet access, data, video, live TV & CD-quality music services.

The 3G wireless networks will be capable of transferring data at the speed of 384 kbps
going up to 2 mbps. Average speed for 3G networks will range between 128 kbps-384
kbps. It is a huge leap when compared to the available wireless data speeds of fewer than
100 kbps on EDGE that is the 2.75G on the GSM network.

On the CDMA platform the equivalent 3G networks are called CDMA-2000. 3G is
turning phones and other devices into true multimedia players, making it possible to
download media rich content and do full-scale banking on the move. Japan was the first
country to introduce 3G with the service there being called the Freedom of Mobile

That uses wideband code division multiple access (W-CDMA) technology to transfer
data over its networks. W-CDMA is not the only 3G technology. Others include
CDMAOne, which differs technically, but provides similar services. The 3G services &
phones are expensive and uptake of this market is expected to be slow.
Today there are over 70 commercial 3G operators around the world with the service
being popular in Japan, Sweden, the UK, Denmark and Australia.

There are multiple stepping-stones on way to 3G networks. The earlier generation
networks like GSM 2G, GPRS 2.5G and EDGE 2.75G have at best been intermittent
technologies. They have provided improvements over the previous ones but always had a
limitation in terms of data transfer, and hence the user experience was limited.

With 2.5G or GPRS (general packet radio service) the data transfer speeds were around
48 kbps and on 2.75G that is EDGE (enhanced data GSM environment) theoretical data
transfer  was     up   to     384   kbps    (actual    was     under     100    kbps).

These have at best been temporary solutions on road to the high-speed broadband
wireless    experience     that      will     be      available     on      3G.

Wireless videophones, high-speed internet access and TV will become a reality with 3G.
Users may not watch a whole feature film on a mobile phone, but can view small clips.

A football match, cricket action or news will engage users. CD-quality music will ensure
that     the     iPod       will      disappear     behind     a      mobile       phone.

People could end up reading most of their e-mails on mobiles and not on PCs. The big
thing will be the „banking of the unbanked‟ on the mobile phones. Micro payments will
be possible via cell phones. The device will engulf the calendar, radio, MMS, video, TV,

Telecom sector analysis

Banking,             camera,             music              &             so            on.

Some of these are already there in existing networks but slow transfer speeds limit the
experience. Users will also be able to locate, navigate, and enhance security with GPS-
assisted position services. That depends on digital maps available in public domain. A
live video-conference will ensure that 3G users don‟t need to be in office.

Is there anything beyond 3G?

While it will take some time for 3G to be available and the services to become
commonplace (to begin with high costs and the need to buy a new 3G handset could
restrict the number of users), the progress of technology does not stop at 3G.

Software developers are already working on what they call Deep 3G, that is the future
standard higher than 3G also called as 3.9G or 4G. The data transfer speeds here will be
four times that of 3G making IPTV and interactive gaming a reality on mobile phones.

All this will make the cell phone much like a digital Swiss Knife: a wireless device for all
your needs.

Telecom sector analysis


Presently various telecom services are provided through separate networks.
Technological advancements in telecommunications are forcing a trend towards
unification of networks & services setting up the stage for the emergence of Next
Generation Networks (NGN). In the next generation networks, multiple access networks
can connect customers to a core network, which is predominantly based on IP
technology. NGN promises to provide number of significant benefits and opportunities
both for the service providers and the end-users by providing new innovative services and
applications through a common platform.

With the efficient and cheaper IP technology forcing telecommunications networks to
migrate to „Next Generation Networks‟, triple play (voice, data and video) would become
a basic service. Traffic of different services of data, television and subsequently voice
would be simply enclosed in Internet protocol packets, transmitted over these networks.
These networks can later support any number of additional value-added services and
transmit them also as IP packets. As a matter of fact, a number of telecom operators in
country are already planning to move to such networks. The deployment of NGN would
face a number of challenges and obstacles related to evolution of new technologies and
services, emergence of disruptive business models, network security risks and
competition and level-playing field issues. Unless license conditions and regulations are
properly redefined with a light touch regulatory approach, it would be virtually
impossible to regulate the emerging NGN technologies smoothly.

As an early application and driver of NGN, VOIP is proliferating fast and is expected to
result in significant penetration in the matured telecom markets. In India, till some time
back IP telephony was permitted only in a restrictive manner i.e. PC-to-PC, IP device-to-
IP device and PC-to-Phone (abroad). Now with recent guidelines, Govt. has permitted
UASPs (telecom access providers) to provide phone-to-phone Internet Telephony viz.
unrestricted VOIP and therefore this is likely to proliferate in India also. VOIP is likely to
have a big impact on the traditional circuit switched telephony, initially on fixed lines
followed by mobile, driving consumer prices and margins down, forcing far-reaching
changes in industry and consequently in the regulatory and licensing regimes. Earlier
convergence of access networks was dealt with as the demarcation between fixed and
mobile services became less distinct and heralded a Unified Access Licensing Regime in
the country. Now the convergence trend has moved to core networks also and with the
increasing use of NGN in core and access networks associated licensing and regulatory
issues are likely to become more complex. The Government and the Regulator need to
ensure that the changeover to such regime is smooth.

Telecom sector analysis

The following key trends are clearly visible from recent regulations across the world on
IP telephony:

   1. Regulators are pushing tiered licensing approaches, with separate regulatory
      conditions imposed on IP telephony, which is a direct PSTN substitution i.e.
      phone-to-phone (POTS) VOIP and PC originated i.e. PC-to-PC and PC-to-phone

   2. While all regulators are considering mandate for emergency access and lawful
      interception and monitoring, many (especially in Europe) are considering giving
      IP telephony a „grace period to comply‟, the reason being that they do not want to
      put forth conditions that might delay VOIP service roll-out or result in promoting
      grey routing using VOIP .

   3. Many regulators are pushing dedicated numbering for IP telephony meaning
      allocating a separate access code for VOIP provider like any other PSTN/ mobile
      operator in line with E.164 numbering system. There is also a trend towards
      increasingly allowing option for geographical/ non-geographical numbers (IN
      based/ E.num based) for IP telephony (as in US, Canada, UK, France, Japan etc.).

   4. The general consensus is for forbearance from retail price control (except
      Canada). The thinking is that IP telephony will need to be cheaper than PSTN
      voice to be attractive and therefore the tariff for the same should be allowed to be
      driven by the market.

   5. Regulators in developed markets are mandating VoIP-PSTN interconnection
      though usually the commercial agreements are left to mutual negotiations between
      the parties concerned i.e. the PSTN operator and the VOIP operator. Regulators in
      less developed markets where competition has not fully evolved normally need to
      specify the guidelines and terms and conditions of such interconnection
      agreements between PSTN and VOIP operators.

   6. QoS obligations on VoIP are becoming an exception i.e. many regulators are
      going for forbearance on this. The general view is that consumers are best judges
      of quality. Also, in the long-term, due to technological development in IP, the
      QOS is not going to remain an issue any more.

   NGNs also have important service characteristics, as seen from the perspective of a

   1. Continuity – Consumers will be able to continue to use those PSTN services they
      are used to, with essentially no change.

   2. Ease of migration – Consumers will be able to migrate seamlessly to new services
      offered by the same operator.

Telecom sector analysis

   3. Single access to multiple services – Driven by the separation of the service layer
      from the network layer.

   4. Innovative new services – New services will have richer functionality (e.g.
      personalized, location-aware), and reduced time-to-market, since they exploit the
      distributed intelligence inherent in an NGN.

   5. Empowerment – Consumers will have an increased capability to configure and
      manage services to meet their personal requirements.

   6. NGN is as much about easier provision of advanced services such as VoIP,
      Broadband, Multimedia applications etc. as it is about cost saving through
      simplification of network

Telecom sector analysis


While celebrating the success in the telecom sector, the government recognizes the fact
that there is no room for complacency. Telecom development in rural areas, particularly
assumes special significance as more than 70% of the population lives in villages. It is
therefore, proposed to achieve rural teledensity of 25% by means of 200 million rural
connections at the end of 11th Plan.

The government is also working steadily towards addressing the issue of releasing
additional spectrum from government use for the use of commercial telecom operators so
that growth of this dynamic sector is not constrained by the shortage of this vital
The government also recognizes the need to take a forward-looking approach, based on
an appreciation of changing technologies and to accelerate structural changes in this
sector in line with trends in other countries to ensure that the telecommunication services
are not only made available on the scale needed to sustain rapid growth in the economy
as a whole but also that the quality and cost of these services come up to the requirements
of a modernizing economy.

Recognizing the potential of Broadband services in the growth process, it has been
proposed in the Eleventh Plan targets to provide the broadband for all secondary and
higher secondary schools , all Public Health Care Centers and Gram Panchayats . It is
also visualized to link Block headquarters and nearest exchange through State Wide Area
Networks (SWAN) connectivity. It is also envisaged that internet and broad-band
subscribers will increase to 40 million and 20 million, respectively, by 2010.

The wireless data services will act as a revenue stream for the wireless operators. Some
operators have already deployed 3G technologies on their networks. With further
rollout of wireless broadband, backed by the provision of compelling content services,
broadband revenues will comprise a key portion of the total telecom pie in the future.
Scale and integration will be the key drivers of future consolidation. Wireless is
increasingly going to become a volume game with thin margins. Hence, small
operators with low economies of scale will not be viable as cost per minute will be
very high for them. Smaller players will also not have access to the financial capital
required to continuously upgrade and expand their networks. Therefore, one will see
smaller operators consolidating among themselves or merging with large operators. As
operators will increasingly offer plans with bundled national and international long
distance minutes, the level of integration among the various telecom segments will also
assume importance.
Once TRAI permits the connectivity among the wireless operators for inter-circle
national calls, national long distance will lose its value. The state owned incumbents
will face increased competition from the private operators as the latter will be able to
offer unified services in their service areas. Eventually, BSNL & MTNL would merge
and speed up their commercialization efforts to retain leadership.

Telecom sector analysis

The future market will be characterized by high penetration, competition and churn
and the winners will be distinguished by how they address these challenges. They‟ll
have to juggle between achieving economies of scale, efficient network management,
increasing operating margins & attracting and maintaining subscriber base.
The future value will reside in ownership of customer relationship and provision of
diversified services. This implies a trend towards bundled service offerings. For
provision of bundled services, operators will need to have strategic alliances with
intermediaries through whom traditional commercial transactions can be executed.
Operators with the best interface strategies will succeed in maintaining the customer

                                       Full Service            Internet
                                                        Wireline          Pay TV

                  Triple Play            Internet

                                   Wireless      Wireline

     Wireline                                        Bundling of Services
                Internet        Basic Bundling

 The operators need to rapidly grow their subscriber base while simultaneously
 maintaining customer loyalty. The ability to segment customers, identify the best
 among them and maximize their value will determine success.
 To summarize it all in one go one can safely say:
 India is at the inflection point of a different growth trajectory and one can see it
 bridging the gap with China. With the regulatory environment stabilizing,
 competitive landscape becoming clearer, and increasing global confidence in the
 Indian economy, India is poised to have the second largest telecom network after
 China in the next 5 ~ 7 years.

Telecom sector analysis


   1. TRAI and DOT website
   2. The economic times
   3. Garnter report
   4. Equity master budget report
   5. Telecom news
   6. Telecom magazine.com
   7. Total Tele.com
   8. Business world
   9. Business week
   10. Various blogs sites


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