maad combine

8/8/2019 Maad Combine

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1.INTRODUCTION:INDIAN TELECOM INDUSTRY- BRIEF HISTORY:

Table 1.1 Showing Telecom Brief History

1851 Introduction of Telegraph Services.

1947 Foreign Telecom Companies nationalized to form PTT.

1980s The

Beginning y Tele-density in 1980-81: 0.3%y Introduction of public pay phonesy Private Sector allowedy DoT, MTNL and VSNL formed

Early to

Mid-90s:

A Messy

Affair

Telecom policy 1994

y Basic telephony service to private operatorsy 49% FDIy 8 licensees began operations in Aug 1995

Late 90s

y Birth of a regulator: TRAIy NTP 1999y (New Telecom Policy)

2000+

y CAGR of around 85% since 1999y FDI: 74% (2005)

2007-2009

y having the world's lowest call rates the fastest growth in the numberof subscribers (45 million in 4 months)

y the fastest sale of million mobile phones (in a week),y the world's cheapest mobile handsety the world's most affordable colour phone


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The history of telecommunication industry started with the first public demonstration of

Morses electric telegraph, Baltimore to Washington in 1844. In 1876 Alexander Graham

Bell filed his patent application and the first telephone patent was issued to him on 7th of

March.

In 1913, telegraph was popular way of communication. AT&T commits to dispose its

telegraph stocks and agreed to provide long distance connection to independence

telephone system.

In 1956, the final judgment limited the Bell System to Common CarrierCommunications

and Government projects but preserving the long-standing relationships between the

manufacturing, researches and operating arms of the Bell System. In this judgment

AT&T retained bell laboratories and Western Electric Company. This final judgment

brought to a close the justice departments seven year-old antitrust suit against AT&Tand Western Electric which sought separation of the Bell Systems Manufacturing from its

operating and research functions. AT&T was still controlling the telecommunication

industry.

In 1982, AT&T was requested to divestiture its stock ownership in Western Electric;

termination of exclusive relationship between AT&T and Western Electric; divestiture by

Western Electric of its fifty percent interest in Bell Telephone Laboratories, AT&Ts

telecommunication research and development facility, is a jointly owned subsidiary in

which AT&T and Western Electric each own 50% of the stock; separation of telephonemanufacturing from provision of telephone service and the compulsory licensing of

patents owned by AT&T on a non-discriminatory basis.

It was telecommunication act of 1996 that true competition was allowed. The act of 1996

opened the market to all competitors. AT&T being the first telecommunication company

paved the road for the telecommunication industry as well as set the policy and standards

for others to follow.


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Quick Facts

Table 1.2 Showing key facts of Telecom

Total telecom subscribers 509 million (September2009)

Wireless subscribers 471.7 million

Wire line subscribers 37.3 million

Tele density 43.5 per cent

Indias service providers revenue in Q1

(2009)

$8.2 billion

Indias Rural Mobile Phone User 100 Million

Today the Indian telecommunications network with over 375 Million subscribers issecond largest network in the world afterChina. India is also the fastest growing telecom

market in the world with an addition of 9- 10 million monthly subscribers. The

teledensity of the Country has increased from 18% in 2006 to 33% in December2008,

showing a stupendous annual growth of about 50%, one of the highest in any sector of

the Indian Economy.

The Department of Telecommunications has been able to provide state of the art world-

class infrastructure at globally competitive tariffs and reduce the digital divide by

extending connectivity to the unconnected areas. India has emerged as a major base for

the telecom industry worldwide. Thus Indian telecom sector has come a long way in

achieving its dream of providing affordable and effective communication facilities to

Indian citizens.

As a result common man today has access to this most needed facility. The reform

measures coupled with the proactive policies of the Department of Telecommunications

have resulted in an unprecedented growth of the telecom sector.

The thrust areas presently are:

Building a modern and efficient infrastructure ensuring greater competitiveenvironment.

With equal opportunities and level playing field for all stakeholders. Strengthening research and development for manufacturing, value added services. Efficient and transparent spectrum management.


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To accelerate broadband penetration. Universal service to all uncovered areas including rural areas. Enabling Indian telecom companies to become global players.

Recent things to watch in Indian telecom sector are:

3G and BWA auctions MVNO Mobile NumberPortabilityNew Policy for Value Added Services Market dynamics once the recently licensed new telecom operators start rolling

out

Services Increased thrust on telecom equipment manufacturing and exports Reduction in Mobile Termination Charges as the cost per line has substantiallyreduced Due to technological advancement and increase in traffic.

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 industrialde-licensing resulted in fast growth of this sector.

At present the country's telecom industry has achieved a growth rate of 14 per cent. Till

2000, though cellular phone companies were present, fixed landlines were popular in

most parts of the country, with government of India setting up the Telecom Regulatory

Authority ofIndia, and measures to allow new players 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 extent in

the rural areas. Even for small shopkeepers and factory workers a phone connection is not

an unreachable luxury. Major players in the sector are BSNL, MTNL, Bharti


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Teleservices, Hutchison Essar, BPL, Tata, Idea, etc. With the growth of telecom services,

telecom equipment and accessories manufacturing has also grown in a big way.

Indian Telecom sector, like any other industrial sector in the country, has gone through

many phases of growth and diversification. Starting from telegraphic and telephonicsystems in the 19th century, the field of telephonic communication has now expanded to

make use of advanced technologies like GSM, CDMA, and WLL to the great 3G

Technology in mobile phones. 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 customers.

1.1 PURPOSE:

The purpose of this study is to analyze the telecommunication industry as a whole with

respect to Indian market. The new technological change which is coming up in this sector

and the level of readiness among the individuals to accept the change is to be analyzed.

Also, with respect to financial perspective, in depth research is done as to why

telecommunication sector is still the most important sector which investors have to focus

upon while designing their portfolio.

1.2 SCOPE:This project will give insight into the telecommunication industry and also help inmapping the status of telecom industry in India.

1.3 LIMITATION OF THE STUDY:

Various limitations are observed while conducting this study:

The time period during which the project is prepared which might give biasopinion based on the current situation prevailing which might not remain same as

always.

Also, when consumers are surveyed through questionnaires there is a risk that theconsumer might not take much interest in the survey and give their opinion

without being much involved in the process.


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1.4 RESEARCH METHODOLOGY:

1.4.1 Problem Identification

An in depth analysis into finding out the reasons for downfall of the prices of stocks of

telecom sector, falling of ARPUs and the likely challenges in coming up of newer

technology in the telecom sector.

1.4.2 Objectives:

To conduct an analysis1.4.3. Developing the research plan:

Once the problem is identified, the next step is to prepare a plan for getting the

information need for the research. The present study will adopt descriptive approach

where in there is a need together large amount of information before making a

conclusion.

Descriptive research often helps in segment and target markets. As the project is

concerned with comparative analysis of telecommunication industry involving

customers awareness the type of study referred is descriptive. Descriptive research refers

to the analytical studies.

1.4.4 Collection sources of data:

Primary Data:

Primary data comprises of the survey carried out to map in the awareness level of

consumers with respect to telecommunication industry in India. Survey includes

questionnaires to be filled in by the consumers and the responses received are analyzed

and interpreted.

Secondary Data:

Secondary data comprises of various websites from which relevant details pertaining totelecom sector in India is referred to. The data so gathered is appropriately analyzed and

interpreted.


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1.4.5 Analyze the collected information:

This involves converting raw data into useful information. It involves tabulation of data,

scanning of data and filtering the important data from the lot and analyzing the same.

1.4.6 Report research findings:

This phase will mark the culmination of the marketing research effort. The report with

the research finding is a formal written document. The research finding helped to know

as to why the telecom sector still remains an important area to pick the stocks in

designing of portfolio inspite of falling ARPUs.


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2. TELECOM SERVICES:

Telecommunication sector in India is primarily subdivided into two segments, which are

Fixed Service Provider (FSPs) and Cellular Services. Telecom industry in India

constitutes some essential telecom services like telephone, radio, television and Internet.

Telecom industry in India is specifically emphasizing on latest technologies like GSM

(Global System for Mobile Communications), CDMA (Code Division Multiple Access),

PMRTS (Public Mobile Radio Trunking Services), Fixed Line and WLL (Wireless Local

Loop). India has a prospering market specifically in GSM mobile service and the number

of subscribers is growing very fast.

PMRTs

VSATs

Radio Paging

GMPCS

Basic Services

Mobile Services


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2.1 INDUSTRY SECTORS:

2.2 GROWTH AVENUES:

Telecom

Telecom Service

Providers: Bharti-

Airtel, Vodafone,

Idea, Reliance

Telecom Solution

Providers: Tech

Mahindra, Aricent,

IBM Indi Wipro,

a ken

Network

Infrastructure

Companies-

Alcatel-Lucent,

Cisco, Ericsson

Telecom Equipment

Manufacturers:

Nokia, Motorola,

Samsung

Growth

Avenues

3GEnterprise

TelecomServices

Virtual

Private

Network

Rural

Telephony

Value Added

Services

Managed

Services

Infrastructure

Sharing

Wimax


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Managed services

This segment is attracting telecom companies. On account of the rapidly growing

subscriber base, service providers find it difficult to manage their infrastructure and

network management operations. In such cases, they completely or partially outsource

their infrastructure or network management operations.

Infrastructure sharing

To reduce their network deployment costs, many service providers are considering

infrastructure spending on account of following advantages:

Improved service quality Increased affordability for customers Faster roll out of services in rural and remote areas Significant reduction in initial set up costs Increased environmental aesthetics Lower operating costs for service providers

Enterprise Telecom Services

It includes key services, such as voice over Internet protocol (VoIP), dedicated telecom

communication systems; IT infrastructure enabled unified communication services, etc.

Telecom service providers are increasingly targeting enterprises by providing dedicatedservices and are expected to witness major developments in near future.

Virtual Private Network

It is a private data network that provides connectivity within closed user groups via

public telecommunication infrastructure. Competition is likely to heat up in the VPN

segment as DoT has relaxed the norms for private players.

3G

The Indian government plans to auction the spectrum for 3G services by inviting bids

from domestic as well as foreign players, and creating a competitive environment that

offers better services to consumers. Therefore, the 3G spectrum is among the major

investment opportunities and growth drivers of the telecom industry.


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The immense potential for 3G is reflected by the 3040 percent annual growth inValue-Added Services.

Cell phone manufacturers are striving to develop USD 100 priced 3G handsets forthe Indian market.

India expects to replicate its 2G growth in 3G services.WiMAX

It has been one of the most significant developments in wireless communication in the

recent past. Since this mode of communication provides network access in inaccessible

locations at a speed of more than 4 Mbps, it is expected to be a major factor in driving

telecom services in India, especially wireless services. Thus, it will lead to the increased

use of telecom services, Internet, value-added services and enterprise services. WiMAXis expected to accelerate economic growth and assist in providing better education,

healthcare and entertainment services.

It is estimated that India will have 13 million WiMAX subscribers by 2012. Aircel is the pioneer in WiMAX technology in India. The state-owned player, BSNL, aims to connect 74,000 villages through WiMAX. Bharti, Reliance and VSNL have acquired licenses in the 3.3GHz range to utilise

the opportunities offered by this domain.

Value Added Services

The VAS industry was worth USD 632 million in 200607. The industry is estimated to

grow by 60 percent in 200708 and become an USD 1,011 million opportunity.

The VAS industry is currently focusing on the entertainment sector, such as the Indian

film industry and cricket; however, there is scope for growth in other avenues as utility-

based services, such as location information and mobile transactions.

Rural Telephony

As the government targets to increase rural tele-density from the current 2 percent to 25

percent by 2012, rural telephony will require major investments. This segment will boost


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the demand for telecom services, equipment, Internet services and other value-added

services; thereby, offering great market opportunities for telecom players.

Rural India had 76.65 million fixed and Wireless in Local Loop (WLL) connections and

551,064 Village Public Telephones (VPT) as on September2008. Therefore, 92 per centof the villages in India have been covered by the VPTs. Universal Service Obligation

(USO) subsidy support scheme is also being used for sharing wireless infrastructure in

rural areas with around 18,000 towers by 2010.

It is believed that of the next 250 million people expected to go mobile; at least 100

million will come from rural areas. Though the rural mobile penetration is highest in

Punjab (20.69 per cent), followed by Himachal Pradesh (17.09 per cent), Kerala (10.63

per cent) and Haryana (10.20 per cent), most companies are now sweating it out by hard

selling their products and services in the rural areas of the region. As a result, the

geographical coverage of mobile telephony in India has gone up from 13 percent, a

couple of years ago, to 39 percent now.

From above detail it can be easily inferred that there is much scope in the rural India for

telecommunication industry to en-cash on as compared to the population the subscription

base is miniscule.

Urban India

Rural India

15-20%

28%

80-85%

72%

Population Subscription


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2.3 INDUSTRY REVENUE:

Table 2.3 Showing Industry Revenue

Year Revenue (US$ billions)

2002-2003 9

2003-2004 10

2004-2005 11

2005-2006 15

2006-2007 20

2008-2009 32

2009-2010 (forecasted) 43

The fixed line revenues are expected to touch US$ 12.2 billion while mobile revenues

will reach US$ 39.8 billion in India. India has become the second country in the world to

have more than 100 million CDMA-based (code division multiple access) mobile phone

subscribers after the US, which has 157 million CDMA users. The Indian

telecommunications industry is on a growth trajectory with the GSM operators adding

nearly 9 million new subscribers in April 2009, taking the total user base to 297 million, a

growth of 3.11 per cent over the additions made the previous month.

2.4 SUBSCRIBERs GROWTH:

Graph 2.4 Showing Subscribers Growth


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India added around 130 million new customers in 2008-09, that was the largest on global

front. The countrys cellular base witnessed close to 50 per cent growth in 2008, with an

average 9.5 million customers added every month. By April 2009, the total number of

telephone connections reached 441.47 million. With this growth, the overall tele-density

reached 37.94 at the end of April 2009.

According to Business Monitor International, India is currently adding 8-10 million

mobile subscribers every month. It is estimated that by mid 2012, around half the

country's population will own a mobile phone. This would translate into 612 million

mobile subscribers, accounting for a tele-density of around 51 per cent by 2012.


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3. INDIAN TELECOM MARKET

Table 3.1 Showing Telecom Statistics

Table 3.2 Showing Total GSM subscriber base


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Table 3.3 Showing Total CDMA subscriber base


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3.1 MAJOR PLAYERS

3.1.1Wireless Service Provider

Graph 3.1.1 ShowingWireless Service Provider

Source: - www.coai.com

Bharti-Airtel leads the wireless market with 23% market share. The company recently

achieved the magic figure of 100 million subscribers. However, Bharti-Airtel expects a

bloodbath in the Indian telecom market in the near future, and is looking to spread its

risks by entering new geographies. With 12-13 players present in the market there would

be a severe pressure on margins. Be it an Aircel orEtisalat, the new operators would not

remain fringe players in the Indian market, but would try and rock the applecart of

existing operators. The growth in Indian market could start tapering off very soon.

According to an industry expert the subscriber base will not expand beyond 800 million

in coming years from current number 400 million. Also, ARPUs in India have steadily

falling ($5-$6). There have been talks about 3G and IPTV pushing growth, but it all

seems far-fetched. The third generation of mobile services (3G) will be used by telecoms

to gain more spectrum. These services will be used only in urban areas.

23%

18%

13%11%

5%

18%

1%

1%

10%

Market Share (30/9/09)

Bharti Airtel

Vodafone Essar

BSNL

IDEA

Aircel

Reliance Communications

MTNL

Loop Mobile

Tata Teleservices


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3.1.2 Handset Manufacturers

Graph 3.1.2 Showing Handset Manufacturer

Source: - www.coai.com

India's telecom equipment manufacturing sector is expanding and is anticipated to

become one of the largest globally by 2010. Mobile phone production is estimated to

grow at a CAGR of 28.3%, totaling 107 million handsets by 2010. Nokia Leads the

market with whopping 60% share. Korean giant Samsung is looking forward increase its

market share to 20% through aggressive marketing.

60%

8%

7%

6%

5%

15%

Market Share

Nokia

Sony

Samsung

Motorola

LG

Others


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3.1.3 GSM v/s CDMA

Graph 3.1.3 Showing GSM v/s CDMA

Source: - TRAI

India is one of the few countries in the world where GSM is preferred to CDMA segment

by a large margin in terms of subscriber numbers.

26%

74%

Market Share

GSM

CDMA


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4. REGULATORY FRAMEWORK:

INDIAN TELECOM INDUSTRY FRAMEWORK

WPC Spectrum Management

DOT Licensor and

Frequency Management for

Telecom

GoT-IT

Handles Ad-hoc issues

TRAI

Independent Regulator

TDSAT Disputes Settlement

Body

GSM Operators

Vodafone

Airtel

Bharti Idea

Spice

Integrated Fixed

Line

BSNL, MTNL

ILDPlayers

VSNL

Private CDMA

Reliance, TTSL

IndianTelecom

Industry

Frame-

work


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4.1 Important regulations and laws passed:

DoT is the main body formulating laws and regulations for the Indian telecom industry.

Graph 4.1 Showing regulations and laws passed

Source: - TRAI; 2) FITCH Report Note: - ILD refers to International Long Distance


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4.2 Impact of policy change on Indian Telecom Industry:

Graph 4.2 Showing policy changes

From the graph it can be clearly inferred that as a result of policy change from time to

time the number of subscribers base have increased and tariffs have come down. On

overall basis there is a win- win situation for the telecommunication industry.


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5. FALLING ARPUs

Competition

The price war's impact on revenues is already apparent. "The brutal tariff war that has

forced all operators to slash call rates has also resulted in the sector's sales figures dipping

over the past six months despite the addition of 80 million customers in the period. The

industry clocked about Rs. 38,755 crore in September2009, which was lower than the

sector's revenues in the quarter ended December2008, when it recorded Rs. 39,408 crore

despite having 125 million fewer customers then.

The report notes that 13 operators are fighting for share in a market that many believe can

optimally support four or five -- and four more players are planning to enter the market

by next year.

"Industry revenue growth for the quarter ending September2009 was 1.7% quarter-on-

quarter (Q-on-Q) and 8.7% year-on-year (Y-on-Y), substantially lower than subscriber

growth at 10.4% Q-on-Q and 49.6% Y-on-Y," says a report by equity research firm Enam

Securities. "The aggressive entry by new GSM players has compelled the incumbents to

reluctantly join the tariff war to protect their market share."

At Vodafone Essar, for instance, service revenues dipped 7% from the June quarter to the

September quarter. The EBITDA (earnings before interest, taxes, depreciation and

amortization) margin is also down from 28.4% in the first half of2008-09 to 24% in thecorresponding period of2009-10. "The decline in the EBITDA margin was primarily as a

result of the expansion into rural areas and market price reduction offset by scale

efficiencies," says Samaresh Parida, director, strategy at Vodafone Essar. He adds that

this is entirely in line with industry performance; as noted by ETIG, Vodafone has

actually done better than most of its competitors on the share-of-revenue metric.

Vodafone has also joined the one paisa bandwagon. "One paisa per second tariff is one of

the several tariff options available to our customers," says Parida. "We continue to also

offer many per minute tariff options. Our customers can make the choice."

Giving a choice is not necessarily pro-consumer. According to Mahesh Prasad, president

of RCom, Indian telecom companies combined have 2,700 different billing plans across

the country. On October 5, RCom launched a 50 paise per minute plan called Simply

Reliance. Under the plan, all calls -- whether local or long distance, to landline or mobile

-- will cost only 50 paise a minute. Currently, RCom itself has 265 plans. "Henceforth


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there will be just one plan," said Prasad, though older customers will be given a six-

month period to migrateRCom opened another front in the price war -- SMS (short message service). The

company unveiled two plans charging one paisa per SMS message. Under the first,

customers pay Re. 1 a day and are entitled to send an unlimited number of free SMS

messages. Alternatively, you can buy a Rs. 11 monthly voucher and each SMS message

will cost just one paisa.

Tata DoCoMo has been heavily promoting its one paisa per characterDiet SMS plan.

Now, it is inevitable that they and other competitors will have to match RCom's rates.

This will not mean a huge drop in revenues:

According to estimates, SMS brings in about 5% of total telecom revenues for Indian

companies. But companies' bottom lines will still be affected. The Telecom Regulatory

Authority ofIndia (TRAI) has found that each SMS costs the service providers less than

one paisa, while they have been charging customers 60 paise to Re. 1 (depending on the

plan).

Why has the competition heated up so intensely?

New entrants like Tata DoCoMo that are capturing market share are one reason. For the

Tatas, the paisa per second plan appears to have worked. According to TRAI data, the

number of telephone subscribers in India increased to 525.65 million at the end ofOctober, up from 509.03 million in September. Tata DoCoMo grew 23.16%, the highest

for all operators. In absolute numbers, the Tatas added about four million subscribers

against three million each for Vodafone and Bharti and two million for RCom. This is no

flash in the pan; in July and August, the Tatas showed the fastest growth as well.


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Rural India

The rural market is the other problem area. This is where the growth is -- but it is also

where very little money can be made. "Rural markets are still under-penetrated" -- at

about 15% -- so there is still a strong upside merely on customer addition.

The hitch is that some of the plans don't make money. The average revenue per user

(ARPU) is now down to around Rs. 200 a month for the industry. In rural areas, however,

it is estimated to be in double digits. It certainly makes it harder to ensure viability, as the

bulk of users are lower-income and less tech-savvy.

The most [celebrated] aspect of the Indian telecom revolution, as well as its prime driver,

was the mind-boggling reduction of rates in a short span of time. Competition among

private players was most certainly the key for this. But the model seems to have been that

high-margin products would subsidize access. It now seems that most Indian users are

unlikely to use the more sophisticated and high-margin features for a long time to come.

Nor is the typical handset amenable to most such features. So ARPUs are likely to stay

low for a long time, and the subscriber may not move beyond the most basic functions.

The per-second billing will just worsen the ongoing price war."

If looking inwards -- to rural India -- doesn't work in terms of immediate returns, there

may be a solution in looking outwards. Indian companies are trying to balance their bets

by foraying abroad. If the low-cost model works there, it could bring some relief to the

bottom line. The second merger attempt between Bharti and MTN of South Africa may

have failed, but the Essar Group (which owns a 9.9% stake in Loop Telecom, apart from

its Vodafone Essar interests) has just bought up Dhabi Telecom's African assets. And the

public sector MTNL and BSNL are eyeing Zain Telecom ofDubai.

Indian telecom companies are looking at markets outside India to be able to grow

revenues at the historical pace they are used to. The markets that they have attempted to

enter are ones where tariffs are relatively high and future growth through subscriber

addition is possible. In other words, replicating an Indian model of telecom growth is

possible in such countries. If execution is handled well, there is no reason to believe that

such an approach will not work.

Telecom is essentially a business of scale. So the bigger the scale, the lower the costs --

proportionately -- are going to be. Hence, venturing abroad would be natural in some


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sense. It may work, provided the regulatory issues and infrastructural and cross-border

operational integration challenges can be handled."

The industry should be growing steadily in the years to come. There is likely to be a

shake-up with some consolidation and exits, and rates may stabilize or even rise a bit.

What we are seeing is not so uncommon for new industries -- recall the dot-com bubble

and bust in the first phase ofInternet growth -- when players overshoot on the basis of

overoptimistic projections. This may be the time for a reality check and reassessment for

the players as well as regulators. But in the long run, the prospects for the industry are

quite good."

The future of the industry needs to be seen across various timelines. The next six months

will see new operators completing their footprint and at least three serious operators

launching services in the country. All of this points to an intense phase of competition

and price cuts. Factor in the 3G auction, and one would see below par profitability for

[telecom companies] over the next six to eight quarters. The industry could also expect to

see consolidation as much as and as fast as regulation allows it to happen."

The number of players in the Indian market has led to fragmentation, and that needs to be

addressed. We feel market forces must be allowed to have a freer play in India and that

will certainly lead to a consolidation phase ahead. Telecom, particularly mobile

telephony, has become an integral part of India's social and economic fabric. As an

industry, it is here to stay.


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6. KEY TRENDS IN TELECOMMUNICATION INDUSTRY:

6.1-Mobile NumberPortability

Number portability is a circuit-switch telecommunications network feature thatenables end users to retain their telephone numbers when changing service

providers, service types, and or locations.

Why mobile number portability (MNP)?

When fully implemented nationwide by both wireline and wireless providers,

portability will remove one of the most significant deterrents to changing service,

providing unprecedented convenience for consumers and encouraging

unrestrained competition in the telecommunications industry. In short, this is thebest method to increase the efficiency of the service provider by increasing the

competition, thereby ensuring better services in all respects.

From the subscribers perspective, this is a deceptively simple and very welcome

change, because they can change wireless service providers without worrying

about notifying friends, family and business contacts that their wireless number is

changing. In addition, being able to port a number from one provider to another

eliminates the hassle and expenses of changing business cards, stationery, invoices

and other materials for businesses.

From the wireless carriers perspective the change is anything, but simple.

Virtually all of wireless carriers systems are affected. Especially any system that

relies on mobile identity numbers (MINs) or mobile directory numbers (MDNs)

will be affected.

Examples of critical systems and processes that would be affected are: billing,

customer service, order activation, call delivery, roamer registration and support,

short messages service center, directory assistance, caller ID, calling name

presentation, switches, maintenance and CSC systems, home location registers

(HLRs), and visiting location registers (VLRs).


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Some of the obstacles identified in implementing MNP are as follows:

Huge costs

One of the most common barriers in MNP implementation, within any country, has beenthe implementation cost. Service Providers have been constantly bargaining for time,

based on the cost factor, from their respective governments.

The experience of developed countries exhibits that local number portability for fixed

wireline was introduced within two to three years of introduction of competition to

incumbent state telecoms. The cost estimate for the implementation of WNP in developed

nations like the US can be very helpful for the other countries, who wish to think on the

lines of number portability. To add on increased marketing costs are to be realized as the

carriers look to lock up their current base before number portability is implemented, andthen aggressively pursue the customers of other carriers thereafter.

Customer Retention

Every subscriber in a race to retain its customer would like to offer its customers best

services so as to save them from porting. Its like a blessing in disguise for the customers,

as they would get better service irrespective of the carrier, albeit with the same number.

Infrastructure Upgrade

To support WNP, a company has to upgrade both its hardware and software capabilities,

which will amount to some cost. Softwares need to be upgraded to provide proper routing

of calls.

The carriers need to upgrade their networks to handle portability requests. The provider,

which has its portability compatible would be expected to attract maximum customers

and will emerge the winner.

6.2-3G

3G, or third generation, is the generic term used for the next generation of mobile

communications systems. The new systems will enhance the services available today and

offer multimedia and internet access and the ability to view video footage.


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With a 3G phone and access to the 3G network you can send and receive video calls,

watch live TV, access the internet, receive emails and download music tracks, as well as

the usual voice call and messaging services found on a mobile phone.

Technically, the main difference between 3G and 2G networks is how quickly data can

be sent and received. 3G networks can send data up to 40 times the rates of earlier digital

networks, which means that in addition to audio, graphics and text, 3G customers, can

also send and receive video content, in 3G coverage areas. They provide service at 5-10

Mb per second.

3G was introduced in the United States early in 2002. By late 2004, it was finally

providing transmission speeds sufficient to handle full-motion video, albeit over short

periods of time (15 seconds to three minutes, in most cases). The third generation

technology used in the UK is called UMTS. These services operate at 2100 MHz

(2.1GHz).

U pgrading to 3G will be an expensive affair for all telecoms. All telecom hardware

vendors would have another reason to drool in India!

While we are still not sure when India will get 3G, the technology has already moved on

to beyond 3G or 4G. A 4G system will be able to provide a comprehensive IP

solution where voice, data and streamed multimedia can be given to users on an

Anytime, Anywhere basis, and at higher data rates than previous generations.

For any telecom to offer 3G the government has to allocate the spectrum. Allocation of

spectrum is becoming a mess but ultimately it will be solved (after all it cannot be more

complex than pleasing the Left in the government!!).

Mobile users in India will have a far better experience after 3G becomes a reality.

It is anticipated that India will soon conduct 3G auctions. Although the dates for these

auctions have been moved, it is certain sooner or later they will happen. There is

continued debate with the regulators on how many 3G licenses should be auctioned, andhow much should be the floor price and competition and other issues. It is very likely that

these issues will be resolved and in some form or fashion the auctions will go on. When

the auctions are successfully completed and new networks come to life, the users can

look forward to added features and functionality with 3G.


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With the expectation of some great new ways to use these new networks, here are some

predictions and services that can become real.

Video chat is probably one of the exciting features that can become a viable and

inexpensive option with 3G networks. It will be a great way to see folks while we chat,

and perhaps a good value added feature to push on the new network. With the incoming

calls into India expanding by the day, and if the cost of incoming traffic is free to the

users in India, you can bet on the video use to grow exponentially.

Movies on the mobile can become a value added feature that perhaps will allow the

bored commuters to subscribe and enjoy. Imagine the super rich of Mumbai orDelhi or

any other major metro in India being driven around in the traffic. They sure would love to

get news and entertainment on the go, and even perhaps a movie they would like to watch

on demand.

The great Indian roads certainly can be more accessible with GPS and directions from the

mobile. The complexity of new development and old time infrastructure makes life for

new drivers very difficult due to the poorly marketed roads. Even experienced drivers

have great difficulty with navigation. 3G can certainly get voice activated directions as

you go and make life simpler for drivers. It will be a great idea to have directions on the

go in multiple languages.

Perhaps one of the favorite wishes is to get help with the kitchen. A live demonstration

of cooking on the phone so your daughter in the far away land can watch you and follow

in creating amazing dishes for friends. Several amazing things can happen by simply

linking phone to a home computer for recipe management. Instead of calling mom in

India everything you need help, 3G can store and retrieve information on a need basis.

It may be possible to replace the use ofYahoo Messenger for showing off what the new

baby is doing to folks in India. There will be no more hanging around the yahoo

messenger and pointing the cam towards the action, as the 3G phone can go where ever

to show off. With the price per minute of telephony low enough, it will be a great way to

start showing off the snow, beaches, people, parties and whatever we can to folks inIndia. Oh my God, the possibilities of sharing personal space is endless, provided we

dont go overboard.

While making a wish list of things to do from a 3G network, there are amazing ways to

expand the business and support infrastructure to support the networks. Mapping, video,


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GPS, storage, voice and data retrieval, shopping, file storage and many such simple and

economical solutions can be implemented to meet personal and professional needs of the

users.

3G should move the heavy duty users on to the new networks and free up the congestion

of the existing GSM and CDMA networks. This has dual benefit as the new users in both

networks will no longer experience the congestion that has become a way of life in

crowded areas.

These networks will foster a new generation of developers who will cater to the value

addition needed while creating more telecom jobs, more companies in mobile

applications, and more internet to mobile connectivity. 3G surely should bring new

energy into the great Indian telecom market.

Whatever the price they will command in an auction, 3G promises more users for the

Indian mobile market. Here is to hoping that these auctions will bring a lot of money to

the Indian Treasury and also great deal of value addition to the users. It will be another

fantastic year for mobile markets in India, with great value in services with the highest

quality.

There is no problem of customer readiness with the Indian Telecom market. It is the

greatest opportunity despite a 40% penetration. The high end usage that comes with 3G

networks has a pent-up demand and when introduced to market will satisfy the customers

in waiting.

The opportunity in telecom market expansion and market valuation is enormous. By

taking advantage of the natural monopoly that has been afforded to BSNL and MTNL,

along with a little bit of planning will bring huge rewards to government ofIndia, while

providing to the immediate needs of the customer.

6.3-Wimax v/s 3G

The WiMAX vs. 3G cellular showdown is poised to become one of the next great market

battles in the telecom industry. Fortunes will be made and lost in this battle, and the user

experience of the Internet will be irreversibly changed in the process. 3G scores for

voice; Wimax may lead to increased broadband penetration.


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With the Department of Telecommunications gearing up for simultaneous release of 3G

and WiMax spectrum, analysts expect the two emerging wireless technologies to battle it

out for supremacy.

WiMax or Worldwide Interoperability for Microwave Access is a telecom technology

that enables wireless transmission of data. In India, companies like Tata Communications

Internet Services, Intel, Bharat Sanchar Nigam Ltd, Bharti Airtel and Reliance

Communications are the proponents of WiMax.

Most of the companies have had beta-runs of the technology. According to a top official

with a service provider, telecom service providers are in various stages of WiMax

implementation. Some companies have commercially launched fixed WiMax services in

certain cities.

While opponents of WiMax say currently it cannot be used for mobile applications, the

first mobile WiMax network was introduced in Italy . Another reason for the industry

pinning its hopes on WiMax is its ability to increase the broadband penetration. WiMax

makes huge sense for companies as it enables them to provide cheaper mobile internet

and broadband services, in turn, increasing the internet penetration.

However, this will adversely impact services like GPRS and e-mail on mobile as users

might move over to WiMax-enabled devices for data, even though they might stick with3G or2G spectrum for voice. The Telecom Regulatory Authority ofIndia has set a target

of20 million broadband connections by 2010 from the current 4.3 million. The industry

expects WiMax to bridge the gap.

According to a consultant of Ernst & Young service providers would mainly use the

technology for gaining traction with the customers, as providing the last mile over the

conventional digital subscriber lines would be time-consuming and costly.


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Table 6.3 Showing 3G andWIMAX comparison

3G WIMAX RESULT

Spectrum price To be auctioned DoT has

recommended 25%

of reserve price of3G spectrum.

Advantage WiMax

Spectrum Allocation Simultaneous Simultaneous Neutral

For Voice services Best technology Evolving technology Advantage 3G

Equipment/Standard Evolved over the

years

New technology Advantage 3G

Data download

speeds (fixed)

15 Mbps 70 Mbps Advantage WiMax

Data download

speeds (mobile)

15 Mbps 20 MBPS Advantage WiMax

6.4-IPTV

IPTV (Internet Protocol Television) delivers television programming to households via a

broadband connection using Internet protocols. It requires a subscription and IPTV set-

top box, and offers key advantages over existing TV cable and satellite technologies.

IPTV is typically bundled with other services like Video on Demand (VOD), voice over

IP(VOIP) or digital phone, and Web access, collectively referred to as Triple Play.

Because IPTV arrives over telephone lines, telephone companies are in a prime position

to offer IPTV services initially, but it is expected that other carriers will offer the

technology in the future. IPTV promises more efficient streaming than present

technologies, and therefore theoretically reduced prices to operators and subscribers

alike. However, it also adds many advantages that may play into market pricing.

One of the advantages ofIPTV is the ability for digital video recorders (DVRs) to record

multiple broadcasts at once. According to Alcatel, one leading provider, it will also be

easier to find favorite programs by using custom view guides.

IPTV even allows for picture-in-picture viewing without the need for multiple tuners.

You can watch one show, while using picture-in-picture to channel surf. IPTV viewers


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will have full control over functionality such as rewind, fast-forward, pause, and so on.

Using a cell phone or PDA, a subscriber might even utilize remote programming for

IPTV. For example, if a dinner function runs longer than expected; you don't have to miss

your favorite program. Just call home and remotely set the IPTV box to record it.

However, the real advantage ofIPTV is that it uses Internet protocols to provide two-way

communication for interactive television. One application might be in game shows in

which the studio audience is asked to participate by helping a contestant choose between

answers. IPTV opens the door to real-time participation from people watching at home.

Another application would be the ability to turn on multiple angles of an event, such as a

touchdown, and watch it from dual angles simultaneously using picture-in-picture

viewing.

One can also receive Web service notifications while watching IPTV for things such asincoming email and instant messages. If your IPTV is packaged with digital phone,

CallerID might pop up on screen as your telephone rings.

IPTV is already growing in the international market, with providers in many countries

including Japan, Hong Kong, Italy, France, Spain, Ireland, and the United Kingdom. In

the United States SBC, reportedly purchased a software delivery system for IPTV

services from Microsoft in 2004 for $400 million dollars. Alcatel is working with

Microsoft to develop a global solution for IPTV services, and Verizon has also made a

deal with Microsoft forIPTV software.

6.5-Derugalation

The Indian Telecom services sector was opened for private participation in 1994, based

on National Telecom Policy (NTP) framed in that year which initiated the first generation

reform process. However, in line with the rest of the world, the policy makers in India

adopted an evolutionary approach towards competition and opted for limited competition

that is allowing only two players in each of the four metro circles, which were opened for

private players.

Before 1999, call rates were Rs 16.80/min for both outgoing & incoming calls for all the

operators. In 1999 with the introduction of TTO (Telecom Tariff Order), call rates

slashed to Rs 6/min since the telecom operators were given autonomy to fix their rates

individually. For all of the operators taken for study call rates fell from as high as Rs. 5.4/


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min in 2002 to as low as Rs. 1.2/ min in 2007. While at present the call rates are slashed

to one paise per second where all telecom operators have introduced per second billing.

Due to competition introduced through deregulation of the Telecom sector, services of

operators have also improved as shown by increase in the talk time value available for

recharges of the same amount. Also the validity that customers used to get has increased

on the recharge of same amounts.

6.6-Expansion Move

India and its regulators and the government should encourage and become conducive to

expansion of Indian telecoms into the global networks. Helping with changes with

favorable laws and financial processes will bring the expansion plans to reality quickly,

and lead to continued growth in telephone density.

Global acquisitions will bring global market understanding into the already robust growth

in Indias own internal growth. Every country adapts to its own needs and looks at

becoming a market leader in its own space. When you combine two or more market

leaders the osmosis of better practices will flow within the merged entities and help in

further understanding the market dynamics, and providing benchmarks for learning from

each others successes.

India already receives about 5 times incoming calls compared to outgoing calls from the

country. A mega merger with any international telecom will create an opportunity forgreater share of the international long distance revenues with both incoming and outgoing

traffic. The operators can start to benefit from both ends of the origination and

termination traffic, and also save on costs they might be potentially paying to hand-off

calls to others. Another added benefit could be any preferential agreements both the

merging partners might have in place can come in handy for the merged network.

India has one of the lowest average revenue per user, and it will continue to be so due to

the economic structure of the country. Most nations have a much higher ARPU, and any

merger will immediately inflate the overall networks ARPU. A combination of additionalrevenue opportunities with roaming within the merged network, international long

distance, cost savings with the network management and maintenance, services, product

purchases, new product introduction and a slew of day to day activities, will certainly

enhance the value for shareholders. Economic expansion into off-shoot of

telecommunications with call centers, bandwidth management, tower construction and


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management, accounting and engineering are all aspects of the business that will benefit

from huge mergers.

India itself has allowed massive investments into its telecom space from global players

and investors and has benefitted greatly with the influx of expertise. Telecom India is one

of the three largest providers of employment, taxes and economic output. Time is now for

our telecom biggies to acquire or merge with other majors in the world to manage global

networks, and start to behave like global managers.

6.7-Long-Term Plans

India still offers great internal opportunity for long term growth with sustainable revenue

and profit opportunities in telecom.

Telecommuting

Billions of hours and dollars are spent on the streets fighting traffic and consuming fuel.

Let us not forget the pollution and all other costs of travelling. The stress is another factor

in simply getting from place to place. There is no place in India big or small where traffic

doesnt far exceed the capacity of the roads, and it is only getting worse.

With most urban India well connected, companies can start looking at telecommuting as

an option to ease the burden of traffic and cost. Internet and phone service is no longer

expensive, and can be deployed for a multitude of support services, and work at homeoptions for many jobs. Specially the telecom related services can be well handled away

from the offices and can be effective. Indian enterprise should take a leaf from many of

the western environments where working from home, and remote locations is common.

Wireless Villages

Close by tower can provide internet to villages nearby, and provide Internet access. Each

village can be a self containing telecommunications center albeit small. Many people

from the villagers already have mobile phones and already in the mobile user group and

bringing internet to every village will further develop their ability to access the world

through computers.


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VillageWeb Sites

Probably the most fascinating thing about India is its villages. Nowadays there are many

well educated people from the villages who no longer live there, leaving behind their

families. There are also a huge number of NRI who belong to the rural India. Adapting to

telecommuting, introducing wireless services into the villages will only enhance the

community to become a part of the global landscape. A simple website can be very

inexpensive to create and maintain. Perhaps this is also an initiative that the government

can undertake in real rural development programs.

Voter registration, weather bulletins, agricultural programs and updates, political news,

people and productivity issues, local happenings and other individualized information can

be instant to the village websites. Involving the local talent from the village will help in

keeping things up-to-date and informative.

Government can post the local project activity, development plans and any relevant

issues to the locals. Local schools and colleges nearby can be made responsible for

making every effort to keep data current and help maintain the websites. It may be a great

idea to include such activity into the daily learning for school and college going kids,

who will enthusiastically work on them and will learn the mechanics at the same time.

Online Education

Simply linking the wireless villages, websites and complete communications access willenhance the ability to learn from long distance. Both the rural children and adults will

benefit from online education.

Outside of the vast amount of free information available on the internet, it is simple to

design and provide online education. Every school with a small computer center can

serve the purpose of both real time and offline education. Children during the day time

and adults during the evening can benefit from learning.

As the country continues to grow, it is also important to have intellectual growth tocontinue to make the nation reinvent itself and adapt to the changing times. Be it

agricultural methods or software development India needs to keep learning and

improving to prosper forever, and no better ways to keep providing the edge to the people

than education. Online education is inexpensive and available all the time for people who

want to learn.


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While we should support global expansion of our homegrown telecom companies, we

should plan for continued growth within the country. If the new government plans to

wipeout all slums in India within 5 years, it can easily support to incorporate

telecommunications reach to 100% ofIndians in the same timeframe.


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7. INDIAN MARKET- COMPETITIVE ADVANTAGE:

India is the fastest growing free market democracy in the world. It has a mature and

dynamic private sector, which accounts for 75 per cent ofIndias GDP, and a market with

enormous potential due to its large size and diversity. It is also expected to achieve the

highest growth rate among the BRIC countries (Brazil, Russia, India and China). India

offers significant business opportunities to the services, as well as the manufacturing

sectors. This is because India offers benefits such as cost advantage in product

development and back-office processing and the large-scale availability of skilled

English-speaking professionals. The middle class population is also a significant market

for any business entity. AT Kearney ranked India as the second-most attractive

democracy in its FDI confidence index. The success of MNCs is a proof that India is an

attractive investment destination. Indias huge domestic market and buoyant economic

growth have always attracted foreign investors.

Graph 7.1 Showing GDP growth

Various factors are considered while investing in India.

Stable Economic Outlook


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A decade of reforms has opened the country to greater competition and spurred

industries to become more efficient. India is currently the fourth-largest economy

on PPP basis and is well positioned on a continuously increasing growth curve.

Indias emergence as a leading destination for foreign investment is a result of

positive indicators such as a stable 6 per cent annual growth, rising foreignexchange reserves of overUS$ 266.18 billion(July 24th 2009) and Foreign Direct

Investment (FDI) ofUS$ 15 billion. Goldman Sachs had earlier predicted that

India will become the third-largest economy in the world. However, it has now

revised its previous estimates and claims that by 2050, India will even surpass the

US and become the second-largest economy afterChina. The countrys economic

growth has become more attractive due to the rising share of the services sector in

the GDP.

Large Market PotentialAround 30-40 million people in India join the middle class every year. The

countrys upper middle class spends 6 percent of its earnings on telecom services.

India is one of the largest consumer markets in the world. Due to rapid economic

growth and rise in disposable income, the spending power of consumers is

increasing rapidly. It has been forecasted that 15 years down the line, Indians will

be approximately four times richer than they are today.

Graph 7.2 Showing Nominal GDP and Mobile spend of GDP

By 2013, another200 million people will be joining the league, representing an

exponential growth in the consuming classes. India will become a large consumer


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of world resources - be it natural or man-made, thereby offering numerous

opportunities to marketers around the globe. Approximately 33 per cent of Indias

population will be residing in urban areas by 2026, as against 28 per cent in 2001.

Large Talent PoolThe working age population is expected to rise by 83 per cent by 2026. India has

over 380 universities and about 1,500 research institutes, which churn out

approximately 200,000 engineers, 300,000 post graduates, 2,100,000 other

graduates and around 9,000 PhDs. This large base of skilled manpower offers

unparalleled advantages to the companies operating in India.

As a result, many multinational companies have either established operation hubs

in India to leverage this sizeable talent pool, or they have outsourced their work to

a third party inIndia. The numerous

BPOs and K

POs flourishing in

India are adirect consequence of companies choosing the latter option.

Low LabourCostCII estimates that manufactured product outsourcing accounted forUS$ 10 billion

in 2007. The value will escalate to US$ 50 billion by 2015. India has one of the

lowest labour costs among the developing countries, which is the foremost factor

for attracting multinational giants in every sector. The Ministry of Commerce,

Government of India, has estimated that off shoring operations to India can

provide a cost benefit of up to 40 to 60 per cent, as compared to developedcountries.

The country has also emerged as a major R&D hub with more than hundred

Fortune 500 companies based in India. An apt example is Nokia, which has set up

its manufacturing operations in India considering the long term sustainable

demand for mobile telephony. The company believes that this initiative will help

the company in reducing time to market and respond better to customer

requirements. It has pumped in US$ 150 million into its Chennai facility.


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8. INDUSTRY CONSOLIDATION:

Telecom players are looking to tap into global funds to finance their aggressive growth

plans. This will result in partnerships joint ventures and equity sellout to foreign players.

New license holders will continue to look to sell their stake at a premium.

New policies will seek to curb this license arbitrage. Smaller players with operations in

only a few circles will find in difficult to compete with the nationwide players. The

industry may see consolidation with these smaller operators being acquired by the larger

ones. Unbundling of the corporation will continue as companies will seek f or economies

of scale and lower startup cost by infrastructure sharing. 3G and WiMax license will spur

M&A and partnership activity.

8.1- Vodafone- Entry into India

Vodafone paid a discounted price of $10.9 billion in cash for acquiring the 52% stake

held by Hutchison Telecom International (HTIL) in Indian mobile firm Hutch-Essar.

HTIL declared a special dividend of 6.75 HK dollars per share following the completion

of the formalities. The final price was a reduction of $180 million from the originally

agreed price of $11.08 billion.

Vodafone is the largest mobile telecommunications network company in the world. The

deal gave them access to one of the fastest growing mobile markets in the world.

8.2- Ideas acquisition of Spice Telecom

There were three transactions as part of this acquisition; acquisition of shares of Spice, a

non-compete fee and a capital infusion of about Rs 7300 crores received from TM

International Bhd (TMI). With respect to shares, Idea acquired 40.8% stake of Spice

Communications at Rs 77.30 a share for Rs 2,716 crore. There was a share swap in which

Spice shareholders got 49 Idea shares for every 100 Spice shares held. An additional Rs

544 crore was paid to the promoters of Spice group as 'non-compete fee'.

The deal was strategically important for Idea Cellular as it was looking forward to

transfer itself into a pan-India telecom service provider.

Small players like Spice Telecom operating at only a few circles (Karnataka and Punjab)

will find difficult to compete with the nationwide players in the long run. So it was a win-

win deal for both companies.


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8.3- Tata Teleservices and DoCoMo deal

Japanese carrier NTT DoCoMo acquired 26 per cent stake in Tata Teleservices (TTSL).

The Tata DoCoMo-branded GSM service has already started in Southern India and

gradually will be expanded nationwide. DoCoMos international expansion plans have

not always proven successful, with the firm historically preferring to take small stakes in

firms and then try to influence their strategy. It has been less prepared to take majority

stakes and impose its will, as other leading carriers have chosen to do.

8.4- Bharti-MTN deal

Bharti Airtel has re-started its risky merger bid with MTN that could create a $61-billion

transnational telecom giant with combined revenues of $20 billion and over200 million

subscribers across Africa, Asia and Middle East, will be among the world's 10 biggest

telecom companies. The deal could be win-win for both parties.Bharti is under pressure in its home country due to severe competition and looking

forward to spread its risk across geographies.

The African telecom operator is also encountering some of the problems that its

counterpart in India is confronting. MTN may have higher ARPUs (in the range of $12-

20), but they are also falling fast. But unfortunately the deal didnt work out for both the

parties.


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8.5 FDI INVESTMENTS IN THE TELECOM SECTOR IN INDIA:

Graph 8.5 Showing FDI investments

The Indian telecom industry has always allured foreign investors. In fact, the cumulative

FDI inflow, from August 1991 to March 2007, in the telecommunication sector amounted

to US$ 7,513.22 million. This makes telecommunication the third-largest sector to attract

FDI in India in the post liberalization era. The investment was majorly in handset

manufacturing and telecom service provider.

With stable macroeconomic impetus and numerous other advantages, India has the

potential to become the electronics manufacturing hub of the world. Excited by the

record-breaking industry growth, investors have outlaid US$ 1.5 billion in the past two

and a half years in the Indian telecom sector. India will receive an additional US$ 2

billion investment in the next one year. With the world now recognizing Indias

manufacturing potential, the Indian telecom handset manufacturing market is likely touchUS$ 7 billion by 2010.

For instance-Nokia. The company has already produced 25 million handsets in its

Chennai facility. It will pump in an additional US$ 150 million to this set up. The

company exports around 20 per cent of its volume to South-east Asia, the Middle East

0

500

1000

1500

2000

2500

116 129

680521

1275.65

2345.38

FDI in Telecommunication Sector US $ million

FDI in Telecommunication

Sector US $ million


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and Africa. Local manufacturing allows companies to avoid 4 per cent countervailing

duties on imported handsets, thereby further reducing the cost.


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9. TECHNICAL ANALYSIS

In this section we would analyze some of the major stocks of the telecom sector with

respect to their performance over the last financial year.

Bharti Airtel

Graph 9.1 Showing Stock price of Bharti Airtel over the past year

From the above graph we can analyze that the stock price of Airtel has been quite volatile

over the years. At present the stock price is on the lower side compared to its pastperformance and is around its 52-week low which was 269.35. Its 52-week high is 518.

At present the stock is moving in range of272-277.

In the above graph the returns has been compared with that of Sensex and it clearly

indicates that the stock has underperformed compared to market index. The returns are on

the negative side at present.

This stock is the top pick for all investors at present as it has the potential to bounce back

and give hand some returns in future.

This stock is referred to be a part of the portfolio of an investor by almost all research

analysts and agencies.


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Graph 9.2 Showing MACD, RSI AND SLOW STOCHASTIC CHART OF BHARTI

AIRTEL

The stock is already below its Exponential moving average. Also as per the Moving

Average Convergence Divergence, it gives the buy signal for this particular stock at

present. The RSI and Stochastic Oscillator also gives buy signal for this stock at present.


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Reliance Communication

Graph 9.3 Showing Stock price of RCOM over the past year

The above graph shows that compared to market the stock has underperformed and the

difference is quite substantial. For the past three months there has not been any

substantial change in the stock price of Reliance Communications and is almost flat with

minute up and downs.

The 52-week high of the stock is 362while the 52-week low is 131.10. At present thestock is moving in range of155-160. At present the MACD chart shows a hold strategy

for this particular stock while as per Stochastic Oscillator the stock is already gone down

the 20% mark signaling buy.

On overall basis for long term perspective in mind it is wise to hold the particular stock

for some time.


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Graph 9.4 Showing MACD, RSI AND SLOW STOCHASTIC CHART OF

RELIANCE COMMUNICATIONS


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Idea Cellular

Graph 9.5 Showing MACD, RSI AND SLOW STOCHASTIC CHART OF IDEA

CELLULAR

The stock is already above its Exponential moving average of20, 50 and 200 days. The

MACD shows a buy signal for this particular stock. On overall basis the stock shows a

bullish trend at present. The stock price is in range of60at present. The 52-week high is

91.8while 52-week low is 42.


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10. ROAD AHEAD:

Telecom growth continues, revenue from India's telecom services industry is projected to

reach US$ 54 billion in 2012, as against US$ 31 billion in 2008.

Graph 10.1 Showing Mobile penetration

India is world largest untapped mobile market. From the above graph it is evident that

there is much scope left in the Indian market for the players to en-cash on. The industry

players are trying to devise various strategies and plans to achieve growth.

Acquiring new subscribers by expanding in Semi Urban and Rural India Selling more services to existing subscribers Government Initiatives


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Mobile VAS in Rural market

India has an urban population of about 26.8%andrural population is about73.2%. And

there are over 600,000 villages in India. But a vast section of the rural sector is still cut

off from the benefits of telecom services. The rural population of around 700 million is

waiting for its share of economic growth. Initially the big telephone companies focused

only on urban centres, which they felt were more profitable. However, this mindset is

gradually changing with the realisation that there is equal, if not bigger money in rural

areas.

It is estimated that a one per cent increase in rural connectivity can generate 0.5 per cent

economic growth. Thus a well-planned 10 per cent increase in rural connectivity can

propel India into double-digit growth and unprecedented prosperity.

Rural India possesses enormous potential in terms of economy and human resources.

Recent experiments have confirmed that ICT (information and communication

technology) helps improve the timeliness and efficiency of rural farm operations and

enhance income through producer-oriented markets. Hence the communication ministry

has requested the finance ministry for higher allocations from the USO Fund for

executing rural telephony network. The finance ministry has made a budgetary allocation

of 15 billion from the USO Fund.

The rural telephony targets include, providing 50 million telephones by 2007(i.e. one

phone per three rural households) and 80 million by 2010 (i.e. one phone per two rural

households) and provisioning mobile access to all villages with population more that

5,000 by 2006 and more than 1,000 by 2007.The Government is confident that the Bharat

Nirman Programme target of providing coverage to remaining 41,000 villages would be

met by March 2007 which will be much earlier than a schedule of November2007.

India plans to establish 0.25 million, village knowledge centres. The ICT industry can

establish rural call centres modelled on the Kisan Call Centre established by the Ministry

of Agriculture to provide domain knowledge in the services, agriculture and

manufacturing sectors. This spread will increase the volume of users and automatically

bring down bandwidth cost, with a spiralling effect on efficiency and economy.

Advanced telecom services are no longer considered a luxury but a necessity for all.


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Thus, providing telecom services to every individual in a country like India is a huge

challenge, and at the same time holds immense opportunities for those in the telecom

industry.

The next wave of Telecom growth will come from the bottom of the pyramid. For

majority of the population in the rural segment, the mobile phone is the first

communication device. Rural should not always be interpreted as poor and therefore

some categories of MVAS might apply directly to them. But whether the statement can

be extended to MVAS depends on some key factors.

One is to clearly identify the need of the rural segment, second is to communicate the

services to them i.e. generate awareness and thirdly, to provide an easy and cheap access

mode to the rural consumers. All these 3 are quite big challenges and therefore needs to

be addressed adequately for MVAS to take off in Rural India. Apart from theidentification of rural consumer needs and development of relevant content,

communication of these services to the rural population would be a bigger challenge.

One way to do this is to communicate through regional SMS for which a separate SMS

gateway needs to be installed. Literacy level of the geographical area will be another

limitation. Therefore the better communication option is Voice in regional languages.

The challenge with regional voice is not only investment but also blockage of the already

scarce spectrum.

MVAS is going to address two main needs of rural consumers- connectivity and

entertainment mode. Connectivity will provide Information VAS on Agriculture

necessary for the farmers livelihood e.g. mandi rates, weather, etc. Health, finance, job

opportunities etc are potential areas. Mobile also has the potential to evolve as a key

entertainment mode considering lack of other entertainment options in rural areas. The

industry has witnessed some type of content being downloaded more in small towns of

UP and Bihar rather thanin metros like Delhi and Mumbai. Therefore by leveraging on

these two aspects MVAS can be a success in rural area.

3G Handsets

The market for 3G in the country is expected to be huge with over 65 million wireless

subscribers, who use their handsets to access data services on the Web. These subscribers

are currently using mobile handsets which are internet-enabled and are potential

broadband subscribers with the deployment of advanced wireless technologies such as


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3G. According to Indian Cellular Association (ICA) about 5% of mobile users already

have handsets that can work on 3G spectrum.

In addition, out of all those possessing the 3G enabled handsets the number of people

who would use 3G services would be determined by the quality of content available.

Unlike most other countries, we are looking at 3G services not only as premium servicesbut also as an extension of2G.

Since our broadband penetration is appalling, 3G would provide a much required boost to

it. Given that mobile phones are much cheaper as compared to PCs, the demand for

broadband on mobile is expected to be much greater. More importantly, 3G will solve

problems more in rural India. Therefore the shift towards 3G would depend on

affordability of handsets along with the quality of content available.

3G will be a reality by September, finally.Economic Times dated 26th

February, 2010.

Mobile phone users will finally be able to access advanced data transfer and high-speed

internet on their handsets through 3G technology and broadband wireless access (BWA),

post-September 2010. The department of telecom (DoT) has set September as the

timeline when successful bidders will be allowed to use the allotted airwaves for

commercial operation.

The auction of 3G spectrum has been postponed for over two years now due to

unavailability of spectrum, indecisiveness on bid price and on number of players to beallowed in each circle.

The DoT was locked in a long battle with the defence ministry over the latters reluctance

to vacate 3G airwaves occupied by it. The government has now released a definite

timeline for auctions. As per the document released by DoT, the last date for submission

of applications for the operators is March 19. The mock auction will take place on April 5

and 6, which will be followed by 3G auction on April 9, 2010.

3G will provide an impetus to broadband growth in the country. We wish there wouldhave been equal number of slots in each circle, but the government is doing its best since

spectrum is scarce. But it will definitely help ease the pressure on 2G.


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The journey doesnt end over here but it still continues..

Amid signs of economic recovery, 2010 will be the year when mobile operators

worldwide protect their existing revenue channels while exploring new ones. Data

services will play an even more important role in 2010, supported by an enlarged mobile

messaging landscape that, in addition to SMS, will also encompass mobile email, mobile

social networking, and instant messaging (IM).

Contrary to many analysts' belief, the device platform landscape will not consolidate, but

further diversify as new platforms like Maemo, LiMo and Android take their market

share. As the battle between operators, device manufacturers, and internet portals for

value-added services (VAS) intensifies, operators will play their strongest card - their

billing relationship with the user.

In India, the prospects of the mobile VAS industry would be from the entertainment

services as the Indian population, seeking entertainment on mobile, constitute more of the

people between the age group of 18-35 years and makes 30 per cent of the total handsets

market in India. Currently, about 44 per cent of MVAS revenue in India is driven by

short messaging service application.

The mobile VAS is now not only restricted to urban areas but also has expanded to rural

areas where would see more VAS in data, banking, TV and gaming segments, which will

improve our profit margins over current SMS VAS. And as the 3G is at the gate, the

exciting youth will use more VAS in the coming years. Hence, multi-player online

games, wireless teleconferencing, larger screen size videos, m-commerce will gain

momentum too.

Mobile phones have entered into smaller towns, cities and villages expanding the

opportunity for adoption and use of value added services. The expansion of mobile

subscribers' base in rural areas presents a great opportunity to the MVAS industry to

grow. However, VAS providers should hit the rural segment with relevant infotainment

services such as economic data and agriculture-related information. The content has to be

delivered in a medium which is easily reachable and usable.


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The Battle Between Handset Manufacturers, Portals, and Mobile Operators Will

Intensify

In 2010, the battle for supremacy in value-added services will intensify in the triangle

between mobile operators, device manufacturers, and internet portals. Over the past fewyears, operators increasingly have come under attack in particular from device

manufacturers like Apple, RIM, and Nokia who are massively pushing device-specific

services, differentiating their product offerings, establishing direct relationships with the

end-users and locking them into services hosted by the manufacturers.

Premier examples of device manufacturer-specific and dependent services are Apple's

App Store, MobileMe, iTunes, RIM's BlackBerry Internet Services, as well as Nokia's

OVI. These services are very attractive to the end-user as they offer a great user

experience and unique functionality, but they also present a threat to mobile operatorswhich are increasingly at risk of becoming dumb bit pipes. If the mobile operators don't

fight back, all they will be left with is to provide the data transport and their

differentiation will be reduced to price per megabyte and speed of data transmission.

Operators would be sharing the fate ofISPs who have faced the results - dramatic price

wars and increasing churn rates.

Some industry observers have pointed towards Google's Android as the white horse that

would create an equal-level playing field, and some operators are endorsing this allegedly

open platform. However, Google, like Apple, really wants to be the premier value-added

service provider, and, not surprisingly, Android phones by default point to Gmail for

email, Google Talk for instant messaging and (of course) to Google's search engine and

application store - again reducing the role of mobile operators to deliver the bits.

However, the war is not over yet. Operators can fight back and remain in the driving seat

for value-added services by promoting operator-hosted and device-neutral value-added

services. Their chances of winning are quite good, in particular in emerging economies

where internet services have yet to take off in the mass market. A trump card of mobile

operators is their billing relationship with the end-user and their ability to control the

pricing for services. For example, operators can ensure success of their own email service

by offering a flat rate for accessing the operator-hosted email while charging volume-

based fees for accessing internet email, using their billing relationship as an 'unfair'

advantage.


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Diversification of Mobile Device Platforms Leads to an Increasingly Heterogeneous

Landscape

Just a few years ago, analysts were predicting a radical consolidation among mobile

device platforms with only two or three platforms controlling the majority of the market.Of course, these analysts were completely wrong, and the industry has taken an entirely

different direction. Now it seems that about two to three new device platforms are

introduced every year, leading to further diversification and an increasingly

heterogeneous device landscape.

Over the past few years, the industry saw the introduction of the Apple iPhone, the

Google Android platform and, more as a side note, the Palm WebOS. In 2010, we will

see a plethora of Android devices from various manufacturers and Nokia introducing

their first Maemo devices based on the Linux operating system. Others are expected toalso bet on LiMo, including NEC, Panasonic, and Samsung who introduced the first

Vodafone 360 handset based on this Linux platform. Nokia's Symbian continues to

command about 40 percent of the smartphone market, and RIM remains with their closed

proprietary platform. Windows Mobile, which once was supposed to be one of the few

remaining platforms and a main consolidator, seems to be dwarfed, leaving Microsoft's

platform with a single digit market share.

On top of that, the industry continues to use a wide variety of proprietary operating

systems in their mass market feature phones which, despite common belief, will continue

to represent the vast majority of devices shipping to market for the next few years.

All of these platforms have a completely different runtime environment, incompatible

with any other platform. This increasingly heterogeneous device landscape is presenting a

growing problem for developers of messaging applications, in particular for those which

require proprietary client software to be down

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