Indian Telecom Industry - Industry Analytics

Report on Telecom Service Provider IndustryReport prepared by Group VI Section B As a fulfillment of the course in Industry Analytics Post Graduate Program 2008-2010 Industry Report on Telecom Service Provider Industry Report prepared by Group VI Section B Members 1. Ajay Goyal 2. Geetanjali Ghosh 3. Natasha Jain 4. Ritesh Bhansali 5. Satam Roy As a fulfillment of the course in Industry Analytics Post Graduate Program 2008-2010 DECLARATION This is to declare that this report on “The Telecommunications Service Sector” has been made for the partial fulfillment of the course: Industry Analytics in Term – III of PGP (Batch 2008-2010) by the group members. The work was undertaken by the following members. The members express that the contents of the report have been done jointly and the views contained therein have been discussed and deliberated in full. The group takes responsibility of the contents and agrees to go through the review process. MEMBERS 1. Ajay Goyal SIGNATURE 08PG077 2. Geetanjali Ghosh 08PG089 3. Natasha Jain 4. Ritesh Bhansali 5. Satam Roy 08PG101 08PG113 08PG125 Post Graduate Program 2008-2010 ACKNOWLEDGEMENT At the successful completion of our project, we would like to express my sincere gratitude to all the people without whose support this project would not be completed. At the onset, I would like to thank my institute “Alliance Business School” for giving us the opportunity to undergo this research project. We would also like to acknowledge the constant help and encouragement of our project guide Prof. Samik Shome, who has given his valuable suggestions and expert guidance and support. We would also like to thank all those who have directly or indirectly helped us in the preparation of this report. EXECUTIVE SUMMARY This report examines the emergence of innovation and value creation for enhancing customers' experience, as a result of increasing competition in the Indian telecom industry during the late 1990s and early 2000s. The report provides a detailed account of the evolution of the Indian telecom industry. It traces various developments in the industry before, during and after the liberalization of the Indian telecom sector. It also provides information about the increasing popularity of cellular services which led to the emergence of several private telecom operators like Bharti Tele Ventures, Hutchison Telecom, Idea Cellular Ltd, Reliance Telecom Ltd, etc. Due to the huge market potential even public sector undertakings like BSNL and MTNL have also begun offering cellular services apart from basic wire line services. The fast track growth of the Indian telecom industry has made it a key contributor to India’s progress. India adopted a phased approach for reforming the telecom sector right from the beginning. Privatization was gradually introduced, first in value-added services, followed by cellular and basic services. An independent regulatory body, Telecom Regulatory Authority of India (TRAI), was established to deal with competition in a balanced manner. This gradual and thoughtful reform process in India has favoured industry growth. Today, there are more than 225 million telecom subscribers in India. Every month, 6-7 million new subscribers are added. Upcoming services such as 3G and WiMax will help to further augment the growth rate. Furthermore, the Indian economy is slated to sustain its 7-9 per cent growth rate in the near future. This is supported by the political stability that the country is experiencing currently. India’s demographic outlook makes it one of the largest markets in the world. A conducive business environment is also created by a favourable regulatory regime. There exists enormous business potential for telecom companies on account of the country’s low tele-density, which is close to 19 per cent presently. The Indian telecom industry is growing at the fastest pace in the world and India is projected to be the second largest telecom market globally by 2010. LIST OF TABLES Table 3.1: Telecom Statistics of the world Table 3.2: Outgoing Minutes of the world Table 3.3: International Comparison of tele-density Table 4.1 Companies and No. of Circles covered Table: 4.2 Number of broadband subscribers Table: 4.3 FDI Inflows into India’s Telecom Industry (1991-2007, in Rs million) Table: 4.4 Year wise production and export of telecom equipment-manufacturing sector Table: 4.4 Indian Telecommunications at a glance Table: 7.1 FDI Policy for different telecom sectors Table: 7.2 Actual Inflow (Year Wise) of FDI in Telecom Sector from April 2000 to August 2008 Table: 7.3 Actual Inflow of FDI in Telecom Sector Country -wise (from January 2000 to August 2008) Table: 7.4 Actual Inflow of FDI in Telecom Sector -Sector-wise as on August, 2008 Table: 7.5 Capital Market data Table 9.1: Key Ratios of Bharti Airtel Ltd. Table 9.2: Key Ratios of Reliance Communications Ltd. Table 9.3: Key Ratios of Vodafone Essar Ltd. Table 9.4: Key Ratios of BSNL Table 9.5: Key Ratios of Idea Cellular Ltd. Table 9.6: Key Ratios of Aircel Cellular Ltd. Table 9.7: Key Ratios of MTNL Table 9.8: Key Ratios of BPL Communications Ltd. (2006-2007) Table 9.9: Key Ratios of HFCL Infotel Ltd. Table 9.10: Key Ratios of Shyam Telecom Ltd Table: 9.11 Inter-Company comparison of top 5 companies Table: 9.12 Inter-Company comparison of bottom 5 companies LIST OF FIGURES Figure: 3.1 Growth in fixed lines, mobile cellular subscribers, estimated Internet users and subscribers to mobile broadband networks, in billions, 1995-2007 Figure: 3.2 Broadband subscribers by region, 2007 Figure: 3.3 Fixed and mobile broadband evolution in developed and developing countries Figure: 4.1 Wireline Subscriber Figure: 4.2 Wireless Subscriber Figure: 4.3 Internet Subscriber Figure: 4.4 Broadband Subscriber Figure: 4.5 Growth of Tele-density Figure: 4.6 Market share of wireless service providers (as on 31st March 2008) Figure: 4.7 Subscriber growth of wireless services (GSM and CDMA) Figure: 4.8 PSU Operators Subscriber Base Figure: 4.9 Private Operators Subscribers Base Figure: 4.10 Share of pubic and private sector IPS (in lakhs) Figure: 4.11 Set top boxes in CAS notified area Figure: 6.1 Year wise cellular tariff and no. of subscribers Figure: 7.1 Employment Potential of Indian telecom industry Figure: 9.1 Market Share of Telecom Companies as on 31st Jan’09 TABLE OF CONTENTS CHAPTER PAGE NO. 1. Introduction 1 2. 4 Review of Literature 3. Global Overview 12 4. Indian Overview 25 5. Industry Structure 45 6. Government Policy Analysis 53 7. Economic Factors and Its Implications 65 8. Analytical Framework 83 9. 10. Company Analysis 98 Trend and forecast 134 11. Bibliography 147 Chapter 1 INTRODUCTIO N 1.1 HISTORY INDUSTRY OF TELECOMMUNICATION The history of telecommunication industry started with the first public demonstration of Morse’s 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 Carrier Communications 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&T and 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&T ‘s 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 telephone manufacturing 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. Beginning of telecommunication in India  1851 First operational land lines were laid by the government near Calcutta  1881Telephone services introduced in India  1883  Merger with postal system  1923 Formation of Indian radio Telegraph Company  1932 Merger of ETC and IRT into Indian Radio and Cable Communication Company  1947 Nationalization of all foreign telecommunication companies to form the posts, telephone and telegraph, a monopoly run by the government’s ministry of communications  1985Department of telecommunication established , an exclusive provider of domestic and long-distance services that would be its own regulator  1986 Conversion of dot into two wholly government – owned companies the VSNL for international telecommunication and MTNL for services in metropolitan areas  1997 Telecom regulatory authority created Telecommunication is important not only because of its role in bringing the benefits of communication to every corner of India but also in serving the new policy objectives of improving the global competitiveness of the Indian economy and stimulating and attracting foreign direct investment. Indian Telecom industry is one of the fastest growing telecom markets in the world. In telecom industry, service providers are the main drivers; whereas equipment manufacturers are witnessing growth and decline in successive quarters as sales is dependent on order undertaken by the companies. Chapter 2 REVIEW OF LITERATURE REVIEW OF LITERATURE Girija (1998), in its article “Socioeconomic Implications of Telecommunications Liberalization: India in the International Context” says that Telecommunications restructuring have evolved differently in Asia and Latin America. While Asian governments have moved cautiously in bringing changes to the sector, Latin American nations have implemented radical ownership and market transformations. The Indian telecommunications reform falls in between these two general regional trends. The choice of a high component of competition, increased private participation, and no privatization of the national carrier set conditions that will trigger unique socioeconomic effects. This article identifies and highlights the likely implications of the Indian reform on key economic and social issues, such as the cost of services, cross-subsidies, network interconnection, private investments, universal services, employment, and the possible rise of an information-intensive economy. It does so by comparing and contrasting the Indian experience with dominant reform strategies elsewhere in the developing world. T.H. Chowdary (1999) discusses how Telecom reform, or demonopolization, in India has been bungled. Shaped by legislation dating back to the colonial era and post Second World War socialist policies, by the mid-1980s India realized that its poor telecommunications infrastructure and service needed reform. At the heart of the problem lay the monopoly by the government’s Department of Telecommunications (DOT) in equipment, networks and services. The National Telecom Policy 1994 spelt out decent objectives for reform but tragically its implementation was entrusted to the DOT. This created an untenable situation in which the DOT became policymaker, licenser, regulator, operator and also arbitrator in disputes between itself and licensed competitors. He discusses the question: ‘Why did India get it so wrong? and What India should do now? Anand (1999), in his article named “India's economic policy reforms” says that India was embarked on economic reforms in July 1991, in the wake of a balance of payments crisis. In this article, an attempt is made to review two books and a set of World Bank reports concerning the progress of these reforms. Issues concerning economic policy, impact of the reforms on poverty, sectoral issues relating to agriculture, industry and infrastructure are briefly discussed. As reforms enter a more difficult phase, several challenges remain. Some of this fall under the “economic agenda'' of measures needed to maintain economic growth; others can be termed the “development agenda'' of improving human development. Progress with regard to the former is not sufficient to produce results concerning the latter. Bhattacharya (2000) constructs a vision of the Indian telecommunication sector for the year 2020. The paper aims at isolating agents of change based on international experiences and situates India in the development continuum. The agents of change have been broadly categorized into economic structure, competition policy and technology. Das (2000), in her paper described the Liberalisation of the Indian telecommunications services which started in mid nineties with no change in the existing public monopoly structure, entirely controlled by Department of Telecommunications (DoT). In order to evaluate any proposed industry structure, it is essential to analyse the production technology of DoT so as to determine the rationale of liberalisation and sustainability of competition. Accordingly, the researcher estimates a frontier multi-product cost function for DoT, where the cost function has been duly modified to account for the production technology of a public monopoly. The study finds that although DoT displays high allocation inefficiency, it is still a natural monopoly with very high degree of sub additively of cost of production. This study implies that the choice of any reform policy should consider the trade-off between the loss of scale and scope economies and cost saving from the reduction in inefficiency of the incumbent monopoly in the event of competition. Rao (2000), in her article named “Internet service providers in India”, provides a broad view of the role of an Internet service provider (ISP) and the factors to be considered before entering the ISP market. Describes the Internet/ISP scene within India and discusses the configuration of local, regional and national level ISPs, and the supporting infrastructure. She also identifies the various success factors. The global Internet scenario is discussed regarding the phases of the Internet in India, i.e. pre and post commercialization. The main players are described: ERNET, NICNET, STPI, VSNL, MTNL, Satyam Infoway and Bharti-BT. The financial and legal implications are highlighted in the Indian context. Many companies entered the nascent ISP business in India due to deregulation. Building local content, foreknowledge of new Internet technologies, connecting issues, competitiveness, etc. would help in their sustainability. She concludes that though many companies entered the nascent ISP businesses in India due to deregulation, many of them are unlikely to survive in the longer term. Vrmani (2000) estimates the contribution of telecommunication (or telecom) services to aggregate economic growth in India. Estimated contribution is distinguished between public and private sectors to highlight the impact of telecom privatization on economic growth. Knowledge of policy determinants of demand of telecom services is shown to be essential to enhance growth contribution of telecom services. Using a recent sample survey data from Karnataka State in South India, price and income determinants of demand for telecom services are estimated by capacity of telephone exchanges Estimation results offer evidence for significant negative own price elasticity and positive income elasticity of demand for telecom services. Narinder (2004), in his article “Enhancing Developmental Opportunities by Promoting ICT Use: Vision for Rural India” talks about the foremost benefits of Information and Communication Technologies (ICTs) in developing countries that can be helpful in improving governance including public safety and eradication of illiteracy. The benefits of ICTs have not reached the masses in India due to lack of ICT infrastructure, particularly in rural areas, where two-third of the population of the country lives. Even in cities and suburban areas, use of ICTs is not popular due to lack of awareness to its use, computer illiteracy, and absence of practical applications. India is the largest country in South Asia, with a population of over one billion people and its telecom sector is presently experiencing fast growth phases. However telephony penetration in villages is less than two percent of the rural population and about 15 percent of the villages are still without any telephony service. Universal access to ICTs in rural areas has been planned and is being implemented through Public Tele Info Centers having voice data and video, as majority of villagers in India cannot afford a separate home connection. Illiteracy in rural areas is as high as 40 percent and in some tribal belts hardly about 20 percent people are literate. There are 35 million children in age group of 6–11 years, who are out of school and one out of four drops out during primary classes. Education and training, therefore, must be given the top priority if advantages of ICTs are to be harnessed. Indian economy is agriculture based and employs maximum workforce. Improvement in agriculture productivity can help in reducing rural poverty. Adoption of ICT in agriculture will play an increasingly important role in crop production and natural resource management. The other critical factor is technological challenges for universal access to ICTs to bring down the network access cost. Nikam, Ganesh, Tamizhchelvan (2004), analyses that changing face of India in bridging the digital device. He reiterated - “India lives in villages” said the Father of the Nation, Mahatma Gandhi. With 1,000 million people and 180 million households, India is one of the biggest growing economies in the world. With the advent of the Information, Communication and Technology (ICT) revolution, India and its villages are slowly but steadily getting connected to the cities of the nation and the world beyond. Owing to the late Rajiv Gandhi, India is now a powerful knowledge economy, and though India may have been slow to start, it certainly has caught up with the West and is ahead in important respects. The Government, the corporate sector, NGOs and educational institutions have supported rural development by encouraging digital libraries, e-business, e-learning and e-governance. The aim of this paper is to touch upon and highlight some of the areas where, by using ICT, the masses have been reached in this way. A follow-up paper will outline collections of significant cultural material which, once national IT strategies are fully achieved, could form part of a digitally preserved national heritage collection. Dey (2004), in her article talks about the discussions between the Federal Communications Commission (FCC) and communications policy makers and regulators in other countries and how they have gleaned several clusters of issues where further research would directly benefit them. Recently, there have been two notable shifts. First, as the acceptance of the competition model over the monopoly model for telecommunications markets takes deep effect in regulators all over the world, questions regarding process and procedure for regulation are becoming ever more urgent. This paper discusses current questions regarding decision making, enforcement, and understanding consumer issues that arise often in the FCC's discussions with other regulators. Second, technological change is potentially shifting market definitions. In the FCC's discussion with other regulators over the last two years, the overlap of wireline telecom, wireless telecom and cable television has become more pronounced. Singh (2005), in his article “The role of technology in the emergence of the information society in India” describes the role that information and communication technologies are playing for Indian society to educate them formally or informally which is ultimately helping India to emerge as an information society. Though India has a huge population, the illiteracy rate is also huge in this country. The paper has taken an approach to find the historical situation and present the prevailing scenario as well as the change that are taking place with the application of ICT to the advantage of the society in different areas including daily life. India is making all out efforts to be counted among the developed nations of the world. The article also describes the considerable attention India is taking for application of technology, development of infrastructure and human resource for meeting national needs. Basically India is building an information society. Technology has helped society to cut across the traditional boundaries for getting converted into an emerging information society. The study concludes that The Indian software and services industry has significantly helped to boost the Indian economy. In IT-enabled services too, India has been clearly perceived to be the dominant hub. The Indian software sector is being recognized as the single largest contributor to incremental market capitalization in India but the sector is still small in terms of contribution to GDP, especially when compared to other large sectors in the economy like agriculture and manufacturing. Similarly, the telecommunication sector has contributed a lot but still has a considerable way to go. The paper also enforces that comparisons of India’s telecommunication statistics with those of developed and other emerging economies show that the country is still far behind its contemporaries. Mr. Banka (2006) gives an overview of the mergers and acquisitions in the telecommunication industry. According to him Governments decision to raise the foreign investment limit to 74% is expected to spur fresh rounds of mergers and takeovers in India. He foresees a sector that represents humongous opportunity waiting to be tapped by Indian and foreign conglomerates. Thomas (2007), in his article describes the contribution made by telecommunications in India by the state and civil society to public service, this article aims to identify the state’s initial reluctance to recognize telecommunications provision as a basic need as against the robust tradition of public service aligned to the postal services and finds hope in the renewal of public service telecommunications via the Right to Information movement. The article follows the methodology of studying the history of telecommunications approach that is conversant with the political economy tradition. It uses archival sources, personal correspondence, and published information as its research material. The findings of the paper suggests that public service in telecommunication is a relatively ‘‘new’’ concept in the annals of Indian telecommunications and that a deregulated environment along with the Right to Information movement holds significant hope for making public service telecommunications a real alternative. The article provides a reflexive, critical account of public service telecommunications in India and suggests that it can be strengthened by learning gained from the continual renewal of public service ideals and action by the postal services and a people-based demand model linked to the Right to Information Movement. All studies done by the researcher suggests that the right to information movement has contributed to the revitalisation of participatory democracy in India and to a strengthening of public service telecommunications. Cygnus Business Consulting & Research Pvt. Ltd. (2008), in its “Quarterly Performance Analysis of Companies (April-June 2008)” has analysed the Indian telecom industry in the awake of recent global recession and its overall impact on the Indian economy. The analysis is done in the background of wake of global recession and rising inflation. Cygnus estimates, the Indian telecom industry is expected to maintain the growth trajectory in the next quarter as well. With almost 5-6m subscribers are being added every month, and the country is witnessing wild momentum in the telecom industry. Maheshwari (July-September 2008), in her report analysed the Indian telecom industry and ascertain that Indian telecommunications has been zooming up the growth curve at an mounting pace, and India is has surpassed US to become the second largest wireless network in the world. This growing subscriber base is basically created by tapping into rural India, which is an emerging market for the industry. The estimate for the next five to ten years is that the rural market will form 40 % of the subscriber base. The study has analysed the human resource management process of the industry, and specially the latest trends of recruitment of this massively growing industry. Anderson (2008), in his single executive interview titled “Developing a route to market strategy for mobile communications in rural India An interview with Gurdeep Singh, Operations Director, Uttar Pradesh, Hutch India” suggests that managers need to go beyond traditional approaches to serving the poor, and innovate by taking into account the unique institutional context of developing markets. His practical implication says that the experience of Hutchison Essar in India provides some important lessons for mobile network operators (MNOs) and other firms in other developing markets who are hoping to serve the rural poor: Hutchison has recognized the value of corporate and noncorporate partners. The company has proactively established relationships with individual entrepreneurs, and has provided has provided development support to other partners such as distributors. The company has recognized the value of leveraging existing local institutions, and has seen gaps in local infrastructure or missing services as potential opportunities rather than barriers to growth. The company has seen the rural market as an opportunity – not just an obligation to be served because of universal service obligations. Also this article demonstrates that MNOs can deliver availability and affordability to achieve increased individual or household penetration through business model innovation. Mani (2008) addresses a number of issues arising from the growth of telecom services in India since the mid-1990s. It also discusses a number of spillover effects for the rest of the economy and one of the more important effects is the potential to develop a major manufacturing hub in the country for telecom equipment and for downstream industries such as semiconductor devices. The telecom industry in India could slowly become an example of the service sector acting as a fillip to the growth of the manufacturing sector. A beginning towards this has been made. The formation of a Telecom Equipment Export Forum and the announcement of the Indian Semiconductor Policy 2007 are steps in this direction. Success crucially depends on the response of the private sector to these incentives. Given the importance that a regulatory agency can play in this crafting, no effort should be lost in strengthening the powers of the TRAI. The benefits to the Indian economy from having both a strong services and manufacturing segments in the telecom sector cannot be undermined. Narayana (2008) estimates the contribution of telecommunication (or telecom) services to aggregate economic growth in India. Estimated contribution is distinguished between public and private sectors to highlight the impact of telecom privatization on economic growth. Knowledge of policy determinants of demand of telecom services is shown to be essential to enhance growth contribution of telecom services. Using a recent sample survey data from Karnataka State in South India, price and income determinants of demand for telecom services are estimated by capacity of telephone exchanges. Estimation results offer evidence for significant negative own price elasticity and positive income elasticity of demand for telecom services. Sharma (2009) deals with the major challenges faced by India’s telecom equipment manufacturing sector, which lags behind telecom services. Only 35% of the total demand for telecom equipment in the country is met by domestic production. This is not favourable to long-term sustained growth of the telecom sector. The country is also far behind in R&D spending when compared to other leading countries. India needs to see an increase in R&D investment, industry-academia-government partnership, better quality doctoral education and incentives to entrepreneurs for start-ups in telecom equipment manufacturing. In 2006-07, 65% of the total consumption of equipment was met through imports. This trend has far-reaching implications for the economy and should not be allowed to continue for long. In a country like India which has a problem of massive unemployment, the manufacturing sector should be promoted to create more employment opportunities. Shah (February, 2009), has analysed Indian telecom industry and studied the sector keeping in mind three companies; namely Bharti, R.Comm and idea in the background of recent global meltdown. The study suggests that though there is no sign of slowdown in this sector, but surely a strong turmoil is going on in the industry. The study states that the sector is fairly immune from the current economic downturn & does provide a good defensive bet in medium term. With the help of newer technologies, wireless penetration is expected to increase in the near future, which is basically fuelling the growth of the sector. While the 3G / Broadband adoption would ensure long term growth momentum, the article has thoroughly investigated about the intense competitive scenario, pricing pressure, high capital intensity & substantial regulatory uncertainties currently faced by the industry. The article has also described the cause of being relatively safe of this industry. The causes described by Shah are increasing rural coverage, rising affordability, declining handset/subscription costs, substantially low tariffs & established brand/distribution. However, the study also cautions the telecom industry that a steeper economic slowdown could start impacting the subscriber usage patterns as well as operator capital investments & thereby could substantially restrict revenue growth rates going forward. Chapter 3 GLOBAL OVERVIEW 3.1 INTRODUCTION World telecom industry is an uprising industry, proceeding towards a goal of achieving two third of the world's telecom connections. Over the past few years information and communications technology has changed in a dramatic manner and as a result of that world telecom industry is going to be a booming industry. Substantial economic growth and mounting population enable the rapid growth of this industry. The world telecommunications market is expected to rise at an 11 percent compound annual growth rate at the end of year 2010. The leading telecom companies like AT&T, Vodafone, Verizon, SBC Communications, Bell South, Qwest Communications are trying to take the advantage of this growth. These companies are working on telecommunication fields like broadband technologies, EDGE(Enhanced Data rates for Global Evolution) technologies, LAN-WAN inter networking, optical networking, voice over Internet protocol, wireless data service etc. Economical aspect of telecommunication industry: World telecom industry is taking a crucial part of world economy. The total revenue earned from this industry is 3 percent of the gross world products and is aiming at attaining more revenues. One statistical report reveals that approximately 16.9% of the world population has access to the Internet. Present market scenario of world telecom industry: Over the last couple of years, world telecommunication industry has been consolidating by allowing private organizations the opportunities to run their businesses with this industry. The Government monopolies are now being privatized and consequently competition is developing. Among all, the domestic and small business markets are the hardest. 3.2 GLOBAL SCENARIO Until the 1980s the world telecommunications systems had a simply administrative structure. The United States telephone service was supplied by a regulated monopoly, American Telephone and Telegraph (AT&T). Telegraph service was provided mainly by the Western Union Corporation. In almost all other countries both services were the monopolies of government agencies known as PTTs (for Post, Telephone, and Telegraph). In the United States beginning in 1983, AT&T agreed in a court settlement to divest itself of the local operating companies that provided basic telephonic service. They remained regulated local monopolies, grouped together into eight regional companies. AT&T now offers long distance service in competition with half a dozen major and many minor competitors while retaining ownership of a subsidiary that produces telephonic equipment, computers and other electronic devices. During the same period Great Britain’s national telephone company was sold to private investors as was Japan’s NTT telephone monopoly. For telegraphy and data transmission, Western Union was joined by other major companies, while many multinational firms formed their own telecommunications services that link offices scattered throughout the world. New technology also brought continuing changes in the providers of telecommunication. Private companies such as Comsat in the United States were organized to provide satellite communication links within the country. Around the world we are witnessing remarkable changes to the telecoms environment. After years of debate, structural separation is now taking place in many parts of the world including Hong Kong, New Zealand, Singapore and some European markets. Structural separation – or at least full-blown operational separation – is required to advance the entire industry and to create new business opportunities and innovations which will benefit our society, our economy and ultimately our industry. The focus is also shifting away from broadband to what it can actually achieve. Next Generation Telecommunications better describes this new environment and is essential for the emerging digital economy. Important services that depend on NGT include telehealth, e-education, e-business, digital media, e-government and environmental applications such as smart utility meters. In order to meet this burgeoning consumer demand for NGT applications, we are seeing increasing investment in All-IP Next Generation Networks and fibre networks. A proper inventory of national infrastructure assets is required if we want to establish an efficient and economically viable national broadband structure for these services. In the developing markets, next generations telecoms will take the form of wireless NGNs (ie, LTE/WiMAX). These are some of the elements of the broader ICT revolution that is unfolding before our very eyes. We are right in the midst of the transition from old communications structures (mainly one-way streets) to new structures that are fully-interactive and video-based. One of the drivers behind the industry changes are the declining revenues experienced by the telcos in their traditional markets. Over the past 10 years or so, fixed-line operators have been affected by deregulation, a severe industry downturn, declining prices and major inroads by mobile services. In addition, people are drifting to other forms of communication, such as email, online chat, and mobile text messaging instead of the traditional phone. This has also led to an increased need for bandwidth, which in turn has revived the submarine cable sector. In recent times there have been many cable build-out announcements around the world, and some major systems are again being constructed. Over 25 systems are expected to be built over the next two to three years and network upgrades are also on the agenda for some existing systems. It is clear that the mobile industry is also undergoing profound changes. The saturated developed markets are forcing the industry to find new revenue streams and we are now seeing other organizations such as media companies, content providers, Internet media companies and private equity companies becoming involved in this market. For the time being however, voice will remain the killer application for mobile with some data services included as support services and niche market services. 4G (ie, WiMAX/LTE) is the real solution for mobile data and by 2015 it is expected that the majority of mobile revenues will come from data. With the Internet economy, digital media and other telecommunications activities becoming further established, the need for modern and efficient infrastructure is becoming more critical. 3.2.1 • Key highlights In 2008 the overall telecoms industry was valued at well over $3.5 trillion with steady growth ahead. On a regional level, Western Europe still has the largest share of broadband subscribers worldwide. DSL is the most popular broadband access technology worldwide, equating for around a 66% market share. • • Worldwide telecom statistics at a glance – mid-2008 Table 3.1: Telecom Statistics of the world TELECOM STATISTICS Population 6.7 billion Fixed lines 1.3 billion Mobile subscribers 3.5 billion Mobile text messages sent 2.3 trillion Internet users 1.2 billion Fixed broadband subscribers 380 million (Source: BuddeComm estimates) Table 3.2: Outgoing Minutes of the world Bank Operator (Country) Fiscal year International outgoing telephone traffic (Million) International revenue telecom Change (M 1998-99 US$) (%) 4.3% 15.4% -18.1% 24.8% -5.9% Change As % 1998-99 total (%) telecom revenue 7.9% 8.6% 8.0% 4.1% 4.6% of 1 2 3 4 5 AT&T (United States) 31.Dec. MCI WorldCom 31.Dec. (United States) Deutsche (Germany) France (France) Telekom 31.Dec. 10'900.0 8'306.0 3'860.0 3'640.0 3'200.0 4'921.0 -7.7% 3'489.0 27.1% 1'493.5 -53.1% 825.0 -10.5% Sprint (United States) 31.Dec. Télécom 31.Dec. 1'333.5 -24.7% Ranked by 1999 outgoing minutes (www.itu.in) Note: All fiscal year dates show the ending period except those preceded by an asterisk which show the beginning period. Source: International Telecommunication (www.telegeography.com). © ITU, 2001 Union: PTO database; Tele-Geography 3.2.2 Tele-density Table 3.3: International Comparison of tele-density 3.3 GLOBAL PLAYERS 3.3.1 AT&T AT&T Inc. is the largest provider of both local and long distance telephone services, wireless service, and DSL Internet access in the United States. Formerly SBC Communications, Inc., the company shed its name and took on the iconic AT&T moniker and the T stock-trading symbol (for "telephone") after its acquisition of American Telephone & Telegraph Company (later known as AT&T Corporation). AT&T Inc. was founded in 1983 as Southwestern Bell Corporation, headquartered in St. Louis, Missouri. It was one of the seven original Regional Bell Operating Companies, or "Baby Bells." The company — a holding company for Southwestern Bell Telephone Company — was created as a result of U.S. antitrust action against American Telephone & Telegraph Company in 1983. It took full control of Southwestern Bell Telephone on January 1, 1984. 3.3.2 MCI Worldcom MCI, Inc. is an American telecommunications company that is headquartered in Ashburn, Virginia. The corporation was the result of the merger of WorldCom (formerly known as LDDS followed by LDDS WorldCom) and MCI Communications, and used the name MCI WorldCom followed by WorldCom before taking its final name on April 14, 2003 as part of the corporation's emergence from bankruptcy. The company formerly traded on NASDAQ under the symbols "WCOM" (pre-bankruptcy) and "MCIP" (postbankruptcy). The corporation was purchased by Verizon Communications with the deal closing on July 7, 2006, and is now identified as that company's Verizon Business division with the local residential divisions slowly integrated into local Verizon subsidiaries. MCI's history, combined with the histories of companies it has acquired, echoes most of the trends that have swept American telecommunications in the past half-century: It was instrumental in pushing legal and regulatory changes that led to the breakup of the AT&T monopoly that dominated American telephony; its purchase by WorldCom and subsequent bankruptcy in the face of accounting scandals was symptomatic of the Internet excesses of the late 1990s. It accepted a proposed purchase by Verizon for US$7.6 billion. 3.3.3 NEXTEL Sprint Nextel Corporation is one of the largest telecommunications companies in the US. With 53.8 million subscribers, Sprint Nextel operates the third largest wireless telecommunications network in the United States (based on total wireless customers), behind AT&T and Verizon Wireless. Sprint is a global Tier 1 Internet carrier, and, as such, makes up a portion of the Internet backbone. In the United States, the company also operates the second largest wireless broadband network and is the third largest long distance provider. The company was created in 2005 by the $35 billion purchase of NEXTEL Communications by Sprint Corporation. In 2006, the company spun off its local landline telephone business, naming it Embarq and also completed the $6.5 billion acquisition of Nextel Partners, one of its largest affiliates, which primarily provides Nextel wireless services to more rural markets. Sprint Nextel has its executive headquarters in Reston, Virginia and maintains an operational and engineering headquarters in Overland Park, Kansas (where the largest number of Sprint Nextel employees are based). Both internally and externally, "Sprint" is an acceptable short name for the company; however, all iDEN "walkie-talkie" phones currently being shipped are still branded with the Nextel logo and graphics. 3.3.4 Deutsche Telecom Deutsche Telekom (DTAG) is a telecommunications company headquartered in Bonn, Germany. It is the largest telecommunications company in Germany and in the European Union. Deutsche Telekom was formed in 1996 as the former state-owned monopoly Deutsche Bundespost was privatized. As of June 2008, the German Government still holds a 15% stake in company stock directly, and another 17% through the government bank. 3.3.5 France telecom France Télécom is the main telecommunication company in France and one of the largest in the world. It currently employs about 191,000 people (half outside of France) and has nearly 159 million customers worldwide (2007). For the twelve months ending September 2004 it had revenue of US$60.11 billion. The current CEO is Didier Lombard. In August 2005, FT acquired a 77% ownership in the Spanish mobile phone company Amena, rebranding it Orange España. France Telecom-Orange is the number three mobile operator and the number one provider of broadband internet services in Europe and, under the brand Orange Business Services, is one of the world leaders in providing telecommunication services to multinational companies 3.4 GLOBAL TRENDS The industry is dominated by three major communication tools. These are: • Fixed-lines • Mobile • The Internet The State of the market though has been changing. This has been mainly characterized by increasing competition, mainly due to the numerous players in the telecom industry. The boom in the telecom industry can be mainly attributed to increasing private sector participants. There also has been an increased independent regulation by these companies. 3.4.1 Fixed Line and Cellular Line Subscribers Fixed-line market penetration remains comparatively low in most developing countries, at an average of 13 per cent by end of 2007 even though the developing world accounted for 58 per cent of the world’s 1.3 billion fixed phones lines in 2007. In fact, this segment of the market showed a decline in developed countries and just a slight increase in some developing countries. Overall, it is fair to say that fixed-line penetration worldwide stagnated in 2007. Mobile penetration, however, continued to show high growth rates – enough to reach an estimated 61 per cent of the world’s population (some 4 billion subscribers) by the end of 2008. Moreover, by the beginning of the year, more than 70 per cent of the world’s mobile subscribers were in developing countries. Five years earlier, in 2002, those subscribers had been less than 50 per cent of the world total. Africa remains the region with the highest growth rate (32 per cent between 2006 and 2007). The graph below shows the growing trends of the fixed and cellular subscribers. This shows the transition from fixed telephone subscribers to mobile subscribers Figure: 3.1 Growth in fixed lines, mobile cellular subscribers, estimated Internet users and subscribers to mobile broadband networks, in billions, 1995-2007 Source: ITU World Telecommunications 3.4.2 High-speed, broadband access trends ITU’s Internet and broadband data suggest that more and more countries are going highspeed. By the end of 2007, more than 50 per cent of all Internet subscribers had a highspeed connection. Dial-up is being replaced by broadband across developed and developing countries alike. In developing countries such as Chile, Senegal, and Turkey, broadband subscribers represent over 90 per cent of all Internet subscribers. At the same time, major differences in broadband penetration levels remain, and the number of broadband subscribers per 100 inhabitants varies significantly between regions. While fixed broadband penetration stood at less than 1 per cent in Africa, it had reached much higher levels in Europe (16 per cent) and the Americas region (10 per cent) by the end of 2007. Figure: 3.2 The broadband divide Broadband subscribers by region, 2007 Source: ITU World Telecommunication/ICT Indicators Database. Figure: 3.3 Fixed and mobile broadband evolution in developed and developing countries Fixed broadband subscribers per 100 population, 2007 Mobile broadband subscribers per 100 population, 2007 Source: ITU World Telecommunication/ICT Indicators Database Note: ITU’s definition of “Mobile broadband covers mobile cellular subscribers with access to data communications at broadband speeds (minimum of 256 kbit/s). The shift to all-IP environments Probably the best example of the “all-IP” move is the rise of Voice-over-Internet-Protocol (“VoIP”) services. In the last few years, VoIP services have continued to grow strongly. Even if they were not as “disruptive” to traditional telephony as had been predicted, VoIP offerings have proved to be some of the most successful Internet applications. Over the past two years, the market presence of VoIP has surged forward, although at a slower growth rate than in 2005. More importantly, it is steadily replacing traditional public switched telephone network (PSTN) lines in many developed and some developing countries. 3.5 CONCLUSION Despite the unsteady state of the global financial markets, the worldwide telecommunications industry is expected to continue expanding over the next five years as continuing growth of wireless services in emerging markets offsets the spending slowdown in the advanced economies, says a new market analysis report from The INSIGHT Research Corporation. According to the new industry market study, overall telecommunications services revenues are expected to grow at a compounded rate of nearly 10.3 percent over the next few years, reaching $2.7 trillion by 2013. wireless makes the strongest showing while wireline follows a distant second. Nearly all of the growth in both sectors is expected to occur in broadband services, with wireless broadband service revenues expected to grow at a compounded rate of more than 70 percent over the forecast period, while wireline broadband services grow at under 10 percent over the same forecast horizon. “The 2009 Telecommunications Industry Review: An Anthology of Market Facts and Forecasts” states that even amidst so much economic uncertainty the fact remains that telecommunications is a key input factor in economic growth. Telecommunications is a facilitator of socio-economic advancement and is a critical utility for economic development, much like water and energy. It is on the basis of telecommunications as a lynchpin in the eventual economic recovery that INSIGHT Research projects continued carrier revenue growth. “The worldwide economy is in turmoil, there is no doubt about that, but over the long haul we expect the telecommunications industry to continue growing,” says INSIGHT president Robert Rosenberg. “Telecom is as necessary to development as roads and bridges, so we expect it to fare much better than other economic segments that may take longer to return to normalcy,” Rosenberg concluded. Chapter 4 INDIAN OVERVIEW 4.1 INTRODUCTION Today the Indian telecommunications network with over 375 Million subscribers is second largest network in the world after China. 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 December 2008, 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: 1. 1.Building a modern and efficient infrastructure ensuring greater competitive environment 2. With equal opportunities and level playing field for all stakeholders. 3. Strengthening research and development for manufacturing, value added services. 4. Efficient and transparent spectrum management 5. To accelerate broadband penetration 6. Universal service to all uncovered areas including rural areas. 7. Enabling Indian telecom companies to become global players. Recent things to watch in Indian telecom sector are: 1. 3G and BWA auctions 2. MVNO 3. Mobile Number Portability 4. New Policy for Value Added Services 5. Market dynamics once the recently licensed new telecom operators start rolling out 6. Services. 7. Increased thrust on telecom equipment manufacturing and exports. 8. Reduction in Mobile Termination Charges as the cost per line has substantially reduced 9. 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 industrial de-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 of India, 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 extend 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 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 telephonic systems 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. 4.2 TELECOM SUBSCRIBER BASE IN INDIA Indian telecommunication Industry is one of the fastest growing telecom market in the world. The mobile sector has grown from around 10 million subscribers in 2002 to reach 150 million by early 2007 registering an average growth of over 90%. The two major reasons that have fuelled this growth are low tariffs coupled with falling handset prices. Surprisingly, CDMA market has increased it market share upto 30% thanks to Reliance Communication. However, across the globe, CDMA has been loosing out numbers to popular GSM technology, contrary to the scenario in India. The other reason that has tremendously helped the telecom Industry is the regulatory changes and reforms that have been pushed for last 10 years by successive Indian governments. According to Telecom Regulatory Authority of India (TRAI) the rate of market expansion would increase with further regulatory and structural reforms. Even though the fixed line market share has been dropping consistently, the overall (fixed and mobile) subscribers have risen to more than 200 million by first quarter of 2007. The telecom reforms have allowed the foreign telecommunication companies to enter Indian market which has still got huge potential. International telecom companies like Vodafone have made entry into Indian market in a big way. Currently the Indian Telecommunication market is valued at around $100 billion (Rupees 400,000 crore). Two telecom players dominate this market - Bharti Airtel with 27% market share and Reliance Communication with 20% along with other players like BSNL (Bharat Sanchar Nigam Limited) and AT&T. One segment of the market that has been puzzling is broadband Internet. Despite the manner in which the country’s Internet market has been booming, India’s move into high-speed broadband Internet access has been distinctly slow. And, while there appears to be considerable enthusiasm amongst the population for the Internet itself, this has not been reflected in broadband subscription numbers. In 2006 India witnessed a good surge in broadband users with the total subscriber base in the country expanding by almost 200% to just over 2 million by years end. Despite this surge, broadband penetration in India still remains around only 0.2%; broadband services still account for only 25% of the total Internet subscriber base, still in itself comparatively low. So, if 70% of total population is rural, the scope for growth in this Industry is unprecedented The Ministry of Communications and Information Technology (MCIT) is has very aggressive plans to increase the pace of growth, targeting 250 million telephone subscribers by end-2007 and 500 million by 2010. Most of the expansion in subscribers is set to occur in rural India. India’s rural telephone density has been languishing at around 1.9%. The subscriber addition rate has been strong in the last 12 months but the regulatory developments will increase competition and thus curtail the long-term growth rates of individual companies. The savings through the setting of tower companies will partly go towards the higher capex and opex costs from more stringent spectrum allocation norms for the incumbents. The Telecommunications sector has been consistently adding more than 7 million subscribers for the last 6 months, a very healthy net addition rate infact. All the private operators GSM as well as the CDMA operators have been very consistent in their performance. The sector provides very strong revenue as well as earnings visibility over the next 12 months. However the recent regulatory developments are seem to be negative for the telecom companies as it will increase the number operators per circle which will intensify competition. 4.3 GENERAL ENVIRONMENT IN THE TELECOM SECTOR The year 2007-08 also witnessed a phenomenal growth in the subscriber base for mobile services which includes subscribers of WLL (F), thus building on the growth trend in subscriber base experienced since mid-1990s. As per the data available on CTIA (International Association for the wireless Telecommunications Industry) website, India has become second largest wireless network in the world after China by overtaking USA. 4.3.1 Wireline Subscriber The subscriber base of Wireline services as on 31st March 2008 was 39.42 million as compared to 40.75 million subscribers on 31st March, 2007 registering a decrease of 1.33 million subscribers during the year 2007-08. Out of the 39.42 million wireline subscribers, 27.78 million are Urban wireline subscribers and 11.64 million Rural Subscribers. Figure: 4.1 Wireline Subscriber 4.3.2 Wireless Subscriber The wireless subscriber crossed the 261 million subscriber mark at the end of the financial year in comparison to the subscriber base of 165.11 million at the end of March, 2007. It added 95.9 million subscribers in the financial year 2007-08 registering an annual growth rate of about 58.12%. The total subscriber base of wireless services has grown from 33.69 million in March, 04 to 261.07 million in March, 08. Figure: 4.2 Wireless Subscriber 4.3.3 Internet Subscriber The Internet subscriber base in the country as of 31st March 2008 stood at 11.09 million as compared to 9.27 million during the previous year, registering an annual growth rate of about 19.63%. Figure: 4.3 Internet Subscriber 4.3.4 Broadband Subscriber The total Broadband subscriber base has reached 3.87 million by the end of March, 2008 as compared to 2.34 million by the end of March 2007 thereby registering a net addition of 1.56 million broadband subscribers during the financial year 2007-08. Figure: 4.4 Broadband Subscriber 4.3.5 Tele-density The tele-density at the end of March, 2008 reached to the mark of 26.22% as compared to 18.23% at the end of previous year recording an increase of nearly 8%. Competition driven by regulatory initiatives, technological advancements and policy initiatives continue to push the growth to newer levels. This trend was more visible in mobile and long distance services. The competitive pressures also made the service providers to be more innovative in their tariff offerings. Figure: 4.5 Growth of Tele-density 4.4 REVIEW OF BASIC SERVICES As on 31st March 2008, wireline connections are being provided by 5 licensed private operator groups in addition to the incumbent BSNL and MTNL. The list of Service Providers providing wireline services along with their area of operation is given in the table below. The subscriber base of basic services (Wireline) recorded a decrease of 3.28% in 2007-08 over the previous year. In comparison, the private BSOs, recorded an annual increase of 43.14% in the subscriber base during the year 2007-08. As on 31st March 2008, the incumbents BSNL and MTNL had 80% and 9% market share respectively in the subscriber base, while all the five private BSOs had only 11% of the total subscriber base. During the previous year, at the end of March 2007, the market share of the BSNL and MTNL was 83% and 9% respectively, while the share of all the private operators taken together was 8%. Thus the market share in terms of subscriber base of the incumbents BSNL and MTNL has slightly decreased, whereas the market share of private BSOs has increased by 3%. The 5 private BSOs have added 8.96 lakhs new Direct Exchange Lines (DELs). However, BSNL has recorded a reduction of 21.86 lakhs DELs, whereas MTNL has also registered an annual decline of 0.47 Lakhs DELs. Thus Private operators have contributed to provide most of the new additions in DELs. The total subscriber base however has been recorded an annual decline of 13.37 lakhs DELs in comparison to previous year. Table 4.1 Companies and No. of Circles covered 4.4.1 Review Services of Wireless (GSM and CDMA) The Wireless Industry crossed 261 million-subscribers mark at the end of the financial year 2007-08. This total subscribers base of 261.07 million comprise of 192.7 million GSM and 68.37 million CDMA subscribers. During the financial year 2007-08 around 95.96 million subscribers were added with a growth rate of 58.12% as compared to 67.17% growth during the year 2006-07. The growth of subscriber base of Wireless (including GSM and CDMA) Services from March 2004 to March 2008 is depicted in Figure 1.10 The subscriber base & market share of different mobile operators as on March 2008 is displayed in Figure . In the wireless segment, GSM services has reached the 192.70 million subscriber mark at the end of financial year 2007-08, as compared to 120.47 million during the previous year. It added around 72.23 million subscribers during the year, registering an annual growth of 59.96%. In terms of subscriber base and market share of GSM services, M/s Bharti with 61.98 million subscriber base remains the largest GSM operator followed by M/s Vodafone, M/s BSNL, and M/s Idea with subscriber base of 44.13 million, 36.21 million and 24.00 million respectively. The market share of different GSM operators as on March 2008 is displayed in Figure 1.12. In Cellular CDMA services, in terms of subscriber base and market share, M/s Reliance Infocom with 38.78 million subscriber base remains the largest CDMA operator followed by M/s Tata and M/s BSNL with subscriber base of 24.33 million, and 4.58 million respectively. Figure: 4.6 Market share of wireless service providers (as on 31st March 2008) Figure: 4.7 Subscriber growth of wireless services (GSM and CDMA) Public and Private Sector Contribution in the Growth of Fixed and Mobile Services Before opening up of the Telecom Sector for the private players, growth in telecom services was primarily driven by public sector monopoly, showing very marginal growth, as the incremental tele-density between 1948 and 1998, a 50 year period, was only 1.92%. Telecommunication development in the initial stage of the reforms process beginning with NTP’94 started at a slow pace, but accelerated later on under NTP’99, which provided for migration from fixed license fee to revenue share regime. Costoriented Telecom tariffs were also introduced by TRAI in 1999. From 2003 onwards, as a result of certain pragmatic decisions by the Government and the Regulator, viz., introduction of Calling Party Pay (CPP) regime, Unified Access licensing regime, lowering of access deficit coupled with introduction of revenue share regime in ADC triggered further growth. The policy and regulatory regime established by the Government and the Regulator has led to speedy growth of subscriber base of the incumbent Public Sector Undertakings as well as that of the private sector operators. During the period 1998-2008, the absolute growth in subscriber base of PSU operators was 61.7 million comprising of 19.5 million fixed subscribers and 42.2 million mobile subscribers. The PSU Operators have shown remarkable growth in the competitive environment, while in the pre-reform non-competitive environment, their performance was slow. Figure 1.15 shows growth in subscriber base of PSU Operators. Private operators have also shown remarkable growth in a highly competitive environment. The overall growth in the subscriber base of private operators during 1998-2008 was 220.94 million comprising of 9.81 million fixed subscribers and 211.13 million mobile subscribers. Private operators have contributed very largely to post 1998 growth primarily in mobile services due to the obvious cost and fast deployment advantages. The Figure shows the growth in subscriber base of private operator. It may be seen from the two graphs at Figure and Figure that in comparison to Private Sector, the growth of subscriber base of PSUs have been very low during the last five years. Figure: 4.8 PSU Operators Subscriber Base Figure: 4.9 Private Operators Subscribers Base 4.4.2 Public Mobile Radio Trunked Services Public Mobile Radio Trunked Service (PMRTS) was opened for private sector in the year 1995. As on 31st March 2007, PMRTS is being provided by 12 operators. The subscriber base of PMRTS has recorded a growth rate of 15.04% during 2007-08 over the previous year. Its subscriber base increased from 31501 at the end of March 2007 to 36240 at the end of March 2008. 4.4.3 Internet Services TRAI is constantly monitoring the growth of the Internet and Broadband services in the country by way of Performance Monitoring Reports being submitted by Internet Service Providers (ISP). Issues raised by ISPs, from time to time, were successfully resolved by TRAI to create conducive environment and to encourage the growth of the service during the financial year. Total 138 ISPs reported data to TRAI, which indicates 11.09 million Internet Subscribers at the end of 31st March 2008. There was an increase of 19.63% in the subscriber’s base as compared to March 2007. The distribution of Internet Subscribers among Govt. ISPs & Private ISPs as on 31st March 2008 is at Figure 1.17. The market share of top eight Internet Service Providers (ISPs), including BSNL, in terms of subscriber base as on 31st March 2008 is at Figure 1.18. The BSNL has maximum of 50.82% of total internet subscriber base. Among PSUs owned ISPs, M/s BSNL and M/s MTNL have reported a subscriber base of 5.64 Million and 1.89 Million respectively. Amongst the Private Sector ISPs M/s Bharti Airtel Limited has a subscriber base of 0.81 Million and stood third overall. Figure: 4.10 Share of pubic and private sector IPS (in lakhs) 4.4.4 Broadband The number of Broadband subscribers (with a download speed of 256 kbps or more) was 3.87 Million on 31st March 2008 as compared to 2.34 Million subscribers on 31st March 2007 registering an annual growth of 65.38%. The distribution of Broadband subscribers among Government ISPs and Private ISPs as on 31st March 2008 is as below: Table: 4.2 Number of broadband subscribers 4.4.5 Internet Telephony On the recommendation of TRAI, Government issued the guidelines on 24th August 2007 for further opening of Internet Telephony by permitting all ISPs signing new ISP License to provide Internet Telephony. The restrictions on devices being used for Internet Telephony have also been removed. As on 29th February 2008, DOT has given permission to 149 ISPs (Category ‘A’ – 56; Category ‘B’ – 64; and Category ‘C’ – 29) to offer Internet Telephony services. At the end of 31st March 2008 30 ISPs have reported the provisioning of Internet Telephony Services. The total minutes of usage of internet telephony are 115 million at the end of 31st March 2008. 4.4.6 Broadband Casting and Cable TV Services In order to regulate the ‘carriage’ of Broadcasting and Cable Services, the Government of India issued a Notification dated 9th January, 2004 by which broadcasting and cable services have been brought within the purview of TRAI in terms of section 2(k) of the Telecom Regulatory Authority of India Act, 1997. The Government also issued an order dated 9th January, 2004 under section 11(d) of the TRAI Act, which mandated TRAI to make recommendations regarding terms and conditions on which the “Addressable Systems” shall be provided to the customers and the parameters for regulating maximum time for advertisements in pay channels as well as other channels. The order also entrusted to TRAI, the function of specifying the standard norms for, and periodicity of revision of rates of pay channels, including interim measures. (a) Cable TV Service At present, as per latest estimates there are 127 million households in India having television sets. Out of this, there are 71 million household subscribers of cable television services. The maximum number of Free-to-Air (FTA) Channels, pay channels and local channels being carried by MSOs in their networks across the country as on Quarter ending 31st March 2008 was 133, 95 and 8 respectively. These figures are based on the reports received from some of the major service providers regarding the number of channels being carried by them in their Networks, analog and / or in digital form. These channels have been reported across different networks of the service providers having different combinations of pay, FTA and local. As on 31st March 2008, the total number of set-top box installed in the CAS notified areas of Delhi, Mumbai, Kolkata and Chennai was 6,07,883. A break-up of the set top boxes in the four metropolitan cities has been depicted in the graph below: Figure: 4.11 Set top boxes in CAS notified area (b) Satellite TV Channel At the end of March 2008, there are reportedly 114 pay channels in existence and these channels are being broadcasted / distributed by 17 broadcasters or their distributors (c) DTH Services Apart from Free-to-Air DTH service of Doordarshan, there were six private DTH licensees and out of these six licensees, only three licensees are offering paid DTH Service to customers as on 31st March 2008. The following are the six private DTH licensees: 1. 2. 3. 4. 5. 6. Dish TV Tata Sky Limited Sun Direct TV Private Limited Reliance Blue Magic Limited Bharati Telemedia Limited Bharat Business Channel Limited (d) FM Radio / Community Radio Service Apart from FM Radio Stations of All India Radio (AIR), there are 205 private FM Radio Stations in operation across the country as on 31st March 2008. For the quarter ending March 2008 out of 49 licensees of Community Radio Stations, 35 Stations are in operation 4.5 FDI Ever since the government opened up its gates for foreign direct investment (FDI) in 1991, telecom sector has emerged as the clear winner in attracting foreign capital. For starters, Indian telecom sector ranks first in terms of actual FDI inflow since August 1991 till February 2003, pipping to post many developed as well as developing countries including the South East Asian countries. More, it stands second only to petrochemicals in attracting FDI, beating other sectors in the manufacturing as well as services. Table: 4.3 FDI Inflows into India’s Telecom Industry (1991-2007, in Rs million) According to the numbers published by Investindiatelecom, an on-line agency which tracks developments in the Indian telecom sector, Indian telecom has grossed actual FDI worth Rs 9,576.40 crore during the period starting from late 1991 to early 2003. In absolute terms, this is the highest inflow of FDI into the telecom sector in the world. Mauritius, which houses a number of holding and investment companies, emerges as a distant second with FDI grossing Rs 6,855.83 crore during the period. “The Mauritius numbers may be deceptive as it is one of the last tax havens in the region and may include money actually invested elsewhere. Though data for several important countries are not included, the FDI inflow into India telecom sector is impressive,” a senior analyst who tracks the telecom sector says. Of the total FDI inflow into Indian telecom sector, the lion’s share has gone into investment in holding companies followed by cellular network and manufacturing and consultancy. The total foreign money invested in the holding companies stood at Rs 4,813.3 crore or 50.26 per cent of the total inflow, cellular telephony attracted Rs 2,332.8 crore accounting for 24.36 per cent during the period. The foreign capital inflow into the manufacturing and consultancy segment stood at Rs 1,578.4 crore or 16.48 per cent of the total inflow. On an inter-sectoral comparison, telecom sector is the second largest recipient of FDI with 19.79 per cent of total inflow. “The numbers are a clear indication of the foreign companies perception about the prospects in Indian telecom sector. So far, the investment is mainly confined to cellular telephony. However, with recent changes, basic telephony too will start attracting foreign capital in a big way,” 4.6 PERFORMANCE OF TELECOM EQUIPMENT MANUFACTURING SECTOR As a result of Government policy, progress has been achieved in the manufacturing of telecom equipment in the country. There is a significant telecom equipmentmanufacturing base in the country and there has been steady growth of the manufacturing sector during the past few years. The figures for production and export of telecom equipment are shown in table given below: Table: 4.4 Year wise production and export of telecom equipment-manufacturing sector (Rs. in crore) Year 2002-03 2003-04 2004-05 2005-06 2006-07 Production 14400 14000 16090 17833 23656 Export 402 250 400 1500 1898 (Source: www.dot.gov.in) Rising demand for a wide range of telecom equipment, particularly in the area of mobile telecommunication, has provided excellent opportunities to domestic and foreign investors in the manufacturing sector. The last two years saw many renowned telecom companies setting up their manufacturing base in India. Ericsson set up GSM Radio Base Station Manufacturing facility in Jaipur. Elcoteq set up handset manufacturing facilities in Bangalore. Nokia and Nokia Siemens Networks have set up their manufacturing plant in Chennai. LG Electronics set up plant of manufacturing GSM mobile phones near Pune. Ericsson launched their R&D Centre in Chennai. Flextronics set up an SEZ in Chennai. Other major companies like Foxconn, Aspcom, Solectron etc have decided to set up their manufacturing bases in India. The Government has already set up Telecom Equipment and Services Export Promotion Council and Telecom Testing and Security Certification Centre (TETC). A large number of companies like Alcatel, Cisco have also shown interest in setting up their R&D centers in India. With above initiatives India is expected to be a manufacturing hub for the telecom equipment. 4.7 TARGETS SET BY THE GOVERNMENT 1. Network expansion a. 500 million connections by the year 2010 b. Provision of mobile coverage of 90% geographical area by 2010 2. Rural telephony a. One phone per two rural households by 2010 (about 80 million rural connections) b. Reduce urban-rural digital divide from present 25:1 to 5:1 by 2010 3. Broadband a. Broadband with minimum speed of 1 mbps b. Broadband coverage for all secondary & higher secondary schools and public health care centres by the end of year 2008 c. Broadband coverage for all Grampanchayats by the year 2010 4. Infrastructure Sharing a. USO subsidy support scheme for shared wireless infrastructure in rural areas with about 18,000 towers by 2010 b. Increase sharing in urban areas to 70% by 2010 5. Introduction of Spread of IPTV and Mobile TV a. IPTV in 600 towns by 2010 6. Manufacturing a. Making India a hub for telecom manufacturing by facilitating more and more telecom specific SEZs b. Quadrupling production in 2010 c. Achieving exports of 6 times from present level of 0.5 billion in 2010 7. Research & Development a. Pre-eminence of India as a technology solution provider b. Comprehensive security infrastructure for telecom network c. Tested infrastructure for enabling interoperability in Next Generation Network d. Doubling the telecom equipment R&D by 2010 from present level of 15% 8. 8.International Bandwidth a. Facilitating availability of adequate international bandwidth at competitive prices to drive ITES sector at faster growth Table: 4.4 Indian Telecommunications at a glance (As on 30th September 2008) Rank in world in network size 3rd Tele–density (per hundred populations) 30.64 Telephone connection (In millions) Fixed 38.35 Mobile 315.31 Total 353.66 Village Public Telephones 5.6 lakh Foreign Direct Investment (in million) (from 182042 million January 2000 till August 2008) Licenses issued Basic 2 CMTS 60 UAS 224 Infrastructure Provider I 177 ISP (Internet) 382 ISP with Telephony (Broadband) 125 National Long distance 24 International Long Distance 19 4.8 CONCLUSION Indian telecommunication Industry is one of the fastest growing telecom markets in the world. The mobile sector has grown from around 10 million subscribers in 2002 to reach 150 million by early 2007 registering an average growth of over 90% y-o-y. The two major reasons that have fuelled this growth are low tariffs coupled with falling handset-prices Surprisingly, CDMA market has increased it market share upto 30% thanks to Reliance Communication. However, across the globe, CDMA has been losing out numbers to popular GSM technology, contrary to the scenario in India. The other reason that has tremendously helped the telecom Industry is the regulatory changes and reforms that have been pushed for last 10 years by successive Indian governments. According to Telecom Regulatory Authority of India (TRAI) the rate of market expansion would increase with further regulatory and structural reforms. Even though the fixed line market share has been dropping consistently, the overall (fixed and mobile) subscribers have risen to more than 200 million by first quarter of 2007. The telecom reforms have allowed the foreign telecommunication companies to enter Indian market which has still got huge potential. International telecom companies like Vodafone have made entry into Indian market in a big way. Currently the Indian Telecommunication market is valued at around $100 billion (Rupees 400,000 crore). Two telecom players dominate this market - Bharti Airtel with 27% market share and Reliance Communication with 20% along with other players like BSNL (Bharat Sanchar Nigam Limited) and AT&T. One segment of the market that has been puzzling is broadband Internet. Despite the manner in which the country’s Internet market has been booming, India’s move into high-speed broadband Internet access has been distinctly slow. And, while there appears to be considerable enthusiasm amongst the population for the Internet itself, this has not been reflected in broadband subscription numbers. In 2006 India witnessed a good surge in broadband users with the total subscriber base in the country expanding by almost 200% to just over 2 million by year’s end. Despite this surge, broadband penetration in India still remains around only 0.2%; broadband services still account for only 25% of the total Internet subscriber base, still in itself comparatively low. The Ministry of Communications and Information Technology (MCIT) is has very aggressive plans to increase the pace of growth, targeting 250 million telephone subscribers by end-2007 and 500 million by 2010. Most of the expansion in subscribers is set to occur in rural India. India’s rural telephone density has been languishing at around 1.9%; So, if 70% of total population is rural, the scope for growth in this Industry is unprecedented. Chapter 5 INDUSTRY STRUCTUR E 5.1 INTRODUCTION The telecom industry is one of the prime contributors to India's GDP. The once monopolistic market is today, highly competitive. This has necessitated the growth of India telecom infrastructure. From the time of the British Rule, the Telecom Industry was under the strict supervision of the government. The trend continued even after independence until the late 1990s when the following initiatives were taken up by the government: * The telecom sector was opened up for private investment as a part of liberalizationprivatization-globalization policies * On 1st October, 2000 the Government corporatized its operations wing under the name of Bharat Sanchar Nigam Limited (BSNL) * The criteria for private companies for entering the telecom sector were relaxed What followed was a rapid development of the market for mobile phones and allied innovations, hence bringing about a new era in the telecom sector in India. 5.2 INDIA TELECOM INFRASTRUCTURE The telecom services have been recognized the world-over as an important tool for socioeconomic development for a nation. It is one of the prime support services needed for rapid growth and modernization of various sectors of the economy. Driven by various policy initiatives, the Indian telecom sector witnessed a complete transformation in the last decade. It has achieved a phenomenal growth during the last few years and is poised to take a big leap in the future also. 5.2.1 India telecom infrastructure – present status The government of India believes that for rapid economic development backed by social welfare, the telecom infrastructure in India needs to be uplifted. This necessitates the formulation of a comprehensive telecom policy that visualizes the future of the Indian telecom market. By the beginning of 2007, the telecom network in India consisted of 48 million fixed-line connections. Nowadays, a vast majority of the population has access to telephone services. The highly competitive environment has ensured low pricing of goods and services that caters to the weaker sections of the society. Moreover, the enhancement of India telecom infrastructure has also widened the scope of the telecom sector to other allied ventures like mobile services, Internet, cable TV services, ECommerce, and other forms of Information Technology (IT). The Indian Telecommunications network with 353 million connections (as on September 2008) is the third largest in the world. The sector is growing at a speed of 46-50% during the recent years. This rapid growth is possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices In terms of long distance calls, India telecom infrastructure has made remarkable progress. Latest technologies, like use of fibre-optic cables has enhanced call-clarity and reduced call-costs to a large extent. The present telecom and mobile-phone service providers in India, apart from BSNL include Hutchison Essar, Reliance Communications, Bharti Airtel, Idea, Tata Indicom, and a few others. 5.2.2 India telecom infrastructure – present status India has proven its dominance as a technology solution provider. Efforts are being continuously made to develop affordable technology for masses, as also comprehensive security infrastructure for telecom network. Research is on for the preparation of tested infrastructure for enabling interoperability in Next Generation Network. It is expected that the telecom equipment R & D shall be doubled by 2010 from present level of 15%. Modern technologies inductions are being promoted. Pilot projects on the existing and emerging technologies have been undertaken including WiMax, 3G etc. Emphasis is being given to technologies having potential to improve rural connectivity. 3G and Broadband Wireless Access (BWA) policies have since been issued. Also to improve the R&D infrastructure in the telecom sector and bridge the digital divide, cellular operators, top academic institutes and the Government of India together set up the Telecom Centres of Excellence (COEs). 5.2.3 Targets Set By the Government of INDIA Indian government has taken up the following expansion plan for the future: 1. Network expansion • 500 million connections by the year 2010. • Provision of mobile coverage of 90% geographical area by 2010. 2. Rural telephony • One phone per two rural households by 2010 (about 80 million rural connections). • Reduce urban-rural digital divide from present 25:1 to 5:1 by 2010. 3. Broadband • Broadband with minimum speed of 1 mbps. • Broadband coverage for all secondary & higher secondary schools and public health care centres by the end of year 2008. • Broadband coverage for all gram panchayats by the year 2010 4. Infrastructure Sharing • USO subsidy support scheme for shared wireless infrastructure in rural areas with about 18,000 towers by 2010. • Increase sharing in urban areas to 70% by 2010. 5. Introduction of Spread of IPTV and Mobile TV • IPTV in 600 towns by 2010. 6. Manufacturing • Making India a hub for telecom manufacturing by facilitating more and more telecom specific SEZs. • Quadrupling production in 2010. • Achieving exports of 6 times from present level of 0.5 billion in 2010. 7. Research & Development • Pre-eminence of India as a technology solution provider. • Comprehensive security infrastructure for telecom network. • Tested infrastructure for enabling interoperability in Next Generation Network. • Doubling the telecom equipment R&D by 2010 from present level of 15%. 8. International Bandwidth • Facilitating availability of adequate international bandwidth at competitive prices to drive ITES sector at faster growth. 5.3 MAJOR SEGEMENTS 5.3.1 Basic Services Basic Services in the public sector, like BSNL and MTNL together account for 99 percent of the 28 million connections. The total revenue in FY2001, for these two entities combined was INR 287 billion. The telecommunication network of the BSNL - MTNL combine is one of the largest in Asia, with a capacity of 35 million lines and 28.4 million working connections. Switching capacity during FY2000 increased by over 40 percent. In the period from April-December 2000, 4.9 million new fixed line connections were provided representing a growth rate of 29.8 per cent over the corresponding period last year. As of June 2000, USD 57.5 million FDI has been invested in the basic services sector. The total number telephone lines is expected to go up to 75 million by the year 2005, and assuming average revenue per user (APRU) of INR 10000 per line, the total revenue is expected to rise to INR 750 billion by 2005, translating into an CAGR of around 25 per cent. Until 1994, DoT, now BSNL, was the sole fixed service provider (FSP) in India except Mumbai and Delhi where services were provided by MTNL. In 1994, the Government of India (GOI) allowed private participation in provision of fixed services. For the provision of basic services, NTP 94 divided the country into, 21 basic telecom circles to be serviced by BSNL and one other private sector operator. But in Delhi and Mumbai, the public sector provider would be MTNL and one private operator. NTP 99 took this process further and allowed upto four private operators to compete in each circle and recently TRAI allowed unlimited competition in each circle In addition, existing cellular providers have been granted permission to operate fixed services using their GSM infrastructure. The first round of bidding for basic and cellular services licenses’ mopped up an astonishing INR 1290 billion as license fees in 1994. Subsequently it turned out that these amounts were too ambitious, and would possibly lead to bankruptcy. Therefore, under NTP 99 guidelines, the fixed license fee arrangement was replaced by a revenue sharing regime. The fee structure as it stands now has three components: a fixed entrance fee of anything between INR 10 million to INR 1.15 billion, a revenue share of 8 to 10 percent and a fee for R&D. Pre-NTP 99 licensees’ have to clear their license fee dues before moving on to the revenue sharing regime. The private sector hasn’t shown the level of interest in basic telephony that was anticipated. Table 2 below shows the various private players in different circles. Of the 13 projects for which Letters of Intent (LoI’s) had been issued, license agreements have been signed only in the case of 6 projects. Licenses have been issued to: Bharti Telenet (for the state of Madhya Pradesh); Tata Teleservices (for the state of Andhra Pradesh); Reliance Telecom (for the state of Gujarat); Essar Comvision (for the state of Punjab); Hughes Ispat (for Maharashtra); and Shyam Telelink (for Rajasthan). These six licensees have to pay license fees USD 650 million to the GOI over the next 15 years. In a recent policy announcement, guidelines were issued by the DOT in January 2001, to permit basic operators to provide limited mobility services (using CDMA technology for wireless in local loop), within a short distance charging area (SDCA), e.g. a district. In response to this guideline, fourth round of bidding received 80 bids for the remaining 15 circles, from private operators, including existing cellular operators. The same companies which have bid for basic licenses are likely to bid for other segments NLD and ISD. The relatively high bids again threaten their financial viability, and often make projects unbankable. 5.3.2 National Long Distance (NLD) Services According to TRAI, NLD represents telecom services within the country but outside the local area of an exchange system. This sector was liberalized in 2000 and the DoT has since awarded preliminary approval (LoIs) to Reliance Infocomm and Bharti Telesonic. MTNL plans to enter the long-distance telephone business along with Railtel, a subsidiary of the Indian Railways and a third partner. VSNL too has showed interest in entering this segment of the market in anticipation of a definite end to its monopoly over ISD services by April 2002. Guidelines for entry in this sector, issued by TRAI, restrict entry to those, with a minimum paid-up capital at INR 2.5 billion and combined net worth of INR 25 billion. The guidelines also require that, NLD operators with national license to carry inter-circle traffic enter into agreements with respective FSPs, for carrying intra-circle traffic. This can restrict the NLD market to inter-circle market for a pure long-distance player. According to TRAI estimates, the NLD market size, in FY99, was 26 billion minutes, with revenues of INR 124 billion (including revenue from the domestic carriage of ISD which is estimated at INR 21 billion). Inter-circle calls accounted for 25 per cent of the 26 billion minutes traffic and 54 per cent of the INR 124 billion revenue in FY99. Thus, the addressable market for NLD operators is roughly 50 per cent of the total long distance market. 5.3.3 International Subscriber Dialing (ISD) The segment was monopolized by VSNL whose revenue from the ISD services was INR 68 billion in FY2001. ISD call charges have been reduced by 23 per cent in May 1999, and further 17 per cent in October 2000, as a part of tariff rationalization initiated by TRAI. The government has invited overseas companies to offer international calling services. But the current situation is entirely different. Tele-density per hundred populations has grown from 7.08 in March 2004 to 8.95 in March 2005 and to a level of 12.74 in March 2006. Fully automatic International Subscriber Dialing (ISD) service is available to almost all the countries. The total number of stations connected to National Subscriber Dialing (NSD) is over 31,686. The growth in rural demand has outstripped urban demand with telecom penetration in villages increasing in multiples. Higher telecom dispersal is indicative of reduced economic disparities, experts point out. 5.3.4 Cellular Mobile Services The cellular sector is the fastest growing segment within the Indian telecom services. The billed revenue during FY2001 was INR 38.7 billion. After a slow start, this sector registered an annual growth rate of more than 70 per cent in FY2000 and FY2001 and is expected to grow at the same rate for FY2002. Similar to basic services, under NTP 94 each service area for cellular mobile services was to be serviced by two operators with the difference that both were to be private operators. A 10-year license period was provided, with DoT reserving the right to enter the market at a future date. In addition direct interconnection between different private service providers (basic, cellular and 'Value Added Services') in the same service area was not permitted as such interconnection had to pass through DoT’s and MTNL’s network. Bids for cellular services were initially invited for the four metros and service commenced in August 1995. In 1996, cellular telephone services were opened for 18 telecom circles. The licenses for different ‘circles’ (two each per circle) were priced by public auction. But NTP 99 altered the competitive structure of the industry and changed the duopoly to unlimited competition in each circle. A staggering 15.4 million mobile lines were activated in India during January, according to the latest statistics from the Telecom Regulatory Authority of India (TRAI). 5.4 CONCLUSION Economic reforms and liberalization have driven telecom sector through several transmission channels of which these three categories are of major significance. Indian Telecom Sector is going under a huge technical change. It is attracting a lot of investors, and thus the industry dynamics is changing rapidly. The telecom sector requires a high investment and the market is also very competitive. The industry is forced to change under the influence of international force, experience, technology and competition. Chapter 6 GOVERNMEN T POLICY ANALYSIS 6.1 INTRODUCTION As the sector is open for both private and public players there are huge number of players in the market which requires a proper picturing of rules and regulation to play a fair game. India has been very strong in case of rules and regulation; it has created body like DOT, TRAI, DTS who takes care of the rules and regulation. Apart from them it keeps issuing policy and act which checks the events happening in the industry. The government has been issuing policy like Broadband Policy 2004, new telecom policy1999, National Telecom Policy 1994. There are more agencies like ITU, TDSA, TCIL, ICSIL, and MCOCA, which helped it regulating their work. With increasing number of players in market the government and its agencies have to function more carefully. 6.2 GOVERNMENT REGULATION 6.1.1 Department of Telecommunications Until October 2000, the Department of Telecommunication (DOT) was the authority in granting licences and service provision. It also operated domestic basic telephone services throughout India. The policy making functions and the service providing function were segregated into two different entities during 2000.The two service providing department of telecom sector were corporatized-the department of telecom service and the department of telecom operation . The state owned corporation BSNL took over all service providing functions of these two departments. 6.1.2 National telecom policy, 1994 The new economic policy adopted by the Government aims at improving India's competitiveness in the global market and rapid growth of exports. Another element of the new economic policy is attracting foreign direct investment and stimulating domestic investment. Telecommunication services of world class quality are necessary for the success of this policy. It is, therefore, necessary to give the highest priority to the development of telecom services in the country. Objective u d i n g s u c h a d m i n i s t r a t i v e a n d f i n a n c i a l f 6.1.4 New telecom policy, 1999 Objectives and targets of the new telecom policy, 1999 1. Access to telecommunications is of utmost importance for achievement of the country's social and economic goals. Availability of affordable and effective communications for the citizens is at the core of the vision and goal of the telecom policy. 2. Strive to provide a balance between the provision of universal service to all uncovered areas, including the rural areas, and the provision of high-level services capable of meeting the needs of the country's economy 3. Encourage development of telecommunication facilities in remote, hilly and tribal areas of the country. 4. Create a modern and efficient telecommunications infrastructure taking into account the convergence of IT, media, telecom and consumer electronics and thereby propel India into becoming an IT superpower 5. Convert PCO's, wherever justified, into Public Teleinfo centers having multimedia capability like ISDN services, remote database access, government and community information systems etc. 6. Transform in a time bound manner, the telecommunications sector to a greater competitive environment in both urban and rural areas providing equal opportunities and level playing field for all players 7. Strengthen research and development efforts in the country and provide an impetus to build world-class manufacturing capabilities 8. Achieve efficiency and transparency in spectrum management 9. Protect defense and security interests of the country 10. Enable Indian Telecom Companies to become truly global players 6.1.5 Preamble Broadband Policy, 2004 Recognizing the potential of ubiquitous Broadband service in growth of GDP and enhancement in quality of life through societal applications including tele-education, tele-medicine, e-governance, entertainment as well as employment generation by way of high speed access to information and web-based communication, Government have finalized a policy to accelerate the growth of Broadband services. Demand for Broadband is primarily conditioned and driven by Internet and PC penetration. It is recognized that the current level of Internet and Broadband access in the country is low as compared to many Asian countries. Penetration of Broadband, Internet and Personal Computer (PC) in the country was 0.02%, 0.4% and 0.8% respectively at the end of December, 2003. Currently, high speed Internet access is available at various speeds from 64 kilobits per second (kbps) onwards and presently an always-on high speed Internet access at 128 kbps is considered as ‘Broadband'. There are no uniform standards for Broadband connectivity and various countries follow various standards. 6.1.6 Administration Industry and Control on Telecom The Telecom Commission, set up in April 1989, has the administrative and financial powers of the Government of India to deal with various aspects of telecommunications. The Commission and the Department of Telecommunications (DOT) are responsible, inter alia, for policy formulation, licensing, wireless spectrum management, administrative monitoring and control of the Public Sector Undertakings (PSUs) engaged in telecommunication services, research and development, standardization/validation of equipment. In addition to the Telecom Commission, other Government organizations engaged in the telecom sector (as a part of DOT) are the Centre for Development of Telematics (CDOT), the Telecom Engineering Centre (TEC) and the Wireless Planning and Coordination (WPC) wing. CDOT was established in 1984 with the objective of developing a new generation of digital switching items. It has developed a wide range of switching and transmission products both for rural and urban applications. TEC is devoted to product validation and standardization for user agencies. It also provides technical and engineering support to the Telecom Commission and the field units. The Wireless Planning and Coordination wing deals with the policies of Spectrum management, licensing, frequency assignments, international coordination for spectrum management and administration of the Indian Wireless Telegraphy Act, 1933. In order to administer the use of radio frequencies, the licenses/renewals for use of wireless equipment and the frequencies are authorized by WPC. The licenses are granted for specific periods on payment of prescribed license fees and royalty in advance and are renewed after expiry of the validity periods. 6.1.7 Telecom Reforms As a part of the continuing process of telecom reforms and in pursuance of the New Telecom Policy 1999 (NTP-99), the Department of Telecom Services (DTS) and the Department of Telecom Operations (DTO) were carved out from DOT in October 1999 for providing telecommunication services in the country. DTS and DTO were finally corporatized into a wholly owned Government Company namely, the Bharat Sanchar Nigam Limited (BSNL) (incorporated on 15 September 2000) and their business was transferred to this Company with effect from 1 October 2000. The creation of BSNL was expected to provide a level playing field in all areas of telecom services, between Government operators and private operators. 6.1.8 Regulatory Control The entry of private service providers in 1992 brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was thus established with effect from 20 February 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997, to regulate telecom services, including fixation/revision of tariffs for telecom services, which were earlier vested in the Central Government. The TRAI Act was amended by an ordinance, effective from 24 January 2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSAT was set up to adjudicate any dispute between a licensor and a licensee, between two or more service providers, between a service provider and a group of consumers, and to hear and dispose of appeals against any direction, decision or order of TRAI. 6.1.9 Other Government Organizations in the Telecom Sector Besides MTNL and BSNL, other public sector undertakings in the telecom sector are ITI Limited (ITI), Telecommunications Consultants India Limited (TCIL), Intelligent Communication Systems India Limited (ICSIL) and Millennium Telecom Limited (MTL). ITI Limited was formed in 1948 for manufacturing a wide range of equipment, which included electronic switching equipment, transmission equipment and telephone instruments of various types. TCIL was established in 1978 for providing know-how in all fields of telecommunications at the global level. The core competence of TCIL is in communications network projects, software support, switching and transmission systems, cellular services, rural telecommunications and optical fiber based backbone network. ICSIL was established in April 1987 for manufacturing computer based communication systems and equipment. It also provides engineering, technical and management consultancy services for computers and communication systems in India and abroad. MTNL was established in February 2000 as a wholly owned subsidiary of MTNL for providing internet services in the country. It is pursuing the establishment of broadband internet access for the corporate segment and Voice over Internet Protocol (VOIP) telephony services throughout India with the use of relevant technologies like Very Small Aperture Terminals (VSATs). 6.1.10 industry Regulatory and policy issue of telecom Indian telecom sector is witnessing an unprecedented growth of its time. The same is expected to increase in future as well. This is necessitating action on the fronts of infrastructure development and suitable legislative and regulatory reforms in the field of Information and Communication Technology (ICT) at large. Convergence laws in India are in the process of formulation and so are policy related matters. Though the Communication Convergence Bill, 2001 has been formulated, it seems not to have been notified yet. The Bill is intended to promote, facilitate and develop in an orderly manner the carriage and content of communications (including broadcasting, telecommunications and multimedia), for the establishment of an autonomous Commission to regulate carriage of all forms of communications, for establishment of an Appellate Tribunal and to provide for matters connected therewith or incidental thereto, to facilitate development of a national infrastructure for an information based society, and to enable access thereto, to provide a choice of services to the people with a view to promoting plurality of news, views and information, to establish a regulatory framework for carriage and content of communications in the scenario of convergence of telecommunications, broadcasting, data-communication, multimedia and other related technologies and services, to provide for the powers, procedures and functions of a single regulatory and licensing authority and of the Appellate Tribunal, etc. 6.1.11 Norms for M&A Between Telecommunication Companies The government has revised norms and regulations for merging & acquisition (M&A) between telecommunication companies within a same circle. Declaring the guidelines and regulations, the Department of Telecommunication (DoT) said that prior approval for merger of telecommunication companies is necessary. It is emphasize that the total market share after merging should not exceed to more than 40% in terms of both subscriber base and revenue. Prior it was held at 67 per cent. It has been made clear that no merger would be allowed unless and until there are minimum four service providers left after such merging process. The government's revised norms and regulations concerning to merger has tightened the merging and acquisitions between telecommunication companies in the circle. From now consolidation between telecommunication companies within same circle would have means facing difficulty and high cost also. Idea has recently acquired license only for 9 circles. Therefore, it is not possible for an existing licensee to get the Idea in these nine circles. Similarly other licensees if they want to sell, needs to search for some other suitor which should be outside the purview of group of licensed operators in their circles. This new step from the government side has opened up a new gateway for new players, which would have till now facing lots of troubles in absence of any license. The new government regulations are more stringent and left less room for air to pass. Less flexibility is allowed while designing all four phases - for any merging pre consent of government is required to take, the market share of merging entity beyond which any merging will not be allowed, has been brought down from 67% to 40%, before contemplating any merging process it is imperative that the license must go from through 3 years of operation and last the merged entity is required to pay extra amount for every spectrum. The new norms issued are somewhere deviated from the TRAI's regulations. The TRAI had ruled out merging and acquisition procedure unless and until rollout recommendations were not full filled. But in the revised guidelines issued by government for merging process, nothing has been mention in respect of rollout obligations. It is kept silent for it. Now a clause has been inserted which have made license operation of three years obligatory. In new guidelines issued by the government 'acquisition' word has been dropped. The removal in the recent issued guidelines will somewhere create ambiguity to the extent that it will not be clear as whether these norms are specifically for merger or acquisition. The regulations are looking as a pill of relief for new entrants. As now they can bring strategic investors, which means they can sell maximum 74% stake to all those new global companies or domestic entities which are keen to make entry into the India's fastest growing telecommunication sector. Earlier existing telecommunication players purchased new entrants for reducing spectrum crunch. But now all new entrants who have received license in recent years can be merged or purchased by others only after January 2011. The new issued guideline also makes it clear that ‘merger of licenses shall be restricted to the same service area’. It means if an operator has its services only in eastern regions it can't undergone into merging process with another telecommunication company who is offering services only in Himachal Pradesh and Punjab. Further it clears that no buoyant or merging process can be taken place among top 3 service providers. It makes clear that as long as these new norms are into operation, Vodafone can never be able to purchase Bharti or Reliance and vice versa, nor can ever the Idea Cellular purchase Vodafone. However, such big companies- Reliance, Bharti, Vodafone, and Idea Cellular can purchase small players like Spice. The DoT also explicitly mentioned out that the spectrum transfer charges are needed to be pay in case of any merging between existing telecommunication companies. The amount which will be paid is decided by government. However, if number of service providers falls below 4 in circle during process then no merging will take place. The government's motto behind issuing new principles and guidelines is to ensure that one of the fastest growing telecommunication sectors in near future will continually to have more than 8 operators in circles. This step in turns bolsters competition and helps in earning more bucks. It will also lead to optimum utilization of resources. 6.2. IMPORTANT REGULATIONS IMPACT ON THE INDIAN INDUSTRY 6.2.1 (UASL) Unified Access Service AND THEIR TELECOM License Regime Unified licensing marked the end of the license regime in the Indian telecom industry. It helped in aligning convergent technologies and services. The establishment of the Unified Access Licensing Regime (2003) eliminated the need for different licenses for different services. Players are now allowed to offer both mobile and fixed-line services under a single license after paying an additional entry fee. This does not take into account national and international long-distance services and Internet access services. 6.2.2 Access Deficit Charges (ADC) ADC makes it mandatory for a service provider at the caller’s end to share a percent of the revenue earned with the service provider at the receiver’s end in long-distance telephony. This subsidises the infrastructure costs of the service provider enabling access at receiver’s end, especially because rental for fixed-line services is low. Revision in the ADC regime is expected to be followed by further tariff reduction in telecom services. Figure: 6.1 Year wise cellular tariff and no. of subscribers 6.2.3 Access Deficit Charges (ADC) ADC makes it mandatory for a service provider at the caller’s end to share a percent of the revenue earned with the service provider at the receiver’s end in long-distance telephony. This subsidises the infrastructure costs of the service provider enabling access at receiver’s end, especially because rental for fixed-line services is low. Revision in the ADC regime is expected to be followed by further tariff reduction in telecom services. 6.3 CONCLUSION We saw various agencies and acts passed by Indian government to regulate the industry. The government has to be rigid and cautious as the global players enter into the market. The increasing number of services provided by telecom sectors call for additional attention. The government has been doing excellent job in maintaining a harmony between public and private players but still has a long way to go. The step taken by government towards the 3G allocation shows how effectively it can operate. Chapter 7 ECONOMIC FACTORS AND ITS IMPLICATION S 7.1 INTRODUCTION This chapter gives us an overview about the various measures taken by the government of India to bring in more FDI in to telecommunication sector. The government wants to bring in advanced technology and more capital in the telecommunication sector and hence has increased the FDI cap to 74%. The telecommunication sector has provided employment opportunities to various skilled and unskilled workers directly or indirectly. The telecommunication sector has contributed to the growth of GDP and also to the growth of Capital markets. There are stocks like which form the BSE -30 share index. These factors provide an economic overview of the economy and have an impact on the growth of the sector and the country as a whole. 7.2 INVESTMENTS One of the most significant contributors to India’s booming economy is the development of the services sector and the focus of Foreign Direct Investment in the Telecommunication sector. Over the past two decades, the service sector has expanded rapidly and has come to play an increasingly important role in national economies and in the international economy. The structure of Foreign Direct Investment (FDI) worldwide has also shifted towards services. In the early 1970s, service sector accounted for only one quarter of the world FDI stock. In 1990 this shares was less than one half and by 2003, it has risen to about 67 per cent. Now service sectors like telecommunication, IT enabled services, electricity insurance, air transport are becoming prominent. Since the introduction of `Manmohanomics’ during PV Narasimha Rao’s government in 1991, Foreign Direct Investment (FDI) has been looked upon as a tool to transform under developed countries into advanced nations. Since then every government has encouraged the expansion of foreign direct investment. The liberalization measures post-1990 has changed with foreign investments radically, now portfolio as well as Foreign Direct Investment are not only allowed but also actively encouraged. Initially Foreign Direct investment was introduced only in a few sectors but since then it has been introduced in a variety of sectors including the sector of Telecommunications. There are multi-faceted advantages of encouraging foreign direct investment in telecom sector. Apart from ensuring telecom services at subsidized prices, it can satisfy the dire need of infrastructural reforms in rural areas. The inflows will allow multiple benefits such as technology transfer, market access, improvement in voice and data quality and organizational skills. It increases the flow of foreign currency and helps in maintaining harmonious relationship with the country from which the investment is made. Moreover, India offers an unprecedented opportunity for telecom service operators, infrastructure vendors, manufacturers and associated services companies. When the Indian government opened up cellular telephony to private industry, several foreign investors were ready to enter India’s telecom sector. However beating other manufacturing and services sectors, Indian telecom had attracted major inflow of FDI since August 1991. According to the numbers published by Investindiatelecom (an online agency which tracks developments in the Indian telecom sector), Indian telecom has grossed actual FDI worth Rs 9576.40 crores during the period starting from late 1991 to early 2003. Of the total FDI inflow in Indian telecom sector, the major share has gone towards investment in holding companies followed by cellular network and manufacturing and consultancy. While Hutchison Whampoa has a 49 per cent stake in Hutchison telecom, Vodafone has 21 per cent in RPG cellular and Verizon has ten percent stake in Reliance telecom. Other foreign companies with similar stake in Indian companies include AT&T Wireless, Cellnet and First Pacific. Recently, there has been a hike in the Foreign Direct Investment in the telecom sector and it has been increased from 49% to 74 %. This move seems to be positive for the sector, as it requires investments of Rs 700 –900 million over the next 5 years. FDI inflow by 2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and Japan telecom are likely to enter India, as India is seen as fastest growing telecom market in world. The increase in the FDI limit is expected to usher in a 20 per cent jump in foreign investments in the telecom sector within the next two years from the current Rs10, 000 crores. There are restrictions related to remote access, transfer of network information outside India and international transit routing of Indian traffic. It has been decided to enhance the FDI in telecom services in areas like basic telecom, cellular unified access services, Nat /intranet, long distance Vast, public mobile, radio service & gmdcs. DOT will have the authority to restrict the license company from operating in any of the sensitive areas of the country. Foreign portfolio investments will be allowed in existing news channels within an existing 26 per cent cap on foreign investment holdings for that sector. This comes in time when there is a boom in the Indian stock markets as well and in the consumers section. This would clearly go on to attract several players in the telecom sector globally to look forward to investing in India. The highlights of the new policy are that Foreign Direct Investment up to 74% is permitted in the telecom sector. Internet service (with gateways); infrastructure providers (category-II); radio paging service etc. have been made subject to licensing and security requirements. FDI up to 100% permitted in respect of the following telecom services: Internet Service Providers not providing gateways, Electronic mail, Voice mail, Infrastructure providers providing dark fibre. FDI up to 100% is allowed subject to the stipulation that all such companies would confirm to divest 26% of their equity in favour of the Indian public within five years, if these companies are listed in other parts of the world. The above services would be subject to licensing and security requirements, wherever required. This increase in the FDI limit would see a sea change of investment flowing into India, and have a magnanimous effect on the telecom sector by way of economic reforms and also would affect the economy as a whole, and would have a chain effect on various other sectors. Due to the increase in the foreign direct investment in the telecommunication market in India companies like Bharti Tele-Ventures and Hutchison Essar will be able to modulate the foreign stakes in their companies that have already acquired a range between 67-69 percent of their assets. With respect to the unnerving growth in the telecom industry in India which accounted for nearly 30 percent every year, the Union Cabinet decided for the hike in foreign direct investment as it will benefit the country by facilitating the capital inflows in the industry. As of now acquires the largest share in the Indian telecom market has been acquired by the mobile segment as it has been estimated to witness a double rise in the past 2 years. The 74 shares occupied by the Indian telecommunication industry would involve all the foreign direct investments that have mainly come from the non-residential Indians, foreign currency convertible bonds, foreign institutional investors, convertible preference shares, and depository receipts on a direct and indirect basis. The step taken for the increase in the FDI in Indian telecom industry will boost up the country's economic condition. Post 1991 one of the major contributors in the accretion of India's economy is Foreign Direct Investment and thereby it has been highly needed by each sector in Indian telecommunications industry. As of now the telecom sector requires 1, 60,000 crores for development purposes among which 30,000 is coming from the local markets. FDI in services responds well to openness especially when it comes to the telecommunications sector. This is quite evident looking at the recent boom in the Indian Telecommunication sector. Further liberalization of services involves potential advantages for Indian economy. Benefits can arise from increased competition, lower prices, and better quality of services. FDI in services like Telecommunications provide key inputs to other productive activities that lead to further investment and competitiveness of an economy. Efforts should be made towards attracting efficiency seeking FDI through a right policy that expands operation, improve local skills, establish linkages and upgrade technology However, precautions should be taken to avoid the risk of foreign investors outcompeting domestic investors especially in case of infrastructure services like Telecommunications. Services where domestic investors are not able to cater to the growing demand, or where domestic service-providers do not have the ability or capacity to provide the required quality of services, are where the least barriers exist. To circumvent such spirals it is important for the region to have appropriate domestic regulations in place, which will assure better quality of services at affordable prices. Clear domestic regulations increase transparency in the system and encourage foreign direct investment. To sustain the momentum of growth in services trade in the region, conscious efforts should be made to improve the competitive advantage of the region as a whole. Inclusion of trade in services in SAFTA may help attract FDI in services and lead to greater intra-regional trade. Access to more efficient services could lead to higher growth in productivity in other sectors, which, in turn, could improve the overall competitive strength of the region. Thus it can be concluded that the recent upward swing in the Telecommunications sector in India is due to the introduction of FDI in this sector by the Indian Government since 1991 but at the same time we must also be careful and not get carried away by this development and should have proper regulations in place to actually utilize this situation to our advantage. 7.3 FOREIGN DIRECT INVESTMENT 7.3.1 FDI Policy FDI Policy for the Telecom is as under:Table: 7.1 FDI Policy for different telecom sectors S Sector/Activity FDI Cap/Equity Entry l.n route o. 1. Basic and cellular,74% (includingAutomatic Unified AccessFDI, FII, NRI,upto 49%. Services, FCCBs, ADRs, National/Internation GDRs, al Long Distance, V-convertible Other Conditions Relevant Press Note Subject toPN 3/2007 guidelines notified in the Press Note No. 3 (2007 Series) Sat, Public Mobilepreference shares, Radio Trunkedand proportionateFIPB Services (PMRTS)foreign equity inbeyond 49%. Global MobileIndian Personal promoters/Investi Communications ng Company) Services (GMPCS) and other value added telecom services 2. ISP with gateways,74% radio-paging, endto-end bandwidth. Automatic Subject to licensingPN upto 49% and security/2001 requirements notified by the Department of FIPB Telecommunication beyond s. www.dot.gov.in 49% 4 3. a) ISP gateway, * without100% b) Infrastructure provider providing dark fibre, right of way, duct space, tower( Category –I); c) Electronic mail and voice mail Automatic Subject to thePN 9/ 2000 upto 49% condition that suchand PN companies shall2/2007 divest 26% of their equity in favour of Indian public in 5 years, if these FIPB companies are beyond listed in other parts 49% of the world. Also subject to licensing and security requirements, where required. www.dot.gov.in 4. Manufacture of100% telecom equipments Automatic Subject to sectoralPN 2 / 2000 requirements. 7.3.2 Incentives for Telecom Sector  Incentives to Promote Telecom Equipments Manufacturing • • • • • • • Custom duty on ITA-I product reduced to zero w.e.f. 01.03.2005. 4% additional duty on import of ITA products to countervail the state level taxes. No industrial licence for manufacturing of telecom equipment. Simple Industrial Entrepreneur Memorandum (IEM) has to be filed with SIA. 100% Foreign Direct Investment (FDI) through automatic route. Fully repatriable dividend income and capital invested. Payment of technical know-how fee of up to US$ 2 million and royalty up to 5% on domestic sales and 8% on export sales, net of taxes, through automatic route. 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 Promotion of telecom product specific SEZs. 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 • 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 1 st 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. Import of specified telecom equipment (ITA1 Products) is permitted at zero customs duty rates. Import of all capital goods for manufacturing telecom equipment does not require any license. • •  Incentives for Exporters • • 10 year income tax holiday for EOU/EPZ/STP/EHTP units. Export income is exempt from income tax for all exporters. Table: 7.2 Actual Inflow (Year Wise) of FDI in Telecom Sector from April 2000 to August 2008 (In Millions) Year (April-March) FDI in Rs. FDI in US$ 2000-01 7,841.59 177.69 2001-02 39,384.61 873.23 2002-03 9,077.31 191.60 2003-04 5,139.21 111.72 2004-05 5,695.38 124.53 2005-06 27,759.53 623.55 Table: 7.3 Actual Inflow of FDI in Telecom Sector Country -wise (from January 2000 to August 2008) 34 South Africa 6.82 0.15 0 35 Spain 1,589.70 36.29 0.88 36 Sri Lanka 4.73 0.1 0 37 Sweden 650 15.12 0.36 38 Switzerland 274.45 6.12 0.15 39 Taiwan 35.2 0.8 0.02 40 Thailand 735.12 17.1 0.41 41 U.A.E. 1,160.61 25.51 0.64 42 U.K. 2,959.04 Table: 7.4 Actual Inflow of FDI in Telecom Sector Sector-wise as on August, 2008 (Amount in Million) S. No. Service/Item In Rs. In US$ %age 1 Telecommunications 117,325.41 2,684.24 64.41 2 Radio Paging Service 113.92 2.53 0.06 3 Cellular Mobile/Basic Telephone Services 61,290.58 1,433.72 33.65 7.3.3 Major Investments The booming domestic telecom market has been attracting huge amounts of investment which is likely to accelerate with the entry of new players and launch of new services. Buoyed by the rapid surge in the subscriber base, huge investments are being made into this industry. • • • • • • • • • • • • Norway-based telecom operator Telenor has bought a 60 per cent stake in Unitech Wireless for US$ 1.23 billion. Japanese telecom major NTT DoCoMo has acquired a 27.31 per cent equity capital of Tata Teleservices for about US$ 2.6 billion and a 20.25 per cent stake in Tata Teleservices (Maharashtra) Ltd for about US$ 190.23 million. Singapore Telecommunications (SingTel), which has a 31 per cent stake in Bharti Airtel, has received the government’s approval to offer long distance services in India, according to a communication ministry official. Mauritius-based P5 Asia Holding Investments (Mauritius) Ltd will be investing around US$ 545.13 million to hold a 20 per cent stake in Aditya Birla Telecom Ltd (ABTL). The funds will be utilised for network rollout and operations of ABTL in the Bihar circle. Bharat Sanchar Nigam Ltd (BSNL) is planning an investment of around US$ 201.5 million in the Tamil Nadu Circle for an additional 23 lakhs mobile connections under both 2G and 3G technologies by 2009. The latest to join the world's second largest telecom market is Bahrain's Batelco which has signed a deal to buy 49 per cent in Chennai-based S-Tel, a GSM service provider, for $225 million. Etisalat, a Gulf-based telecommunications company has picked up a 45 per cent stake in Swan Telecom. Kaveri Telecom Products Limited is planning to set up a new subsidiary - Kaveri Telecom Infrastructure Limited (KTIL) - with an investment of US$ 20.11 million over the next two years, to offer in-building telecom infrastructure to telecom service providers. Juniper Networks, which is the second-largest maker of networking equipment, plans to invest US$ 400 million in India, over the next five years, with a focus on its research and development (R&D) activity. BSNL, India's leading telecom company in revenue terms, will put in about US$ 1.16 billion in its WiMax project. Bharti Airtel will be spending US$ 2.5 billion in a major expansion bid. Reliance Communication has committed US$ 5.69 billion as capital investment for the fiscal year ending March 2009. • • • • Idea Cellular will spend about US$ 2.36 billion in the fiscal ending March 2009. Srei Group's Quippo Telecom Infrastructure Ltd (QTIL) plans to invest US$ 3 billion in 2008-09 to ramp up its telecom infrastructure business to grow both organically and inorganically. Vodafone Essar will invest US$ 6 billion over the next three years in a bid to increase its mobile subscriber base from 40 million at present to over 100 million. Telecom service provider, Tata Teleservices Limited, has announced that the company will be investing additional US$ 6.74 million in Gujarat to set up 100 cell sites by August 2009. The company had earlier made an announcement of investing US$ 24.1 million in the state till March 2009. Telecom operator Aircel, which launched GSM mobile services in Bangalore on February 23, 2009, plans to invest US$ 220.58 million over the next year to set up base stations across the state. Investments Abroad After the amazing growth story in the domestic market, Indian telecommunication companies are now set to have a major global footprint. • • • The Bharti Group, which already has operations in Seychelles, (begun over a decade ago), and in the Channel Islands in Europe, launched its mobile services in Sri Lanka under 'Airtel' brand on January 12, 2009. Airtel is expected to invest about US$ 200 million in setting up and expanding its operation in Sri Lanka over the next five years. The company will simultaneously roll out second generation (2G) and third generation (3G) services in the country. Tata Communications has bought the 30 per cent stake in Neotel that was previously held by Eskom and Transnet. With this, Tata Communications in association with Tata Africa Holdings became the largest stakeholder with 56 per cent stake. Tata Communications marked its entry into UAE by launching a range of dedicated Ethernet services in association with leading telecommunication service provider of UAE, Etisalat. 7.4 CAPITAL MARKET Table: 7.5 Capital Market data Name Bharti Airtel HFCL Infotel Idea Cellular M TNL Reliance Comm Spice Comm Tata Tele Mah Full Year (Rs Cr.) Year End Equity Gr. Blk Div% B.V Rs EPS Rs. Price Price Date 200803 1,898.24 28,115.65 0 106.3 32.6 571 3/19/2009 200803 525.52 1,355.28 0 -7.1 0 8 3/19/2009 200803 3,100.09 13,888.89 0 35 3.2 46 3/19/2009 200803 630 15,842.58 40 189.2 9 65 3/19/2009 200803 1,032.01 21,576.32 15 120.3 12.4 157 3/19/2009 200812 689.92 2,665.54 0 -2 0 63 3/19/2009 200803 1,897.19 4,524.71 0 -1 0 23 3/19/2009 Price Information 52 W 52 W Mkt. Cap. -H -L 950 484 108,465.40 23 6 416.21 114 34 14,151.91 116 52 4,076.10 609 131 32,322.55 95 23 4,360.29 38 13 4,297.14 P/E P/BV 18 0 14 7.2 13 0 0 5.37 -1.13 1.31 0.34 1.31 -31.5 -23 The telecom sector consists of the above few companies that are listed on the Stock Exchange, of which Bharti Airtel and Reliance Communications are among the Top 30 Companies. • The prices of all the companies have been fluctuation over a period of time due to sell by foreign Institutional Investors, bringing the prices to share to its lowest levels. • Bharti Airtel and Reliance Communications are the two scripts that have been traded the most. • The Market Capitalization of Bharti Airtel and Reliance Communications is the highest among the telecom players as there are more number of shares outstanding in the market. • The Share capital is the highest for Idea Cellular and Bharti Airtel among all the players in the market. 7.5 GDP The current global financial crisis is, of course, now one of the major constraints on the pace of economic reform, but the Indian telecom sector, because of its innate strength and resilience, is perhaps one of the few sectors that have remained almost unaffected by this adverse global trend," The telecom sector, which clocked a 42.2% growth in the quarter ended September, has emerged as a big contributor to the GDP growth. High growth rate in this sector - with weight of less than 3% in GDP - was a key driver which pushed GDP figures for the quarter ended September to 7.6%," Companies reflect the confidence, and the sector will continue its growth story remain unscathed by the global financial turmoil. The telecom sector's potential in India remains under-tapped and growth rate in teledensity, especially in rural India, will remain robust. "Telecommunications contribution to the GDP growth rate will further increase in the coming quarters," The telecom sector is expected to perform even better; its contribution to the nation's GDP is expected to increase from 2% in 2006 to an estimated 3.6 per cent in 2010. 7.6 Labour Market With telecom sector booming, career in the industry is very lucrative. The career path to the leading companies goes via telecom engineering. The telecom sector offers a variety of career options. With the coming of more and more projects, the telecom industry is going for high scale recruitments. There is a huge demand for software engineers, mobile analysts, and hardware engineers for mobile handsets. Besides, there are ample opportunities for marketing people whose services are required to capture more and more customer base. The new projects, setting up of new service bases, expansion of coverage areas, network installations, maintenance, etc are providing more and more employment opportunities in the telecom sector. With the boom of e-business & voice data convergence for IP, the demand for telecom service is growing fast. Telecom offers unlimited opportunities & possibilities in the present and future. The Telecom sector is fast advancing globally by introducing advanced technologies and solutions to the world markets. The sector will need up to 1, 50,000 additional hands in 2009. While new players are launching operations, existing ones are beginning to scale up. Now that the government has issued 120 new licences, telecom industry officials fear a talent crunch that could push salaries in core operations by up to 30% in the next few quarters. Conservative estimates put the demand from new players at one lakh people in the first phase. With rolling out of 3G and Wimax, existing players will need another 50,000 people. Most of the new players would be looking for experienced hands, so getting people in such large numbers will be a great challenge. Currently, the sector directly employs about 1, 50,000 people, while providing jobs to another 1.5 million with retail outlets, prepaid card sellers and tower constructors. And now with most telecom players expanding in the rural markets, the demand for manpower is expected to go up further. “The new players will have to attract talent by offering 15-20% higher salaries. Figure: 7.1 Employment Potential of Indian telecom industry 7.7 CONCLUSION The above factors have played a significant role in the growth of the Indian economy and shall contribute to the growth in the future as well. With the increased FDI cap, new and better technology will be available to the Indian users and have a better access to the world. Chapter 8 ANALYTICAL FRAMEWOR K 8.1 INTRODUCTION In the third section we have analyzed in detail the entire telecom industry sector. There only we have laid the background for analysing the analytical framework for the telecom industry. Here we will carry out the Porter’s five forces analysis and SWOT analysis for the telecom industry. We will also carry out the ratio analysis of the telecom industry as a whole to find the financial performance of the industry and compare it with that of different companies. 8.2 PORTER’S FIVE FORCES There is continuing interest in the study of the forces that impact on an organisation or an industry, particularly those that can be harnessed to provide competitive advantage. The ideas and models which emerged during the period from 1979 to the mid-1980s (Porter, 1998) were based on the idea that competitive advantage came from the ability to earn a return on investment that was better than the average for the industry sector (Thurlby, 1998). As Porter's 5 Forces analysis deals with factors outside an industry that influence the nature of competition within it, the forces inside the industry (microenvironment) that influence the way in which firms compete, and so the industry’s likely profitability is conducted in Porter’s five forces model. A business has to understand the dynamics of its industries and markets in order to compete effectively in the marketplace. Porter (1980) defined the forces which drive competition, contending that the competitive environment is created by the interaction of five different forces acting on a business. In addition to rivalry among existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of the buyers, and the threat of substitute products or services. Porter suggested that the intensity of competition is determined by the relative strengths of these forces. The nature of competition in an industry is strongly affected by suggested five forces. The stronger the power of buyers and suppliers, and the stronger the threats of entry and substitution, the more intense competition is likely to be within the industry. However, these five factors are not the only ones that determine how firms in an industry will compete – the structure of the industry itself may play an important role. Indeed, the whole five-forces framework is based on an economic theory know as the “StructureConduct-Performance” (SCP) model: the structure of an industry determines organizations’ competitive behaviour (conduct), which in turn determines their profitability (performance). In concentrated industries, according to this model, organizations would be expected to compete less fiercely, and make higher profits, than in fragmented ones. Main Aspects of Porter’s Five Forces Analysis The original competitive forces model, as proposed by Porter, identified five forces which would impact on an organization’s behaviour in a competitive market. These include the following: • • • • • The rivalry between existing sellers in the market The power exerted by the customers in the market The impact of the suppliers on the sellers The potential threat of new sellers entering the market The threat of substitute products becoming available in the market Understanding the nature of each of these forces gives organizations the necessary insights to enable them to formulate the appropriate strategies to be successful in their market (Thurlby, 1998). We will examine these concepts as described by Porter’s 5 force model and as applied to Indian telecom industry simultaneously. 8.2.1 Force 1: The Degree of Rivalry The intensity of rivalry, which is the most obvious of the five forces in an industry, helps determine the extent to which the value created by an industry will be dissipated through head-to-head competition. The most valuable contribution of Porter's “five forces” framework in this issue may be its suggestion that rivalry, while important, is only one of several forces that determine industry attractiveness. • • This force is located at the centre of the diagram Is most likely to be high in those industries where there is a threat of substitute products; and existing power of suppliers and buyers in the market Now let us understand the implication of degree of revelry in Indian telecom sector. The dimensions of this parameter are determined by: High Exit Barriers: In any industry, if the exit barrier is high it increases the difficulty of any organization to leave the industry sector. So it makes any difficult to any willing to leave company to leave the industry. The telecom industry suffers from high exit barriers, mainly due to its specialized equipment. Networks and billing systems cannot really be used for much else, and their swift obsolescence makes liquidation pretty difficult. High Fixed Cost: The industry also suffers from high fixed cost which makes the entry barrier also very high for the industry. It comes as no surprise that in the capital-intensive telecom industry the biggest barrier to entry is access to finance. To cover high fixed costs, serious contenders typically require a lot of cash. When capital markets are generous, the threat of competitive entrants escalates. When financing opportunities are less readily available, the pace of entry slows. Meanwhile, ownership of a telecom license can represent a huge barrier to entry. • • 6-7 players in each region 3 out of 4 BIG-Four present in each region Very less time to gain advantage by an innovation: Every company in this industrial sector in investing a huge amount in research and development and marketing strategy. That is why we see any offer launched by any company is counter attacked by other companies very soon. This makes the industry rivalry most prominent. Eg. Caller tunes, life time card Price wars: The price war is really very fierce in this industry. Price war in telecom industry has commoditized the market that branding has taken a backseat. 8.2.2 Force 2: The Threat of New Entrants Both potential and existing competitors influence average industry profitability. The threat of new entrants is usually based on the market entry barriers. They can take diverse forms and are used to prevent an influx of firms into an industry whenever profits, adjusted for the cost of capital, rise above zero. In contrast, entry barriers exist whenever it is difficult or not economically feasible for an outsider to replicate the incumbents’ position. The most common forms of entry barriers, except intrinsic physical or legal obstacles, are as follows: • Economies of scale: In telecom industry the economies of scale exists from the supplier side. That is why companies try to increase their subscriber base at drastic rate. Distribution channels: Distribution channels are also providing a major determining factor. These channels are not loyal to any company and competitors can easily access them and make out work for them. Customer Switching Costs: Customer switching cost is very low, as cost of new connection is really low. And new connection offers more benefits to the customers. • • 8.2.3 Force 3: The Threat of Substitutes The threat that substitute products pose to an industry's profitability depends on the relative price-to-performance ratios of the different types of products or services to which customers can turn to satisfy the same basic need. The threat of substitution is also affected by switching costs – that is, the costs in areas such as retraining, retooling and redesigning that are incurred when a customer switches to a different type of product or service. It also involves: • Product-for-product substitution (email for mail, fax); is based on the substitution of need; • • Generic substitution (Video suppliers compete with travel companies); Substitution that relates to something that people can do without (cigarettes, alcohol). Now let us discuss this concept for telecom industry. The potential major substitutes for telecom industry are as follows:     VOIP (Skype, Messenger etc.) Online Chat Email Satellite phones All of these technologies have a huge potential, though none of the above a major threat in current scenario. So the telecom industry has to keep a close look on these substitutes. 8.2.4 Force 4: Buyer Power Buyer power is one of forces that influence the appropriation of the value created by an industry. The most important determinants of buyer power are the size and the concentration of customers. Other factors are the extent to which the buyers are informed and the concentration or differentiation of the competitors. Kippenberger (1998) states that it is often useful to distinguish potential buyer power from the buyer's willingness or incentive to use that power, willingness that derives mainly from the “risk of failure” associated with a product's use. • • • This force is relatively high where there a few, large players in the market, as it is the case with retailers a grocery stores; Present where there is a large number of undifferentiated, small suppliers, such as small farming businesses supplying large grocery companies; Low cost of switching between suppliers, such as from one fleet supplier of trucks to another. In the context of Indian telecom industry we can say that the following points influence the buyer power:  Lack of differentiation among the service provider  Cut throat competition  Customer is price sensitive  Low switching costs  Number portability to have negative impact 8.2.5 Force 5: Supplier Power Supplier power is a mirror image of the buyer power. As a result, the analysis of supplier power typically focuses first on the relative size and concentration of suppliers relative to industry participants and second on the degree of differentiation in the inputs supplied. The ability to charge customers different prices in line with differences in the value created for each of those buyers usually indicates that the market is characterized by high supplier power and at the same time by low buyer power. In the drawback of Indian telecom industry the following should be kept in mind:  Large number of suppliers: The industry basically has a large number of suppliers, which helps them to choose from a lot of options. So they try to select the best option to deliver the value to the customers and to have a competitive advantage from their competitor.  Shared tower infrastructure: Technology has helped them to share the tower infrastructure. This basically helps them to reduce the initial investment a lot.  Limited pool of skilled managers and engineers especially those well versed in the latest.  Medium cost of switching since changing their hardware would lead to additional cost in modifying the architecture.  Overall influence on the industry – medium. 8.3 SWOT ANALYSIS A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection. The following diagram shows how a SWOT analysis fits into an environmental scan: SWOT Analysis Framework Environmental Scan / \ Internal Analysis External Analysis /\ /\ Strengths Weaknesses Opportunities Threats | SWOT Matrix 8.3.1 Strengths Here we will analyze the strengths of the telecom industry as a whole. The most important factors are: • Technology is advanced and easy to implement: For telecom industry the technology is really advanced and more and more investment is done on technology to get world class infrastructure and knowhow to put in this field. Recently the telecom sector is going to add 3G spectrum as its latest upgradation. • Management Team has prior experience: The management team controlling Indian telecom sector in really efficient. Thank goes to the IITs which produce world class engineers. So Indian telecom sector has abundance of technological knowhow. 8.3.2 Weakness The weaknesses of the Indian telecom sector are as follows. • • High Cost of Infrastructure: The infrastructure cost of telecom industry is very high. Low customer retention power: The customer retention power for telecom industry is really low and the customer changes their service provider company very soon. 8.3.3 • Opportunity Population: The population of India is really an opportunity of telecom service providers, as the number of population without telecom service is also very high. The industry has to target India’s huge population to grow. • Changing Population psychograph: Population psychograph is also changing. Previously telecom service was thought as an emergency service, now it has become an essential part of life in our country. Increased Penetration Level: All the organizations of the industry are trying to increase their penetration level, in other word to increase the tele-density of the country. The urban Indian population gives a real growth prospect to the industry. • • FDI: The foreign direct investment in telecom has been hiked up from 49% to 74%. This move is positive for the sector, as it requires investments of Rs 700 – 900 million over the next 5 years. FDI inflow by 2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and Japan telecom are likely to enter India, as India is seen as fastest growing telecom market in world. 8.3.4 Threats The treats to the industry are the following: • Government Policies – Government may provide licenses to many foreign operators, which may already have pose a threat for the existing players in the industry. New Technology can change the market dynamics: A lot of new technologies are coming. Then even have the potential of changing the entire industry dynamics or even create substitute of the telecom services existing. • Some of the examples are follows:     VOIP (Skype, Messenger etc.) Online Chat Email Satellite phones To summarize the SWAT analysis we can draw the following framework for telecom industry: 8.4 RATIO ANALYSIS OF INDUSTRY Ratio Analysis is an approach in understanding the strength and weakness of a business. Ratio analysis is a very powerful analytical tool useful for measuring performance of an organization. It is also a yardstick to set goals for improvement. Ratio analysis allows various interested parties to make evaluation of certain aspects of the firm’s performance. 8.4.1 Liquidity Ratios: Current RatioThis ratio measures the solvency of the company in the short term. This ratio indicates that how much current asset is available for each rupee of current liabilities. So, higher the ratio more will be the margin of safety for short-term creditors. Current ratio for telecom service provider industry for 2007-2008 – 1.22 Current ratio of 1.22 means that the industry can successfully pay off its debt while at the same time still have cash left over to continue operating. Debt-to-Equity RatioDebt equity ratio is long term debt divided by share holder’s fund. Long term consists of secured and unsecured debt while share holders fund consists of share capital and reserve & surplus. If the ratio is 1:1, it indicates that the company is having equal fund from the shareholders and also the debt instruments. While the increasing ratio indicates the company has to pay more interest on the borrowed debt. Debt-to-equity ratio for telecom service provider industry for 2007-2008 – 0.35 Debt to equity ratio of 0.35 means that industry is not using debt instruments while it is relying more on the shareholders capital. This indicates that the assets are primarily supplied with equity. Now as debt is the cheapest source of fund, so telecom service providers industry is not using the cheapest source of fund. 8.4.2 Turnover Ratios: These ratios measure how effectively the firm utilizes its resources. These ratios are also called Activity Ratio, it involves comparison between the level of sales and investment in various accounts – inventories, debtors, fixed assets etc. Fixed Assets Turnover RatioFixed Assets Turnover Ratios is net sales divided by net fixed assets. So fixed assets turnover ratios show how efficiently the assets of the firm are utilized. Therefore, the higher the ratio, the more efficient the company is with its assets. Fixed Assets Turnover Ratios for telecom service provider industry for 2007-2008 – 0.43 Fixed assets in telecom service provider industry are various transmission equipments like towers, transmitters, optical fibers etc. This fixed assets turnover ratio of 0.43 is very low Inventory Turnover Ratio- Inventory turnover ratio is cost of goods sold divided by average stock. So inventory turnover ratio leads to stock velocity, which is an indication of the rotation of the current stock. So less rotation time is good for the company. Inventory Turnover Ratio for telecom service provider industry for 2007-2008 – 25.65 Stock Velocity – 365/25.65 comes as 14.23 days means the telecom service providers industry takes 14.23 days to rotate the stock which is again a low stock velocity. Debtor Turnover RatioIt is credit sales divided by average accounts receivables (Debtor + Bills receivables). So debtor turnover ratio leads to debtor velocity which is an indication that how much time an organization takes to collect its receivables. Hence, lower the debtor velocity, the good for the organization. Debtor Turnover Ratio for telecom service provider industry for 2007-2008 – 6.44 Debtor Velocity – 365/6.44 comes as 56.68 days which means telecom service provider industry takes on an average 57 days to collect its money back from its debtors. Interest Cover RatioInterest Coverage Ratio is profit before interest, depreciation and tax divided by interest on long term debt. So the high ratio indicates the low proportion of the debt in the sector and the industry is using a very conservative policy of using the debt component in the capital structure. Interest Cover Ratio for telecom service provider industry for 2007-2008 – 4.52 Interest cover ratio of 4.52 means that the telecom service industry has 4.52 times more income to pay interest on their debts. This indicates the industry can cover its interest payments well. 8.4.2 Profitability Ratios: The purpose of study and analysis of profitability ratios are to help assessing the adequacy of profits earned by the company and also to discover whether the profitability is increasing or decreasing. Gross Profit Margin RatioThe Gross Profit Margin Ratio is gross profit divided by sales and by multiplying it to 100. This assists in helping us understand the financial health of the company in terms of knowing whether or not the company’s profit is enough to pay off its other expenses. Gross Profit Margin Ratio for telecom service provider industry for 2007-2008 – 39.53 Gross Profit Ratio of 39.53% means that the industry is making 39.53 % on the sales. Net Profit RatioThis ratio is calculated by diving net profit after tax with net sales and multiplying with 100. This ratio reflects net profit margin on the total sales after deducting all expenses, but before deducting interest and taxation. The comparison of this ratio, with that of the previous year, will give a correct trend of the performance of the sector. Net Profit Ratio for telecom service provider industry for 2007-2008 – 15.41 Return on Capital Employed RatioIt is calculated by dividing operation profit before interest and tax by capital employed and multiplying it to 100. This ratio indicates that how much profit is earned on the total capital employed that consists of equity, reserve & surplus and long-term debt. Return on Capital Employed Ratio for telecom service provider industry for 20072008 – 9.72 Return on Net Worth- Return on Net Worth is profit after tax divided by net worth which consists of equity share capital and reserve and surplus and multiplying with 100. This ratio is an important yardstick of performance for equity share holder since it indicates the returns on the funds employed by them. Return on Net Worth for telecom service provider industry for 2007-2008 – 10.11 Chapter 9 COMPANY ANALYSIS 9.1 INTRODUCTION A brief overview about each company has been mentioned in this chapter. This chapter also deals with the analysis of the companies on various financial ratios. The financial ratios of these companies are compared with the industry standard ratios. There is comparison with the companies on various parameters like Enterprise value, Market capitalization, EPS, Sales and other income. This comparison gives us an overview in terms of position of companies in each parameter. These ratios give us an insight to the financial stability of the firm. Figure: 9.1 Market Share of Telecom Companies as on 31st Jan’09 9.2 TOP FIVE COMPANIES The Top five companies, on the basis of ‘Market Share’ as on 31st January, 2009 are: 1. 2. 3. 4. 5. Bharti Airtel Ltd. Reliance Communications Ltd. Vodafone Essar Ltd. BSNL Idea Cellular + Spice BHARTI AIRTEL LTD. Telecom giant Bharti Airtel is the flagship company of Bharti Enterprises. The Bharti Group has a diverse business portfolio and has created global brands in the telecommunication sector. Airtel comes from Bharti Airtel Limited, India’s largest integrated and the first private telecom services provider with a footprint in all the 23 telecom circles. Bharti Airtel since its inception has been at the forefront of technology and has steered the course of the telecom sector in the country with its world class products and services. The businesses at Bharti Airtel have been structured into three individual strategic business units (SBU’s) - Mobile Services, Airtel Telemedia Services & Enterprise Services. The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles while the Airtel Telemedia Services business offers broadband & telephone services in 95 cities and has recently launched India's best Direct-to-Home (DTH) service, Airtel digital TV. The Enterprise services provide end-to-end telecom solutions to corporate customers and national & international long distance services to carriers. All these services are provided under the Airtel brand. The company served an aggregate of 88,270,194 customers as of December 31, 2008; of whom 85,650,733 subscribed to GSM services and 2,619,461 use the Telemedia Services either for voice and/or broadband access delivered through DSL. Bharti Airtel is the largest wireless service provider in the country, based on the number of subscribers as of December 31, 2008. They also offer an integrated suite of telecom solutions to their enterprise customers, in addition to providing long distance connectivity both nationally and internationally. They have recently forayed into media by launching their DTH and IPTV Services. All these services are rendered under a unified brand "Airtel". The company also deploys, owns and manages passive infrastructure pertaining to telecom operations under its subsidiary Bharti Infratel Limited. Bharti Infratel owns 42% of Indus Towers Limited. Bharti Infratel and Indus Towers are the two top providers of passive infrastructure services in India. Company shares are listed on The Stock Exchange, Mumbai (BSE) and The National Stock Exchange of India Limited (NSE). RELIANCE COMMUNICATIONS LTD. Reliance Communications is the flagship company of the Anil Dhirubhai Ambani Group (ADAG) of companies. Listed on the National Stock Exchange and the Bombay Stock Exchange, it is India’s leading integrated telecommunication company with over 71 million customers. Their business encompasses a complete range of telecom services covering mobile and fixed line telephony. It includes broadband, national and international long distance services and data services along with an exhaustive range of value-added services and applications. Our constant endeavour is to achieve customer delight by enhancing the productivity of the enterprises and individuals we serve. Reliance Mobile (formerly Reliance India Mobile), launched on 28 December 2002, coinciding with the joyous occasion of the late Dhirubhai Ambani’s 70th birthday, was among the initial initiatives of Reliance Communications. It marked the auspicious beginning of Dhirubhai’s dream of ushering in a digital revolution in India. Today, the company can proudly claim that they were instrumental in harnessing the true power of information and communication, by bestowing it in the hands of the common man at affordable rates. They endeavour to further extend their efforts beyond the traditional value chain by developing and deploying complete telecom solutions for the entire spectrum of society. It was established in the year 2004 as Reliance Infrastructure Developers Private Limited, Reliance Communications started laying 60,000 route kilometers of a pan-India fibre optic backbone with high capacity, integrated (wireless and wireline), convergent (voice, data and video) digital network and to offer services spanning the entire infocomm value chain. It is capable of delivering a range of services spanning the entire infocomm (information and communication) value chain, including infrastructure and services for enterprises as well as individuals, applications, and consulting. VODAFONE ESSAR LTD. Vodafone Essar in India is a subsidiary of Vodafone Group Plc and commenced operations in 1994 when its predecessor Hutchison Telecom acquired the cellular license for Mumbai. Vodafone Essar now has operations in 22 circles with over 65.92 million customers**. The company is a joint venture of Essar Communication Holdings Ltd and the UK-based Vodafone Group. Vodafone has partnered with the Essar Group as their principal joint venture partner for the Indian market. They are in the business of cellular telephony. Over the years, Vodafone Essar, under the Hutch brand, has been named the ‘Most Respected Telecom Company’, the ‘Best Mobile Service in the country’ and the ‘Most Creative and Most Effective Advertiser of the Year’. Vodafone is the world’s leading international mobile communications company. It currently has equity interests in 27 countries across 5 continents and 40 partner networks with over 289 million proportionate customers worldwide. Vodafone has partnered with the Essar Group as its principal joint venture partner for the Indian market. Essar Global Limited (EGL) is a diversified business group spanning the manufacturing and services sectors of Steel, Energy, Power, Communications, Shipping & Logistics, and Projects. The group has operations and investments in India, Canada, USA, Africa, the Middle East, the Caribbean and South East Asia and employs 30,000 people worldwide. Vodafone Essar Ltd provides services like 2G, which are based on 1800 Mhz and 900Mhz GSM digital technology. They offers voice and data services. In addition, they offers postpaid connections activation, prepaid SIM cards and recharge coupons sale, service activation/deactivation, postpaid tariff plan change, customer query resolution, prepaid/postpaid SIM card replacement and upgradation, mobile number change, and information on and subscription of value added services through stores. **Figures from Cellular Operators Association of India, February 28, 2009 BHARAT SANCHAR NIGAM LTD. Bharat Sanchar Nigam Ltd. formed in October, 2000, is World's 7th largest Telecommunications Company providing comprehensive range of telecom services in India: Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc. Within a span of five years it has become one of the largest public sector unit in India. It has about 47.3 million line basic telephone capacity, 4 million WLL capacity, 20.1 Million GSM Capacity, more than 37382 fixed exchanges, 18000 BTS, 287 Satellite Stations, 480196 Rkm of OFC Cable, 63730 Rkm of Microwave Network connecting 602 Districts, 7330 cities/towns and 5.5 Lakhs villages. BSNL is the only service provider, making focused efforts and planned initiatives to bridge the Rural-Urban Digital Divide ICT sector. In fact there is no telecom operator in the country to beat its reach with its wide network giving services in every nook & corner of country and operates across India except Delhi & Mumbai. BSNL is numero uno operator of India in all services in its license area. The company offers vide ranging & most transparent tariff schemes designed to suite every customer. BSNL cellular service, CellOne, has more than 17.8 million cellular customers, garnering 24 percent of all mobile users as its subscribers. That means that almost every fourth mobile user in the country has a BSNL connection. In basic services, BSNL is miles ahead of its rivals, with 35.1 million Basic Phone subscribers i.e. 85 per cent share of the subscriber base and 92 percent share in revenue terms. BSNL has more than 2.5 million WLL subscribers and 2.5 million Internet Customers who access Internet through various modes viz. Dial-up, Leased Line, DIAS, Account Less Internet (CLI). BSNL has been adjudged as the NUMBER ONE ISP in the country. BSNL has set up a world class multi-gigabit, multi-protocol convergent IP infrastructure that provides convergent services like voice, data and video through the same Backbone and Broadband Access Network. At present there are 0.6 million DataOne broadband customers. IDEA CELLULAR LTD. + SPICE DEA Cellular is a publicly listed company, having listed on the Bombay Stock Exchange (BSE and the National Stock Exchange (NSE) in March 2007. Idea Cellular Ltd. is India's leading GSM mobile services operator. It has licenses to operate in 11 circles. The company has a customer base of over 17 million. It is the first cellular company to launch music messaging with Cellular Jockey, Background Tones, Group Talk, a voice portal with Say IDEA and a complete suite of mobile email Services. A brand known for many firsts, Idea was the first to launch GPRS and EDGE in the country. Idea has received international recognition for its path-breaking innovations when it won the GSM Association Award for "Best Billing and Customer Care Solution" for 2 consecutive years. IDEA Cellular is part of the Aditya Birla Group, India's first truly multinational corporation. The group operates in 25 countries, and is anchored by over 1,25,000 employees belonging to 25 nationalities. The combined holding of the Aditya Birla Group companies in Idea stands at 98.3 per cent. Mr. Kumar Mangalam Birla has been named the Chairman of the company. The Indian telecommunications market for mobile services is divided into 22 "Service Areas" classified into "Metro", Category "A", Category "B" and Category "C" service areas by the Government of India. These classifications are based principally on a Service Area's revenue generating potential Customer Service and Innovation are the drivers of this Cellular Brand. A brand known for their many firsts, IDEA is the only operator to launch General Packet Radio Service (GPRS) and EDGE in the country. IDEA has seen phenomenal growth since its inception, the company's footprint idea is to first achieve critical mass, then drill deep instead of spreading thin, however, does not increasing geographic footprint only, it also drills deep and successfully attempts to provide excellent network coverage in all its circles of operations. 9.3 BOTTOM FIVE COMPANIES The Bottom five companies, on the basis of ‘Market Share’ as on 31st January, 2009 are: 1. Aircel Cellular Ltd. + Dishnet 2. Mahanagar Telephone Nigam Ltd. (MTNL) 3. BPL Mobile Communications Ltd. 4. HFCL Infotel Ltd. 5. Shyam Telecom Ltd. AIRCEL + DISHNET The Aircel Group is a joint venture between Maxis Communications Berhad of Malaysia and Apollo Hospital Enterprise Ltd of India, with Maxis Communications holding a majority stake of 74%. Aircel commenced operations in 1999 and became the leading mobile operator in Tamil Nadu within 18 months. In December 2003, it launched commercially in Chennai and quickly established itself as a market leader – a position it has held since. Aircel began its outward expansion in 2005 and met with unprecedented success in the Eastern frontier circles. It emerged a market leader in Assam and in the North Eastern provinces within 18 months of operations. Till today, the company gained a foothold in 14 circles including Chennai, Tamil Nadu, Assam, North East, Orissa, Bihar, Jammu & Kashmir, Himachal Pradesh, West Bengal, Kolkata, Kerala, Andhra Pradesh, Karnataka and Delhi. The Company has currently gained a momentum in the space of telecom in India post the allocation of additional spectrum by the Department of Telecom, Govt. of India for 13 new circles across India. These include Delhi (Metro), Mumbai (Metro), Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra & Goa, Rajasthan, Punjab, UP (West) and UP (East). Aircel has won many awards and recognitions. Voice and Data gave Aircel the highest rating for overall customer satisfaction and network quality in 2006. Aircel emerged as the top mid-size utility company in Business world’s ‘List of Best Mid-Size Companies’ in 2007. Additionally, Tele.net recognized Aircel as the best regional operator in 2008. With over 16 million customers in the country, Aircel, the fastest growing telecom company in India, has revved up plans to become a full-fledged national operator by end of 2009. MTNL Mahanagar Telephone Nigam Limited (MTNL) was set up in 1st April of the year 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development needs of India's key metros, Delhi (the political capital) and Mumbai (the business capital of India). The company has also been in the forefront of technology induction by converting 100% of its telephone exchange network into the state-of-the-art digital mode. MTNL as a company, over last nineteen years, grew rapidly by modernizing the network, incorporating the State-of-the-art technologies and a customer friendly approach. The Company providing various types of telecommunication services including Telephone, telex, wireless, data communication, telematic and other like forms of communication (Internet). First digital exchange world technology brought to India by the company during the year 1986. Phone Plus services was offered by the company in the year 1988, it gives multiplied benefits to telephone users. During the year 1992, the company introduced Voice Mail Service. MTNL had introduced the Integrated Services Digital Network (ISDN) services in the period of 1996. Apart from this IVRS (Interactive Voice Response System) like local assistance changed number information, and fault booking system ensuring round the clock service, a CD-ROM version of the telephone directory and an on-line directory enquiry through PC was introduced during the year 1997. To facilitate the clientele, MTNL launched the country's first toll-free service in Delhi in the period of 1998. During the year 1999, MTNL brought in the most widely using service called Internet (Network of Networks), the extreme level of information exchange. During the year 2001, the company launched GSM Cellular Mobile service under the brand name Dolphin and in the same year MTNL also launched Wireless in Local Loop (WLL) Mobile services under the brand name Garuda. The Company established Wi-Fi & digital certification services in the identical year. MTNL bagged the award for excellence in cost reduction in the year 2004. State of the art training centre of the company 'CETTM' was commissioned in the year of 2004. The Company introduced the broadband services under the brand name of 'TRI BAND' during the year 2005. MTNL-STPI IT Services Ltd is a 50:50 Joint Venture between Software Technology Parks of India (STPI) and the company. The Company has restructured Millennium Telecom Ltd (MTL) as a Joint Venture company of MTNL and BSNL with 51% and 49% equity participation respectively. To remain market leader in providing world class Telecom and IT related services at affordable prices, the company partaking its all efforts in the same business area and MTNL wants to become a global player, also find a place in the Fortune 500' companies. BPL MOBILE COMMUNICATIONS LTD. BPL Mobile Communications Limited popularly known as BPL Mobile is an India-based telecommunication service providing company. BPL Mobile Communications Limited is an offshoot of the legendary business conglomerate ESSAR group. BPL Mobile Communications Limited was established in the year 1995 and it is presently operating in only in the city of Mumbai. BPL Mobile Communications Limited has revolutionized the Indian mobile telecommunication industry. Within a short span of time the subscriber base of BPL Mobile Communications Limited has reached the 1 million mark. This gigantic mobile telecommunication company of India has grown in leaps and bounds and it offers seamless service to its customers spread across Mumbai. Further, BPL Mobile has gained tremendous popularity due to its competitive pricing of tariffs. BPL Mobile offers high-class mobile service to its wide pool of Mumbai subscribers. Further, it ranks very high on parameters like, customer satisfaction, billing performance, voice quality etc and was thus ranked first in the category of Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA) of mobile service providers, operating in Mumbai. Superior coverage and optimum sound clarity are the strengths of BPL Mobile. BPL Mobile Communications Limited provides its customers with world class mobile services, through the use of state-of-the-art technology and network and this includes use of unique network design, the Qualnet, Camel Phase 2 Intelligent Network (IN) platform and GPRS facilitating ultra modern services like Multimedia Messaging Services (MMS), mobile browsing and Java based mobile phone games. Mr. S. Subramaniam, CEO of the company, heads this leading telecommunication company of India. The products and services offered by BPL Mobile Communications Limited are as follows • • Prepaid Connections Postpaid Connections • • • • • • Prepaid Recharge Coupons Bill Payments Value Added Services (VAS) Service Inquiries SIM Replacements Handset Sales HFCL INFOTEL LTD. Incorporated on 2 Aug.'46, The Investment Trust of India (ITI) is managed by chairman and managing director B K Kothari. During 2002-03 the name of the Company changed to HFCL Infotel Ltd, as part of Company's diversification and restructuring programme, HFCL Infotel Ltd ('transferor Company') a telecommunication Company operating in the Punjab Circle merged with the Company through a Scheme of Amalgamation and decided to hive off the business of Hire Purchase, Finance, Leasing and Securities Trading by way of an outright sale with effect from 1st September 2002 to its wholly owned subsidiary 'Rajam Finance & Investments Company (India) Ltd' now renamed as 'The Investment Trust of India Ltd' Other group companies are Kothari Sugars and Chemicals and Madras Safe Deposit. In Sep.'94, it came out with a rights issue of 21.79 lac shares (premium: Rs 30) aggregating Rs 8.72 cr, to augment long-term working capital. The company is mainly engaged in hire purchase, lease financing and investments. Its clients include individuals, firms as well as corporate bodies. ITI's business activities include sugar, petrochemicals, industrial alcohol, etc. It has two subsidiaries -- ITI Pioneer AMC and ITI Capital Markets. ITI Pioneer AMC has promoted Kothari Pioneer Mutual Fund. ITI has invested 55% of its capital in ITI Pioneer AMC and the remaining 45% has been subscribed to by Pioneering Management Corporation, US. During 1995-96, ITI Pioneer AMC Limited ceased to be a subsidiary of the company. During 1997-98, The Company’s holding in ITI Capital Market Ltd was sold to Kothari Pioneer AMC Ltd. During 2003-04, The Company launched its Prepaid Mobile product and a complete range of innovative value Added Services and Data products were launched in May 2004, by the introduction of DSL-high speed Internet product. The company became the first service provider to have launched DSL services in the state of Punjab and Chandigarh. During 2004-05, The Company expanded its services to 125 cities/towns with 2.47 lacs subscribers in Punjab. The company is planning a venture into Video and Cable TV Services and making triple play services by an expansion into the neighbouring states of Punjab. A wholly owned subsidiary, Connect Broadband Services Limited was formed on July 2004, for the above purpose. The Company's services namely, Fixed Line Telephoney, Mobile Telephoney, Broadband Internet Access and Data Networking Access are offered under the brand name 'CONNECT'. SHYAM TELECOM LTD. Incorporated in 1992, Shyam Telecom Limited, a leading manufacturer of Telecom Equipment in India is the flagship company of the Shyam Group of India. The expanding horizon of the telecom sector in India has given Shyam new vistas and avenues for growth and expansion. To concentrate mainly on its core activities i.e. investment in Telecom activities, the company restructured its business and a result it has de-merged its manufacturing business to a wholly owned subsidiary viz. Shyam Telecom Manufacturing Ltd (formerly known as Shyam Telecom Infrastructure Projects Ltd). Subsequently the company will be an investor in Shyam Telecom Manufacturing Limited (developer of wireless product for GSM & CDMA) and Shyam Telelink Ltd (basic telephony services in Rajasthan). Shyam Telecom also took a strategic decision by de-subsidiarise Shyam International Ltd by which Shyam ACeS also got de-subsidiarised. It has also acquired the entire capital of Shyam Telecom Manufacturing Ltd & Shyam Tel Singapore Pvt. Ltd. Shyam's R&D which is fully recognized by the Department of Science and Technology has been able to design new products. Shyam's R&D wing is well-equipped with the latest and sophisticated testing instruments, CAD/CAM for design and assembly work besides having highly qualified engineers. The company currently manufactures Wireless in Local Loop, Fiber in local loop, Digital Loop Carriers (DLC), Digital Radios, Spread Spectrum Radios, Digital Subscriber Line (DSL) for Internet Access, Remote Energy Meeting Systems (REMS) & Supervisory control & data accusation systems (SCADA). The company has an international presence in 27 countries spread over America, Europe, Africa, Indian sub-continent and AsiaPacific. The company has extended its basic telephony service to Jaipur and Jodhpur. The company's service covered all the three technologies in basic telephony - wireline, CDMA and CorDect. 9.4 RATIO ANALYSIS OF COMPANY 9.4.1 Bharti Airtel Ltd. Table 9.1: Key Ratios of Bharti Airtel Ltd. Industry :Telecommunications - Service Provider 8Mar Debt-Equity Ratio Long Term DebtEquity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) 0.38 0.35 0.53 7Mar 0.54 0.5 0.46 0.8 509.0 3 12.1 15.81 40.7 27.52 38.96 35.78 22.59 34.07 43.04 6Mar 0.83 0.76 0.46 0.72 447.7 4 12.54 10.65 36.23 22.46 34.13 31.69 17.91 22.55 31.82 5Mar 0.6 0.5 1.1 1.19 500.5 1 22.08 5.93 36.7 23.8 32.69 28.22 15.32 23.96 23.88 4 Mar 0.07 0.03 17.3 0 0 0 0.39 0 0 0 0 0 0.16 -0.27 3Mar 0.01 0 40.35 0 0 0 0.27 0 0 0 0 0 0.17 -0.47 2Mar 0.02 0 16.34 0 0 0 -4.22 0 0 0 0 0 -1.17 -1.47 1Mar 0.09 0.09 13.05 0 0 0 0.04 0 0 0 0 0 0.11 -2.55 Mar00 0.37 0.37 69.18 0 0 0 0.58 0 0 0 0 0 0.41 -0.4 0.94 462.1 2 11.08 Cover 12.47 41.72 29.43 39.36 36.53 24.24 34.88 39.53 The Current Ratio of Bharti Airtel Ltd. is 0.53 for the year 2007-2008. This means that the company is having fewer assets to cover the liability and also the investors should be weary of the fact that the company cannot pay off its short-term debt if necessary Debt-to-Equity Ratio of Bharti Airtel Ltd. is 0.38 for the year 2007-2008 which means that company is not using its debt instruments while it is relying more on the shareholders capital. This also indicates the company’s assets are primarily supplied with equity. Fixed Assets Turnover Ratio of Bharti Airtel Ltd. is 0.94 for the year 2007-2008. This ratio is higher than the industry ratio for Bharti Airtel which indicates that assets are being fairly utilized by the company in order to generate sales. Inventory Turnover Ratio of Bharti Airtel Ltd. is 462.12 for the year 2007-2008. So the stock velocity of Bharti is 365/462.12 which is equal to 0.79 which is fairly good if we compare it with the industry standard which is as high as 14.23. Therefore, Bharti Airtel takes less than a day to rotate its stock. Debtor Turnover Ratio of Bharti Airtel Ltd. is 11.08 for the year 2007-2008. So the debtor velocity is 365/11.08 which comes out as 32.94 days i.e. Bharti takes on an average 33 days to collect its money back from the debtors, which is again lower than as compared to the industry. Interest Cover Ratio of Bharti Airtel Ltd. is 12.47 for the year 2007-2008, which means that Bharti has 12.47 times more income to pay interest on their debts. So the company is in a comfortable situation. Gross Profit Margin Ratio of Bharti Airtel Ltd. is 41.72% for the year 2007-2008, means that Bharti is making a profit before interest, depreciation and tax of 41.72%. Net Profit Ratio of Bharti Airtel Ltd. is 24.24% for the year 2007-2008 which is higher in comparison with the industry ratio, so this goes to show the efficiency of the operation of the company. Return on Capital Employed Ratio of Bharti Airtel Ltd. is 34.88 for the year 20072008 which indicate that the company is earning 34.88 times the profit on the total capital employed that consists of Equity, Reserves & Surplus and long-term debt. Return on Net Worth of Bharti Airtel Ltd. is 39.53 for the year 2007-2008 which is more than the industry average and therefore shows a profit of 39.53 times per rupee invested by the investors. 9.3.2 Reliance Communications Ltd. Table 9.2: Key Ratios of Reliance Communications Ltd. Industry :Telecommunications - Service Provider 8-Mar Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) 0.77 0.57 1.25 0.7 98.7 15.61 3.99 35.95 23.49 30.07 29.95 17.49 8.66 11.4 7-Mar 0.41 0.39 1.94 0.98 207.19 25.45 6.3 36.95 22.56 33.37 33.28 18.88 9.23 10.92 5-Dec 0 0 5.13 0 0 0 0 0 0 0 0 0 0.16 0.1 5-Mar 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Current Ratio of Reliance Communications is 1.25 for the year 2007-2008. This indicates that the company can successfully pay off its debt while at the same time still have cash left over to continue operating. Debt-to-Equity Ratio of Reliance Communications is 0.77 for the year 2007-2008 indicating that the company’s assets are primarily supplied with equity. Fixed Assets Turnover Ratio of Reliance Communications is 0.7 for the year 20072008. This ratio is higher, for the company, than the industry ratio which indicates that assets are being fairly utilized by the company in order to generate sales. Inventory Turnover Ratio of Reliance Communications is 98.7 for the year 2007-2008. So the stock velocity of Reliance is 365/98.7 which is equal to 3.69 which is fairly good if we compare it with the industry standard which is as high as 14.23. Therefore, Reliance Communications takes less than four days to rotate its stock. Debtor Turnover Ratio of Reliance Communications is 15.61 for the year 2007-2008. So the debtor velocity is 365/15.61 which comes out as 23.38 days i.e. Reliance takes on an average 23 days to collect its money back from the debtors, which is again lower than as compared to the industry. Interest Cover Ratio of Reliance Communications is 3.99 for the year 2007-2008, which means that Reliance has 3.99 times more income to pay interest on their debts. So the company is in a good situation. Gross Profit Margin Ratio of Reliance Communications is 35.95% for the year 20072008, means that Reliance is making a profit before interest, depreciation and tax of 35.95%. Net Profit Ratio of Reliance Communications is 17.49% for the year 2007-2008 which is higher in comparison with the industry ratio, so this goes to show the efficiency of the operation of the company. Return on Capital Employed Ratio of Reliance Communications is 8.66 for the year 2007-2008, which indicate that the company is earning 8.66 times the profit on the total capital employed that consists of Equity, Reserves & Surplus and long-term debt. Return on Net Worth of Reliance Communications is 11.4 for the year 2007-2008, which is a little more than the industry average and therefore shows a profit of 11.4 times per rupee invested by the investors. 9.3.3 Vodafone Essar Ltd. Table 9.3: Key Ratios of Vodafone Essar Ltd. Industry :Telecommunications - Service Provider 8-Mar 6-Dec 5-Dec Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) 0.27 0 1.4 1.52 1,656.82 15.2 2.44 30.81 22.18 21.71 21.99 13.36 4.23 3.22 0.2 0 1.51 1.26 1,137.42 11.48 3.93 34.92 27.51 27.91 29.16 21.75 4.22 4.01 0.17 0.14 1.61 1.3 1,414.38 10.48 12.18 39.26 30.85 36.73 35.25 26.84 5.38 5.5 Current Ratio of Vodafone Essar is 1.4 for the year 2007-2008. This indicates that the company can successfully pay off its debt while at the same time still have cash left over to continue operating. Debt-to-Equity Ratio of Vodafone Essar is 0.27 for the year 2007-2008 indicating that the company’s assets are primarily supplied with equity. Fixed Assets Turnover Ratio of Vodafone Essar is 1.52 for the year 2007-2008. This ratio is higher, for the company, than the industry ratio which indicates that assets are being very well utilized by the company in order to generate sales. Inventory Turnover Ratio of Vodafone Essar is 1656.82 for the year 2007-2008. So the stock velocity of Vodafone is 365/1656.82 which is equal to 0.22 which is fairly good if we compare it with the industry standard which is as high as 14.23. Therefore, Vodafone Essar takes less than a day to rotate its stock. Debtor Turnover Ratio of Vodafone Essar is 15.2 for the year 2007-2008. So the debtor velocity is 365/15.2 which comes out as 24.01 days i.e. Vodafone takes on an average 24 days to collect its money back from the debtors, which is again lower than as compared to the industry. Interest Cover Ratio of Vodafone Essar is 2.44 for the year 2007-2008, which means that Vodafone has 2.44 times more income to pay interest on their debts. So the company is in a good situation. Gross Profit Margin Ratio of Vodafone Essar is 30.81% for the year 2007-2008, means that Vodafone is making a profit before interest, depreciation and tax of 30.81%. Net Profit Ratio of Vodafone Essar is 13.36% for the year 2007-2008, which is higher in comparison with the industry ratio, so this goes to show the efficiency of the operation of the company. Return on Capital Employed Ratio of Vodafone Essar is 4.23 for the year 2007-2008, which indicate that the company is earning 4.23 times the profit on the total capital employed that consists of Equity, Reserves & Surplus and long-term debt. Return on Net Worth of Vodafone Essar is 3.22 for the year 2007-2008, which means it shows a profit of 3.22 times per rupee invested by the investors. 9.3.4 Bharat Sanchar Nigam Ltd. (BSNL) Table 9.4: Key Ratios of BSNL Industry :Telecommunications - Service Provider 8765-Mar 4Mar Mar Mar Mar 3Mar 2Mar 1Mar Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) 0.05 0.05 1.92 0.27 10.47 5.86 6.1 46.41 16.45 43.72 39.26 9.3 5.84 2.92 0.08 0.08 1.8 0.3 12.22 5.83 11.23 52.28 25.85 49.98 48.98 22.55 10.02 9.34 0.1 0.1 1.56 0.33 13.91 5.59 8.53 52.41 26.46 49.31 50.68 24.74 11.44 11.93 0.12 0.12 1.25 0.34 14.58 6.3 210.77 47.23 18.46 47.14 54.46 25.69 8.17 13.03 0.13 0.13 0.89 0.35 11.64 9.07 76.87 53.05 21.6 52.77 45.61 14.16 10.02 8.44 0.17 0.17 0.77 0.32 7.39 5.84 2.08 40.75 2.99 39.31 38.61 0.84 1.15 0.44 0.24 0.24 0.7 0.35 7.57 5.09 10.18 56.8 20.81 54.76 53.28 17.29 8.6 9.58 0.29 0.29 0.57 0.31 7.61 5.22 3.72 41.83 8.76 39.48 39.48 6.4 3.49 3.29 Current Ratio of BSNL is 1.92 for the year 2007-2008. This indicates that the company can successfully pay off its debt while at the same time still have cash left over to continue operating. Debt-to-Equity Ratio of BSNL is 0.05 for the year 2007-2008 which means that company is not using debt instruments while it is relying more on the shareholders capital. This also indicates the company’s assets are primarily supplied with equity. Fixed Assets Turnover Ratio of BSNL is 0.27 for the year 2007-2008. This ratio is higher than the industry ratio which indicates that assets are being fairly utilized by the company in order to generate sales. Inventory Turnover Ratio of BSNL is 10.47 for the year 2007-2008. So the stock velocity of BSNL is 365/10.47 which is equal to 34.86 that is higher than the industry standard of 14.23. Therefore, BSNL takes 35 days to rotate its stock. Debtor Turnover Ratio of BSNL is 5.86 for the year 2007-2008. So the debtor velocity is 365/5.86 which comes out as 65.29 days i.e. BSNL takes on an average 65 days to collect its money back from the debtors, which is again higher than the industry standards. It is highest among all the major players in the market. Interest Cover Ratio of BSNL is 6.1 for the year 2007-2008, which means that BSNL has 6.1 times more income to pay interest on their debts. So the company is in a good situation. Gross Profit Margin Ratio of BSNL is 46.41 for the year 2007-2008, means that BSNL is making a profit before interest, depreciation and tax of 46.41%. BSNL being a public sector company has been able to generate gross profit more than the industry standards and also other major players. Net Profit Ratio of BSNL is 9.3 for the year 2007-2008, which is lower in comparison with the industry ratio. This shows that BSNL had to pay other indirect expenses which led to fall in the net profit. Return on Capital Employed Ratio of BSNL is 5.84 for the year 2007-2008, which indicate that the company is earning 5.84 times the profit on the total capital employed that consists of Equity, Reserves & Surplus and long-term debt. Return on Net Worth of BSNL is 2.92 for the year 2007-2008, which is lower than the industry average and therefore shows a profit of 2.92 times per rupee invested by the investors. 9.3.5 Idea Cellular Ltd. Table 9.5: Key Ratios of Idea Cellular Ltd. Industry :Telecommunications - Service Provider 8 7 6 5 4 3 2 -Mar -Mar -Mar -Mar -Mar -Mar -Mar 1 -Mar Ma r-00 Mar99 Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) 1.88 1.63 0.66 2.14 1.55 0.84 2.54 1.43 0.76 2.41 1.55 0.8 2.02 1.64 0.93 2 2 0.89 3.5 3.5 0.51 6 6 0.41 3.23 3.23 0.47 2.13 2.13 0.43 0.58 295. 19 38.2 8 3.38 36.6 5 23.6 29.6 7 28.5 9 15.5 4 15.5 9 21.8 1 0.63 326. 83 35.8 9 2.49 34.8 5 19.4 7 27.0 4 26.8 8 11.5 11.61 14.3 7 0.46 180. 33 17.2 1 1.5 36.6 3 19.3 1 23.7 2 23.5 7 6.26 6.86 5.32 0.41 143. 04 13.5 3 1.1 32.1 17.5 3 16.1 7 16.1 7 1.6 6.49 1.8 0.34 137. 44 13.4 9 0.2 21.6 3 4.44 -0.56 -0.56 -17.7 5 0 0 0.31 137.1 1 11.15 0.21 35.3 8 4.99 11.62 11.62 -18.7 7 1.72 -28.8 1 0.39 134.1 1 9.72 -0.14 24.8 2 -3.79 -3.03 -3.03 -31.6 5 -1.83 -62.1 3 0.38 94.3 5 7.84 -0.51 -12.7 -25.3 4 -62.6 6 -62.6 6 -75.2 9 -14.4 7 -112. 71 0.27 78.9 5 7.12 0.23 42.4 7 24.1 5 -60. 98 -60. 98 -79. 31 4.75 -41. 59 0.23 40.72 5.59 -1.63 -167. 33 -189. 22 -283. 4 -283. 4 -305. 29 -20.7 5 -99.9 7 Current Ratio of IDEA is 0.66 for the year 2007-2008. This means that the company is having fewer assets to cover the liability and also the investors should be weary of the fact that the company cannot pay off its short-term debt if necessary Debt-to-Equity Ratio is 1.88 for the year 2007-2008, which means that company using more of debt instruments. This also indicates the company’s assets are primarily supplied with debt. Fixed Assets Turnover Ratio of IDEA is 0.58 for the year 2007-2008. This ratio is higher than the industry ratio which indicates that assets are being fairly utilized by the company in order to generate sales. Inventory Turnover Ratio of IDEA is 295.19 for the year 2007-2008. So the stock velocity of IDEA is 365/295.19 which is equal to 1.24 that is lower than the industry standard of 14.23. Therefore, it takes only a day to rotate its stock. Debtor Turnover Ratio of IDEA is 38.28 for the year 2007-2008. So the debtor velocity is 365/38.28 which comes out as 9.54 days i.e. IDEA takes on an average 10 days to collect its money back from the debtors, which is a good sign for the company. Interest Cover Ratio of IDEA is 3.38 for the year 2007-2008, which means that IDEA has 3.38 times more income to pay interest on their debts. So the company is in a good situation. Gross Profit Margin Ratio of IDEA is 36.65 for the year 2007-2008, means that IDEA is making a profit before interest, depreciation and tax of 36.65% Net Profit Ratio of IDEA is 15.54 for the year 2007-2008 which is higher in comparison with the industry ratio, so this goes to show the efficiency of the operation of the company. Return on Capital Employed Ratio of IDEA is 15.59 for the year 2007-2008, which indicate that the company is earning 15.59 times the profit on the total capital employed that consists of Equity, Reserves & Surplus and long-term debt. Return on Net Worth of IDEA is 21.81 for the year 2007-2008, which means it shows a profit of 21.81 times per rupee invested by the investors. 9.3.6 Aircel Cellular Ltd. Table 9.6: Key Ratios of Aircel Cellular Ltd. Industry :Telecommunications - Service Provider 6-Dec 65-Mar 4-Mar 3-Mar 21-Mar Mar Mar Mar00 3.58 3.58 0.67 Mar99 3.21 3.21 0.68 Key Ratios Debt-Equity Ratio Long Term DebtEquity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory 0.41 0.41 1.01 0.61 0.57 1 1.21 1.15 0.99 1.87 1.87 1.18 2.01 2.01 0.88 1.85 1.85 0.77 2.68 2.68 0.82 0.9 527.1 7 0.77 605.6 0.66 784.7 6 0.55 611.08 0.77 685.0 8 1.03 512.5 1.04 290.7 2 0.72 136.39 0.67 88.97 Debtors Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) 15.22 9.17 44.96 34.6 41.19 36.04 25.68 43.3 45.33 15.37 8.26 43.52 32.78 39.55 35.93 25.19 41.88 51.84 13.07 2.91 34.63 17.01 28.78 32.68 15.06 17.78 32.18 10.06 1.97 44.01 26.98 30.31 29.55 12.52 19.31 19.44 12.21 1.69 37.76 17.3 27.54 27.54 7.08 17.29 16.32 11.87 2.14 33.87 23.77 22.74 22.74 12.65 34.7 42.93 10.07 2.03 33.97 23.21 22.53 22.53 11.78 31.69 78 6.13 0.74 28.83 12.49 11.92 11.92 -4.43 12.29 -32.46 4.55 0.18 20.03 3.5 0.32 0.32 -16.2 3.26 -113.2 2 Current Ratio- 1.01 for the year 2005-2006. This indicates that the company can successfully pay off its debt while at the same time still have cash left over to continue operating. Debt-to-Equity Ratio- 0.41 for the year 2005-2006 which means that company is relying less on debt instruments while it is relying more on the shareholders capital. This also indicates the company’s assets are primarily supplied with equity. Fixed Assets Turnover Ratio of Aircel is 0.9 for the year 2005-2006. This ratio is higher than the industry ratio which indicates that assets are being fairly utilized by the company in order to generate sales. Inventory Turnover Ratio of Aircel is 527.17 for the year 2005-2006. So the stock velocity of Aircel is 365/527.17 which is equal to 0.69 that is lowest in the industry. Therefore, Aircel takes a day to rotate its stock. Debtor Turnover Ratio of Aircel is 15.22 for the year 2005-2006. So the debtor velocity is 365/15.22 which comes out as 23.98 days i.e. Aircel takes on an average 24 days to collect its money back from the debtors, which is again lower than as compared to the industry standards of 57 days. Interest Cover Ratio of Aircel is 9.17 for the year 2005-2006, which means that Aircel has 9.17 times more income to pay interest on their debts. So the company is in a good situation. Gross Profit Margin Ratio of Aircel is 44.96 for the year 2005-2006, means that Aircel is making a profit before interest, depreciation and tax of 44.96%. Net Profit Ratio of Aircel is 25.68 for the year 2005-2006, which is higher in comparison with the industry ratio, so this goes to show the efficiency of the operation of the company. Return on Capital Employed Ratio of Aircel is 43.3 for the year 2005-2006, which indicate that the company is earning 43.3 times the profit on the total capital employed that consists of Equity, Reserves & Surplus and long-term debt. Return on Net Worth of Aircel is 45.33 for the year 2005-2006, which means it shows a profit of 45.33 times per rupee invested by the investors. 9.3.7 Mahanagar Telephone Nigam Ltd. (MTNL) Table 9.7: Key Ratios of MTNL Industry :Telecommunications - Service Provider 8Mar Key Ratios Debt-Equity Ratio Long Term DebtEquity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Cover 0 0 1.35 7Mar 0 0 1.34 6Mar 0 0 1.32 5Mar 0 0 1.29 4Mar 0 0 1.28 3Mar 0.14 0.14 1.45 2Mar 0.32 0.32 1.78 1Mar 0.39 0.39 1.94 Mar00 0.52 0.52 2.09 Mar99 0.91 0.91 2.58 0.3 24.73 4.95 292.8 0.33 27.34 4.08 502.6 0.38 34.3 3.48 28.59 0.4 40.54 3.28 34.94 0.49 53.4 4.31 49.7 0.48 27.19 5.68 39.38 0.55 21.8 9.15 63.19 0.56 20.98 9.2 206.2 0.55 21.05 7.94 149.6 0.59 20.83 7.95 27.03 Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) 9 32.15 17.24 32.09 27.34 12.43 7.03 4.98 9 34.5 20.58 34.46 27.8 13.89 8.97 5.96 24.18 12.55 23.74 22.06 10.43 6.33 5.23 32.95 22.41 32.31 27.52 16.99 11.76 8.92 35.55 27.01 35.01 27.92 19.38 17.36 12.46 37.19 22.26 36.63 30.43 15.49 12.28 9.76 42.95 29.66 42.48 34.46 21.17 15.99 15.05 42.89 29.59 42.74 39.92 26.63 15.97 19.91 1 37.97 24.28 37.8 34.68 20.99 12.41 16.27 52.23 39.17 50.78 38.83 25.78 18.1 22.74 Current Ratio of MTNL is 1.35 for the year 2007-2008. This indicates that the company can successfully pay off its debt while at the same time still have cash left over to continue operating. Debt-to-Equity Ratio is 0 for the year 2007-2008, which means the company is totally dependent on Equity. Fixed Assets Turnover Ratio of MTNL is 0.3 for the year 2007-2008. This ratio is lower than the industry ratio which indicates that assets are not being fairly utilized by the company. Inventory Turnover Ratio of MTNL is 24.73 for the year 2007-2008. So the stock velocity of MTNL is 365/24.73 which is equal to 14.76 that is slightly higher than the industry standard of 14.23. Therefore, MTNL takes 14 days to rotate its stock. Debtor Turnover Ratio of MTNL is- 4.95 for the year 2007-2008. So the debtor velocity is 365/4.95 which comes out as 74 days i.e. MTNL takes on an average 74 days to collect its money back from the debtors, which is again higher when compared to the industry standards of 57 days. Interest Cover Ratio of MTNL is 292.89 for the year 2007-2008 which means that MTNL has 292.89 times more income to pay interest on their debts. This is highest among all the players in the market. Gross Profit Margin Ratio of MTNL is 32.15 for the year 2007-2008, means that MTNL is making a profit before interest, depreciation and tax of 32.15%. Net Profit Ratio of MTNL is 12.43 for the year 2007-2008, which is lower in comparison with the industry ratio. Return on Capital Employed Ratio of MTNL is 7.03 for the year 2007-2008, which indicate that the company is earning 7.03 times the profit on the total capital employed that consists of Equity, Reserves & Surplus and long-term debt. Return on Net Worth of MTNL is 4.98 for the year 2007-2008, which means it shows a profit of 4.98 times per rupee invested by the investors. 9.3.8 BPL Mobile Communications Ltd. Table 9.8: Key Ratios of BPL Communications Ltd. (2006-2007) Industry :Telecommunications - Service Provider 7-Mar Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory 5-Dec 5Mar 34.12 32.93 4-Mar 3-Mar 2Mar 10.06 10.06 1Mar 4.75 4.75 Mar00 3.23 3.23 Mar99 2.51 2.51 Mar98 2.73 2.73 13.52 13.47 20.2 19.79 0 0 38.86 36.69 1.35 1.2 1.04 0.79 0.84 1.27 1.75 1.56 1.1 1.03 0.45 1,458. 0.48 874.3 0.53 843.5 0.44 1,430. 0.5 1,709. 0.6 955.5 0.63 78.61 0.6 24.8 0.54 16.84 0.47 16.4 Debtors Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) 18 9.32 1.67 37.76 19.18 26.28 26.22 7.64 12.52 19.75 3 8.93 0.53 27.24 6.14 15.64 15.51 -5.59 0 0 2 11.32 1.69 40.38 21.29 27.81 27.78 8.69 14.95 28.54 41 10.28 0.89 42.3 19.15 20.75 20.75 -2.41 0 0 28 8.26 0.79 41.19 20.12 15.63 15.63 -5.43 0 0 5 4.8 0.31 24.63 6.71 2.77 2.77 -15.1 5 4.84 -107. 41 2.92 -0.12 14.22 -3.01 -10.6 5 -10.6 5 -27.8 8 -1.89 -87.0 3 3 1.03 38.66 30.04 9.63 9.63 1.01 17.63 2.13 4.17 0.76 30.37 21.53 2.15 2.15 -6.7 12.43 -11.9 4.36 0.33 20.53 10.59 -11.4 6 -11.4 6 -21.4 5.28 -35.9 9 Current Ratio for BPL is 1.35 for the year 2006-2007. This indicates that the company can successfully pay off its debt while at the same time still have cash left over to continue operating. Debt-to-Equity Ratio of BPL is 13.52 for the year 2006-2007, which means that company raises its capital through debt instruments. It is more than the industry standards and highest among the other players. Fixed Assets Turnover Ratio of BPL is 0.45 for the year 2006-2007. This ratio is close to the industry ratio which indicates that assets are being fairly utilized by the company in order to generate sales. Inventory Turnover Ratio of BPL is 1458.18 for the year 2006-2007. So the stock velocity of BPL is 365/1458.18 which is equal to 0.25 that is lowest in the industry. Therefore, BPL takes less than a day to rotate its stock. Debtor Turnover Ratio of BPL is 9.32 for the year 2006-2007. So the debtor velocity is 365/9.32 which comes out as 39 days i.e. BPL takes on an average 39 days to collect its money back from the debtors, which is again lower than as compared to the industry standards of 57days. Interest Cover Ratio of BPL is 1.67 for the year 2006-2007 which means that BPL has 1.67 times more income to pay interest on their debts. Gross Profit Margin Ratio of BPL is 37.76 for the year 2006-2007, means that BPL is making a profit before interest, depreciation and tax of 37.76%. Net Profit Ratio of BPL is 7.64 for the year 2006-2007, which is lower in comparison with the industry ratio, so this goes to show the efficiency of the operation of the company. Return on Capital Employed Ratio of BPL is 12.52 for the year 2006-2007, which indicate that the company is earning 12.52 times the profit on the total capital employed that consists of Equity, Reserves & Surplus and long-term debt. Return on Net Worth of BPL is 19.75 for the year 2006-2007, which means it shows a profit of 19.75 times per rupee invested by the investors. 9.3.9 HFCL Infotel Ltd. Table 9.9: Key Ratios of HFCL Infotel Ltd. Industry :Telecommunications - Service Provider 87 6 5 4 32 Mar Mar Mar Mar Mar Mar Mar 1 Mar 1.88 1.79 3.3 M ar00 2.86 2.74 3.89 M ar99 4.98 4.23 2.63 Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Cover Ratio PBIDTM (%) 0 0 0.15 0 0 0.22 66.6 1 65.5 3 0.31 14.6 2 14.4 8 0.24 8.41 0 0.2 4.71 0 0.47 2.08 1.92 2.9 0.2 240.4 6 6.15 -1.17 5.12 0.24 0 6.82 -0.8 2 12.5 6 0.27 0 8.32 -0.5 6 25.8 0.25 0 9.52 -0.4 9 28.5 5 0.2 0 12.9 7 -0.6 4 18.3 8 0.18 11.35 29.08 -0.74 10.85 0.18 0.55 2.87 -0.7 9 -1.5 7 0.27 0.61 1.96 0.05 39.2 5 0.43 0.61 5.23 1.21 75.0 8 0.44 0.35 32.8 5 1.03 83.6 8 PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) -30.6 7 -21.2 -21.4 8 -57.2 7 0 0 -18. 92 -10. 46 -10. 69 -42. 16 0 0 -11. 55 5.25 5.09 -32. 26 0 0 -12. 04 3.79 3.64 -36. 95 0 0 -23. 19 -17. 71 -17. 71 -59. 27 0 0 -46.8 2 -52.8 3 -54.6 5 -112. 32 0 0 -44. 79 -58. 35 -14. 71 -57. 93 0 0 2.29 -9.2 -9.8 6 -46. 82 0 0 52.5 2 31.5 4 25.4 5 2.89 14.6 3 3.11 62.8 5 22.8 8 22.5 4 1.71 14.3 8 2.34 Current Ratio of HFCL is 0.15 for the year 2007-2008. This means that the company is having fewer assets to cover the liability and also the investors should be weary of the fact that the company cannot pay off its short-term debt if necessary Debt-to-Equity Ratio of HDCL is 0 for the year 2007-2008, which means the company, is totally dependent on Equity. Fixed Assets Turnover Ratio of HFCL is 0.2 for the year 2007-2008. This ratio is lower than the industry ratio which indicates that assets are not being fairly utilized by the company. Inventory Turnover Ratio of HFCL is 240.46 for the year 2007-2008. So the stock velocity of HFCL is 365/240.46 which is equal to 1.52 that is lower than the industry standard of. Therefore, HFCL takes less than 2 days to rotate its stock. Debtor Turnover Ratio of HFCL is 6.15 for the year 2007-2008. So the debtor velocity is 365/6.15 which comes out as 59 days i.e. HFCL takes on an average 59 days to collect its money back from the debtors, which is again slightly higher than as compared to the industry standards of 57 days Interest Cover Ratio of HFCL is (1.17) for the year 2007-2008, which means that HFCL does not have sufficient funds to pay interest on its debts. Gross Profit Margin Ratio of HFCL is (30.67) for the year 2007-2008, means that HFCL has a gross loss of (30.67%) Net Profit Ratio of HFCL is (57.27) for the year 2007-2008, which means that the company has incurred a net loss and is the only company to incur loss among the other players. Return on Capital Employed Ratio of HFCL is 0 for the year 2007-2008 Return on Net Worth of HFCL is 0 for the year 2007-2008 9.3.10 Shyam Telecom Ltd Table 9.10: Key Ratios of Shyam Telecom Ltd Industry :Telecommunications - Equipment - Medium / Small 8 7 6 5 43 2 1 Mar Mar Mar Mar Mar Mar Mar Mar M ar00 0.52 0.35 2.21 Sep98 Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) 0.75 0.58 1.17 0.26 0.2 0.51 0.08 0.04 0.28 0.04 0.02 0.17 0.06 0.06 0.03 0.14 0.12 0.42 0.24 0.19 0.99 0.31 0.24 1.94 1.18 0.63 1.52 4.47 15.9 3 2.94 1.96 5.6 4.16 3.47 2.51 5.44 19.9 8 5.23 1.93 5.25 4.02 3.17 2.24 3.54 12.9 6 3.1 1.38 9 7.22 3.76 2.92 14.2 6 49.5 1 9.6 -4.1 1 -10. 87 -11. 6 -13. 7 -9.1 161.8 9 0 10.83 1.48 19.97 19.97 6.45 3.64 0.97 1.59 1.53 1.2 17.8 3 17.8 3 2.99 1.12 4.68 7.73 4.57 3.38 11.4 1 10.2 3 8.39 5.74 6.04 9.75 4.18 3.35 13.5 4 12.7 9.75 8.67 2.59 3.08 2.13 1.42 18.0 3 15.8 1 6.89 6.42 2.91 3.12 2.27 1.33 11.9 6 9.95 4.5 3.98 APATM (%) ROCE (%) RONW (%) 1.08 11.4 2 5.17 1.01 5.97 1.88 1.14 4.05 0.7 2 -9.8 4 -12. 96 -11. 45 3.64 1.41 0.27 1.12 1.93 0.14 4.55 8.95 4.91 7.83 11.3 1 9.1 4.2 7.47 3 1.97 10.5 8 4.43 Current Ratio of Shyam Telecom is 1.17 for the year 2007-2008. This indicates that the company can successfully pay off its debt while at the same time still have cash left over to continue operating. Debt-to-Equity Ratio of Shyam Telecom is 0.75 for the year 2007-2008, which means that company is relying less on debt instruments while it is relying more on the shareholders capital. This also indicates the company’s assets are primarily supplied with equity. Fixed Assets Turnover Ratio of Shyam Telecom is 4.47 for the year 2007-2008. This ratio is higher than the industry ratio and highest among other major players, which indicates that assets are being utilized to its optimum capacity in order to generate sales. Inventory Turnover Ratio of Shyam Telecom is 15.93 for the year 2007-2008. So the stock velocity of Shyam Telecom is 365/15.93 which is equal to 22.91 which is higher than the industry standard of 14.23. Therefore, Shyam Telecom takes close to 23 days to rotate its stock. Debtor Turnover Ratio of Shyam Telecom is 2.94 for the year 2007-2008. So the debtor velocity is 365/2.94 which comes out as 124 days i.e. Shyam Telecom takes on an average 124 days to collect its money back from the debtors, which is much higher than as compared to the industry standards of 57 days. Interest Cover Ratio of Shyam Telecom is 1.96 for the year 2007-2008, which means that Shyam Telecom has 1.96 times more income to pay interest on their debts. Gross Profit Margin Ratio of Shyam Telecom is 5.6 for the year 2007-2008, means that Shyam Telecom is making a profit before interest, depreciation and tax of 5.6%. Net Profit Ratio of Shyam Telecom is 1.08 for the year 2007-2008, which is lower in comparison with the industry ratio. Return on Capital Employed Ratio of Shyam Telecom is 11.42 for the year 2007-2008, which indicate that the company is earning 11.42 times the profit on the total capital employed that consists of Equity, Reserves & Surplus and long-term debt. Return on Net Worth of Shyam Telecom is 5.17 for the year 2007-2008, which means it shows a profit of 5.17 times per rupee invested by the investors. 9.4 INTER-COMPANY ANALYSIS Inter-Company analysis have been done here on the basis of a few parameters of evaluation for the top five companies on one hand and the bottom five companies on the other. 9.4.1 Analysis of Top 5 companies Table: 9.11 Inter-Company comparison of top 5 companies (Rs in Crs) Parameters Bharti Reliance Vodafone BSNL IDEA Cellular +Spice Enterprise Value Sales Other Income EPS Market Capitalizatio n 1,62,852.92 25,761.11 359.91 32.9 1,25,007.91 14792.05 520.58 12.4 0 2733.76 115.68 7.06 0 32359.5 5878.1 4.16 33906.72 6719.99 199.05 3.96 156785.52 32683.76 0 0 18504.99 • Bharti Airtel stands the market leader in the cellular market with a market share of 24.4% as on January, 2009. • In terms of Enterprise value, Bharti Airtel has the highest enterprise value among the top 5 players in the market. Reliance Communications stands next to Bharti Airtel. When it comes to Sales BSNL has more sale than the market leader as it has a wider presence in the rural market when compared with other companies. In terms of Other Income, BSNL has more income from other source than the other companies. The market capitalization of Bharti Airtel is the highest in the telecom sector. The market capitalization of BSNL and Vodafone is zero as they are not listed on the BSE. The Earnings per Share of Bharti is the highest among all the telecom players in the market. Earnings per Share serve as an indicator of a company’s profitability. • • • • 9.4.2 Analysis of Bottom 5 companies Table: 9.12 Inter-Company comparison of bottom 5 companies (Rs. in Crs) Parameters Enterprise Value Sales Other Income EPS Market Capitalization Aircel 0 280.72 5.39 19.61 0 MTNL 2,713.29 4,722.52 804.01 8.64 6082.65 5.17 0 BPL 0 729.09 HFCL 1,709.44 248.88 6.53 0 943.31 Shyam Telecom 76.23 223.05 8.88 5.4 80.19 • Aircel has the highest market share of 4.6%, followed by MTNL as per Januray, 2009. • In terms of Enterprise value, Shyam Telecom has the lowest enterprise value among the bottom 5 players in the market. MTNL having the highest enterprise value among the bottom 5 companies. When it comes to Sales MTNL has more sale than the other bottom 5 players even though it has only 2 circles of operations i.e. Delhi and Mumbai. • • In terms of Other Income, MTNL has more income from other source than the other companies. The market capitalization of Shyam Telecom is among the lowest in the telecom sector. The market capitalization of Aircel and BPL is zero as they are not listed on the BSE. The Earnings per Share of BPL is the lowest among the bottom 5 companies in the telecom sector while that of HFCL being zero. Earnings per Share serve as an indicator of a company’s profitability. • • 9.5 CONCLUSION With government increasing the FDI gap to 74%, more foreign companies would be entering the Indian market and there will be stiff competition among the Indian players with the international players and hence the Indian players have to sustain growth and make profits. Hence, the few companies that do not meet the industry standard ratios need to work towards attaining the same. Chapter 10 TRENDS AND FORECAST 10.1 INTRODUCTION The recent development in information technology and science has made a great difference in telecom industry by increasing its efficiency and opening doors to major developments of sector. CDMA, GSM, 2G&3G SPECTRUM, WIMAX etc are some of the technology which have discussed. Both development and problem walks hand in hand, with increasing development the industry is facing huge challenges and problems. The industry will have to work more efficiently in order to overcome the problems. The industry in total has got a great future and has a lot of untapped potential market. 10.2 TECHNOLOGIES Technology is very much related to the way we conduct business. Today everything that we talk about in business, like, the way we conduct business, the way we do things, the way we deliver to the customers, etc. is using some form of technology. Therefore, role of technology cannot be defined because it is a mindset and it happens over a period of time. The various technologies used by the Telecom Service Providers are as follows: 10.2.1 GSM (Global Communication) System for Mobile GSM, first introduced in 1991, is the leading digital cellular system. It uses narrowband TDMA (Time Division Multiple Access). Eight simultaneous calls can occupy the same radio frequency. GSM simplifies data transmission to allow laptop and palmtop computers to be connected to GSM phones. It provides integrated voice mail, high-speed data, fax, paging and Short Message Services (SMS) capabilities, as well as secure communications. It offers the best voice quality of any current digital wireless standard. Originally a European standard for digital mobile telephony, GSM has become the world's most widely used mobile system and is now being used in more than 100 countries. GSM networks operate on the 900MHz, 1800MHz and 1900MHz wavebands all over the world. 10.2.2 GPRS (General packet radio service) GPRS is a packet oriented mobile data service available to users of the 2G cellular communication systems global system for mobile communications (GSM), as well as in the 3G systems. In the 2G systems, GPRS provides data rates of 56-114 kbit/s. GPRS data transfer is typically charged per megabyte of traffic transferred, while data communication via traditional circuit switching is billed per minute of connection time, independent of whether the user actually is using the capacity or is in an idle state. GPRS is a best-effort packet switched service, as opposed to circuit switching, where a certain quality of service (QoS) is guaranteed during the connection for non-mobile users. 2G cellular systems combined with GPRS are often described as 2.5G, that is, a technology between the second (2G) and third (3G) generations of mobile telephony. It provides moderate speed data transfer, by using unused time division multiple access (TDMA) channels in, for example, the GSM system. Originally there was some thought to extend GPRS to cover other standards, but instead those networks are being converted to use the GSM standard, so that GSM is the only kind of network where GPRS is in use. GPRS is integrated into GSM Release 97 and newer releases. It was originally standardized by European Telecommunications Standards Institute (ETSI), but now by the 3rd Generation Partnership Project (3GPP). 10.2.3 EDGE Evolution) (Enhanced Data rates for GSM EDGE, Enhanced GPRS (EGPRS), or IMT Single Carrier (IMT-SC) is a backwardcompatible digital mobile phone technology that allows improved data transmission rates, as an extension on top of standard GSM. EDGE is considered a 3G radio technology and is part of ITU's 3G definition,[1]. EDGE was deployed on GSM networks beginning in 2003— initially by Cingular (now AT&T) in the United States. EDGE is implemented as a bolt-on enhancement for 2G and 2.5G GSM and GPRS networks, making it easier for existing GSM carriers to upgrade to it. EDGE is a superset to GPRS and can function on any network with GPRS deployed on it, provided the carrier implements the necessary upgrade. EDGE requires no hardware or software changes to be made in GSM core networks. EDGE compatible transceiver units must be installed and the base station subsystem needs to be upgraded to support EDGE. If the operator already has this in place, which is often the case today, the network can be upgraded to EDGE by activating an optional software feature. Today EDGE is supported by all major chip vendors for both GSM and WCDMA/HSPA. 10.2.4 CDMA (Code division multiple access) CDMA is a channel access method utilized by various radio communication technologies. It should not be confused with the mobile phone standards called cdmaOne and CDMA2000 (which are often referred to as simply "CDMA"), which use CDMA as an underlying channel access method. One of the basic concepts in data communication is the idea of allowing several transmitters to send information simultaneously over a single communication channel. This allows several users to share a bandwidth of frequencies. This concept is called multiplexing. CDMA employs spread-spectrum technology and a special coding scheme (where each transmitter is assigned a code) to allow multiple users to be multiplexed over the same physical channel. By contrast, time division multiple access (TDMA) divides access by time, while frequency-division multiple access (FDMA) divides it by frequency. CDMA is a form of "spread-spectrum" signaling, since the modulated coded signal has a much higher data bandwidth than the data being communicated. 10.2.5 HSDPA (High-Speed Downlink Packet Access) HSDPA is a 3G (third generation) mobile telephony communications protocol in the High-Speed Packet Access (HSPA) family, which allows networks based on Universal Mobile Telecommunications System (UMTS) to have higher data transfer speeds and capacity. Current HSDPA deployments support down-link speeds of 1.8, 3.6, 7.2 and 14.4 Mbit/s. Further speed increases are available with HSPA+, which provides speeds of up to 42 Mbit/s downlink The High-Speed Downlink Shared Channel (HS-DSCH) lacks two basic features of other W-CDMA channels—variable spreading factor and fast power control. Instead, it delivers the improved downlink performance using adaptive modulation and coding (AMC), fast packet scheduling at the base station, and fast retransmissions from the base station, known as hybrid automatic repeat-request (HARQ). 10.2.6 WLL (Wireless Local Loop) Wireless local loop (WLL), is a term for the use of a wireless communications link as the "last mile / first mile" connection for delivering plain old telephone service (POTS) and/or broadband Internet to telecommunications customers. Various types of WLL systems and technologies exist. WLL (Wireless in Local Loop) is a communication system that connects subscribers to the public Switched Telephone Network (PSTN) using radio frequency signals as a substitute for conventional wires for all or part of the connection between the subscriber and the telephone exchange. It is useful for those subscribers who are located in pockets where immediate telephone connections cannot be provided due to lack of underground cable network but radio coverage is available. Other terms for this type of access include Broadband Wireless Access (BWA), Radio In The Loop (RITL), Fixed-Radio Access (FRA) and Fixed Wireless Access (FWA). 10.2.7 WiMax WiMax (Worldwide Interoperability for Microwave Access) is a technology designed to give people high speed access to the net over relatively long distances. A typical WiMax system could theoretically give users in an area three to 10 kilometers wide a 40 Mbps connection to the net. This technology already deployed in some urban centres like Chennai (Madras) and Mumbai (Bombay) would overcome the need to lay expensive cables or fibre optics to villages. At the moment there is a wired backbone throughout India but many villages are 30 to 40km away from the nearest connection. Wimax services can overcome that. One or two WiMax base stations are enough to connect three or four villages. The government telecoms operator BSNL is also in the process of rolling out some WiMax services. But it is still expensive and at the moment is aimed squarely at large businesses that need a quick-fix solution to broadband access. 10.2.8 3G TECHNOLOGIES 3G or Third Generation technology is a convergence of various Second Generation telecommunication systems. The technology is intended for SMARTPHONES multimedia cell phones. Video broadcasting and other e-commerce services such as, stock transactions and e-learning will now be made possible much faster. It offers 3 Mbps speed for downloading, which is very high as compared to that of the 2G technology. The 3G technology provides for internet surfing, downloading, e-mail attachment downloading, audio-video conferencing, fax services and many other broadband applications. 3G Technology was implemented in Japan for the first time in the world. Today the technology is serving 25 countries over more than 60 networks having its existence in Asia, Europe and USA. Video conferencing has been a major factor in the success of the technology. 3G Technology in Indian Telecom Industry From the time of telegraphs Indian telecom sector has witnessed an immense growth and has diversified into various segments like, Fixed Line Telephony, mobile telephony, GSM, CDMA, WLL etc. The telecom industry is growing at a fast pace introducing newer technologies. Even the network operators and handset providers are also coming up with newer value added services and advanced technology cell phones with multimedia applications. Now it's time to welcome the much-awaited 3G Technology. Bharat Sanchar Nigam Limited is all set to launch the technology by December 2007. Not only the network providers but also the handset providers in India are waiting eagerly for the launch of 3G to earn very high revenues from the value added services provided by the technology. The technology is initially being launched on CDMA platform. The technology is being tested over various platforms and cellular networks. 10.2.9 4G TECHNOLOGY 4G (also known as Beyond 3G), an abbreviation for Fourth-Generation, is a term used to describe the next complete evolution in wireless communications. 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. As the second generation was a total replacement of the first generation networks and handsets, and the third generation was a total replacement of second generation networks and handsets, so too the fourth generation cannot be an incremental evolution of current 3G technologies, but rather the total replacement of the current 3G networks and handsets. The international telecommunications regulatory and standardization bodies are working for commercial deployment of 4G networks roughly in the 2012-2015 time scale. At that point it is predicted that even with current evolutions of third generation 3G networks, these will tend to be congested. There is no formal definition for what 4G is; however, there are certain objectives that are projected for 4G. These objectives include: that 4G will be a fully IP-based integrated system. 4G will be capable of providing between 100 Mbit/s and 1 Gbit/s speeds both indoors and outdoors, with premium quality and high security. Many companies have taken self-serving definitions and distortions about 4G to suggest they have 4G already in existence today, such as several early trials and launches of WiMAX. Other companies have made prototype systems calling those 4G. While it is possible that some currently demonstrated technologies may become part of 4G, until the 4G standard or standards have been defined, it is impossible for any company currently to provide with any certainty wireless solutions that could be called 4G cellular networks that would conform to the eventual international standards for 4G. These confusing statements around "existing" 4G have served to confuse investors and analysts about the wireless industry. 10.2.10 HOW IS 3G DIFFERENT FROM 2G AND 4G While 2G stands for second-generation wireless telephone technology, 1G networks used are analog, 2G networks are digital and 3G (third-generation) technology is used to enhance mobile phone standards. 3G helps to simultaneously transfer both voice data (a telephone call) and non-voice data (such as downloading information, exchanging e-mail, and instant messaging. The highlight of 3G is video telephony. 4G technology stands to be the future standard of wireless devices. Currently, Japanese company NTT DoCoMo and Samsung are testing 4G communication. 3G services will enable video broadcast and data-intensive services such as stock transactions, e-learning and telemedicine through wireless communications. All telecom operators are waiting to launch 3G in India to cash in on revenues by providing high-end services to customers, which are voice data and video enabled. India lags behind many Asian countries in introducing 3G services. 10.3 FUTURE PROJECTIONS The Indian telecommunications industry is one of the fastest growing in the world and India is projected to become the second largest telecom market globally by 2010. India added 113.26 million new customers in 2008, the largest globally. In fact, in April 2008, India had already overtaken the US as the second largest wireless market. To put this growth into perspective, the country’s cellular base witnessed close to 50 per cent growth in 2008, with an average 9.5 million customers added every month. According to the Telecom Regulatory Authority of India (TRAI), the total number of telephone connections (mobile as well as fixed) had touched 385 million as of December 2008, taking the telecom penetration to over 33 per cent. This means that one out of every three Indians has a telephone connection, and telecom companies expect this pace of growth to continue in 2009 as well. "We are extremely bullish that the growth will continue in 2009. This year, the number of additions will be in excess of 130 million," according to T.V. Ramachandran , Director General, Cellular Operators Association of India (COAI), an industry body that represents all Global System for Mobile communications (GSM) players in India. According to CRISIL Research estimates, eight infrastructure sectors, which include the telecom sector, are expected to draw more than US$ 345.28 billion investment in India by 2012. With the rural India growth story unfolding, the telecom sector is likely to see tremendous growth in India's rural and semi-urban areas in the years to come. By 2012, India is likely to have 200 million rural telecom connections at a penetration rate of 25 per cent. And according to a report jointly released by Confederation of Indian Industry (CII) and Ernst & Young, by 2012, rural users will account for over 60 per cent of the total telecom subscriber base. 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. It is projected that the industry will generate revenues worth US$ 43 billion in 2009-10. 10.3.1 Growth in Segments According to a Frost & Sullivan industry analyst, by 2012, fixed line revenues are expected to touch US$ 12.2 billion while mobile revenues will reach US$ 39.8 billion in India. Fixed line capex is projected to be US$ 3.2 billion, and mobile capex is likely to touch US$ 9.4 billion. Further, according to a report by Gartner Inc., India is likely to remain the world's second largest wireless market after China in terms of mobile connections. According to recent data released by the COAI, Indian telecom operators added a total of 10.66 million wireless subscribers in December 2008. Further, the total wireless subscriber base stood at 346.89 million at the end of December 2008. The overall cellular services revenue in India is projected to grow at a CAGR of 18 per cent from 2008-2012 to exceed US$ 37 billion. Cellular market penetration will rise to 60.7 per cent from 19.8 per cent in 2007. The Indian telecommunications industry is on a growth trajectory with the GSM operators adding a record 9.3 million new subscribers in January 2009, taking the total user base to 267.5 million, according to the data released by COAI. However, this figure does not include the number of subscribers added by Reliance Telecom. In WiMax, India is slated to become the largest WiMAX market in the Asia-Pacific by 2013. A recent study sees India's WiMAX subscriber base hitting 14 million by 2013 and growing annually at nearly 130 per cent. And investments in WiMAX ventures are slated to top US$ 500 million in India, according to a report by US-based research and consulting firm, Strategy Analytics. 10.3.2 Manufacturing India's telecom equipment manufacturing sector is set to become one of the largest globally by 2010. Mobile phone production is estimated to grow at a CAGR of 28.3 per cent from 2006 to 2011, totaling 107 million handsets by 2010. Revenues are estimated to grow at a CAGR of 26.6 per cent from 2006 to 2011, touching US$ 13.6 billion. 10.3.3 Rural Telephony Rural India had 76.65 million fixed and Wireless in Local Loop (WLL) connections and 551,064 Village Public Telephones (VPT) as on September 2008. Therefore, 92 per cent of the villages in India have been covered by the VPTs. The target of 80 million rural connections by 2010 is likely to be met during 2008 itself. 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. 10.3.4 The Road Ahead As on October 17, 2008, there were 350 million mobile and fixed line subscribers in India, with about 8 million subscribers being added each month. The Union Minister for Communications and Information Technology, Mr A Raja, has stated that the target for the 11th Plan period (2007-12) is 600 million phone connections with an investment of US$ 73 billion. Apart from the basic telephone service, there is an enormous potential for various value-added services. In fact, the real potential for telecom service growth is still lying untapped. The Indian rural market is going to be the next big thing for wireless telecom providers. With the tele-density in rural areas being still about 10 per cent against the national average of about 21 per cent, there seems to be huge untapped potential for mobile phone penetration in rural India. The government also plans an investment of US$ 2 billion, during 2008 to 2009, for the development of around 100,000 community service centres in rural India to provide broadband connectivity. If past trend were any guide, it would be reasonable to hope that by 2020 India would complete transition into digital switching and transmission, VoIP, broadband and 3G. Though there would be always a small niche market in India, which would catch up with the cutting age of the technology, consolidation and expansion of evolving technologies across the length and the breadth of the country will follow with a lag. Future vision of telecom is a vision of IT. Telecom will be the springboard of future expansion of IT heralding in an information society. ICT will spread among the masses and will spur innovation, entrepreneurship and growth. An expanding domestic market will deepen the synergy between the domestic and the export market and strengthen India’s presence in the high-value segment of the global trade and investment. ICT benefits will spread among all, the rich and the poor, the young and the old, the men and the women, the organized and the unorganized and the government and the governed. 10.4 CHALLENGES TO BE FACED The challenge of the day is to search for new cost-effective ways to roll out telecom services in rural areas. It means one has to choose proper and effective technology for deployment and leverage on the use of available infrastructure to reduce cost and time of role out of services. Those service providers who create the right business would emerge winners and the rest would remain spectators. Connectivity of networks and cost of bandwidth are also important to facilitate broadband usage. Availability of local application and content is another area of concern. Most of the content available on website as of today is in English. The content in local and regional language will increase interest of the local population in broadband utilization. The convergence of technologies and emergence of new applications is another thrilling area. Lot of revolution is round the corner in broadcasting and entertainment industries. The emergence of Internet protocol TV, mobile TV will all change the scenario in the coming years. Wireless technology is the future growth driver for which spectrum is the most important input. The task of spectrum management in a multi user and multi usage scenario is more daunting and crucial than ever before. • • • • It would be increasingly difficult for a new entrant to lure customers, as there is nothing extra for a new player to offer. Return on investment or capital employed for a late entrant would be significantly lower than the existing players. Expansion has to be done with a long sighted view for profitability. The ones who would have large reserves and profits would cherish and leaving others to perish. It will be an era of strong regional players as every strong player will consolidate his position in the area he is strong by eating up smaller players till he attains a point from which the further consolidation becomes economically unviable. Once the fixed line market is matured, mobile will crossover fixed line market. A mobile revolution is in the offing in India. • In summary, if the last few years in telecom were exciting, it will be even more exciting in the coming years. Critical Factors for Future Growth Opportunity in rural areas: When compared to Indian metros, there is a large gap in tele-density; - 62 percent in the metros, nearly eight times higher than 8 percent in rural areas. To capitalize on the growing population and disposable income in rural India, telecom operators will have to explore and expand into ‘uncovered' geographies. Re-examining high levies: The Indian telecom sector is one of the highest taxed sectors in the developing world, through levies, which comprise service tax, revenue share, spectrum cess, and value added tax. Bringing down operators' capex: To expand the telecom services, there will be greater investment needs in the future. Telco’s will have to engage on active and passive infrastructure sharing. Rational policy for spectrum allocation: The allocation of adequate spectrum is an urgent requirement for new and existing operators. A clear roadmap for future spectrum allocation has to be drawn, whether it is a 2G or a 3G platform. Operators need to be cautious in ‘bidding' and should not overpay for spectrum as that could disturb project economics. Data revenues to provide ‘buffer': India's data revolution is going to be fuelled by 3G and WiMAX. For the data revolution to reach villages, low-cost access devices, vernacular content, and community initiatives such as e-governance need to be in place. Enhancing skill sets: The sector will require specialist resources to support and sustain growth over the next four to five years. And pressure on talent is expected to increase with the deployment of 3G and WiMAX services. The private sector will need to reorient its focus on talent development through training schools and facilitation programs that cater to the needs of the telecom industry. Impact of global economic downturn: The current financial crisis could have a low-tomedium impact on the telecom sector in terms of rising costs of capital and reduction in discretionary spending on the part of customers, among other determinants. 10.5 CONCLUSION The technology improvement has helped the sector to perform better and has also expanded the meaning of the term “telecommunication” from just audio message transformation to virtual presence of person. The sector clearly shows a great scope for future. 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