Feb 25, 2009 ... report on the Indian telecom success story. Compiled by .... Telecom
manufacturing is another facet of the sector that has emerged as a hot.
The Indian Telecom Success Story
Foreword
Havingemergedasthefastestgrowingtelecommarketintheworld,Indiahas over500milliontelecomsubscribers,withmorethan120millionsubscribers addedinthelasteightmonths.Theteledensitytoohasshownsignificantincrease tocrossthe40percentmarkthisyear.ThesuccessoftheIndian telecommunicationssectorhasbecomethecynosureoftheworldandhasmade thecountryatrulyattractiveinvestmentdestination. Thesuccessofthesectorcanbeattributedinnosmallparttothestrong regulatorysupportprovidedbytheGovernment.Thepolicyinitiativescoupledwith numerousgrowth-orientedstepstakenbyprivateplayersandotherstakeholders havecreatedatrulystimulatingenvironment. Thegrowthofthetelecommunicationsectorhasalsofueledtheinclusivegrowth agendawiththeindustryseekingtomakeanactivecontributiontothe developmentofthelessadvancedsectionsofsociety.Todayeveryfifthpersonin ruralIndiaisconnected;fromwageearnerstoshopkeepers,farmersto fishermen;mobilephonesarehelpinginincreasingtheirproductivity. OntheoccasionofIndiaTelecom2009,the4thInternationalConferenceand Exhibition,theDepartmentofTelecommunicationsispleasedtoreleasethis reportontheIndiantelecomsuccessstory.CompiledbyKPMGandFICCI,it providesanoverviewoftheIndiantelecommunicationssectorandwillserveasa usefulreferencemanualforallstakeholdersincludingregulators,policymakers, telecomoperatorsandthegeneralpublic.
P. J. Thomas Secretary DepartmentofTelecommunications&IT GovernmentofIndia NewDelhi
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TheFederationofIndianChambersofCommerceandIndustry(FICCI)andKPMG areproudtopresentthisreporton“IndiaTelecom2009–TelecomforInclusive Growth”,inassociationwiththeDepartmentofTelecom(DoT). ThisisanexcitingtimefortheIndiantelecommunicationsindustry.Thesectorhas witnessedtremendousgrowthoverthelastfewyears,havingaddedmorethan morethan120millionsubscribersineightmonthsalone.Whilethesuccesssofar wasdrivenprimarilybyurbanareas,thenextphaseofgrowthisexpectedtohave astrongruralflavor.Therewillbeastrongfocusonconnectingnewmarketsas wellasexpandingcurrentmarketsthroughnon-voiceservices.Thispresents attractiveopportunitiesforallstakeholdersoftheindustry,includingthe Governmentandprivateplayers. Thisreportprovidesthereaderwithanoverviewofhowtheindustryhas developedoverthelastfewyears,withaspecialemphasisonkeytrends impactingtheindustrytoday.Thisreportalsodiscussestheimpactthatthissector hashadinpromotingtheagendaofinclusivegrowth. WeareextremelygratefultotheDepartmentofTelecommunications(DoT)for providinguswiththisopportunitytoworkwiththemfortheIndiaTelecom2009 event.
Amit Mitra SecretaryGeneral FICCI,India
Sean Collins GlobalChair CommunicationsandMedia KPMG
Romal Shetty ExecutiveDirector HeadofTelecom KPMGinIndia
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Executive Summary
Overthelastfewyears,Indiahasobservedenviablegrowthinitseconomy,even inthefaceoftheglobalslowdown.Thestrengtheningdomesticmarketandthe domesticnatureofinvestmentfinancinghashelpedinminimizingtheimpactof theglobaleconomiccrisis.Thechangingdemographicsinthecountryhavealso contributedinmakingthisanattractivemarket,thusattractingsignificant investmentsfrombothdomesticandinternationalplayers. Thetelecomindustryspecificallyhashadabigroletoplayintheprogressthat hasbeenmadebythecountry.TheIndiantelecomsectorhasbeenthefastest growingintheworldandisnowthesecondlargesttelecommarketglobally.The eyesoftheworldarenowonIndia,andthepolicymakersandprivateplayersare workingtogethertoensurethatthetelecomsuccessstorycontinuesatthesame pace. Thesuccessofthesectorhaslargelybeendrivenbywirelessservices,with operatorsreportingtotal(wireline+wireless)additionsofapproximately15million subscriberseverymonth.Theoverallteledensityhascrossed43.5percent,with urbanareasapproaching100percentteledensity.1 Clearly,thefocusnowisto increasepenetrationinruralareastodrivethenextphaseofgrowth.All stakeholders-includingthegovernment,theregulatorandtheprivateplayers havetakensignificantinitiativestopromoteruralpenetrationandcontributeto inclusivegrowth. Contributingtoalmost70percentofthepopulationandasignificantpieceof overalldemandforgoodsandservicesinthecountry,ruralIndiahasnowcometo theforefrontoftheindustry’scollectivefocus.TheGovernmenthasintroduced specificmeasuresandpoliciesforruralupliftment,includingenhancedprovisions undertheNationalRuralEmploymentGuaranteeSchemeandtheBharatNirman Program.Ofparticularinteresttothetelecomindustryaretheprovisionsunder theUniversalServiceObligationFundwhichpromotethepenetrationoftelecom infrastructureandservicesinruralareas. InheraddressinJune2009,PresidentPratibhaPatilannouncedthatthe government’stargetswillincludearuralteledensityof40percentinthenextfive yearsandtheexpansionofbroadbandcoveragetoeverypanchayatinthreeyears. ShealsomentionedthattheschemeforCommonServiceCentresore-kioskswill berepositionedsoastobeanetworkofpanchayat-levelBharatNirmanCommon ServiceCentresprovidinggovernmentservicestoruralcitizens.2 1TRAI,November2009;DoT 2http://presidentofindia.nic.in/sp040609.html
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Ithasbeenintriguingtoobservetheimpactthatthetelecomsectorandtherural populationhavehadoneachother.Whiletheruralareasbenefitedtheindustryby openingupalargemarket,theindustryinturnplayedasignificantroleinthe socialandeconomicupliftmentfortheruralpublic.Thesectorhascontributedin generatingemployment,improvinglocalbusinessesandoverallstandardofliving byeffectivelyintegratingwiththeeconomiclifecycleofthelocaleconomy. Telecommanufacturingisanotherfacetofthesectorthathasemergedasahot topicinindustrycircles.Indiaisfastemergingasahubforglobaltelecom manufacturingandtheproductionandexportsoftelecomequipmentinthe countryhavebeenonasteadyrise.Leadingglobalplayershavemadesignificant investmentsinsettingupmanufacturingandR&DfacilitiesinIndia,withmany morebeingplanned. Whilevoiceserviceshavehistoricallybeenthekeyforcebehindtelecomgrowth, industryobservershaveseenasteadyriseintheuptakeofvalueaddedservices inrecenttimes.TheABCofVAS-namelyAstrology,BollywoodandCricket–still continuestodrivetheprimeusageofvalueaddedservices.However,applications likemobilecommerceareslowlyontheuptakeandareexpectedtogrowfurther inthecomingyears.Theneedofthehouristodevelopmorelocallyrelevant content–likenewsalertsinlocallanguages,weatherupdatesandothers–which willdriveuptheconsumptionofVASevenfurtherinthefuture. Theindustryisnoweagerlyawaitingsomekeyupcomingregulationsincluding the3GandBWAauctions,scheduledforearlynextyear.Thesearelikelytohavea significantpositiveimpactonthesectoranditsgrowthinthenextfewyears. MobileNumberPortabilityisalsolikelytoberolledoutinthenextfewmonths whichwillmakethemarketmorecompetitiveandoffertremendousbenefitsto theconsumers. Intheshortterm,themarketwillbeunderseverecompetitivepressureas revenuesarestillprimarilydrivenbyvoice.Thelongtermlooksattractivedueto anticipatedpotentialofVASandDataservicesaskeydifferentiatorsandrevenue generators. TheIndiantelecommunicationsindustryiswellsettobuildfurtheronthesuccess ofthelastfewyears.Thepolicymakersandtheprivateplayershavesuccessfully cometogetherwithvariousinitiativestoensurethattheindustrycontinuesto remainashiningstarforIndia,tothebenefitofall.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
Table of contents 1
Macro-Economic View of India
01
2
Global Telecommunications Market
05
3
Indian Telecommunications Market
11
4
Connecting Rural India
19
5
Broadband Connectivity
27
6
Telecom Manufacturing
33
7
Telecom Research & Development
39
8
Value Added Services
41
9
Regulatory and Policy Environment
49
Conclusion
56
About Department of Telecommunications (DoT)
57
About Federation of Indian Chambers of Commerce and Industry (FICCI)
57
About KPMG in India
58
01. Macro-Economic View of India
Macro-Economic View of India Resurgence in the time of global slowdown…
Whileagriculture,manufacturingandserviceshavebeenthe
Theyeargoneby,wasonepackedwithsignificant
sectorhasbeentheforerunnerofcontinuedrapidgrowth
developmentsontheworldeconomicfront.Despitethe
contributingapproximately57percentoftheGDPin2008-
effectsoftheglobaleconomicturmoil,theIndianeconomy
092.
fundamentalpillarsoftheIndianeconomy,theservices
hasmanagedtoperformrelativelybetterthanits contemporariesrecordingarealGDPgrowthrateof6.7 percentin2008-091.
Evolution of India’s GDP
GDP Composition by Sector (2008-09)
Source:RBI,IMF
Source:CSO(2009)
1RBI 2CSOEstimates
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The Indian Telecom Success Story | 02
Thecountryisexpectedtoregisteragrowthrateof6
estimatedtobehigherwhencomparedtootherregions
percentin2009-103.Evenattheserates,India’sgrowthis
globally.
Slowdown in Global Growth...India still in Positive Territory
1
0.7
9.1 9.1
8.2 8.2 6.5 6.5
-3.4 0.7
1.1
1.2
UK
Euro Zone
1.2
Japan
-3.3
USA USA
China China
--0.7
-0.2
India 9
-3.3 -
6.7
2008
6
2009
-6.8
2010E
Source:EIUEstimates,EstimatesforIndia:RBI,EconomicSurvey2009
Reforms have enabled sustained growth
withtheglobaleconomy;structuralstrengthslikeayoung
Whileliberalizationinindustry,foreigntrade,ForeignDirect
presenceofgloballycompetitivefirmshaveattracted
Investments(FDI)hasledtoIndiabecomingwellintegrated
significantinvestorattentioninrecentyears.
population,skilledmanpower,largedomesticdemandand
FDI Inflows - Driving Globilization 40 35
35.2
2007 - 08*
2008 - 09*
CAGR: 52%
30 25 USD Bn
34.4
22.8
20 15 9.0
10 5
4.3
6.1
0 2003 - 04
2004 - 05
2005 - 06
2006 - 07
Source:DIPP;*=Provisional;
3RBIEstimates
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‘
03 | The Indian Telecom Success Story
Forward-looking policies, skilled workforce and large domestic demand has helped India emerge out of the global economic turbulence unscathed
Additionally,positiveeconomicdataandexpectationsofthe
equitymarketsthatbeganearlierthisyearhascontinued
globaleconomicdownturnbottomingoutsoonhavealso
withIndiaoutperformingotheremerginganddeveloped
revivedtheriskappetite.Consequently,therallyinglobal
markets.
Sector-wise FDI Inflows
Source:DIPP,Apr’2008-Mar’09
Bytheyear2025,Indiaisexpectedtoemergeasoneofthe
productivitysupportedbytechnologicalup-gradationand
foremostnationsintheworldpoliticallyandeconomically.
greaterintegrationwithglobalflowsoftrade,financeand
India’sresilienceisreflectedinitsstrongfundamentals;
technology.
namely,risingforexreserves,highsavingsrate,risein
Rising Forex Reserves
Note:*Apr-Sep2009 Source:RBI,DGFT,EconomicSurvey2008-09
Savings rates higher and better aligned
Source:CSO
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The Indian Telecom Success Story | 04
Demographic dividend; encouraging demand driver Additionally,India’sdemographiccompositionensuresthatit continuestoremainanattractivemarketforinvestments. Thehigheconomicgrowthinthepastfewyearshas resultedinarisingnumberofIndianswithagreater propensitytospend.Thisriseinincomelevelsacrossurban,
semi-urbanandruralhouseholdshasledtochanging consumptionpatterns. Necessitiessuchasfoodandapparelareexpectedto declineinrelativeimportancetocategoriessuchas communications,education&recreationandhealthcare creatinggreateropportunitiesforpublicprivatepartnerships todriveinvestmentsininfrastructure.
Median Age Population of Major Countries (2008)
Source:CIAWorldFactbook;USCensusBureau;UrbanPovertyReport,2009;KPMGAnalysis
Further,India’sdemographiccompositionaugursfavorably;
Theserobustmacroeconomicindicatorsclubbedwith
withnearlyone-halfofthe1.1billionpeoplebelowtheage
socio-economicdriversarelikelytohelpthecountrysustain
of25years.Thesizeoftheworkingagepopulationexceeds
itsgrowthtrajectory.WhileIndiahasnotbeencompletely
thesizeofthedependentpopulationanditisestimatedthat
insulatedformtheimpactoftheglobaldownturn;ithas
itwillremainsountiltheyear2025andperhaps,even
shownsizeablesignsofrecoverycomparedtoitspeers
beyond4.
withthehelpoffocusedGovernmentintervention.Thekey driversofeconomicgrowth,namelyconsumptionand investment,arelikelytoprovidefurtherimpetustoIndia’s growthstory.
4 CIA,www.india.gov.in
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02. Global Telecommunications Market
Global Telecommunications Market Telecomremainsasasilverlininginthedarkcloudsof
FranceisoneofthetopthreeEuropeancountriesinfiber
recessionhoveringabovetheglobaleconomy.Theglobal
deployment.Theincreasedinvestmentinbroadband
telecomservicesmarketispoisedtogenerateUSD1.4
infrastructurealongwithincreasedcompetitionandreduced
trillionin20091,despitetheeconomicslowdown.Emerging
priceisdrivingconvergedservices(DualandTriplePlay)and
economieswillstillinvestheavilyinnetworkinfrastructure,
boostingIPTVsubscriberbase,makingFrancealeading
whilerecession-hiteconomieswilldelayupgrades.TheAsia-
IPTVmarketinEurope.CableTVoperatorsinBrazil&
Pacificregionwillexperiencethehighestgrowthrateinthe
Mexicowiththehelpofdualplayandtripleplaypackages
nextfiveyears,atnearly16percent,ledbyChinaand
arelookingforwardtodrivetheirARPUsinthetimeto
India2.ThetelecomsectorinLatinAmericaandthe
come.InKenya,anISPhasintroducedtripleplayservice
Caribbeanwillgrowby12percent,fueledbyemerging
underthebrand‘Zuku’,offeringTV,InternetandVOIP
economiesandtheexpansionofthemiddleclass.
services.IntheMiddleEast,Bahrain’s’Batelcohasrolled outNGNtodriveconvergedservices;whileQatar’sQtelhas launchedtripleplayunderthebrand‘MOSAIC’.InPoland,
Triple Play to ride on Broadband growth
thefixedbroadband(ADSL,Cable)operatorsare increasinglylookingtodouble-andtriple-playpackages,
Thegrowthofbroadbandaccesshasfueleddemandfor convergedvoice,video,anddataservices-nowknownas
resultinginanumberofIPTVdeployments.InRussiaalso, tripleplayistogiveanewfilliptoIPTVdeployments.
the"tripleplay".Togarnernewcustomers,holdontocurrent ones,andensurerevenuegrowth,today'sprovidersmust continuetomovetowardofferingthetripleplayasavalueaddedservicebundle.
1CPIFinancials,“GlobaltelecomservicesmarkettogenerateUSD1.4trillion in2009”,August2009
2InsightResearch,“GlobalTelecomServicesRevenueForecast:Emerging MarketOpportunities”,2009
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The Indian Telecom Success Story | 06
Mobile Payment fostering a trend for cashless transactions
Rural Expansion to help offset urban saturation
M-PESAisaninnovativenewmobilepaymentsolutionthat
phenomenalgrowthtoruralareas.Thecountry'slargest
enablescustomerstomakesimplefinancialtransactions
operator,ChinaMobile,creditsruralareaswithcontributing
throughthemobilephone.TheM-PESAschemereliesonan
around50percentofitsmillionsofnewsubscribers.While
applicationinthemobilephoneSIMcard,whichis
goingrural,ChinaMobilemanagedtoavoidanAverage
authorizedbyaPINcodeanddoesnotrequireanyspecial
RevenuePerUser(ARPU)fallbycreatingademandfor
technology.
high-marginvalueaddedservicessuchasSMS,music
China,theworld'slargesttelecommarket,attributesits
downloadsandringtones. Currently,theserviceismainlyaimedatmobilecustomers whodonothaveabankaccount,typicallybecausetheydo
However,theroadtoruralexpansionwouldhaveseveral
nothaveaccesstoabankortheydonothavesufficient
roadblockslikelandacquisition(Lease/Purchase)forBTS,
incometojustifyabankaccount.Themoneyisheldsafely
availabilityofcheapandfastbackhaulconnectivity,costs
inabankaccountrunbyM-PESAontheuser’sbehalfand
associatedwithsettinguptelecominfrastructure,availability
theuserdoesnothaveanycontactwiththebanknordoes
ofadequatepowersupply,higheroperational&
thebankhavetheuser’sdetails.TheM-PESAsystemallows
maintenancecostsandlowerpurchasingpowerofrural
customerstodepositandwithdrawcashvialocalagents
population.TheOperatorsaretakingadequatestepsto
andtransfermoneytoothermobilephoneusersviaSMS.In
counterthesechallenges:
acountrylikeKenyawhere90percentpeopledonothavea bankaccount,theM-PESAservicehasseenadramatic take-upsinceitslaunch.AsofMarch2009,theservicehad over6.5mregisteredusers(vs.2.1minMarch2008)with 2mdailytransactionsinKenyaalone.M-PESAisdistributed through8,650retailoutletscountrywide(2,262outletsin March2008).Thistake-upclearlydemonstratesthedemand
•Micro Financing: GrameenPhoneinBangladesh providesmicrofinanceoptionstosetupVillagePhone Operators(VPO).GrameenBankprovidesaloanpackage toselectVPOstopurchaseahandsetandoperatetheir VPbusiness. •Developing locally relevant content: Qualcomm’s
foreasilyaccessible,securecashpaymentservicesin
FisherFriendBREWapplicationhasbeenimplemented
emergingmarkets.Morerecently,commercialM-PESA
incoastalTamilNadu.Theapplicationworkson3G
serviceshavebeenintroducedbyRoshan,theleading
CDMAhandsetsandgivesfishermanaccesstotimely
mobileoperatorinAfghanistan,andbyVodacominTanzania.
weatheralerts,real-timedataonfishmigration,market
Indianoperatorshavelaunchedsimilarinitiatives.Offerings fromsomeoperatorsenableamobilephoneusertosendor receivemoneyinstantlyusingtheirmobilephoneto
pricesandupdatesonrelevantgovernmentschemes andpoliciesinthelocallanguage. •Setting up viable distribution and collection
authorizethetransfer.AccordingtotheGSMAssociation,
channels: Mobitel,SriLanka'sNationalMobileservices
mobilemoneyinemergingmarketscouldbringinUSD7.9bn
provider,expandeditsruralpenetrationwithatie-upwith
ofsalesforoperatorsby2012.Moneytransferservicesfor
theSriLankanPostalDepartment.Asperthedeal,post
handsetownerswithoutabankaccountmaybringin
officesandpostmencouldsellMobitelprepaidcardsto
USD5bnoftransactionfeesandtextmessage-linked
ruralcustomers.
revenueby2012.Indirectrevenue,includingrevenuefrom greatercustomerloyalty,willprobablyamounttoUSD2.9bn.
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07 | The Indian Telecom Success Story
Technology and Content to drive the growth TheeffectsoftheslowingUSeconomybecamemore predominantwithalloperatorsreportingadeclineinARPU inthefinalquarterof2008.Howevertheprevalenceof moresophisticatedhighendhandsetshashelpeddrive growth.Anincreasedrelianceonmobilecontentwillbethe definingthetrendsoftheUSmobilemarketinthenextone yearalthoughtherangeofservicesonofferwillbeoperator specific.Whiletheeconomyisalreadynegativelyimpacting theinfrastructureandhandsetssegments,consumershave notyetbeguncuttingtheiroverallmobiledataspending.The confluenceof3G,high-enddevicesandtheevolving applicationsecosystemwereresponsibleforthestrides madebymobiledatain2008. InEurope,Telefonica,whichisO2’sparentcompanyhave outperformed,attributabletothecontinuedsuccessofhighenddevicessuchastheiPhonewhichitcarriesexclusively. ThemaingrowthengineinJapan,inboththefixedand mobilesectors,isdataservices.WhenitcomestoMobile TV,Japanisthelargestsubscriberbaseglobally. WAP/Internetbrowsing,ring-tonesandmusiccontributes uptotwothirdsofJapan'sdatarevenues. • Encouraging entrepreneurial spirit: Pakistan TelecommunicationsAuthority'sRabtaGharinitiative encourageruralentrepreneurstosetuplocal telecentres.PTA,withsupportfromtelecomoperators, providestheselocalentrepreneurswithfreeequipment, installationandtraining.
SouthAfricaontheotherhandisexpectedtowitness strongprivateinvestmentintherun-uptothe2010FIFA WorldCupandthiswillremainakeydriverforgrowthin 2009.Withmobilepenetrationcrossing100percent, operatorsarelookingatalternaterevenuestreams:Mobile broadbandcombinedwithmediacontent.Thelaunchof
•Exploring alternate fuels: EricssonandOrangeGuinea
3G/HSPAprovidesthemwithanopportunityofservice
Conakryrecentlyannouncedthedeploymentofover100
differentiationbyprovidingmobilebroadband,combined
fullysolar-poweredBTSstoprovideconnectivitytorural
withmediacontent.InCzechRepublic,themobileoperators
Africa,whichisexpectedtoreduceenergybillsby50
arelookingatcontentandapplicationthroughHSDPAbased
percent.
mobilebroadbandandmobileadvertisementasfuture
•Government support: TheIndiangovernmentprovides
growthoption.
asubsidyunderUSOFforcompaniesdevelopingrural telecominfrastructure.Thegovernmentandtheindustry havesetupajointinitiativeknownasProjectMOST (MobileOperatorsSharedTowers)toidentifyruraland remoteareasnotbeingcoveredbyUSOF.
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‘
The Indian Telecom Success Story | 08
The Asia-pacific region, with India in the lead, will be the key growth market for global telecom over the next few years
In times of Recession
Mobile subscriber base (% share of world)
Mostofthetelecomcompaniesinthedevelopedand emergingmarketshavelaunchedapoints-basedloyalty China, 19%
program;whileasmallpercentageoptedfordiscounting theirservices,withtherestchoosingdifferentpromotional andmarketinginitiatives.Withallplayersfacingchallenges intermsofincreasingtheirAverageRevenueperUser (ARPU)andavoidingcustomerchurn,mostareforcedto implementprogramsontightmargins. Others, 62%
Asia: The Epicenter of Telecom Growth worldwide
India, 12%
USA, 7%
Asia isaboomingmarketwithcountrieslikeJapanand SouthKoreaimplementingadvancedtechnologieswhilethe Chinesemarketispoisedforgrowthafterrestructuringand 3Glicenseauctions.IndiaandChinacontribute31percent
Source:EIU
ofworld’ssubscriberbase;yetthemobilepenetrationrates arenotashighcomparedtoUSorotherdeveloped economies.Needlesstomention,furthergrowthis expectedtobewitnessedinthisregion.
Japan withover30millionbroadbandlinesinplace,isthe thirdlargestcountryintheworldaftertheUSandChinain termsofbroadbandusers.Muchofthesuccessof broadbandinJapanisowedtothestunninggrowthsurge thatoccurredbackin2003onthebackofDSLbroadband technology.TherestructuringoftheChinese telecom markethaschangedthecompetitivelandscapeofthe country.Withthelargestmobileandbroadbandsubscriber base,themarkethasstayedrelativelyinsulatedfromthe globalmeltdown.Postrestructuringandtheawardingof3G licensesinDecember2008,themarketispoisedforyet anotherboost.Therestructuringwillprovidehugemarket opportunitiestocommunicationsequipmentmanufacturers, thusacceleratingtheall-roundupgradeoftelecomoperation supportsystems.
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09 | The Indian Telecom Success Story
Mobile Subscriber Data (Millions)
Source:PyramidResearch,NationalBureauofStatistics,CEIC
Fixed Line Data (Millions)
Source:PyramidResearch,NationalBureauofStatistics,CEIC
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The Indian Telecom Success Story | 10
Indian telecomcrossedthetargetof500Million(Wireless
operatorsaretryingtoincreasetheirsharebyoffering
&Wire-line)SubscriberinSeptember20094.Buoyedbythe
bundledservicesoverthewire-linenetwork.TheMiddle
entryofnewtelecomplayerstheIndiantelecomindustry
Eastregionshowsabalancedapproachtowardswireless
clockedthehighestsubscriberadditionof15.87million
broadbandservices.ThetelecomindustryinNorthAmerica
subscribersinMarch,20095.IndiaovertookUStobecome
hastakenahitasaresultoftheeconomicmeltdownand
the2ndlargestmobilegeographyafterChina.
reducedconsumerspendingwhileinSouthAmerica,the operatorsareconstantlylookingtoinnovatebyproviding
FixedMobileSubstitution(FMS),provisionofbundled servicesandincreasedconcentrationonwirelessbroadband istheglobaltrendpresently.InAfrica,broadband penetrationisincreasingduetocheapersubscriptionon
video-on-demandandotherbundledservicesinorderto increasethenumberofsubscribers.Theepicenterof telecommarketcontinuestobeAsiawhereChinaandIndia continuetoplayakeyrole.
accountofnewsubmarinecablesreachingitsshoreand rolloutofwirelessbroadbandservices.InEurope,all
4TRAI,November2009 5TRAI,April-May2009
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03. Indian Telecommunications Market
Indian Telecommunications Market Indiahasemergedasoneofthelargestandfastgrowing
OverallteledensityinIndiahasrisentothelevelsof
economiesoftheworld.Eveninthetimeofdownturn,
approximately43.5percent1.Withalargepopulationyetto
Indianeconomyhasshownconsiderableresistanceleading
haveaccesstotelecommunicationmarketthepotentialfor
togrowthacrosstheboardwhenmanyregionsoftheworld
thesectorremainslargeespeciallyinnon-urbanareas
hadshownsignificantdeclineingrowth.Thefar-reaching
wherewirelineandinternetservicesareyettomake
measuresintroducedbytheGovernmentofIndiaoverthe
significantin-roads.Wirelineservicesinparticularareyetto
pastdecadetoliberalizetheIndianmarkethavehelpedthe
reachthevastmajoritywithalowteledensityof3.19
businessandregulatoryenvironmenttosuccessfullymove
percentand1percent2 inurbanandruralregions
towardsgreatertransparencyandefficiency.Servicessector
respectively.Eventhemobileservicesspace,whichhas
hasbeentheprimaryengineforthisgrowth.Telecom
seenexponentialgrowthinurbanareas,hasnotreached
industryisoneofthefastestgrowingsectorsofIndian
thevastmajorityinruralareaswithatotalwireless
economywithsignificantcontributionfromtheprivate
teledensityofapproximately40.31percent3 indicatinga
sector.
largeuntappedpotentialforthesector.
Thetelecomsectorcanbedividedintobasic(fixed),mobile
Thenumberofinternet/broadbandsubscribershavealso
andinternetservices.Therearealsosomesmaller
grownatafastrate;therewere14.05milliontotalinternet
segmentssuchasradiopagingservices,VerySmall
subscribersasofJune,2009and6.62millionbroadband
ApertureTerminals(VSATs)andPublicMobileRadioTrunked
subscribers.Thesectorhaspotentialforlargegrowthinthe
Services(PMRTS).Indianmobilemarketiscurrentlyoneof
future.4
themostattractivetelecommarketacrosstheworld.
1 TelecomServicesPerformanceIndicatorsApril–June2009”,October2009 2 TRAI,November2009
4 TRAIQuarterlyReportsonTelecomServicesPerformanceIndicators
3 TRAI,“TheIndianTelecomServicesPerformanceIndicatorsApril–June 2009”,October2009,TRAI,November2009 ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 12
Mobile Services
Mobile Subscribers (share of the world)
TheIndianmobilitymarketcanbecharacterizedasone withaverylargesubscriberbase(~427millionasofJune 2009),highgrowth(additionof10Mn+subscribersevery
China, 19%
month),lowARPUs(~INR165permonth)andsignificant churnrates.5 TheGovernmentofIndiaopenedupmobileservicesto privateparticipationin1994-95byinvitingbidsforproviding India, 12%
Others, 62%
servicesinthefourmetropolitancitiesand18non-metro circles.Serviceswereintroducedin1995withthehigh tariffsresultinginpoordemand.TheNationalTelecomPolicy 1999,movedtheindustrytoarevenuesharemodelfrom
USA, 7%
thefixedlicensefeeandthelowertariffsresultedinthe additionof~12millionsubscribersinthe1999-03period ascomparedtolessthanamillionsubscribersaddedinthe 1995-99period.Theperiodwascharacterizedbysettingup ofTelecomRegulatoryAuthorityofIndia(TRAI)in1997. Source:EIUEstimates
Growth of Wireless Subscriber Base (year end numbers) 427
450
Subscriber base in mn
400
347
350 300 229
250 200 142
150 75
100 50
6
11
28
2001
2002
2003
47
2004
0 2005
2006
2007
2008
H1'09
Source:TRAIAnnualReportandQuarterlyReportsonTelecomServicesPerformanceIndicators
5TRAI,November2009
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
13 | The Indian Telecom Success Story
‘TelecomDisputeSettlementandAppellateTribunal(TDSAT)’
TelecomcirclesinIndiahavebeenclassifiedinto4
wassetupin2000inordertoadjudicatedisputesarising
categoriesviz.Metros,CategoryA,BandC.With
betweenlicensorandlicensee;andtohearappealsagainst
penetrationratesinmetrosapproaching100percentthe
anydecisionororderofTRAI.TheCallingPartyPaysregime
markethereisnearlysaturated.However,thereisstill
wasintroducedin2003-04whichmadeincomingcallsfree.
immensepotentialinothercirclecategoriesparticularlyB andC.
Subscriber Base and Teledensity across Telecom Circles
J&K J&K 4.1 4.1mn mn 36% 36% HP HP 3.6 3.6 mn mn 54%
Punjab 15.6 mn 55%
Haryana 11 mn 43% 43% Rajasthan 26 mn 38% 38% Gujarat Gujarat 25.8 25.8mn mn 44% 44%
Delhi 23 mn 133%
MPMP 22.722.7 mnmn 24% 24% Maharashtra 33.5 mn
Mumbai 20.4 mn 110%
+ Mumbai Maharashtra + Mumbai 48% 48% Andhra Pradesh 33 mn 40% Karnataka 25.5 mn 44%
Kerela 18 mn 53%
North East 3.8 mn 30% Assam 6.4 mn 21%
UP UP(W) (W) 21.5 21.5 mn mn UP (E+W) UP25(E+W) % UP(E) (E) 25 % UP 30.2 30.2mn mn
Tamil Nadu 40 mn 59%
Bihar Bihar mn 2424mn 19% 19% West Bengal 17.4 mn 17.4 mn WB + kolkata 33% Orissa Orissa 10mn mn 10 Kolkata 25% 25% 12.4 mn
Metros Circle A Circle B Circle C
Source:TRAI,“TheIndianTelecomServicesPerformanceIndicatorsApril–June2009”,October2009,KPMGAnalysis
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 14
Thesubscriberbaseof494.06Million(asofAugust,2009)
marketsnearingsaturation,operatorshavebeenactively
iscomprisedof343.24Millionurbansubscribers
seekinggrowthinruralIndia.
(teledensityof98.70percent)and150.82Millionrural subscribers(teledensityof~18.37percent)6.Themarketis
Wireline Services
highlycompetitivewitheachtelecomcirclehaving7-8 operators.Inaddition,thereareseveralnewlicensees whichareintheprocessofrollingoutservices.Competitive
Thetotalnumber7 offixedservicesconnectionsinIndia
intensityinthemarketcontributedtoreductionintariffsand
increasedfrom5.81Millionin1991-92to40.8Millionin
launchofinnovativeschemeslikelifetimeprepaidandlow
2006-07.During1999-2000to2001-02,approximately5-6
costhandsetbundlingwhichreducedtheentrycostfora
Millioncustomerswereaddedtofixed-lineserviceseach
newsubscriber.WithreducingARPUs,changingeconomic
year.However,withthedropinmobiletariffsandincrease
profileofsubscribersandtheneedtomeettheaggressive
incoverageofmobileservices,netadditionsinfixed-line
roll-outtargets,theoperatorshavebeenundertremendous
subscribersstartedslowingdownfrom2.5Millionin2002-
pressuretobringinoperationalefficiencies.Operatorshave
03goingdownto0.5Millionin2004-05.Duetomobile
beenrealizingefficienciesthroughextensiveoutsourcing
substitutionandlowertariffsfromtheyearsfrom2006-07
acrossthetelecomvaluechain.Thishasresultedinlarge
to2008-09haveseenadecreasein3.5Millionfixed
scaleopportunityforplayersbelongingtoallthecategories
connections.However,thepotentialforwirelineservices
withinthetelecomecosystem.Someoftheprominent
remainslargeduetoverylowpenetrationinthewireline
categoriesincludenetworkequipmentvendors,tower
industry.Newplayersinthetelecomspacehadhitherto
infrastructurecompanies,telecomimplementationvendors,
concentratedonwirelessspaceleadingtolowcompetition
ITvendors.
andpromotionofwirelineservices.Greaterpan-India expansionbyprivateplayerscansignificantlyleadtogrowth
Ithasbeenobservedthatthepastsubscribergrowthhas
ofwirelineservices.Inaddition,withcombinedofferingof
beenskewedinfavorofurban.Thelargeruralpopulation
internet/broadbandandalliedservicesshowingpromising
baseandlowteledensityindicatesthatthereisstilllarge
potential,thesectorcanbouncebackinthefuture.
untappedopportunityintheIndianmarket.Withurban Wireline Subscriber Base 45 38
40
Subscribers in Mn
35
41
41
Mar'03
Mar'04
41
42
41
39
38
Mar'08
Mar'09
33
30 25 20 15 10 5 0 Mar'01
Mar'02
Mar'05
Mar'06
Mar'07
Source:TRAIAnnualReportandQuarterlyReportsonTelecomServicesPerformanceIndicators,CrisilResearch
6 DepartmentofTelecommunications,TRAI,“TheIndianTelecomServicesPerformanceIndicatorsApril–June2009”,October2009 7 CrisilResearch,“StateoftheIndustry”,October2007
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
15 | The Indian Telecom Success Story
Internet Services
ThegovernmentofIndiahassettargetsof20Millionfor
InternetsubscriberbaseinIndia(dialupandbroadband),
(September,2009),whichrequiresrelookattechnologies
thoughcurrentlyatalowlevelisexperiencingsignificant
usedinforbroadbandaccess.Whilethereanumberof
growthforthelast2-3years.Thisgrowthisbeingdrivenby
technologiesbeingusedbyserviceproviderstoprovide
growingpopularityofbroadband,increasingusercomfort
broadbandservices,DSLcontinuestobethemost
withusageofinternetapplications,continuousfallinPC
preferredtechnologyandconstitutesnearly87percentof
prices,cheaperaccessplans.
totalbroadbandsubscribers8.Cablemodemtechnology
broadbandfor2010,fromthecurrentfiguresof7.22Million
followswith7.4percentconnections9.Focusonincreasing Thisgrowthhasbeenaccompaniedbyanassociated increaseinthenumberofinternetuserswhichcanbe attributedtogrowthofpublicinternetcafesandmultiple membersofahouseholdaccessinginternet.
wirelineaccessaswellgreaterfocusontechnologieswhich canberolledoutfaster(e.g3GandBWA)orhavesignificant penetration(cableTVandDTH)cansignificantlyenhancethe adoptionofbroadbandinIndia.
Internet Subscriber Base
Source:TRAIAnnualReportandQuarterlyReportsonTelecomServicesPerformanceIndicators
8 TRAIQuarterlyReportsonTelecomServicesPerformanceIndicators 9 TRAIQuarterlyReportsonTelecomServicesPerformanceIndicators
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 16
Value Added Services
byincreasedoperatorfocusonVASduetocontinuousfallin
Currently,VASmarketisworthINR91Billionwhich
alsowithincreaseduseradoptionofVASapplications.
voicetariffs,featurerichhandsets,vernacularcontentand
translatesintoapproximately8percentofwirelessindustry revenues.TheshareofVASinwirelessrevenueislikelyto increaseto11percentby2011.Thisgrowthwouldbedriven
Growth of VAS Revenues
Source:Industryconsensusestimates,KPMGanalysis
Priorto2008,majorityofVASrevenueswereattributableto
Market Split for VAS
SMSandthattooPerson-to-Person.Itisinterestingtonote thatoverthelast1-2years,non-SMSVAShasbeengaining importanceandislikelytobecomeadominantcontributor
Others 8%
toVASrevenueoverthenextfewyears.In2009,non-P2P SMSVASaccountedforbetween5and6percentof operatorrevenues.Industryprotagonistsenvisagethis
Voice Portals 20%
sharetoincreasetoaround8percentoverthenexttwo
CRBT 45%
years.Theaddressablemarketfornon-P2PSMSVAShas historicallybeendominatedbyringtonesandcallerringback tones(CRBT)whichaccountforaround45percentof revenues. P2A SMS & Alerts 18%
GPRS/WAP Products 9%
Source:IndustryEstimates,InformationInterviews
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
17 | The Indian Telecom Success Story
New Frontiers for Growth
enabledhandsets.Atthesametimeoperatorswouldbe activelylookingatproviding3Gservicestootherincome groupsasthiswillhelpspreadinginvestmentintechnology/
3G Technology
licenseoverawidersubscriberbase.
Whilethelast5yearshavebeentransformationalforIndian telecomindustry,thenextfewyearslookevenmore
Telecom Infrastructure Services
exciting.Oneofthekeyfrontierswhichwouldmakejourney incomingyearsexcitingisthelaunchof3Gtechnology.
Infrastructuresharinghasbeenarelativelynewsegment, whichwitnessedsignificantinvestmentandinterestfrom
Inthenearfuture,Indiangovernmentwillbeauctioning
theinvestorcommunityinthepasttwoyears.
spectrumforthirdgenerationwirelessservicesforwhicha numberofincumbentsandnewentrantsareexpectedtobe intherace.Eachtelecomcirclehasadesignatednumberof spectrumblocksoutofwhich1blockisreservedforthe staterunoperators.
Thekeytriggerforinfrastructuresharinghasbeenthe MobileOperatorSharedTower(MoST)initiative implementedbytheDepartmentofTelecom,underwhich pilotsharedtowerswererolledoutatdifferentlocationsin NewDelhiin2006.Throughthisinitiative,thebusinesscase
Withthelaunchof3Gservicestheoperatorswouldbeable
fortowersharingwaslaidoutclearly,andthisresultedin
toproviderichdataservicestoHNI’s,workingprofessionals,
significantinterestinadoptionofthetowercompany
enterprisecustomersandyouth.Theywouldbespecifically
businessmodel.
targetingcurrentusersof2.5Gand/orownersof3G
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 18
Thebusinesscaseforthetowercompanywasquickly
activeinfrastructuresharinginMarch2008.Underthese
establishedaroundthefollowingbenefits,whichmade
recommendations,sharingofinfrastructureamongstservice
strongeconomicsenseforOperatorCompanies(OpCos)to
providersbasedonthemutualagreementshasbeen
hiveofftowerassetsintotowercompanies.
initiated.Infrastructuresharingisnowalsoallowedfor antenna,feedercable,NodeB,RadioAccessNetwork
•Buildandleasepassiveinfrastructure •Lowercapitalandoperatingexpensesforcarriers throughassetsharing
(RAN)andtransmissionsystems.Thishasalreadyledto towercompaniesofferingend-to-endtowerinfrastructureto thenewtelecomoperatorsinclusiveofbackhaulservices, whichhithertohadbeenasignificantchallengedueto
•Accesstolow-profitabilityruralareaswithoutCapex •Monetisingtowerassetsasaneasierrouteofraising capitaltofundcoreoperations.
inadequatefibreandmicrowavebackhaulcapacityexisting attowerlocations.Weexpectsignificantfurtheractionand innovationinthisspacewiththetowercompanieslooking toofferenhancedportfolioofservicestotelecomoperators.
Thetowerandtelecominfrastructureecosystemisfurther
‘
evolvingwiththeDOT’sassenttorecommendationson
Strong regulatory support, domestic demand and enterprise of private sector telecom providers have been the key drivers for the growth of the Indian telecom industry
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
04. Connecting Rural India
Connecting Rural India Whilemarketsallacrosstheglobewitnessedasignificant
believedtobegrowingatafasterrate.Ruralareashouse
reductioninconsumerspending,theruralIndianconsumer
nearly71percent3 ofthecountry’spopulationandthus
managedtoremainanattractiveproposition,especiallyin
representanenormousconsumerbase.Perhapsevenmore
thedemandforconsumergoodsandtelecomservices.
importantly,ruralIndiacontributestoroughly56percentof
Leadingcompaniesacrossindustrysectors,appreciatingthe
incomeand64percentofthecountry’sexpenditure4.
enormouspotentialofthismarket,havedevelopeda
Clearly,theruralmarketcannotbeignoredanylongerand
focusedstrategytotargetruralIndia.
nowfiguresasanonnegotiablesuccessfactorinmany corporatestrategies.
RuralIndiaisbelievedtocontributealmost45percentofthe country’sGDP1.Thesegmentreportedlyalsoaccountsfora significantchunkofdemandformanyconsumergoodsand servicescompanies.Whilethepercapitaruralconsumption spendremainsatnearlyhalfoftheurbancounterpart2,itis
1 CreditSuisse,‘IndiaMarketStrategy’,June17,2009 2 CreditSuisse,‘IndiaTelecomsSector’,February23,2009 3 CIA–TheWorldFactbook,2008 4 TRAI,Draftrecommendationson‘AnApproachtoRuralTelephony– SuggestedMeasuresforanAcceleratedGrowth’,March04,2009 ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 20
Rural vs. Urban Population
Rural vs. Urban Consumption
100 percent = 1.17 billion
Urban 43%
Urban 29%
Rural 57%
Rural 71%
Source:CIAWorldFactbook,KPMGAnalysis
Source:CIAWorldFactbook,KPMGAnalysis
Inthelastthreeyears,duetoanumberofregulatoryand
Theappealoftheruralsegmenthasincreasedwithmore
non-regulatoryfactors,ruralIndiahasexperiencedhigh
companieslookingatruralexpansionasaviablemeansto
incomegrowthofapproximately12percentperannum.
overcometheimpactoftheslowdown.
Key Government Initiatives for Rural Development
Rural Employment Other Workers 23%
Asignificantportionoftheruralpopulationisengagedin agricultureandagriculture-relatedemploymentactivities.The Cultivators 40%
impactofanyapplicableregulatoryinitiativesoranynatural phenomenonlikethedelayedmonsoonisthusfeltbyalarge sectionofthepopulation.
Household Industry 4%
TheGovernmenthastakenastronginterestinthegrowth anddevelopmentofruralareas.The2009-10budget, announcedinthebackdropoftheeconomicslowdown, includedspecificmeasuresforthesocialandeconomic upliftmentofthissegment,clearlyhighlightingtheintentof
Agricultural Labourers 33%
Source:Census,CreditSuisse
thegovernmenttoworkforthebettermentofthecommon man.
5 CreditSuisse,‘IndiaMarketStrategy’,June17,2009
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
21 | The Indian Telecom Success Story
Thegovernment’sNationalRuralEmploymentGuarantee
connectivity.Forthetelecomsector,thisprogramhas
Scheme(NREGS),forinstance,providesajobguaranteefor
providedanimpetustosetupmoretelecomtowersand
adultworkers.Thisinitiativehashelpedover3crore
improveruralpenetration.
householdimprovetheirstandardoflivingandhavemore moneyattheirdisposal6.
Initiatedin2003,theUniversalServiceObligationFund (USOF)wasestablishedtofulfilltheUniversalService
ThegovernmenthadalsoinitiatedtheBharatNirman
Obligationbypromotingthesettingupofinfrastructureto
Programin2005asatime-boundprogramtoupgraderural
promoteruralconnectivity.Thefund,managedbytheUSOF
infrastructure.Thisincluded,amongotherthings,provisions
Administrator,providessubsidiestoprivateplayers
toimproveruralwatersupply,electrificationandtelecom
establishingruraltelecominfrastructure7.
Telecommunications and Rural India
Key Statistics
ThetremendousgrowthwitnessedbytheIndiantelecom
TotalTelecomSubscribers
494.07million
sectorhasbeendriveninalargepartbytheimmense
UrbanSubscribers
343.24million
RuralSubscribers
150.83million
everyquarter8.Despitehousingonly30percentofthe
OverallTeledensity
42.27percent
country’spopulation,urbanareasaccountfornearly69
UrbanTeledensity
98.70percent
RuralTeledensity
18.37percent
RuralWirelineSubscribers
10.20million
RuralWirelessSubscribers
140.63million
demandoriginatingfromurbanareas.Urbansectorsalone havecontributedtoover17millionsubscribersbeingadded
percentoftelecomsubscribers9.Withalargenumberof playersineverycircleandtheteledensityapproaching100 percent,theurbanmarketisclosetosaturation.
Note:AsofAugust,2009 Source:DepartmentofTelecommunications
6 EnamSecurities,‘BudgetStrategy2009-10’,July06,2009;PressSearch; NREGAwebsite 7 TRAI,“MeasurestoimprovetelecompenetrationinruralIndia-Thenext100
8 TRAI;MinistryofUrbanDevelopment 9DepartmentofTelecommunications
millionsubscribers”,December16,2008 ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 22
Thetelecomsectorhasalsoobservedawideningrural-urban
allstakeholdersabouttheimmensegrowthpotentialthat
divide.Urbantelecomadoptionhasfaroutpaceditsrural
ruralmarketscanoffer.
counterpart.Thishasleadtoanincreasingawarenessamong
Rural VS. Urban Teledensity 88.7%
63.7%
47.2% 38.0%
37.0%
26.2%
25.6%
21.3%
18.2% 12.7%
9.1%
7.6% 1.7%
1.7%
Mar'04
5.8%
1.9%
Mar'05
Mar'06 Rural
Mar'07 Urban
14.8% 9.3%
Mar'08
Mar'09
Overall
Source:TRAIPerformanceIndicators,July13,2009;TRAI,DraftRecommendationson'AnApproachtoRuralTelephony-SuggestedMeasuresforan AcceleratedGrowth',March04,2009
Telecomadoption,historically,hadimpliedtheadoptionof
fewyears.Anincreasingnumberofprivateoperatorsare
wirelineservices.Thistrend,however,hasmovedtowards
alsomakingaconcentratedefforttodriveupwireless
anever-growingadoptionofwirelessservicesoverthelast
adoption.
Rural Wireless vs. Wireline
16%
10%
9%
27%
18%
11%
21%
14%
25%
73%
75%
79%
82%
84%
86%
89%
90%
91%
Mar'07
Jun'07
Sep'07
Dec'07
Mar'08
Jun'08
Sep'08
Dec'08
Mar'09
Wireless
Wireline
Source:TRAIPerformanceIndicatorReports(2007-2009)
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
23 | The Indian Telecom Success Story
Rural Telecommunications and the Inclusive Growth Agenda
anytime’serviceandrelievestheexistingpressuresonthe branchexpansion. Inrecognitionofitsmanybenefits,theReserveBankof
Urbandevelopmentalonecannothelpacountryprogressat
Indiaissuedanoperatingguidelineonmobilebanking
aquickpace.Theruralagendathusbecomesincreasingly
transactionsinOctober2008.Thisguidelineprimarily
importanttoachieveawell-rounded,sustainablegrowth.The
addressessecurityovermobilebankingtransfers;however,
Indiangovernmenthasbeenfullyappreciativeofthisand
RBIbelievesthatthiscouldbeafeasibleandalternate
hasestablishedastrongagendaforinclusivity.
channelfordeliveryofbankingservices.Thisservedasan
Withaviewtobridgingtheurban-ruraldivideandimproving theeconomicstrengthofruralIndia,thegovernmenthas
indicatorthatmobilebankinghasanimportantparttoplayin expandingbankingservicestoall.
broughtinclusivegrowthforallsectionsofsocietyontothe
Thesuccessofruralmobilebankinginitiativesinother
mainplatform.Telecommunicationsisacriticallynchpinin
countriesbodeswellforIndia’saspirationstomakeita
thisendeavorandislikelytobeasuccessfulpartofthis
successinthecountry’sruralareas.M-PesaandG-Cashare
agenda.Thegovernmentisstronglypromotingthiseffort
twouniversallyknownmobilebankinginitiativesundertaken
throughvariouslarge-sizedbudgetaryallocationsandthe
inKenyaandPhilippinesrespectively.Boththesenations
telecommunicationsindustryalsohasaclearagendaofrural
haveinfrastructure,bankingandtechnologyconstraintsdue
expansion.
towhichlargesectionsofthecountrywere‘unbanked’and basicbutsafemeanstotransfermoneybetweenindividuals wasabsent.Usingsimplemobilephonetechnologyand
Mobile Banking and Mobile Commerce Indiahasoneofthemostexpansivebankingsystemsinthe world.Acombinationofscheduledcommercialbanks, regionalruralbanksandspecializedfinancialinstitutions coveralargesectionofsocietyinIndia.Despitethese focusedefforts,itisestimatedthatcloseto65percentof thecountry’spopulationstillfallsinthe“unbanked” categoryduetovariousreasons,includinggeographical isolationandlackofbasicinfrastructure10. Publicsectorbanks,privatebanksandotherfinancial institutionshaveconstantlypushedthelimitsoftechnology toreachouttoeverypartofsocietyaswellasmakingtheir businesssystemsandprocessesmoreefficientfromacost andtransactionprocessingperspective.However,despite nearly76,518branches11 ofscheduledcommercialbanks, thereisstillalongwaytogo.Corebankingsystemshave helpedbankstocomputerizetheirrecordsaswellasprovide seamlessservicessuchasinternetbanking.Mobilebanking
SMS,individualscouldtransfermoneyinstantaneouslyand atfractionofstandardmoneytransfercosts.Money transferscanbemadeacrossthecountryinstantaneouslyat lessthan1percentofthetransactionvalue12.In2008,1.6 millionKenyanshadtransactedoverUSD145millionusing theM-Pesasystemusing1,500intermediarieswhoare typicallycornershops13.Suchabankingsystemislikelyto workinIndiaaswellgiventhecurrenttelecommunication networkandavailabilityofneighborhoodshopkeeperor ‘localagents’. Itisimperativethatmobilebankingstandardsarecarrier agnosticandinteroperabilityismaintained,toensurethe lowestpossiblecostoftransactions.Thecostoftransactions canhavealargeimpactoftheeffectivenessofvarious developmentprojects.Mediareportshavesuggestedthata mobilepaymentmechanismforNREGAisduetostartin variousstates14.Thiscouldbeaneffectiveprovingground formobilebankingandaidsocialinfrastructuredevelopment.
representsthenextleveloftechnologicalevolutioninthe bankingindustry.Thisevolutionmakesbanking‘anyplace
10 Mediareports,KPMGanalysis 11 ReportonTrendandProgressofBankinginIndia,2007-08 12 www.safaricom.co.ke
13 ReportoftheThirdAnnualJointRoundtableonCommunicationsPolicy 2008–AspenInstituteIndia 14 http://www.financialexpress.com/news/delhi-firm-in-talks-with-govt-todigitise-nrega-payments/514077/
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 24
Mobile Governance
governmentorinstitutionaldevelopmentwork,fromremote locationswithoutthehurdlesofbureaucraticprocesses.This
Beingtheworld’slargestdemocracymeansthatthepeople, theexecutivebranchandthelegislativebranchofthe
Actandtheabilitytopursueiteffectivelywillgivea significantboosttoourruraldevelopmentefforts.
governmentneedtoworkcloselytoensurethatthepeople’s mandateiseffectivelycarriedoutconsistentlyandwithinthe frameworkofourconstitution.Thisleadstoastrong requirementforaneffectiveandsafemeansofexchanging
Telecommunications for Rural Employment
information,especiallyoverthelargegeographicspreadof
Thetelecommunicationsindustry,duetoverynature,
thecountry.Mobilegovernancecanplayacriticalpartin
requiresparticipationfromalargenumberofpeopleto
maintainingconstantdialoguebetweenthepeopleandthe
ensuresmoothoperation.Fromtheactualsettingupof
government.
physicalinfrastructure,totheservicebeingprovidedtothe
Today,variousgovernmentagenciessuchasthepassport issuingauthorityenableapplicantstochecktheprogressof theirapplicationusingasimpleSMScode.Thishas
endconsumer,thetelecomsectorinitsentiretyisabig employerofpeopleresources: • InfrastructureSetup:Thetaskofidentifyingappropriate
significantlyincreasedtheleveloftransparencyinthetime
sites,obtainingrequisitepermissions,layingthe
takenforsuchprocesses,whichwasconsideredtobe
foundation,settinguptelecomtowers,andothersuch
tediouspreviously.Suchmechanismscombinedwiththe
activitieshavelargemanpowerrequirements
greateruseoftheinternetwillenablecompanies,
• SalesandDistribution:Thisincludesactivitiesforthesale
organizationsandthecommoncitizentoperformother
oftelecomhandsetsaswellasconnections.Thiswould
routinetaskssuchasfilingvariousdirectandindirecttax
alsoincludebilldistributionandrentcollection
returnswithgreaterefficiencyandtransparency. Governmentinstitutionsareconstantlytryingtoincrease theircoverageandreachoftheirmandatedservices,and withtheuseoftelecommunicationsthesecansolvetheir deficienciesaround‘lastmile’connectivitywithcitizens.
• OtherAssociatedServices:Thisincludessupport activitiesrangingfromtransportationoftelecom equipment,securityforphysicalinfrastructure, maintenanceservicesandothers.Telecomcallcentres alsogenerateadditionalemploymentopportunities
Variousstategovernmentshaveinitiatedpilote-governance projects.SomeoftheseincludetheBhoomiprojectandthe
Forthedualpurposeofincreasingruralpenetrationaswell
eSevaproject.IntheBhoomiproject,20millionlandrecords
astoachievecosteffectiveness,manycompaniesare
of6.7millionlandownersweremadeintoelectronic
lookingtoexpandtheirruralsetups.
information15. Anothersignificantareaofgovernancethatcangohandin handwithtelecommunicationsistheRighttoInformation Act(RTI)of2005.Thisactprovidestherighttocitizensto querycentralandstategovernments.Further,theact requiresthegovernmenttocomputerizesignificantamount ofinformationmakingitaccessibletothecommonman. Abilitytoaccessthisinformationthroughtheinternetgives Indiatheabilitytotrackandreviewvariousaspectsof
15 http://www.bhoomi.kar.nic.in/Bhoomi/Home.htm
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
25 | The Indian Telecom Success Story
Thispresentsagoodprospectfortheruralpopulationin termsoftheemploymentopportunitiesgenerated.Another
Key Challenges in Going Rural16
advantageisthattheseopportunitiescanbenefitthe
Despitetheinherentattractivenessoftheruralmarket,many
educatedaswellastheuneducatedpeopleduetotherange
operatorshavefacedsignificantchallengesinpenetrating
ofskillrequirements.Telecomcompaniesalsoofferdifferent
themarket.
internaltrainingprogramstoensurethataruralemployee’s skillsareatparwithhisurbancounterpart. Indiahasalsoseentelecommanufacturingcomingupina bigway.Manyinternationalplayersaresettinguptheir manufacturingaswellasR&Dfacilitiesinthecountry. Significantinvestmentshavebeenearmarkedforthese initiativesandcompaniesarelookingtohirelocaltalentto bringtheseplanstoasuccessfulconclusion.
Acquisition of Customers Duetothemanydifferencesexistingbetweentheurbanand ruralmarkets,itisimpossibletoapplyurbanlearningsand businessmodelsinaruralsetup.Ruralareascomewitha completelydifferentsetofconstraintsandissueswhichthe operatorsneedtoaddressinordertoattractthisfreshpool ofcustomers.Operatorsfaceanumberofchallengeswhen itcomestotheacquisitionofruralcustomers.
Anotherinitiativethathasbeenimmenselysuccessfulin generatingemployment,speciallyforruralwomen,isthatof theVillagePublicTelephones(VPT).Inmanyvillages,rural womenhavetakenontheentrepreneurialresponsibilityand operatelocalVPTs.Notonlydoesthisbenefitthelocality,it alsobringsinadditionalincomefortheVPToperator’s household.
Affordabilityoftelecomservicescontinuestobeakey concerninruralmarkets.Althoughthecostofowningand usingtelecomequipmentandserviceshascomedown considerablyinthelastfewyears,thetypicalruralconsumer findsithardtoputasidemoneyforwhatisstillbelievedto beadiscretionaryspend.Microfinancingcouldprovidea possiblesolutionforthisproblem.Tie-upswithstate-owned
Telecom in Education
bankscouldenabletheruralconsumerstopurchasetelecom equipmentandservicesataffordablerates.
UrbanIndiahasalreadywitnessedthebenefitsoftelecom connectivityinpromotingeducation.Largeuniversitiesoffer
Operatorshavealsofoundthatamongtheruralcustomers
distancelearningcoursestostudents,especiallyforhigher
whoareabletoaffordtelecomservices,theAverage
educationcourseslikeMBAs.
RevenuePerUser(ARPU)remainsquitelow,especially whencomparedtotheurbancounterparts.Thus,thelow-
Theaspirationwouldbetoreplicatethesuccessoflarge universitiesinurbanareas,totheremoteareasinruralIndia. Thefirstprioritywouldremaintheprovisionofprimary educationtoallchildreninthecountry,irrespectiveof geographicalremoteness. TheIndiraGandhiNationalOpenUniversity(IGNOU)has
subscriber,low-volumemarketdoesnotprovideenough incentivesfortheplayerstoventureintotheregionswiththe revenuesnotjustifyingthecosts.TheruralARPUarenot expectedtobedrivenupsolelythroughvoiceservices.Itis believedthattheavailabilityofdataserviceswillhavea positiveimpactontheruralARPUs.
forayedintothisbyworkingtowardsdevelopingrelevant distancelearningprogramsforstudentsandproviding assistanceinfinancialsupportandgrants.
16 “3GandBWA–ThenextFrontier”,FICCI,January2009
The largely untapped rural market will drive the next phase of telecom growth in the country, supported by an enabling environment and focused initiatives by telecom players
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 26
Currently,thelackoflocallyrelevantcontentisanother
purchasingthelandisarduousandexpensive.Similar
challengethatrestrictstelecompenetration.Toincrease
problemsarisedueto‘RightofWay’issues.Layingofcable
adoption,itisessentialtodevelopserviceslikenewsinlocal
orfibreinruralareasoftengoesacrossmultiplejurisdictions.
languages,weatheralertsforfishermen,comparativemandi
Thisinvolvesobtainingtherequisiteapprovalsand
ratesforfarmers,andsuchothers.
permissionsfrommultipleauthoritieswhichcouldbecome laborious.
Anotherfactorthatimpactstheadoptionoftelecomservices (especiallybroadband),istheprevalentliteracylevels.To
Oncesetup,thetelecominfrastructureinvolvesimmense
derivemaximumbenefitsfromtheseservices,itisessential
operatingandmaintenanceexpenditures,considerably
fortheconsumerstohavebasicreadingandwritingskillsin
higherascomparedtourbanareas.Anumberoffactors
place.
contributetothisincludingthelimitedavailabilityofskilled workforceaswellaspoorroadconnectivity,amongothers. Theissueofirregularpowersupplyalsoremainsakey
GrameenPhone17
concern.Currently,anumberofvillagesinIndiaeitherdonot
GrameenPhoneinBangladeshisasuccessfulexampleof ruralpenetration.Theirapproachincludes:
haveanelectricityconnection,orfacelimitedpower availability.Abatterybackupisnotasustainablesolution
• ProvidingmicrofinanceoptionstosetupVillagePhone Operators(VPO).GrameenBankprovidesaloan packagetoselectVPOstopurchaseahandsetand operatetheirVPbusiness
sincethebatteryneedstobechargedregularly.Asaresult,
• Solicitingheavyinvolvementfromlocals(especially women)insettingupVillagePhoneoperationsby pitchingitasanadditionalincomesource
site’snetworkoperatingexpensesareduetothecosts
• Subsidizingcallchargestoallowlocaloperatorsto earnahealthyprofitmargin
concernbyprovidingaregularsupplyofelectricityacross
• Providingrecommendedratecardstoensurethatthe localoperatorstayscompetitive
powersupplycouldbetoexploretheviabilityofalternate
• Trainingsonusage,callrates,collectionsandother tariffschemes
fuels.Theseprovideacleanandeffectivewayofharnessing
otherbackupsintheformofdiesel-poweredgenerators needtobemaintainedtopowertheBaseTransceiver Stations.Itisestimatedthatover35percentofaruralcell associatedwithelectricityanddiesel.Theprovisionsunder theBharatNirmanProgramareexpectedtoaddressthis thecountry.Onealternativewaytoaddresstheconcernof sourcesoffuel,includingsolarenergy,windpowerandbionaturalenergy,whilekeepingtheequipmentmaintenance costatsignificantlylowerlevels.
Infrastructure-Related Challenges
Theconcernofhighcostsassociatedwithsettingupofrural
Inadditiontoacquisitionofcustomers,telecomplayersalso
infrastructurecanbewelladdressedthroughinfrastructure
facesomeinfrastructure-relatedroadblockswhilesettingup
sharingbetweenthetelecomplayers.Thismodelhasbeen
theirruralinfrastructure.Theseleadtoasteepescalationin
fairlysuccessfulinurbanareas,butisyettopickuptraction
coststherebyreducingthefinancialattractivenessofthe
inruralareas.
ruralmarket.
Thelackofefficientandlow-costbackhaulconnectivity
Thetelecomsetuprequireslargeamountsoflandforsetting
continuestohavealimitingeffectontelecompenetration.
upinfrastructureelementsliketheBaseTransceiverStations
Theoptionofdeploymentofopticalfibreisbeingexplored
(BTS).Inmanycases,thelandisownedbyGovernment
andislikelytobeabletoresolvethisissue.
bodiesorGramPanchayats,andtheprocessofleasingor
17 "WhatWorks:GrameenTelecom'sVillagePhones",June2001;KPMG
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
05. Broadband Connectivity
Broadband Connectivity Broadbandisdefinedasan“alwayson”dataconnection
accessibilityandteleworking,higherlaborproductivity,real-
thatisabletosupportinteractiveservices,includinginternet
timehealthcare,speedygovernmentclearancesandsuch.
accessandhasthecapabilityofminimumdownloadspeed
Realizingthesebenefits,DepartmentofTelecomissued
of256kilobitspersecond(kbps)toanindividualsubscriber.
BroadbandPolicy2004,on29thApril2004,inabidto encouragehighspeedinternetgrowthinthecountryand
Variousstudieshaveindicatedthatbroadbandconnectivity hassignificanteconomicimpact.Thisisprimarilydueto improvedgrowthinliteracyandvocationalskillsduetoeinitiatives,increasedemploymentofruralyouthdueto
addressthedemandofapplicationsenablingeconomic growth.Thepolicyalsosetanambitiousgrowthpathfor broadbandgrowthinIndiabyfixingstifftargetstobe achievedtill2010.
Targets for broadband subscribers as set by the Broadband Policy, 2004
Source:TRAI,BroadbandSubscribers,2009
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 28
Actualbroadbandsubscriberbasehasfallenshortofset
withcurrentpenetrationof~0.6percent.PCpenetration
targetswithAugust2009subscriberbaseat7.0millionas
continuestobeverylow,andlimitedwirelineinfrastructure
againstanenvisaged9millionby2007!In2007,Indiahad
includingRoWchallenges,hightariffsandlackofquality
oneofthelowestbroadbandpenetrationintheworldof
webcontentinlocallanguage,havefurtherconstrainedthe
~0.3percent.Whilstthepenetrationhasdoubledsince,
growthofbroadband.
Indiacontinuestobeoneoftheleastpenetratedregions
Broadband penetration in India vs. other countries, 2008 30%
28.5% 25.8% 23.6%
Global Broadband penetration
25%
22.4%
20%
15%
10%
7.8%
7.2%
5% 0.6% 0% UK
USA
Japan
OECD
Turkey
Mexico
India
Source:OECD,BroadbandStatistics,2008
Thesurgeinbroadbandpenetrationisexpectedtobeone ofthekeydriversfornextphaseoftelecommunications
Challenges in adoption of broadband
growthinthecountry,andbroadbandgrowthseemsto
Poorwirelineinfrastructure:Incontrasttodevelopedworld,
havealreadybegunwiththefirstvisiblesignofrisein
Indiahasfavoredwirelesstelephonyoverwireline
subscriberbase.During2008,thebroadbandbasehas
telephony.InCY08,wirelinesubscribersdeclinedto~38.0
grownby2.7million,whichismorethantwoandahalf
millionandwirelineteledensityreducedto~3.4percent.
timesthe1.0millionbroadbandsubscribersaddedduring
Thislackofanddeclineofwirelineposesa‘lastmile’
20071.Suchtrendisexpectedtoonlyimprovewith
accesschallengeforbroadband,whichispresentlyprovided
broadbandwirelessaccessalleviatinglast-mileconnectivity
mainlybyDSLtechnologywhichinturnreliesonthe
concerns,PCpenetrationlikelytoincreaseandbroadband
availabilityofcopperloopinlocalnetwork(iewireline
servicesanticipatedtobecomemoreaffordable.
network).Tocompoundmattersfurther,majorityofavailable copperlocalloopsarenotsuitabletosupportbroadband connectionsduetolonglengthofcablelocalloop,qualityof cableandmaintenanceconstraints.
1 TRAI,BroadbandSubscribers,2009
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
29 | The Indian Telecom Success Story
Wireline subscribers in India (FY07-FY12E) 60 49 50
45
Subscribers (Million)
41
40
40
42 38
30
20
10
0 FY07
FY08
FY09
FY10E
FY11E
FY12E
Wireline
Source:TRAI,KPMGAnalysis
Inaddition,thefactthatIndiaisavastcountryimpliesthat
Low PC penetration, increased regulation of internet
itisnotpossibletorolloutwirelineaccessnetworkto
cafes: WhilstPCpenetrationinIndiaisincreasing,only3
supportbroadbandinacosteffectiveandaffordablemanner.
percenthouseholdsinIndiahaveaPC.Thisposesamajor
Whilstsomeprivateplayershavebeenrollingoutwireline
challengetouptakeofinternet/broadband.Toovercome
networkstoprovidebroadbandconnectivity,suchinitiatives
thischallenge,thekeyliesinmassmarketingofaproduct
arelargelyrestrictedtourbanareas.Thegovernment
thatiscosteffective,powerefficientandresilienttothe
realizingtheserealitiesissupportingincreasedpenetration
harshrealitiesoftheIndianenvironment(hightemperature,
ofwirelineandbroadbandconnectivityinruralandremote
dust).Variousinitiativeshavebeenlaunchedinthisrespect
areasthroughitsUniversalServiceObligationFund(USOF)
(e.g.SimputerwithanestimatedcostofINR9,000afterit
activities.InJanuary,2009,itsignedanagreementwith
hasachievedsalesofmorethan100,000units2,Microsoft’s
BSNLtoprovide8,61,459wirelinebroadbandconnections
IQPCthatwaslaunchedin2007withanestimatedpriceof
toindividualusersandgovernmentinstitutionsoveraperiod
INR20,0003),howeverthesehavenotbeensuccessfulin
ofnext5-years.
creatingamassmarket.Further,duetotightenedsecurity measuresandthinmargins4 thegrowthofcybercafes(the
Right of Way (RoW) procedures: RoWisoneofthemajor impedimentsinlayingwirelineinfrastructure.Beforelaying thecablesoperatorshavetoapproachmunicipalities/local
mostpopularaccessmedium)hascomedownfromc.60 percentin2004,2005toc.20percentin2008anditis estimatedthattherearearound180,000cafesinIndia5.
authoritiesforobtainingRoW,whichnotonlydelaysthe rolloutplansoftheserviceprovidersbutalsoincreasestheir cost.Moreoverthechargesthatmunicipalities/local authoritieslevyforgrantingRoWarenotuniformacrossthe country.
2 Simputer.org 3 Zdnet.com
5 Siliconindia.com
4 Mediareports ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.
‘
The Indian Telecom Success Story | 30
Broadband connectivity at the gram-panchayat level will provide rural citizens access to services like mobile banking, e-governance applications, e-education and telemedicine
Affordability: Whilebroadbandtariffshavebeendecreasing
critical.Thecurrentlackoflocallanguagecontentcould
overthepastfewmonthsasprivateoperatorsexpandtheir
provetobeamajorstumblingblockintheuptakeofinternet
services,thetariffscontinuetoremainhighwhencompared
amongsttheruralmasses.
totariffsformobileservices.Thisispartlyreflectiveoflow volumesandhighcostofprovisioningofbroadband services.Thisseemstobeabigchallengeandthereisa needforcostefficientmeansofbroadbandaccess. GovernmentagenciessuchasTRAIhavetakenseveral stepstoensurelowerinternetandbroadbandprices(eg:cut inInternationalPrivateLeasedCircuitprices).The Government,underUSOF,isalsoconsideringaproposalto providesubsidysupportforbroadbandconnectivityinrural andremoteareasofthecountrybyutilizingexistingpassive andcoreinfrastructureavailablewithbothwirelineand wirelessserviceproviders. Lack of quality web content in local languages: While businessusersseemtobetheimmediatebeneficiariesof broadband,stakesforruralIndiaareevenhighergiventhe unparalleledbenefitsthatbroadbandenabledapplications
Benefit of quality content in local language Peoplefromremoteareasseemtobeincreasinglyusing theinternet,luredbyitsabilitytoprovideinformation crucialtotheirlives,inalanguagetheyunderstand.For example,womenofKangraMahilaSabha(KMS),aselfhelpgroupforwomeninmountaincommunitiesof HimachalPradesh,makealivingexportingpineneedle hats,coastersandbaskets,whentheydiscoveredonthe internetthatpeopleinMexicoandCanadamake handicraftitemswithpineneedle.Thiswasenabled throughcontentthatwasavailableinlocallanguage. Likewise,inGujarat’sAnanddistrict,YashodaBen,an Englishilliteratemotheroftwodaughters,frequentsa localinternetkiosktoaccessinformation,inGujarati,on differentcollegesandcourses,downloadapplication formsandfindoutabouteducationloansforherteenager kids
suchastelemedicine,e-commerce,e-educationandegovernancecanunleash.Forthistohappen,theavailability
Source:EconomicTimes,“InternetimproveslivesofwomeninHimachal Pradesh”,September2009
ofcontentthatcaterstotheneedsoftheruralpopulationis
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
31 | The Indian Telecom Success Story
Enablers of broadband growth
Applications of broadband
BroadbandsubscribersinIndiaareexpectedtogrowto~46
Therearevariousapplicationsthatwouldbesupportedby
millionby2013atacompoundedannualgrowthrateof~70
broadbandandcoulddriveinclusivegrowth:
percent.6 TheGovernmenthasidentifiedavailabilityof3G andbroadbandwirelessaccessservices(BWA)and streamliningRightofWay(RoW)proceduresaskeyenablers toboostdeploymentofbroadband.7 Theseenablerswould addressconcernsofwirelineaccess,PCpenetrationand affordability.
Mobile banking: Broadbandaccessthroughwirelesswould enablemobilebanking,forwhichthegreatestopportunity liesinservingtheneedsoftheunbanked,whichismore than65percentofthepopulation9 (vis-à-vismobiledensity ofc.42percentandrisingeachyear).Thereareseveral initiativesbeingtakenbythegovernment,serviceproviders,
3G and BWA services: TheGovernmentisexpectedto
andthelike,toenhancetheofferingandextenditsreach.
auction3Gandbroadbandwirelessaccess(BWA)licenses
Accordingtoaglobalconsultancyfirm,mobilebankingin
inthenearfuture.Withtheopeningofaccessnetworkto
Indiahaswitnessed94percentgrowthsince2002and
thesewirelesstechnologies,itisanticipatedthatwireless
Indiaisbecomingapromisingnationforsuchservices.The
broadbandwill,inashorttimeframe,provideawider
firmexpectsthepenetrationofIndia'smobilebankingactive
coverageandovercomeconstraintsofwireline.
userbasetoreach2percent(2.5crore)by2012,upfrom thecurrent0.2percent10.
GiventhelowlevelofPCpenetrationintheconsumer segmentinIndia,3GandBWAdefinitelyholdsthepromise
Tele-education: InIndia,schoolsandlibrariesinruralor
toprovidethefirstexperienceofbroadbandtomillionsof
remoteareaswithoutwiredinfrastructureorbroadband
usersinIndia.Thiscouldbethroughawidearrayofdevices
servicescanbecosteffectivelyconnectedtobroadband
includingconnectedcomputingdevices,lowcostportable
usingwirelessaccess.Extensiveandreliablebroadband
internetdevices,affordablemininotebooks,andcheap
internetcanhelpinternet-basedqualitydistanceeducation
mobilehandsets..As3Gsubscriberbaseexpandsfurther,
reachmorepeopleacrossthenation.TheIndiraGandhi
handsetpricesareexpectedtodeclineovercomingthe
NationalOpenUniversity(IGNOU)isalreadyencouraging
constraintsofaffordabilityofbroadbandaccessdevices.
stategovernmentsandconventionaluniversitiestoestablish distancelearningprograms,providingfinancialsupportand
Right of Way (RoW): Inordertoencourageservice providersforrollingoutnewinfrastructureandproviding advancedbroadbandservicesinatimelymannerTRAIhas
grantsforprogramsandfacilitatingdevelopmentof multimediamaterialsfordeliverythroughdistancelearning programs.
recommendedthatacommitteebeformedatdistrictlevel tostudyRoWrequirement,anditshouldevolveaductsharingmechanismamongserviceproviders.TheCentral Governmentshouldalsoconsidermandatingthestate governmentstoadoptuniformRoWproceduresand streamline/rationalizeRoWcost,whichmayprimarilybe limitedtocostofre-instatement8.However,implementinga uniformRoWframeworkmayrequireaconsensual approach,whichcouldbealongdrawnprocess.
6FICCI-BDAReport,“BusinessModels,ProjectionsandImperatives”, January2009 7TRAI,“RecommendationsonGrowthofBroadband”,January2008
9 Mediareports,KPMGanalysis 10 Mediareports
8 TRAI,“RecommendationsonGrowthofBroadband”,January2008 ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 32
E-governance: Indiaisalreadyrunninge-Governancepilot
differentlocationsinthecountry,workingwithdifferent
programsaimedatbringinglocalgovernmentservicesto
kindsofentitiesinthehealthcareindustrytoprovide
peoplethroughinternetaccess.E-sevaisonesuchinitiative,
healthcaretoruralmasses.
createdbytheAndhraPradeshgovernmenttoprovideits citizenswithonlineservicessuchasobtainingbirth certificatesandvariouslicenses,paymentofutilitybillsand
Others: Broadbandaccesshasotherinclusivegrowth
taxes,ticketreservationsfortransportationservices,and
benefits.Forexample,high-resolutionpicturesorreal-time
listingsofgovernmentordersandpolicies.Similarinitiatives
imagesofcropdiseasescanbetransmittedtoagricultural
havebeentakenbyotherstategovernments.TheCentral
expertsinadifferentgeographiclocationforimmediate
Governmentisalsocreatinganenvironmentfor
expertadvice,thuscontainingthecropdiseasesfaster.
establishmentofCommonServiceCentres(CSCs)that
Therearemanysocialadvantagesofbroadbandsuchas
wouldprovidehighqualityandcost-effectivevideo,voice
telecastingofentertainmentprogramsandinfotainment
anddatacontentandservicesintheareasofe-governance,
service.Suchentertainmentdeliveredviabroadbandcould
education,health,telemedicine,entertainmentaswellas
beaneventforsocialgatheringsinisolatedvillages.
otherprivateservices. Toconclude,broadbandcansupportvariousapplications Telemedicine: InIndia,around1millionpeopledieeach
thatcoulddriveeconomicgrowthinruralandremoteareas.
yearbecauseofalackofbasichealthcare.Doctorscanuse
Whiletheseapplicationsseemtoholdhugepotential,and
real-timevideoconferencingtodiscusspatientsymptoms
havebeensuccessfullypilotedinsomecases,greater
withfarawayexperts,thusprovidingfasterandbettercare
accesstobroadbandserviceswouldprovidethenecessary
tothepatients.Oneoftheleadinghospitalsinthecountry
triggertoachievewidercoverageandachieveinclusive
havesetuparound45RuralTelemedicineCentresacross
growth.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
06. Telecom Manufacturing
Telecom Manufacturing Despitetheeconomicslowdowntheglobal
tele-densityof43.5percent.3 Giventhisgrowth,
telecommunicationsequipmentmarketgrewnearly5
Government’stargetofover1.1billionsubscriptionsby2015
percentin2008.Thismoderaterateofgrowthwaslargely
seemsmorethanachievable4.
duetocontributionsmadebythehandsetcomponentsand infrastructurehardwareverticals.Thispavedthewayforrise ofAsianmanufacturerswhoaccountedfortwo-thirdsofthis
Thisboominthetelecomsectorhasslowlyandsteadily pavedthewayforanotherindustry;thetelecomequipment manufacturingindustry.
increase. WhileAsiarepresentedslightlyover40percentshareofthe totalmarket,asignificantportionoftheAsiangrowthcould beattributedtoChinaandIndiawhichtogetheraccounted fornearly20percentofthisglobalpie1. Fromabroaderperspective,Asia-Pacificregion’s contributiontoglobalspendingontelecomnetworks increasedbyfourpercentagepointsduringthattime,while thatofWesternEuropeandNorthAmericalostsixandfive percentagepoints,respectively2. Indiaisaddingaround14millionnewwirelesssubscriptions monthonmonth,withSeptember2009aloneseeingan additionof~15millionsubscribers.AsofSeptember2009, totalsubscriberbasecatapultedto509.03millionwitha
1iDatePressReleaseonPRLog.com,“TelecomEquipment:AMarketin Transition”,March11,2009 2 iDatePressReleaseonPRLog.com,“TelecomEquipment:AMarketin Transition”,March11,2009
‘
The telecom manufacturing sector is poised for growth due to the impetus provided by telecom services, with India having the potential to emerge as a global hub for telecom manufacturing
3 TRAI,November2009 4 TEPC,Policyrecommendationstoincreasedomestictelecomgrowthin exportsoftelecomequipmentandservices
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 34
Telecom Equipment Production 600,000 500,000 518,000
(INR Million)
400,000 412,700 300,000 200,000
236,560 144,000
140,000
2002 - 03
2003 - 04
160,900
178,330
2004 - 05
2005 - 06
100,000
2006 - 07
2007 - 08
2008 - 09
Source:TEPC
In2003-04,thetelecomequipmentmanufacturingindustry postedanegativegrowthrateof3percent(YoY)whereas
Key milestones in the sector
by2008-09,theindustryhadgrowntoboastapositive
Thefoundationsofdevelopingthetelecomequipment
growthrateof26percent(YoY).Invaluetermsthe
manufacturingindustryinIndiawerelaidin1999.
productionoftelecomequipmentsmanufacturedincreased fromINR144,000millionin2002-03toINR518,000million in2008-09. Thisgrowthinthetelecomequipmentmanufacturing industryislargelyattributabletotherapidlygrowingtelecom sector.Otherfavorablefactorssuchaspolicymovestaken bytheIndiangovernment,incentivesoffered,largetalent poolintheresearchanddevelopment(R&D)spaceandlow laborcostsarefurtherprovidinganimpetustothisindustry.
• 1999: Openingupoftheindustrytoprivatesector participation • 2005: - FDIceilingintelecomserviceswasraisedfromthe existing49percentto74percent - TheUnionMinistryofCommunicationsand InformationTechnologybegantopromoteIndiaasa viableoptionforsettingupmanufacturingplants.This wasstronglysupportedbyitsfastgrowingtelecom market,itstalentpoolandthesuccessofthe BusinessProcessOutsourcing(BPO)industry.
35 | The Indian Telecom Success Story
• 2006: Policyreformsandgovernmentinitiativessuchas
In2003-04,exportsoftelecomequipmentsmanufacturedin
100percentForeignDirectInvestment(FDI)inthe
Indiareportedanegativegrowthof38percent(YoY).By
sectorthroughtheautomaticroute
2008-09,theexportsmarketreportedapositivegrowthof 35percent(YoY).Invalueterms,exportsincreasedfrom
• 2008: Allowingserviceproviderstoshareactive
INR4,020millionin2002-03toINR110,000millionin2008-
infrastructure
09accountingfor21percentofthetotalequipment
Suchgovernmentinitiatives,coupledwiththegrowth
producedinthatyear.
prospectsofferedbyasurgingdomestictelecomsector haveattractedglobaltelecomequipmentvendorstosetup theirmanufacturingbaseinIndia.
Telecom Equipment Exports
120,000
100,000
110,000 81,310
(INR Million)
80,000
60,000 40,000 15,000 20,000
4,020
2,500
18,980
4,000
2002 - 03
2003 - 04
2004 - 05
2005 - 06
2006 - 07
2007 - 08
2008 - 09
Source:TEPC
Until2007-08,significanttelecomequipmentneedswere
RealizingthisopportunityacommitmenttothetuneofINR
stillbeingmetthroughimports.AccordingtoGlobalSMT
75,000million(USD1.5billion)inthepasttwoandahalf
andPackaging,over80percentoftheelectronic
yearshasbeenmade.Indiaisexpectingfreshcommitments
componentsusedforproductionoftelecomequipment
tothetuneofINR100,000million(USD2billion)inthenext
manufacturingareimported.Giventherelativelystable
oneyear5.
macro-economicenvironmentandrobustdomestictelecom demandIndiahasemergedafavorabledestinationtoglobal equipmentmanufacturersforsettinguptheirmanufacturing units.
TheDepartmentofTelecommunicationshassetatargetof 1.1billionsubscribersby2015.Tomeetthistargetby2015 andtomeetthedemandcreatedbythetelecomservices sector,itissaidtelecomequipmentworthINR3,500,000 million–5,000,000millionwillberequiredby2015.
5 ELCINA-AVISTA,EnvisagingtheNextWaveofICTEManufacturinginIndia, February2009
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 36
How can India inch towards doing so?
Thesetargetsthoughambitiousareastepintheright
Indiahasallthemakingsofagloballycompetitivetelecom
manufacturinghubbutalsoensureinclusivegrowthforthe
manufacturingandR&Ddestination.Thisisevidentfrom
countryassuchbyfocusingonareaslikeemployment
• AlargeandboomingdomesticmarketwithIndian operatorsreachingouttotheglobalmarketproviding wideraccesstoIndiantelecomcompanies • Strongmanagementexperienceincriticalfunctionssuch
direction.Theaimisnotonlytobeaglobaltelecom
generation. Favorablegovernmentinitiativesandtimelypolicychanges hasensuredthatIndiahastransformeditselfintoatelecom servicesgiant.ThesameneedstobedonetospeedIndia’s
asSCM,hightechmanufacturingsystems,working
transformationtowardsbecomingaglobalmanufacturing
capitalmanagement,valuechainwithEMScompanies,
hubthatcancatertothedomesticandglobaltelecom
captivefacilitiesofMNCs(willingtoinvestfurtherin
equipmentdemand.
India),auxiliarycomponentmanufacturingbase(e.g.,for cables,cabinets,shelves,powerelectronics,tooling, barePCBs,etc.)
A Case-in-Point
• StrongtechnicalandR&Dworkforcehavingexperience inR&DcentersofMNCcompanies,ITservice companiesdoingtelecomprojects,strongacademicand researchlabsandanincreasingnumberofIndianswho arereturningbackfromUSA/Europe • Skilled&trainedshopfloorworkforceforelectronics
Seamlesseffortstakenbythegovernmenthavecertainly initializedIndia’stransformationtobecomingaglobal manufacturinghub. SriperumbudurinTamilNaduisleadingIndia’s transformationintoaglobaltelecommanufacturinghub.
circuitassembly,testingandintegrationfromwidely
DuetotheprogressivepolicyinitiativeoftheGovernment,
availableresourcesfromIndustrialTrainingInstitutesand
Sriperumbuduristodaychurningmoremobilephonesthan
Polytechnics.
ShenzheninsouthernChina.Thisisnotasmall
• Costadvantagearisingfromlowermanufacturingplant establishmentcostandcompetitivelaborcosts. • Availabilityofcapitalfromawellestablishedfinancing industryaswellasprivateequitynetwork TheTelecomEquipmentandServicesExportPromotion Council(TEPC)hassetitssightsoncertainmilestones tobeachievedbytheyear20146 • Exportsgrowthat25percentCAGRovernext5years, reachingoverUSD10Billion • Domestictelecomproductsgrowthof18percentCAGR
achievement,consideringShenzhenmakesoneoutofeight handsetssoldanywhereintheworld.TheclusterofSEZ unitsemerginginSriperumbudurneedtobesupportedwith suitabletaxbreaks,world-classpublicinfrastructuresuchas expressways,railwaylinksandanairport,andprivate amenities,includinghotels,apartments,shoppingmallsand entertainmentsites.Alreadymanycomponent manufacturershavebegunworkinSriperumbudurtomake partsandcomponentsforthecellphoneindustry. Approximately20,000peopleareestimatedtobeworking inthearea7.
overnext5years • Employmentgeneration(directandin-direct)of20 million
Largeinternationalplayershavemadesignificant investmentsinthecountry,includingthefollowing investmentsinChennaialone:
• Atleast70percentofIndiandomestictelecomneeds aremetbyproductsmanufacturedinIndia • AtleastafewIPR-driven,Indianproductcompaniesshould succeedgloballyandbecomebilliondollarcompanies 6 TEPC,Policyrecommendationstoincreasedomestictelecomgrowthin exportsoftelecomequipmentandservices
7 TEMApressrelease,"TelecomEquipmentProductiontoCrossRs.50,000 Croresin2008-2009",November20,2008
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
37 | The Indian Telecom Success Story
Company
Description
Estimated Investment
Nokia
HandsetManufacturing
INR10,000million
Motorola
HandsetManufacturing
INR5,000million
Ericsson
R&Dfacilityandglobalservicedeliverycentre
INR2,500million
Flextronics
Telecomhardwaremanufacturing
INR5,000million
NokiaSiemensNetwork
TelecomEquipment
INR5,000million
HonHai(Foxconn)
Mobilehandsetsandcomponentsandelectronic hardwareandrelatedservices
INR5,500million
LairdTechnologies
MobilePhoneaccessories
INR1,250million
Perlos
MobileHandsetmechanics
INR600million
Salcomp
MobileHandsetchargers
INR400million
TelecordiaTechnologies
SoftwareandservicesforIPwirelineandcable
INR1,500million
XLTelecom
Capacitytomake10,000handsetsinSKDfacility
INR2,500million
Source:‘ELCINA-AVISTA,EnvisagingtheNextWaveofICTEManufacturinginIndia,February2009,PressreleasefromTEMAdatedNovember20,2008 Note:TheabovefigureshavebeencalculatedusingexchangerateasINR/USD-50
Globally,therehavebeeninstanceswhereinawell developedSEZmodelhassupportedthemanufacturing industry.ThegovernmentshaveencouragedastrongR&D infrastructuretofacilitatethegrowthinthesector.Fiscal measuresandincentivessuchassubsidies,easycredit/ linesofcreditandtheuseofbi-lateraltradearesomeofthe measuresthathavebeenimplementedtoattractforeign investmentandprovideboosttothedomestic manufacturingindustry.
How can India benefit from becoming a global manufacturing hub? Indiahaswitnessedfastergrowthinurbanareas,as comparedtoruralareas.Thegovernmenthasframed inclusivegrowthasoneoftheaspectsoftheirpolicythis term.Thisorientationismostvisiblymanifestedinthe themeoftheEleventhFive-YearPlan,whichrunsfrom2007 to2012.Thethemeis'towardsfasterandmoreinclusive
Giventhegeographicalspreadofourcountry,itmightbea
growth,'whichclearlyreflectstheneedtofindasustainable
goodstrategyforIndiatogoforaphasedandplanned
balancebetweengrowthandinclusion.
expansion.PlanningprivateSEZsinstrategiclocationswill fosteranenablingenvironmentforglobalanddomestic manufacturingmajorstosetupplants.Highquality infrastructureatSEZswillfurtherprovidethenecessary pushwhichthetelecomequipmentmanufacturingmajors require.
Inclusivegrowthisunderstoodbydifferentpeoplein differentways.Forgrowthtobeinclusiveitshouldinvolve keyattributeslike • Creatingnewandvariedopportunitiestoearna livelihood • Providewaystoenhancecapabilitiestoexploitvaried opportunities • Providingsecurityagainstapermanentlossoflivelihood
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 38
Telecommanufacturingisonesuchindustrythatislikelyto
Large export potential –Telecomequipmentindustry
providethisinclusivegrowththatIndiahasbeenlookingfor.
offersatremendouspotentialforincreasingIndia’sexports especiallysincethetraditionalsectorshavesufferedon
Therehavebeeninstanceswheredeploymentoftechnology
accountofthecurrentglobalcrisis
inrelatedindustrieshaveledtocreationofnewer employmentandincomegenerationopportunitiesfor
Creation of Intellectual property (IP) –Thereisan
peopleintheruralareas.Forinstance,settingupofIndia’s
opportunityforcreationofIndianIPrightsthroughtelecom
firstruralBPOinKrishnagiribythegovernmentin2007
equipmentindustrywhichcaninturnleadtovalueadditions
undertheFoSTERA(FosteringTechnologiesinRuralIndia)
andinnovationsinotherrelatedindustriessuchas
initiativeledtoitstransformation.Thegovernmentplayeda
componentsandsemi-conductors.
keyroleinprovidingtheemployeeswiththebasic
Self-reliance in Strategic sectors –Telecombeinga
computing,communicationandothersoftskills.Similar
sensitivesectorfromthesecuritypointofview,capabilities
benefitscanalsobereplicatedbyamanufacturingunitin
inR&Daswellmanufacturingwillhelpusinbecomingself-
ruralareastoprovideemploymentandincomegeneration
reliantinstrategicsectorssuchasdefenseandinternal
opportunitiestherebyaidinginreducingthedependenceof
security,e-governance,educationandresearch,andothers.
peopleonagriculture.
Increased competitiveness –Emergenceofglobally
Additionalincomegeneratingopportunitiesforpeoplein
competitivemanufacturingandR&DfromIndiawillnotonly
ruralareaswillmostlikelyleadtotheirchildrenhavinga
maketelecomservicesmoreaffordableinIndia,butwill
betteraccesstotheeducationwhichinturncanimprove
alsomakeIndiancompaniesmorecompetitiveglobally,and
ourcountry’sliteracyratesandemployability.
willbenefitoureconomyinthelong-run.
Accesstobettertechnologyanditsinnovativeapplication
Thetelecomequipmentmanufacturingindustrycanthus
canplayaverycriticalroleinimprovingthehealthcare
playasignificantroleinacountry’ssocio-economicgrowth
facilitiesinruralIndia.Forinstance,ahospitalcanleverage
(especially,developmentofIndia’sruralareas).Itnotonly
telecomconnectivitytoprovidehealthcareservicestorural
providesnewavenuesforemployabilitybutalsoensures
areasthroughtele-medicine.Adoctorintheruralareacan
developmentofskillsandsecuresagainstlossoflivelihood
remainincontactviaavoiceanddataconnectionwiththe
experiencedbytheagriculturalsector.
doctoratthehospital.Thehospitalcanemploytele-
Indiaisbuoyedbyarobustdomestictelecomdemand,low
medicinetoassistdoctorsinruralareasastheyanalyseand
costmanufacturingcapabilities,andalargetalentpool.With
treatpatients.
anadditionalpushfromthegovernmentintheformof
Otherthanbenefitingtheruralareas,telecom
necessarypolicyinitiatives,Indiacancatapultitselfintoa
manufacturingcanalsobringalotofpositivesforthe
globaltelecomequipmentmanufacturinghub.
countryasawhole.
Possessingthecapabilitytogrowaslargeasthe
Employment Opportunities –Astrongtelecom
automobile,IT/ITeSindustry,orthetelecomservices
manufacturingindustrywillaidtheancillaryand
industryandcontributetoIndia’sGDPinasignificantway,
componentsindustriesandtherebygenerateemployment
theindustrycanpositionIndiaontheglobalmapbutyet
opportunities.Thetelecomsectoremploysover1Million
needstobenurturedtofulfillitslatentpotential.
directlyandisestimatedtoemployanother4Million indirectly8.
8 TEPC,Policyrecommendationstoincreasedomestictelecomgrowthin exportsoftelecomequipmentandservices
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
07. Telecom Research & Development
Telecom Research & Development Telecom Centres of Excellence
applicationsrelatedtopromotingbroadbandwireless
Inordertobuildcapacitytostrengthenthecapabilityfor
applications,valueaddedservicessuchasmobilebased
telecomtechnologyenhancement,theGovernmentofIndia
videoconferencing,developmentworkonnextgeneration
initiatedtheconceptofTelecomCentresofExcellence
networksetc.Inaddition,theTCOEatIITChennaihasbeen
(TCoE),establishedinaPublicPrivatePartnership(PPP)
acceptedbyITU-RasanevaluatorforInternationalMobile
modeinvolvingleadingtelecomcompaniesinIndiaand
Telecommunication-Advance(IMT-A)proposalfor4G
leadingeducationalandresearchinstitutionsinthecountry.
networks.
access,ruraleducationalandrurallivelihoodrelated
Apartfromapplicationorientedresearch,thecentresare designedtoassistandoffertrainingtocorporatemanagers forthemanagementofnetworksandservicesaswellas
Contract R&D: Laying the foundation
decision-makersoftelecommunicationentitiestomanage sectorreforms. TherearesevenTCoE’sestablishedinthecountryatleading academicandresearchinstitutionswiththesupportof
TheadventofasignificantproportionoftheR&Drevenue comingIndia'swayinthetechnologyarenainthepastfew yearshasbeenintheformofcontractresearch.
sevenmajortelecomoperators.Eachcentrehasafocused
TheEconomistIntelligenceUnit(EIU)hasdefinedIndiaas
areaofexcellence,thusthesevencentrescoverallaspects
anR&Dhotspot:aplacewherecompaniescantapinto
oftelecomfromtechnologytodisastermanagementof
existingnetworksofscientificandtechnicalexpertise;
telecominfrastructuretocustomercare&businessmodel
whichhasgoodlinkstoacademicresearchfacilities;and
innovation.Duringthisyear,around78R&Dprojectswere
providesanenvironmentwhereinnovationissupportedand
undertakenbytheTCOE’s.Theseincludedenergyefficient
easytocommercialize.1
devicesforruralapplications,useofnon-conventional sourcesofenergyandenergyefficientpowerconversion,
1 ContractResearchforGlobalFirmsCreatesHotspotsforIT,Telecomand Biotech,Knowledge@Wharton ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
‘
The Indian Telecom Success Story | 40
The government, private players and institutions of higher learning have come together to develop Centres of Excellence focusing on all aspects of telecom including technology and business model innovation
TheEIUfurthernotes,"Indiabecameasoftwarehubinthe
TheunparalleledgrowthoftheIndianmarket,innovative
1990s.AsalargeAsiancountrywhereEnglishisspoken,
telecombusinessmodels,andchallengingenvironmental
wagesaremodestandWesterneducationisavailable,India
conditions,makeitidealforinnovationandafocusareafor
hasquicklygrownasanR&Dpowerhouse."Thecost
globaltelecomOEMR&D.Theknowledgethatcanbe
advantageofhavingalargepoolofinexpensive,English-
gainedintheIndianmarketisinvaluable,andgives
speakingworkersisabigpartofIndia'sattractiveness.The
companiesasignificantedge,improvingtheirproduct
possiblecostsavingsfigureshavemadethebusinesscase
offeringforIndiancustomersandothersaroundtheworld.
quiteevident.Theavailabilityofgoodqualitytalent,is bolsteredbythepresenceofgoodqualityhigher educationaltechnologicalinstitutesandalargenetworkof governmentresearchlabs.
TelecomvendorsdoingsignificantbusinessinIndiaare designingproductstoaddressthisdemand,allowing increasedscalabilityandtheadditionofnewfunctionalities onexistingplatformswithouttheneedtoreplaceexisting
ThebestresultsforoutsourcedR&Dhavebeenmost
legacyequipment.Forexample,productsdevelopedwiththe
evidentinthetechnologysector.India'sleadingtechnology
Indianmarketinmindarecapableofexpandingtheircapacity
companiesarebeginningtobuildsustainablecontractR&D
fourfoldsimplybyswappingtheplatform’slinecards.
businesses.
India’sclimateisnotableforitsextremetemperaturesand
Withinthetechnologysector,semiconductordesignor
moisture-ladensummers.This,coupledwithitsharsh
designofchipsisanareawheremultinationalscameto
environmentalconditionsandhighlevelsofairpollution,
Indiaalongtimeago,anditremainsagrowthareaforR&D
requiresadditionalqualificationproceduresfortelecom
outsourcing.IndiahasaboutahundredVLSIcompanies,
equipment,inadditiontothosespecifiedinexisting
withmorethan5,000engineersprovidingsemiconductor
internationalstandards.Inresponsetotheseconditionsand
designservices.2 Manylargesemiconductorcompanies,
theresultinglocalandinternationalstandards,vendorshave
includingTexasInstruments,NationalSemiconductors,Intel,
begunapplyinganti-sulphurcoatingtocardsdeployedin
AnalogDevices,STMicroelectronics,Cadence,and
Indiatoprotectthemfromchemicalsinthecountry’s
MotorolahaveestablishedresearchfacilitiesinIndia.
ambientpollutedair.Inaddition,thechippackagingfor
IndianITcompanieshaveconsiderablenumbersof engineersworkingintheareasofVLSIdesignand embeddedsystemsaswell.WhileVLSIinvolvesthedesign
criticalcomponentsisupgradedtoindustrial-gradeto sustainawiderrangeoftemperaturelevelsrangingfrom-5 Cto80Cdegrees.
ofchips,thescopeofembeddedsystemswouldbemuch
Theadjustmentsrequiredbythechallengingconditionsin
broader,involvingchipdesign,software,signalprocessing
Indiahavealsobeencontributingtoimprovereliability
andoperatingsystems,andisexpectedtobeasignificant
elsewhere;flexibilityandscalabilitytheybringwillhelp
opportunityforcontractR&Dproviders.3
increaseavendor’ssuccessaroundtheglobeoffering operatorsthesamebenefitsofscaleandadaptability dictatedbytheIndiamarket.
Designed for India
Indiaiswithoutquestiononeofthemostcompelling emergingtelecommarketsintheworld.Duetoitslow-cost,
India’stelecommunicationsinfrastructurecontinuesto developrapidlytryingtomeetlocalneeds,andtoovercome awidevarietyofchallengingregionalcharacteristics,local customerrequirementsandconditions.Thishelpsvendors understandthegrowingneedsoftheglobalmarketwith regardtoissuessuchasscalability,densityand environmentalruggedness.
high-qualitynetworksandinnovativemarketing,thecountry isamodelofefficiencyinglobaltelecom.Vendorsworking inIndiabelievethattheirpresencethereandrelationship withIndiancompanieswilleventuallybenefitalloftheir customersglobally.Multinationalsareincreasinglytaking noticeofIndiabeyondjustitstalentpoolandviewingitasa keyprovinganddevelopmentgroundfortheirR&Defforts.
2 VLSISocietyofIndia 3 IndiaR&D2005organizedbyFICCI:BackgroundPaperpreparedby Evalueserve ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
08. Value Added Services
Value Added Services Mobile Value Added Services in India
TheoverallMVASmarketcanbesegmentedeitheronthe
Bornoutofvanillavoiceoperations,MobileValueAdded
ofdelivery.Furthermore,themarketmayalsobesegmented
Servicesencompassservicesthatarenotpartofthebasic
onthebasisoftheconsumertypei.e.individualor
voiceofferandareavailedseparatelybytheenduser.They
enterprise.
basisofconsumptionpatternsoronthebasisofthemode
areusedasatoolfordifferentiationandallowmobile operatorstodevelopanotherstreamofsustainablerevenue.
Mobile VAS
Enterprise VAS
Consumer VAS
Text
Entertainment VAS
IVR
GPRS
USSD
B2C
Text
B2B
USSD
Information VAS
P2A SMS
Commerce
A2P SMS
Communication
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 42
Modes of Delivery Asoutlinedpreviously,theprimarymodesofdeliveryfor VASservicesinclude,TextorSMS,InteractiveVoice Reponses(IVRVoicePortals),GPRS/EDGEandUnstructured SupplementaryServiceData(USSD).
Text/SMS Widelyusedbecauseitshandsetagnostic;however,still dependantonliteracyofsubscribers.
Interactive voice response system IVRSisakeydeliverymediuminIndia.Althoughitisalmost non-existentinmostotherdevelopedwirelessmarkets,IVR maycontinuetoexistinIndia.IVRallowsuserstosurf (menubased)forservicesandisavailableinalmostallmajor regionallanguages.
Mostlymusic-basedproductssuchasringtonesandCRBT canbepurchasedofftheshelfthroughthischannel.This
GPRS/EDGE Alloperatorsarelookingtodriveadoptionratesfortheirdata
channelhasthepotentialofbecomingasignificantdelivery mode,particularlyinthelesssophisticatedmarkets.
services.Keyproductssuchasvideos,streaming,mobileTV, sophisticatedm-commerceapplications,etccanbe deliveredonlythroughGPRS/EDGE.
Retail channel
The Ecosystem and Value Chain ThusfarindustryprotagonistsfocusedondefiningaTelecom ecosystemwithMVASbeinganintegralpartofit.However,
Popularizedbyoperatorsthoughtheirexistingretailchannel
inrecenttimes,thehighgrowthprospectsofMVASinIndia
wherebyasubscribercanjustwalkinforaparticularservice.
aregivingrisetoanentireecosystem1 ofitsown.
MVAS Ecosystem
Existing Value Chain
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43 | The Indian Telecom Success Story
ThecentralpointoftheMVASecosystemremainsthatof themobileoperators.AlthoughtheVASmodel,incubatedby theoperators,hastranscendedfroma“walledgarden”toa slightlylesscontrolledversion,mobileoperatorscontinueto retainanoverwhelmingmajorityoftherevenuefromVAS relatedservices.
Market Size and Growth EstimatedataroundINR90billionin2009,theMVAS industryinIndiahaswitnessedstronggrowthoverthelast fewyears.ThusfarthecontributionofVASrevenuetototal operatorrevenueshasrangedbetween8and9percenton
Giventheimportancethismarkethasgainedoverthelast
average.However,withvoiceARPU’ssteadilydecliningand
fewyears,operatorshavestartedtoextendthemselves
MOU’spanningoutoverthelastcoupleofyears,the
againbyexploringmargingeneratingsourcesincluding
importanceofVAShasincreasedsignificantlyasitisfast
venturingintoin-housecontentaggregationwingsetc.This
becominganimportanttoolforARPUstability.
hascreatedsomepressureonvariousbusinessesinthe MVASecosystemasithasbeguntodriverevenueshares lower.
Priorto2008,amajorityofVASrevenueswereattributable toSMS’s.However,recenttrendsindicatethatthismixis evolving,withgreaterpenetrationofnewservices,
Furthermore,largeInternetportalsalreadyhavemajor
availabilityofrelativelyin-expensivefeaturerichhandsets
resourcescommittedfortheprocessingandaggregationof
andconsumereducation,VASotherthanSMSisgaining
newsandothercontent,thusalsomakingthemapartofthe
importance.Itisfurtherexpectedthatoverthenextfew
overallMVASpie.
years,non-SMSVASwouldbecomeadominantcontributor toVASrevenue.
SMS versus Non-SMS VAS (2009)
SMS versus Non-SMS VAS (2011)
SMS VAS 36%
Non-SMS VAS 64%
SMS VAS 27%
Non-SMS VAS 73%
Source:Industryconsensusestimates,KPMGanalysis
Addressable Market
• P2PSMS’scontinuetobecontrolledbytheoperatoras theyareviewedasasubstitutetovoice
Although,theoverallVASpiewasestimatedataroundINR 90billionin2009,thispieismorerelevantfortheoperators asitconstitutestheirrevenue.ForotherplayersintheVAS ecosystemthepieisalotsmallerasresultof
• Sincetheoperatorprovidestheconnectivityaswellas thesupportfordeliveryoftheservicestotheenduser,a significantportionofrevenueisretainedbytheoperators andacertainrevenueshareispassedontotheVAS providersalongthevaluechain.
1 ThomasWeisel,EnamSecuritiesandInterviewswithIndustrySources
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 44
Furthertotheabove,theaddressablemarketforVASservice
Revenue Share
providerswasestimatedataroundINR16billionin2009and isexpectedtogrowataCAGRofbetween25and30 percentoverthenextcoupleofyears.
TheotherprimaryrevenuedriverforindependentVAS companiesistherevenueshareontheservicepassedonto thembytheoperators.
Share of Non-P2P SMS Historically,thissharehasbeenpeggedataround30 Ashasbeenenumeratedearlier,theshareofnon-P2PSMS
percentofoperatorrevenuesforaservice.However,in
VASisexpectedtoincreaseinthecomingyears.In2009,
recenttimestheaveragerevenuesharehaswitnesseda
non-P2PSMSVASaccountedforbetween5and6percent
declineandaccordingtoindustryexperts,itisexpectedto
ofoperatorrevenues.Industryprotagonistsenvisagethis
continuetodeclinemarginallyoverthenextcoupleofyears.
sharetoincreasetoaround8percentoverthenexttwo
Thereasonsforthisdeclinehavebeenattributedto:
years.
• Competitivepressuresinthemarket • Lowentrybarriers • LowIPRaroundtechnologyandserviceofferings
Share of Non-P2P SMS VAS
Revenue Share
Source:Industryestimates,Informationinterviews
Key Highlights • Theshareofnon-P2PsmsVASisexpectedtoincreaseoverthenexttwoyearstoaround8percentofoperator revenues. • Revenueshareacrossservicesisexpectedtostabilizeataround25percentonaverageforindependentVAS companies.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
45 | The Indian Telecom Success Story
Market Segmentation
Market Split
Theaddressablemarketfornon-P2PSMSVAShas historicallybeendominatedbyringtonesandcallerringback tones(CRBT)whichaccountforaround45percentof revenues.Voiceportalbasedserviceofferingsarethe secondlargestcontributortorevenue,accountingforaround 20percentofthenon-P2PSMSVASmarket.Enterprise solutionsandAlertscontributearound18percenttorevenue whereasthegaminganddatadrivenservicessegmentis presentlyatarelativelynascentstageinIndia.Thisis manifestedinarelativelylowpenetrationofGPRS/WAP basedproductsandservicesacrosstheVASspectrum.
Source:Industryestimates,Informationinterviews
Key Highlights • CRBT’sandVoicePortalscontinuetobethedrivingforcebehindnon-P2PSMSVASinIndia. • Otherservices,includinggaminganddatadrivenservicesaregainingprominence,however,theyremainnascentin comparisonwithringtones.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
The Indian Telecom Success Story | 46
Growth Drivers
downloadsatpresent.However,otherservices,suchas
Ashasbeenenumeratedearlier,MVASrevenuesare
prominenceintheyearsahead.
bankingrelatedproducts,videoondemandetc.maygain
expectedtogrowatasignificantpaceoverthenextthree years.Theprimaryfactorsexpectedtofueltheaforesaid growthinclude: 1. Subscriberadditions 2. IncreasingconsumerdemandforVAS 3. DecliningARPU’sandmobiletariffs 4. Reductioninhandsetcosts 5. Growingruralmarket 6. Mobilephonebeingconsidereda“new-medium”for advertising 7. Introductionof3Gbasednetworks Source:‘MobileValueAddedServices-India’,Netscribes
Subscriber additions Indiaisthesecondlargestmobilemarketintheworldandis alsoamongthefastestgrowingglobally.Thetotalnumberof mobilesubscribersinIndiaincreasedfromaround1million inMarch1998to392millioninMarch2009,ataCAGRof74
Declining ARPU’s and Mobile Tariffs MobilevoicetariffsinIndiaareoneofthelowestglobally.In ordertoincreaserevenues,telecomoperatorsaretargeting customersbyreducingtariffsandofferingvoiceservicesat veryattractiveprice.
percent.Astheend-userbaseforMVAScompanies continuestoexpandoverthenextfewyears,the
Theaforesaidlowtariffshaveledtoasignificantdeclinein
addressablepopulationandthusproductpenetrationsfor
ARPU’sovertheyears.AsofDecember2008,GSMARPU’s
MVASserviceprovidersareexpectedtobenefit.
wereestimatedataroundINR220persubscriberpermonth asagainstINR316persubscriberpermonthinDecember 2006,representingadeclineofover30percentinashort
Increasing consumer demand for MVAS
spanof2years.CDMAARPU’sontheotherhandhavebeen estimatedtohavedeclinedbyover43percentinthesame
Thereisagrowingpreferenceamongconsumersfor
periodtoaroundINR111persubscriberpermonth.
mobility.Thusconsumersareincreasinglyusingtheirmobile phonesformusic,entertainment,gamesandinformation. ThishasledtogrowthinacceptabilityofMVASamong consumersastheirwillingnesstopayfordifferenttypesof serviceshasincreasedsignificantly.Onascaleof0to6,it hasbeenestimatedthatmobilesubscribersarethemost willingtopayforringtones,MMS’saswell;asmusic
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47 | The Indian Telecom Success Story
Inordertosustainprofitability,itisessentialforoperatorsto
lowertariffsinordertogainmarketshare,theimportanceof
tryandstemthisdecliningARPU.However,withtheentry
MVASasatooltostabilizeARPU’sislikelytoincrease
ofanumberofnewtelecomserviceproviders,offeringeven
significantlyoverthenextcoupleofyears.
Mobile Tariff per unit
Decline in ARPU’s
0.3
350
261
264 239
250
0.19
0.2
275
300
0.22 0.17
INR/Subscriber/Month
United States Dollar
0.23
316 298 297
0.16 0.11 0.09
0.1
0.05 0.03
206
196 202
176
173
200
221
220
159 139
150
122
111
100 50
0.02
Dec-08
Aug-08
Oct-08
Apr-08
Jun-08
Feb-08
Oct-07
GSM
Dec-07
Jun-07
Aug-07
Feb-07
Apr-07
India
China
Thailand
Malaysia
Taiwan
Brazil
France
UK
Italy
Belgium
Dec-06
0 0.0
CDMA
Source:‘MobileValueAddedServices–India’,Netscribes
Reduction in handset cost
phonesarecontinuallybeingupdatedi.e.theULHC’sare continuallybeingenhancedinfeaturesetsatthesameor
MajorityofIndianmobilesubscribersuseUltraLowCost Handsets(ULCH)andastheruralpenetrationofmobile telecomincreasesthedemandfortheseultralowcost handsetsshallcontinuetogrow.Severalplayershave launchedlowcostmodelswithIndiaspecificfeaturesto
perhapsrelativelylowerpricepointsinordertofuelsales. Thedeclineinhandsetcostscoupledwiththeaugmentation offeaturesthereinislikelytogiveafilliptotheMVAS industryfromabottom-of-the-pyramidsubscribers’ perspective.
effectivelytapthegrowingbottomofthepyramid subscribers.Itisalsoimportanttopointoutthatfeatureson
Source:Netscribes,KPMGAnalysis
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
Telecom for Inclusiv Growth | 48
Growing rural market
servicessuchasmobileTV,movieondemand,live streamingofmusic/videosandothers.ResultsfromtheUS
AmajorityofIndia’spopulation,around70percent,resides outsideofthedevelopedcitiesandtownswhereasthe wirelesssubscriberbaseattributabletoruralareasisonly
aswellastheUKshowthat3Gisabletosubstantially impactdataandVASrevenue.Theintroductionof3Ghas twoimportantandrelevantimpactsontheMVASindustry:
around27percent.Thusatpresentwirelesspenetrationin ruralareasisestimatedtobeonlyaround9percentas
1. Thelaunchof3Gnetworkswouldcreateadditional
against72percentinurbanareas.Giventhelowwireless
capacitywherebyover50percentofthetotalcellsite
penetrationinruralareas,theseregionsareexpectedto
capacitycouldpotentiallybededicatedtodataandVAS
contributesignificantlytogrowthinwirelesssubscribersin
productsandservices.
thenearfuture.MVASasaresultoftheabove,shallnotonly getafillipfromtheperspectiveofalargercustomerbase, moreimportantlyinnovativeservicestargetedtowardsthe ruralmarketmaycreatesustainablerelevanceforservice providers.
2. Thenetworkwouldenablehigherdatatransferratesand anenhancedconsumerexperienceintermsof download,interactionandqualityofcontentonexisting dataservicesandapplications,whichmaydrivethe usageofnewaswellasexistingVASservices.
Medium of advertising AnotheremergingdriverfortheincreaseduseMVAS servicesisthatofadvertisingdrivenonmobiledevices. Giventhereachandpenetrationofmobiledevicestoday, Companiesareincreasinglyadoptingmobileadvertisingasa viableoptiontomarketbrandsandproducts.
Introduction of 3G based applications
Services and Applications Outlook AlthoughentertainmentcontinuestobeadominantMVAS categoryinenduserpreferences,theintroductionof3G technologyaswellasthegrowthindemandforMcommercewillboostdemandforinformation/commerce basedapplications.Thetop10applicationsfor2010are
Theintroductionof3Gisalsoexpectedtoboostmobile broadbandpenetrationasitwillallowforhighspeeddata transfer.Thisisexpectedtousherinawidespectrumof
‘
expectedtorevolvearoundMusic,games,UGCandsocial networking,IVRbasedservices,Mcommerceandlocation basedservices.
Value Added Services (VAS) will play an important role in improving the Average Revenue Per User (ARPU) which is decreasing and affecting operators’ margins
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.
09. Regulatory and Policy Environment
Regulatory and Policy Environment TheIndiantelecommunicationsindustryissupportedbya
• TheTelecomDisputesSettlementandAppellateTribunal
strongregulatoryframework,whichensuresefficientpolicy
(TDSAT)wassetuptoresolvealldisputesbetweena
developmentandexecution.Thegovernmenthasmade
licensorandalicensee;twoormoreserviceproviders;
considerableeffortstoensurethatregulationtakescareof
betweenaserviceproviderandagroupofconsumers
theinterestsoftheindustry,aswellasthecountryatlarge. ThetelecomregulatoryframeworkinIndiaconsistsof, amongothers,thefollowingkeybodies1: •TheDepartmentofTelecommunication(DoT)isthe licensorandthecentralgoverningbodyforthe telecommunicationindustry.Itformulatesthepoliciesfor thedevelopmentofthesector,awardstelecomlicenses andisalsoresponsibleforfrequencymanagement
Regulatory Evolution Thegovernmenthasmadesignificantcontributionstothe telecomsectorbydevelopingaregulatoryenvironmentthat promotesthegrowthofthesector.Severaltelecom regulationshavebeenintroducedoverthepastfewdecades toensurethedevelopmentofthetelecomindustry.
• TheTelecomRegulatoryAuthorityofIndia(TRAI) regulatestariffs,advisesthegovernmentabout introducingnewtechnologiesandtrackstheservice providerstoensurethattheyadheretotheguidelines andmeetthequalityofservicebenchmarks
1IBEF,December2008
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The Indian Telecom Success Story | 50
Regulatory Evolution
Source:TRAI,FitchReport,DoT,IBEF,PressSearch
National Telecom Policy TheNationalTelecomPolicywasannouncedintheyear 1994.Theprimaryobjectivebehindthispolicywastoensure rapidgrowthofthetelecommunicationsectorsuchthat everyIndianhasaccesstoatelephoneondemand.Rural expansionwasandisstilloneofthekeyobjectivesofthis policy.Worldclassservicequalityandspecialredressalof customercomplaintsaresomeoftheotherimperative objectivesofthispolicy2. Afreshroundofreformswasintroducedintheformofthe NewTelecomPolicyin1999.Thispolicyessentially attemptedtoestablishaclearroadmapfortelecomreforms andexploredtheoptionofopeningupallsegmentsofthe sectortoprivatesectorparticipation.3 Thekeyfeaturesof thispolicyincludedthestrengtheningoftheregulatorand openingupNLDandILDtoprivateparticipants,among otherfeatures. TheNTP-99wasamendedin2003topermitalicenseeto providewirelineandwirelessservicesusinganytechnology inapredeterminedlicenseareaafterconversiontoa UniversalAccessServiceLicense(UASL).
2 DoTwebsite 3 DoT,“Auctionof3GandBWASpectrum-RevisedInformationMemorandum”, October23,2009
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51 | The Indian Telecom Success Story
Telecom Regulatory Authority of India
• ForISPwithgateways,radio-paging,end-to-end bandwidth,equityinvestmentupto74percentis
TheTelecomRegulatoryAuthorityofIndiawasestablished undertheTRAIActof1997,asanindependentauthority.
permittedwithalimitof49percentunderautomatic route.
Thisactwasfurtheramendedin2000.TRAIwas establishedtoprovidea“fairandtransparent”environment
• For(a)ISPwithoutgateway,(b)infrastructureprovider
ofpolicy-makingwhichwouldensurefaircompetition
providingdarkfibre,rightofway,ductspace,tower;(c)
amongalltelecomplayers.4 TRAIlookstoprotectthe
electronicmailandvoicemail,equityinvestmentupto74
interestoftheconsumers,ensuringcompliancewiththe
percentispermittedwithalimitof49percentunder
servicequalitybenchmarks,fixingoftariffsforplayers,
automaticroute.Thesameissubjecttoaconditionthat
advisingthegovernmentonmattersrelatingto
suchcompaniesshalldivest26percentoftheirequityin
telecommunicationdevelopmentandtrackingthe
favourofIndianpublicin5years,ifthesecompaniesare
performanceandworkingofallplayerswithintheindustry.
listedinotherpartsoftheworld. • Formanufactureoftelecomequipments,100percent
Current FDI policy for the Telecom Sector5:
equityinvestmentispermissibleunderautomaticroute. • Further,recentlyspecificnormshavebeenlaiddownfor
• ForBasicandcellular,UnifiedAccessServices,National/ InternationalLongDistance,V-Sat,PublicMobileRadio
computingaforesaidlimitsincaseofdownstream investmentsforallsectors(includingtelecomsector).
TrunkedServices(PMRTS),GlobalMobilePersonal CommunicationsServices(GMPCS)andothervalue addedtelecomservices,equityinvestmentupto74 percent6 ispermittedwithalimitof49percentunderthe automaticroute.
Panoramic view on limits under FDI regime:
• Upto100percent(49percentunderautomaticroute) forISPwithoutgateways;electronicandvoicemail;IP
• Upto74percent(49percentunderautomaticroute)for
category1;
Basicandcellular,UAS,NLD/ILD,V-Sat,PMRTS, GMPCSandothervalueaddedservices;
• Upto100percentformanufactureoftelecom equipments
• Upto74percent(49percentunderautomaticroute)for ISPwithgateways,radio-paging,end-to-endbandwidth;
4 TRAIwebsite 5 AtelecomventureinanycaseneedstocomplywithDoTregulations (licensingandotherrequirements)
6 ThisincludesinvestmentsbywayofFDI,FII,NRI,FCCBs,ADRs,GDRs, convertiblePreferenceshares,andproportionateforeignequityinIndian promoters/InvestingCompany)
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‘
The Indian Telecom Success Story | 52
The regulatory and policy environment has played a key role in the development of the Indian telecom sector and, with initiatives like the 3G spectrum auctions, will be an important contributor to future growth
Upcoming Regulatory Events A snapshot S. No.
Regulation
Status
1
MobileNumberPortability
MNPisexpectedtoberolledoutinmetrosbyearly2010.Thesecond phasewillbeimplementedbyendof2010
2
NextGenerationNetworks
DoTwillcreateawarenessonNGN;TECwillstudyglobalexamplesof NGNdeployment
3
3GandBWASpectrum
3GandBWAauctionislikelytotakeplaceinearly2010
4
GrowthofBroadband
Highspeedbroadbandtobemadeavailableatall25lacgrampanchayats in3years
5
MobileVirtualNetworkOperators andVoiceOverInternetProtocol
Policieslikelytobeannouncedsoon
Source:‘ConnectingRuralIndia:TheUntappedGrowthOpportunity’,December2008,Mediareports,DoT
3G Telecom Services7
3Gauctionsisapioneeringactivitythatwill,forthefirsttime inIndia,provideamarket-determinedpriceofspectrumand
TheexplosivegrowthofthetelecomindustryinIndiais
alsobringinrevenuesforthegovernment.
beingfollowedbytheurgetomovetowardsbetter technologyandthenextlevelofservicedelivery.The industry,theregulatorandthegovernmenthaveindulgedin significantamountofdialogueinthelastfewyearsto establishapropermechanismtousherinthe3Gera. Thegovernmenthasrecentlyannouncedthatthe3G auctionswillbetakingplaceinJanuary,2010.Allexisting operatorswillbeeligibletoparticipate,aswellasforeign operatorswithexperienceofproviding3Gservices.Thiswill provideagoodopportunityforforeignplayerstomakean entryintotheIndianmarketandbringinnewtechnologyand
Broadband/Broadband Wireless Access (BWA) TheintroductionoftheiPhoneandBlackberryhasopened upawholenewavenueofdataservicestomobilephones. Thepopularityofthesedevicesandtheservicesthatcould beloadedontothemendedupcloggingupnumerouscell phonenetworks.Thesedevicesandnumerousother applicationshavehighlightedthepopularityoftheinternetas wellasbroadbandwirelessaccessacrosstheworld.
innovations.
7 DoT,“Auctionof3GandBWASpectrum-RevisedInformationMemorandum”, October23,2009;Mediareports
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53 | The Indian Telecom Success Story
ThelevelofinternetandbroadbandaccessinIndiaislower
Broadly,MNPallowsanysubscribertochangehisservice
ascomparedtoglobalstandards.Whilethemobile
providerwithoutchanginghismobilephonenumber.At
subscriberbaseisapproaching500million,thebroadband
present,ifasubscriberwishestochangeserviceproviders,
userbaseisonlysevenmillionwithanadditional13million
thesubscriberwouldlosethebenefitofhavingaknown
internetsubscribers.Notonlyhasthesubscriberbasein
mobilephonenumber.Thisformedadeterrentforthe
mobilephoneszoomedpastbroadbandnumbers,thequality
subscribertomovebetweenserviceprovidersirrespective
ofbroadbandaccessremainsatrelativelylowlevelsas
ofthequalityofserviceandcompetitivepricing.MNPbrings
comparedtocertaincountriesinEastAsia,Europeand
outawholenewfacettothishighlycompetitiveindustry
Americas.
andwillforcetelecomserviceproviderstoimprovethe qualityoftheirservicetoavoidlosingsubscribers.
Toaddressthisconcern,thegovernmenthasinitiated changeswithregardtointernetaccessandbroadband
Indianmobilitymarketcanbecharacterizedasonewitha
programsandmadebroadbandinfrastructureandservice
verylargesubscriberbase,highgrowthratesandlow
provisioninruralandremoteareaseligibleforsubsidyfrom
ARPUs.Themarketishighlycompetitivewith10-12players
theUniversalServiceObligationFund(USOF).
operatingineachtelecomcircle,andtheentryofnew licenseesisexpectedtofurtherintensifythecompetition.All
2010couldbethebreakoutyearforbroadbandaccessin India.Thegovernmenthasinitiatedauctionsforbroadband
thismakesforaverypotentcombinationwhichwilllikely driveupthechurnratesonceMNPisintroduced.
wirelessaccessspectrum,tobeheldsoonafterthe3G auctionsinJanuary,2010.Broadbandwirelessaccess
TherealimpactofMNPwilltaketimetorealizeanditwillbe
providesaconvenientwaytoaccesstheinternetand
another18to24monthsbeforeanyquantifiedanalysiscan
removestheproblemoflastmilephysicalconnectivitythat
bereleased.Amongthevarioussegmentsofsociety,price
plaguedISPandfixedlinetelecomoperators.Withthe
sensitivesegmentssuchasstudents,smallbusinessmen
increasinguseofpersonalcomputers,laptopsandother
andshopkeepersaremostlikelytobenefitfromMNP.
mobilecomputingdevices,theabilitytousebroadband accessathomeandonthemove,makesthisanexciting periodfortheindustry.
Mobile Number Portability (MNP) Governmenthasannouncedthatmobilenumberportability willbeimplementedinmetrosandCategoryAcircles,andin therestofthecountryinaphasedmannerover20108.In manyways,thiscanbeseenasmaturingelementofthe Indiantelecomindustryandanaturalstepfortheindustryto gotowards.
8 TRAIPressrelease–68/2009datedSeptember23,2009
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The Indian Telecom Success Story | 54
Mobile Virtual Network Operator (MVNO)
Thoughtheregulatorandthegovernmenthavetriedto envisageasmanyaspectsaspossibleinthe
TheTRAIissueditsrecommendationsonvariousregulatory andoperationalaspectsonAugust6,2008andthese recommendationswereacceptedbytheDepartmentof
recommendationdocument,theactualoperatingissueswill emergewhenmanyMVNOsactuallystartoperatingona largerscaleoncethispolicycomesintoeffect.
TelecommunicationsonFebruary25,2009,subjectto responsesoncertainissues.Inthesetwosteps,theMVNO aspectofthetelecomindustryhastakenanimportantstep insegregatinginfrastructurefromtheserviceaspect,which istheessenceoftelecomindustryacrosstheworld.With rapidchangesintechnologyandconstantcustomizationin servicerequirements,thetelecomindustryisevolvinginto twoco-existingparts–onewhichdevelops,deploysand managestechnology,theotherusestechnologytoacquire andservicecustomers.
Voice over Internet Protocol (VoIP)10 Therapidgrowthofthetelecommunicationindustryhas createdademandforlowcostdomesticandinternational calls.ThisiswhereVoiceoverInternetProtocol(VoIP)comes in;atechnologythatallowstheexchangeofvoiceover internetprotocolpackedswitches.Thisisalowcostoption andallitrequiresisalargebandwidthtoensureservice quality.Thistechnologycanbeeffectivelyutilizedbetween twopersonalcomputers,apersonalcomputeranda
AspertheTRAI,thereareapproximately360plannedor
conventionalphoneaswellasbetweentwoconventional
operationalMVNOs9 acrosstheworld.Thisisasignificant
phones.
numberconsideringthatthisaspectoftheindustryisless thanadecadeold.TheMVNObusinessmodelhasevolved toaddressvariousmarketoroperatordeficienciesregarding: • Extendingmobileservicestomarketsegmentswith whichMNOshavenothadmuchsuccesspreviously • Marketexpansionbyreachingentirelyneworpreviously un-servedmarketsegmentorgeographicalarea
LowercallratesarethekeydriverforadoptionofVoIP.India beingamongthefastestdevelopingeconomiesacrossthe globeislikelytohaveunprecedenteddemandfor communicationatlowertariffsespeciallybythelarge enterprisesaspiringtobecomeglobalbusinesshouses. Recentsurveysrevealthattheinternetsubscriberbasein Indiahasrisenfrom11.1millioninMarch2008to13.5 millioninMarch2009;thesefiguresareindicativeofthe
• Betternetworkutilizationandrealizationofeconomiesof scale • Loweroperationalcost
abilityofVoIPtoflourish.Thesefactorsarelikelyto contributetothegrowthofthissegment;howevertheonly deterrentisthecostinvolved,whichmaynotbejustifiedin termsofthereturnsrealized.
• Effectiveproductbundlingandcrossselling • UtiliselowoperationalcostofMVNOtoexpandintolow margin/nicheareas
Therehasbeenalotofregulatoryactioninthisfieldoverthe pastdecade.In2002,aspertherecommendationofTRAI theDoTdecidedtoopenthissector,butinarestricted
• Deepeningofthemarketbywayofofferingmore
manner.Laterin2005theDoTallowedunlimitedinternet
innovativevalueaddedservicestoconsumerswhose
telephonytoallaccessprovidersinIndia.In2006limited
needsareconstantlychanginggiventhetechnological
accesswasalsogiventointernetserviceproviders,who
progressandfastmovingcontentspace
werealsoaskedtopay6percentoftheirrevenuesas licensefeeandtheywererestrictedfromterminationand carriageinIndia.
9TRAIRecommendationsonMobileVirtualNetworkOperators–August6, 2008 10DoT;TRAI;ISPAI;ResearchOnIndia,‘VoIPMarket-India’,August2009
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The Indian Telecom Success Story | 56
Conclusion
TheworldhasbeenwitnesstothetremendoussuccessoftheIndian telecommunicationsindustry.Fromtheonset,thesectorhasdisplayedenormous potentialandplayedanimportantroleindevelopingthecountry’seconomy.The telecommunicationsindustryhasalsobeenhighlysuccessfulinpromotingthe publicagendaanddrivinginclusivegrowth. Thesuccessofthetelecommunicationssectorsofarhadbeenlimitedmoreor lesstotheurbanareas.Overthelastfewyears,however,theGovernmentaswell asprivateplayershavebeenmakingaconcentratedattempttoreplicatethe successesachievedinurbanareastothenewermarketsofruralIndia.Whilevoice serviceshavetraditionallybeenthekeydriverforthedevelopmentofthesector, theindustryisnowatthethresholdofthenextbigshiftandispoisedtodrive growththroughotheravenues.Broadbandconnectivityislikelytoopenupnewer marketswhileatthesametimeimprovethesocialandeconomicconditionsof thelowerpenetratedareas.MobileVASisexpectedtobenefitallsectionsof societywithrelevantcontentbeingdevelopedtoenhancebusinesses,provide financialassistance,andpromoteeducationandhealthcareforthemasses.The relativelynewerindustriesoftelecommanufacturingandresearchand developmentbringwiththemaplethoraofemploymentopportunitiesforall. TheGovernment,recognizingtheneedsoftheindustry,hasannouncedmany upcomingregulationsthatareexpectedtofurthergrowtheindustry.This proactiveregulatoryenvironmenthashadanextremelypositiveimpactandhas heraldedthenextphaseofdevelopmentforthetelecommunicationssector.
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57 | The Indian Telecom Success Story
About Department of Telecommunications (DoT) TheDepartmentofTelecommunicationsoftheGovernmentofIndiaisresponsible fortelecompolicyformulation,telecomlicensing,wirelessspectrum management,universalserviceobligation,promotionofInternationalco-operation intelecommunications,promotionofprivateinvestmentsintelecomsector, standardizationandresearchinthefieldoftelecommunicationsandadministration of:
• IndianTelegraphAct,1885 • IndianWirelessTelegraphyAct,1933 • TelecomRegulatoryAuthorityofIndiaAct,1997
About Federation of Indian Chambers of Commerce and Industry (FICCI) FICCI,setupin1927isthelargestandoldestapexbusinessorganizationofIndian business.Withanationwidemembershipofover1500corporatesandover500 chambersofcommerce,FICCIespousesIndianbusinessesandspeaksdirectly andindirectlyforover2,50,000businessunits.FICCImaintainstheleadasthe proactivebusinesssolutionsproviderthroughresearch,interactionsatthehighest politicallevelandglobalnetworking.
FICCIorganizesalargenumberofexhibitions,conferences,seminarsand businessmeetsforpromotingbusiness.
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The Indian Telecom Success Story | 58
About KPMG in India
KPMGisaglobalnetworkofprofessionalfirmsprovidingAudit,TaxandAdvisory services.Weoperatein140countriesandhave135,000peopleworkingin memberfirmsaroundtheworld.TheindependentmemberfirmsoftheKPMG networkareaffiliatedwithKPMGInternational,aSwisscooperative.EachKPMG firmisalegallydistinctandseparateentityanddescribesitselfassuch.
TheIndianmemberfirmsaffiliatedwithKPMGInternationalwereestablishedin September1993.Asmembersofacohesivebusinessunittheyrespondtoa Clientserviceenvironmentbyleveragingtheresourcesofaglobalnetworkof firms,providingdetailedknowledgeoflocallaws,regulations,marketsand competition.Weprovideservicestoover2,000internationalandnationalclients, inIndia.KPMGhasofficesinIndiainMumbai,Delhi,Bangalore,Chennai, Hyderabad,Kolkata,PuneandKochi.ThefirmsinIndiahaveaccesstomorethan 2000Indianandexpatriateprofessionals,manyofwhomareinternationally trained.Westrivetoproviderapid,performance-based,industry-focusedand technology-enabledservices,whichreflectasharedknowledgeofglobalandlocal industriesandourexperienceoftheIndianbusinessenvironment.
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Contact Us
Department of Telecommunication
The Telecom Regulatory Authority of India
Telecom Disputes Settlement & Appellate Tribunal Room No.282 & Room No.478, Hotel Samrat Chanakyapuri, Kautilya Marg New Delhi - 110 021 India Telephone: 91-11-26876882, 91-11-26873411, 91-11-24102563 Fax: 91-11-24105171, 91-11-26876882 Website: www.tdsat.nic.in
Sudhir Kumar Saxena
Mahanagar Doorsanchar Bhawan
Director Room No.501, Sanchar Bhavan Ashoka Road, New Delhi -110001 +91 (11) 2337 2575
Jawaharlal Nehru Marg New Delhi: 110 002 India Telephone: 91-11-2321 1934, 2323 3466, 2322 0534, 2321 3223 Fax: 91-11-2321 3294 Website: www.trai.gov.in
Telecommunication Engineering Centre
Centre for Development of Telematics (C-DOT)
Gate No. 5 Khurshid Lal Bhavan, Janpath New Delhi – 110001 India Telephone: 91-11-23717138 Website: www.tec.gov.in
C-DOT Campus Mandi Road, Mehrauli New Delhi-110030 India Telephone: 91-11-26802856 Fax : 91-11-26803338 Website: www.cdot.com
Federation of Indian Chambers of Commerce and Industry Dushyant Thakor Sarika Gulyani IT & Telecom Division Federation House, Tansen Marg, New Delhi -110001 +91 (11) 2373 8760-70
[email protected]
KPMG Sean Collins Global Chair - Communications and Media
[email protected] +65 6213 7302
Rajesh Jain Executive Director
[email protected] +91 (22) 3090 2370
Theinformationcontainedhereinisofageneralnatureandisnotintendedtoaddressthecircumstancesofanyparticularindividualorentity.Althoughweendeavortoprovideaccurateandtimelyinformation,therecanbenoguarantee thatsuchinformationisaccurateasofthedateitisreceivedorthatitwillcontinuetobeaccurateinthefuture.No oneshouldactonsuchinformationwithoutappropriateprofessionaladviceafterathoroughexaminationoftheparticularsituation.
Romal Shetty Executive Director
[email protected] +91 (80) 3065 4100
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