The Indian Telecom Success Story

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

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.Allrightsreserved.

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


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


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.


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


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


‘

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



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


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



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.



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.


‘


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.



Mobile Subscriber Data (Millions)

Source:PyramidResearch,NationalBureauofStatistics,CEIC

Fixed Line Data (Millions)

Source:PyramidResearch,NationalBureauofStatistics,CEIC



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


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.


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



‘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



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



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



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



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



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


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.


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



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.


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)



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/



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



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



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


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



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



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.

‘


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



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.


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.


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



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.


• 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



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



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



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


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 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



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



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



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.



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.



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



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


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


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



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



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)


‘


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



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



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




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.



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.



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.


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

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