Telecommunications

At 861.48 million connections in April 2011' Indian Telecom Industry' is the third largest and fastest growing in the world. According to Cellular Operators' Association of India (COAI), the GSM cellular subscriber base has reached to 590.19 million in May 2011 from 580.66 million at the end of April 2011.  There were 826.93 million total wireless subscribers (including GSM and CDMA) in the country at the end of April 2011.  As per projections, wireless telephony will continue to fuel growth in the Indian telecom industry with mobile subscribers base in India is expected to reach 1.159 billion by 2013.

The foreign direct investment in the telecom sector was Rs 5,434.48 crore during the quarter ended June 30, 2011. The country has received a cumulative total of Rs 36,931 crore as FDI in telecom sector in the period from April 2008 to June 2011.

FDI Policy for Telecom Sector

Telecom Sector is considered to be one of the most attractive sectors for foreign direct investment. Present FDI Policy for the Telecom sector is as under:

  • Foreign Direct Investment (FDI) upto 74 per cent (including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible preference shares and proportionate foreign equity in Indian promoters/ investing Company) is permitted. FDI upto 49 per cent is permitted under automatic route, beyond 49 per cent by FIPB as per the conditions of Press Note 3 (2007 series).
  • ISP (with gateways), end-to-end bandwidth and Radio Paging Service .
  • FDI upto 74 per cent is permitted subject to licensing and security requirements.
  • Upto 49 per cent is permitted under automatic route and beyond 49 per cent by FIPB.
  • Infrastructure providers providing dark fibre, right of way, duct space, tower (Category-l), Electronic Mail and Voice Mail.
  • FDI upto 100 per cent is allowed subject to the conditions that such companies would divest 26 per cent of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. Proposals for FDI beyond 49 per cent shall be considered by FIPB on case-to-case basis.
  • Telecom Sector is considered to be one of the most attractive sectors for foreign direct investment. Present FDI Policy for the Telecom sector is as under:
  • Basic and cellular, Unified Access Services, National International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added telecom services.
  • Foreign Direct Investment (FDI) upto 74 per cent (including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible preference shares and proportionate foreign equity in Indian promoters/ investing Company) is permitted. FDI upto 49 per cent is permitted under automatic route, beyond 49 per cent by FIPB as per the conditions of Press Note 3 (2007 series).
  • ISP (with gateways), end-to-end bandwidth and Radio Paging Service .
  • FDI upto 74 per cent is permitted subject to licensing and security requirements.
  • Upto 49 per cent is permitted under automatic route and beyond 49 per cent by FIPB.
  • Infrastructure providers providing dark fibre, right of way, duct space, tower (Category-l), Electronic Mail and Voice Mail.
  • FDI upto 100 per cent is allowed subject to the conditions that such companies would divest 26 per cent of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. Proposals for FDI beyond 49 per cent shall be considered by FIPB on case-to-case basis.
  • 3G Telecom services and 4G services
  • More Quality Service
  • Mobile Number Portability will force the Service provider to improve their quality to avoid losing subscribers
  • Value added Services (VAS)
  • The mobile value added services include, text or SMS, menu based services, downloading of music or ringtones, mobile TV, videos, streaming, sophisticated m-commerce applicationsetc.▫Mobile banking, Mobile Ticketing etc•Boost to Telecom Manufacturing Companies
  • Production of telecom equipments in value terms has increased from Rs. 412700 million (2007-08) to Rs.488000 million during 2008-09 and expected to increase to Rs. 575840 million during2009-10.
  • Telecom Equipment Exports
  • The Indian telecom industry is expected to reach a size of Rs 344,921 crore by 2012 at a growthrate of over 26 per cent, and generate employment opportunities for about 10 million peopleduring the same period.The sector would create direct employment for 2.8 million people and for7 million indirectly, according to a Frost and Sullivan report

 

SWOT Analysis
Strengths
  • Huge Customer potential
  • Teledensity still being 48% and rural tele-density 21%.▫The broadband subscribers grew from 0.18 million in 2005 to6.2 million ason 30 April 2009 and about 7.98 million, at the end of the December 2009.
  • High Growth Rate
  • Wireless subscribers growing at a CAGR of 60 per cent per annum since2004.
  • Allowed FDI limit ranging from 74% to 100%
  • The total FDI equity inflows in telecom sector have been US$ 2223 millionduring April-November 2009-10
  • High return on Investment
  • Easier to create economies of scale thereby increasing return oninvestment
  • Liberalization efforts by Govt.
  • The share of private sector in total telephone connections is now 82.33% as per thelatest statistics available for December 2009 as against a meager 5% in 1999.
  • Lower capital expenditure
  • The Indian telecom market is a high density area, which means morepopulation per tower. This means lower capital expenditure cost

Weaknesses

  • Poor Telecommunication Infrastructure
  • Result : Large number of call drops.
  • Late adopters of New Technology
  • India will be among the last countries in the world to get access to3G technology. Some estimates suggest that nearly 132 countriesacross the world already have 3G technology and mobile servicesin one form or the other.
  • Most competitive market, 10 to 12 companies offer mobile services in most parts of India,globally, the average is 4.
  • A market strongly regulated by Government.
  • Difficult to enter because of requirement of huge financialresources. e.g Auction of 3G license has reached Rs 15814.15 crores.

Opportunities

•3G Telecom services and 4G services•More Quality Service▫Mobile Number Portability will force the Service provider to improve their quality to avoid losingsubscribers• Value added Services (VAS)▫The mobile value added services include, text or SMS, menu based services, downloading of music or ringtones, mobile TV, videos, streaming,sophisticated m-commerce applicationsetc.▫Mobile banking, Mobile Ticketing etc•Boost to Telecom Manufacturing Companies▫Production of telecom equipments in value terms has increased from Rs. 412700 million (2007-08) to Rs.488000 million during 2008-09 and expected to increase to Rs. 575840 million during2009-10.•Telecom Equipment Exports▫The Indian telecom industry is expected to reach a size of Rs 344,921 crore by 2012 at a growthrate of over 26 per cent, and generate employment opportunities for about 10 million peopleduring the same period.The sector would create direct employment for 2.8 million people and for7 million indirectly, according to a Frost and Sullivan report.4.1Horizontal Integration▫Entry Into other consumer segments leveraging the present channels▫E.g. DTH service like Reliance BIG TV, Tata SKY, Airtel digital TV by telecom majors like Reliance, Tata and AirtelRespectively.▫Other examples : Airtel website builder•Providingfibre Connectivity to 2,50,000 village panchayat by 2012.•More scope in content related services, since, the consumer isinfluenced by local culture.▫Local festivals like Baisakhi, Chhath Puja, religious festivals likeDiwali, Chrismas etc., National festivals like Independence Day etc

 

Threats

•Telecommunication Policies▫e.g. Trai's 2G direction affecting new players most notably TataTeleservices, Norway’s Telenor and Essar-owned Loop Telecom▫Renewal of 2G license on the basis of market rates of 3G auctions▫TRAI intentions of rolling out 4G or the fourth-generation technology,known as the ultra-broadband in 2-3 years raising fears rendering 3Gservices somewhat obsolete.•Declining ARPU (average Revenue per user)▫E.g. price wars like per-second billing which is deflating revenues andmaking sure the ‘survival of the fittest’•Partiality on the part of the Govt.▫E.g.Allowing 3G service in a PSU (MTNL,BSNL) before auctioning toPrivate Sector .•Content Piracy

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