Overview Telecom

With a growth rate of 45 percent, the Indian telecom industry is booming.

Apart from providing mobile and broadband subscriptions, the telecom
industry is also involved in the manufacture of telecom equipment.
Saturday, J uly 03, 2010 2:53:27 PM


Telecommunication is the transmission of messages over significant
distances for the purpose of communication. In the modern age of
electricity, telecommunications has involved the use of electric means
such as the telegraph and telephone, the use of microwave
communications and the use of fiber optics.

The telecom industry plays an important role in the world economy and
global revenues in 2008 were ~USD 4 trillion, expected to grow at a steep
11% p.a. CAGR over the next 2 years. Almost half (~USD 1.7 trillion) of
telecom revenues accrue from service revenue, and analysts believe this is
expected to grow significantly to ~USD 2.7 trillion by 2013.

Approximately 20% of the world population has access to the Internet. The
telecom industry is vast and offers a wide range of career opportunities on
both the hardware and software fronts. These prospects include functional
jobs in mobile telephony, internet protocol media systems, wireless
communications, GSM, GPRS and CDMA technology, VoIP, data networks
and optical networks amongst others.

The global leaders in the field are companies like AT&T, Vodafone, Verizon,
SBC Communications and Qwest Communications, who are all trying to
take the advantage of the industrys spiraling growth. The focus of telecom
companies going forward is likely to be on leveraging more sophisticated
telecommunication platforms like broadband technologies, LAN-WAN inter
networking, optical networking, voice over Internet protocol and wireless
data service etc.


Performance

The Indian telecom industry has witnessed a significant upswing and is
presently on a high speed growth path, enjoying a growth rate of ~45 %
p.a., among the highest in the World. India currently has ~550 million
telecom subscribers, translating to a tele-density of ~46%. According to
Business Monitor International, India is currently adding 8-10 million
mobile subscribers every month. It is estimated that by 2012, around half
the country's population will own a mobile phone. This would translate into
612 million mobile subscribers, accounting for a tele-density of around
51%. Meanwhile, authorities believe current broadband subscriptions are
~20 million and internet subscriptions are ~40 million.

Growth Potential

As economic growth continues at a stable 8% p.a., as Indian customers
continue to embrace the currently under-penetrated mobile technology,
and as regulatory policy continues to favor investment in the sector, this
growth path is likely to continue. India's telecom service revenue was ~USD
30 billion in 2008, and Ernst and Young analysts believe it is projected to
almost double to ~USD 55 billion by 2012, thereby contributing over 6% to
the GDP.

In addition to the headway made in telephony services, the Indian telecom
industry also manufactures a complete range of telecom equipment using
state of the art technology. Leveraging these strengths, the growth
generators in the coming years are likely to be enhanced mobile value
added services, integrated broadband services and the emergence of India
as a global telecom manufacturing hub. Favorable factors such as policy
moves of the government, tax incentives offered, a large talent pool in R&D
and low labor cost all provide a strong impetus to the industry. The top
Indian companies are Bharti Airtel, Reliance Communications and
Vodafone-Essar.

Future Prospects

Given the exciting times ahead, the sector is a huge employment generator,
likely to generate over ~3 lakh new jobs over the coming 5 years. There is a
huge demand for qualified and skilled professionals with technical
knowledge and hands on experience. In order to fulfill their rapid growth
plans, players lure talent with handsome rewards. Suitably skilled
candidates can expect a significant premium salary even at the starting
level, due to the challenges the industry is facing in terms of finding and
recruiting proper talent. Industry experts believe that the talent crunch in
this sector will push salaries even further than the current 15% hike.















Overview Telecom
The Indian telecommunications industry is one of the fastest growing in the
world and India is projected to become the second largest telecom market
globally by 2010.
India added 113.26 million new customers in 2008, the largest globally. In
fact, in April 2008, India had already overtaken the US as the second largest
wireless market. To put this growth into perspective, the countrys cellular
base witnessed close to 50 per cent growth in 2008, with an average 9.5
million customers added every month. According to the Telecom
Regulatory Authority of India (TRAI), the total number of telephone
connections (mobile as well as fixed) had touched 385 million as of
December 2008, taking the telecom penetration to over 33 per cent. This
means that one out of every three Indians has a telephone connection, and
telecom companies expect this pace of growth to continue in 2009 as well.
" We are extremely bullish that the growth will continue in 2009. This year,
the number of additions will be in excess of 130 million," according to T.V.
Ramachandran , Director General, Cellular Operators Association of India
(COAI), an industry body that represents all Global System for Mobile
communications (GSM) players in India.
According to CRISIL Research estimates, eight infrastructure sectors,
which include the telecom sector, are expected to draw more than US$
345.28 billion investment in India by 2012.
With the rural India growth story unfolding, the telecom sector is likely to
see tremendous growth in India's rural and semi-urban areas in the years
to come. By 2012, India is likely to have 200 million rural telecom
connections at a penetration rate of 25 per cent. And according to a report
jointly released by Confederation of Indian Industry (CII) and Ernst &
Young, by 2012, rural users will account for over 60 per cent of the total
telecom subscriber base.
According to Business Monitor International, India is currently adding 8-10
million mobile subscribers every month. It is estimated that by mid 2012,
around half the country's population will own a mobile phone. This would
translate into 612 million mobile subscribers, accounting for a tele-density
of around 51 per cent by 2012.
It is projected that the industry will generate revenues worth US$ 43 billion
in 2009-10.














Growth in Segments
According to a Frost & Sullivan industry analyst, by 2012, fixed line
revenues are expected to touch US$ 12.2 billion while mobile revenues will
reach US$ 39.8 billion in India. Fixed line capex is projected to be US$ 3.2
billion, and mobile capex is likely to touch US$ 9.4 billion.
Further, according to a report by Gartner Inc., India is likely to remain the
world's second largest wireless market after China in terms of mobile
connections. According to recent data released by the COAI, Indian
telecom operators added a total of 10.66 million wireless subscribers in
December 2008. Further, the total wireless subscriber base stood at 346.89
million at the end of December 2008.
The overall cellular services revenue in India is projected to grow at a
CAGR of 18 per cent from 2008-2012 to exceed US$ 37 billion. Cellular
market penetration will rise to 60.7 per cent from 19.8 per cent in 2007.
The Indian telecommunications industry is on a growth trajectory with the
GSM operators adding a record 9.3 million new subscribers in January
2009, taking the total user base to 267.5 million, according to the data
released by COAI. However, this figure does not include the number of
subscribers added by Reliance Telecom.
In WiMax, India is slated to become the largest WiMAX market in the Asia-
Pacific by 2013. A recent study sees India's WiMAX subscriber base hitting
14 million by 2013 and growing annually at nearly 130 per cent. And
investments in WiMAX ventures are slated to top US$ 500 million in India,
according to a report by US-based research and consulting firm, Strategy
Analytics.

Value-Added Services Market
A report by market research firm IMRB stated that the mobile value-added
services (MVAS) industry was valued at US$ 1.15 billion in June 2008, and
is expected to grow rapidly at 70 per cent to touch US$ 1.96 billion by June
2009.
Currently, MVAS in India accounts for 10 per cent of the operator's
revenue, which is expected to reach 18 per cent by 2010. According to a
study by Stanford University and consulting firm BDA, the Indian MVAS is
poised to touch US$ 2.74 billion by 2010.
Mobile advertising, which is an important VAS segment, offers great
potential to become an important revenue source. Marketers are
increasingly using MVAS as a step ahead of SMS-based marketing to sell
soaps and shampoos, banking, insurance products and also entertainment
services, and rural markets are proving to be very receptive for such
marketing.
Further, Venture Capitalists like Canaan Partners, Draper Fisher Juvertson,
Helion, and Nexus India are also innovating with services like mobile
payment options, advertising, voice-based SMS and satellite video
streaming.
According to Venture Intelligence, there were nine deals worth US$ 41
million in 2007 in the mobile VAS space, and till August 2008, seven deals
worth US$ 91 million had already been finalised. Presently, mobile VAS has
a US$ 700 million market with a 20 per cent y-o-y growth, which is likely to
touch US$ 3 billion by 2012.


Major Investments
The booming domestic telecom market has been attracting huge amounts
of investment which is likely to accelerate with the entry of new players and
launch of new services.
Buoyed by the rapid surge in the subscriber base, huge investments are
being made into this industry.
Norway-based telecom operator Telenor has bought a 60 per cent
stake in Unitech Wireless for US$ 1.23 billion.
Japanese telecom major NTT DoCoMo has acquired a 27.31 per cent
equity capital of Tata Teleservices for about US$ 2.6 billion and a
20.25 per cent stake in Tata Teleservices (Maharashtra) Ltd for about
US$ 190.23 million.
Singapore Telecommunications (SingTel), which has a 31 per cent
stake in Bharti Airtel has received the governments approval to offer
long distance services in India, according to a communication
ministry official.
Mauritius-based P5 Asia Holding Investments (Mauritius) Ltd will be
investing around US$ 545.13 million to hold a 20 per cent stake in
Aditya Birla Telecom Ltd (ABTL). The funds will be utilised for
network rollout and operations of ABTL in the Bihar circle.
Bharat Sanchar Nigam Ltd (BSNL) is planning an investment of
around US$ 201.5 million in the Tamil Nadu Circle for an additional
23 lakh mobile connections under both 2G and 3G technologies by
2009.
The latest to join the world's second largest telecom market is
Bahrain's Batelco which has signed a deal to buy 49 per cent in
Chennai-based S-Tel, a GSM service provider, for $225 million.
Etisalat, a Gulf-based telecommunications company has picked up a
45 per cent stake in Swan Telecom.
Kavveri Telecom Products Limited is planning to set up a new
subsidiary - Kavveri Telecom Infrastructure Limited (KTIL) - with an
investment of US$ 20.11 million over the next two years, to offer in-
building telecom infrastructure to telecom service providers.
Juniper Networks, which is the second-largest maker of networking
equipment, plans to invest US$ 400 million in India, over the next five
years, with a focus on its research and development (R&D) activity.
BSNL, India's leading telecom company in revenue terms, will put in
about US$ 1.16 billion in its WiMax project.
Bharti Airtel will be spending US$ 2.5 billion in a major expansion
bid.
Reliance Communication has committed US$ 5.69 billion as capital
investment for the fiscal year ending March 2009.
Idea Cellular will spend about US$ 2.36 billion in the fiscal ending
March 2009.
Srei Group's Quippo Telecom Infrastructure Ltd (QTIL) plans to
invest US$ 3 billion in 2008-09 to ramp up its telecom infrastructure
business to grow both organically and inorganically.
Vodafone Essar will invest US$ 6 billion over the next three years in
a bid to increase its mobile subscriber base from 40 million at
present to over 100 million.
Telecom service provider, Tata Teleservices Limited, has announced
that the company will be investing additional US$ 6.74 million in
Gujarat to set up 100 cell sites by August 2009. The company had
earlier made an announcement of investing US$ 24.1 million in the
state till March 2009.
Telecom operator Aircel, which launched GSM mobile services in
Bangalore on February 23, 2009, plans to invest US$ 220.58 million
over the next year to set up base stations across the state.

Investments Abroad
After the amazing growth story in the domestic market, Indian
telecommunication companies are now set to have a major global footprint.
The Bharti Group, which already has operations in Seychelles,
(begun over a decade ago), and in the Channel Islands in Europe,
launched its mobile services in Sri Lanka under 'Airtel' brand on
January 12, 2009. Airtel is expected to invest about US$ 200 million
in setting up and expanding its operation in Sri Lanka over the next
five years. The company will simultaneously roll out second
generation (2G) and third generation (3G) services in the country.
DTH company Spize TV (owned by Pyramid Saimira Group) has
bought France Telecom's European DTH operations called WorldTV
Europe.
Tata Communications has bought the 30 per cent stake in Neotel that
was previously held by Eskom and Transnet. With this, Tata
Communications in association with Tata Africa Holdings became
the largest stakeholder with 56 per cent stake.
Tata Communications marked its entry into UAE by launching a range of
dedicated Ethernet services in association with leading telecommunication
service provider of UAE, Etisalat.









Manufacturing
India's telecom equipment manufacturing sector is set to become one of
the largest globally by 2010.
Mobile phone production is estimated to grow at a CAGR of 28.3 per cent
from 2006 to 2011, totalling 107 million handsets by 2010. Revenues are
estimated to grow at a CAGR of 26.6 per cent from 2006 to 2011, touching
US$ 13.6 billion.
Presently the telecom hardware manufacturing sector is dominated by
international majors like Nokia, Ericsson, LG, Motorola, Samsung and
Alcatel-Lucent, who have set up manufacturing bases in India. Domestic
manufacturers have little contribution in the segment. Other foreign majors
that have set up manufacturing bases in India include Foxconn, Flextronics
Elcoteq Celestica, Elextronics Aspocomp, Salcomp, Siemens, Cisco, Perlos
and Solectron.
LG Electronics has announced that it will be further expanding its handset
manufacturing facility in India and Nokia will now be targeting rural India in
its expansion plans. In fact, Nokia Siemens Networks launched its new
facility for the production and distribution of mobile communications
infrastructure at Oragadam near Chennai.









Rural Telephony
Rural India had 76.65 million fixed and Wireless in Local Loop (WLL)
connections and 551,064 Village Public Telephones (VPT) as on September
2008. Therefore, 92 per cent of the villages in India have been covered by
the VPTs. The target of 80 million rural connections by 2010 is likely to be
met during 2008 itself. Universal Service Obligation (USO) subsidy support
scheme is also being used for sharing wireless infrastructure in rural areas
with around 18,000 towers by 2010.
The Indian wireless industry, with a 32 per cent penetration, is only second
after China in terms of subscribers at 325 million. Most of this growth has
come from urban India where penetration is close to 60 per cent, but in
rural markets it's less than 15 per cent. And it's here that the industry sees
the largest opportunity for growth.












The Road Ahead
As on October 17, 2008, there were 350 million mobile and fixed line
subscribers in India, with about 8 million subscribers being added each
month. The Union Minister for Communications and Information
Technology, Mr A Raja, has stated that the target for the 11th Plan period
(2007-12) is 600 million phone connections with an investment of US$ 73
billion. Apart from the basic telephone service, there is an enormous
potential for various value-added services. In fact, the real potential for
telecom service growth is still lying untapped.
The Indian rural market is going to be the next big thing for wireless
telecom providers. With the tele-density in rural areas being still about 10
per cent against the national average of about 21 per cent, there seems to
be huge untapped potential for mobile phone penetration in rural India. The
government also plans an investment of US$ 2 billion, during 2008 to 2009,
for the development of around 100,000 community service centres in rural
India to provide broadband connectivity.
Additionally, by 2010, the government targets:
80 million rural connections
Mobile coverage of 90 per cent geographical area
Internet Protocol Television (IPTV) in 600 towns
Quadrupling manufacture
Two-fold increase in telecom equipment R&D from the current level
of 15 per cent.



According to the CII Ernst & Young report titled 'India 2012: Telecom
growth continues', revenue from India's telecom services industry is
projected to reach US$ 54 billion in 2012, as against US$ 31 billion in 2008.
According to Mr Prashant Singhal, Telecom Industry Leader, Ernst &
Young India, " Going forward, rural telephony, 3G, WiMax and data services
will drive sector growth in 2012. The industry will witness sustained growth
in mobile services and data revenues. Network expansion will continue in
order to support the rural growth."
In addition to this, some interesting new developments worth tracking
include:
The emergence of digital media advertising (internet, mobile and
digital signage) as the medium of choice for advertisers. Of the
available media, it was the fastest growing segment in 2008.
According to a FICCI-PwC report, it is expected to touch US$ 211.97
million in 2011 from the current US$ 57.1 million.
The robust sales of smartphones which do not seem to have been
adversely affected by the economic slowdown. Smartphones, which
have computer-like features, are a favourite with not only
professionals, as they enhance productivity, but also with the youth
that are attracted by their multimedia applications. Smartphones
market, sized at 5 million in 2008, is expected to witness a compound
annual growth rate (CAGR) of 23 per cent by 2011, as per technology
research firm Ascendia.
Global mobile phone vendors are going green in India. Vihaan
Network Ltd, a group company of Shyam Group has launched the
worlds first zero opex GSM systems powered by solar energy rather
than conventional sources. In a recently launched initiative, Nokia
collected three tonnes of junk handsets, batteries, chargers and
accessories from four cities during a 45-day campaign. The collected
junk will be taken to Singapore for recycling. Hundred per cent of the
materials in the phones can be recovered and used to make new
products.