Indian-Telecom Industry Analysis

8/3/2019 Indian-Telecom Industry Analysis

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INDUSTRY ANALYSIS

TELECOM

Presented By

Amit Kumar Choudhary - 24NMP04

M.Sai Krishna - 24NMP17

B.V.Rajendra Gowda - 24NMP21

Tushar Rai - 24NMP28


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AGENDA

Industry Overview

Competitiveness

SWOT Analysis

Five Forces Analysis

Analysis of key performance indicators

Outlook Market Perception

Sources of Information


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Industry Overview

Telecom industry, for the purpose of this analysis, consists ofwireless & wireline service providers and broadband services. Othersub-sectors include telecom equipment manufacturing, cable TV,DTH and Radio broadcasting.

The telecom sector in India was a government monopoly until theyear 1994 when liberalization was gradually unrolled. For the first

time, cellular services were launched in India in Kolkata in the year1995 Indian telecom market is one of the fastest growing markets in the

world Indian telecom network has about 885.99 million connections as on

30 June 2011 (Source : TRAI)

With 851.70 million wireless connections, Indiantelecommunication network has become the third largest wirelessnetwork and 2nd largest in Asia, after China


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Competitiveness 10 players, on average, in the industry which is the highest in the

world

Four firm HH index is 0.10 and eight firm HH index is 0.13indicating low concentration

Oligopoly structure with top four firms commanding around 64% ofmarket

Fierce competition in a regulated environment


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Source : www.investorzclub.blogspot.com

www.coai.com


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Total GSM subscriber


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SWOT ANALYSIS


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Strengths

Huge Customer potential

Tele-density still being 73.97. Rural tele-density 35.6. Urban tele-density is163.13. ( Tele- density : No. of connections per 100 users)

The broadband subscribers grew from about 7.98 million at the end of theDecember 2009 to 12.35 million by June 2011.

High Growth Rate

Wireless subscribers growing at a CAGR of 40 per cent per annum since2009.

Allowed FDI limit of 74%

The total FDI equity inflows in telecom sector have been US$ 2558 millionduring 2009-10 and US$ 1665 million in 2010-11.

Liberalization efforts by Govt.

The share of private sector in total telephone connections is now 85.62% asper the latest statistics available as against a meager 5% in 1999.

Draft NTP (New Telecom Policy)

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Growth of Telecom

SOURCE : TRAI


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Weakness Telecommunication Infrastructure

Result : Large number of call drops.

Late adopters of New Technology

India among the last countries in the world to get access to 3Gtechnology.

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.

Slowdown in addition of subscribers

Difficult to enter because of requirement of huge financialresources.

e.g Auction of 3G license was awarded for Rs 50995.37 crores.(Source : DoT, Govt. Of India)

10


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GSM Subscriber Base


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Opportunities

3G Telecom services and 4G services

More Quality Service

Mobile Number Portability has forced the Service provider to improve theirquality to avoid losing subscribers

Value added Services (VAS)

The mobile value added services include, text or SMS, menu based services,

downloading of music, mobile TV, sophisticated m-commerce applications etc. Boost to Telecom Equipment Manufacturing Companies

Production of telecom equipments in 2011 has been 213 million units. It isexpected to grow to 231 million units in 2012 (8.5% growth).

The Indian telecom industry is expected to reach a size of Rs. 3,44,921 crore by2012 at a growth rate of over 26 per cent.

Horizontal Integration

Entry Into other consumer segments leveraging the present channels

E.g. DTH service like Reliance BIG TV, Tata SKY, Airtel digital TV by telecommajors like Reliance, Tata and Airtel Respectively.

Providing fiber connectivity to all 2,50,000 gram panchayat by Dec, 2012 { Ref.

National Broadband Plan 2010 (NBP) }

12.1


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Threats

Telecommunication Policies TRAI's 2G direction affecting new players

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 asthe ultra-broadband soon, raising fears that 3G services would becomesomewhat obsolete.

Declining ARPU (average Revenue per user)

Price wars like per-second billing which is deflating revenues and making surethe survival of the fittest

Partiality on the part of the Govt.

Allowing 3G service in a PSU (MTNL,BSNL) before auctioning to PrivateSector .

Content Piracy

5


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PORTER FIVE FORCE ANALYSIS


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Threat of new entrantsFavorable for new entrants Unfavorable for new entrants

Low Customer Switching Costs

Cost of new connection low

Mobile number portability

Declining ARPU

Capital Requirement

Extremely high infrastructure setup

costs

Spectrum License cost

Incumbent Advantages

Established brand image

Reliability of network

Restrictive Govt Policy

Spectrum and license allocation

74% FDI cap.

Overall Influence on the Industry - LOW


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Power of the buyer

Lack of differentiation among the service provider

Cut throat competition

Customer is price sensitive

Low switching costs

Number portability to have negative impact

Overall influence on the industry HIGH


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Supplier Bargaining Power

Large number of suppliers.

Shared tower infrastructure.

Limited pool of skilled managers and engineers

especially those well versed in the latest

technologies.

Supply of Spectrum

Medium cost of switching since changing their

hardware would lead to additional cost in

modifying the architecture.

Overall influence on the industry MEDIUM

Physical Infra Supplier

NetworkInfrastructure

-Ericsson

-SiemensNetworks

-Cisco-Huawei

InformationTechnology

-IBM

-TCS

PassiveInfrastructure

-Bharti Infratel

-Indus Towers

Call CenterOutsourcing

-IBM Daksh

-Mphasis

-Hinduja TMT

-Aegis BPO

-Nortel


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Rivalry among Existing Competitors High Exit Barriers

High Fixed Cost

Around 10 players on average in each region

3 out of 4 BIG-Four present in each region

Very less time to gain advantage by an innovation (Eg. Caller tunes, life time card)

Price wars

Overall influence on the industry HIGH


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Threat of Substitutes

Some Substitutes:

VOIP (Skype, Messenger etc.)

Online Chat

Email

Satellite phones

None of the above a major threat in current scenario.

Price-Performance trade-off very high.

Issues of mobility and penetration with the substitutes.

Overall influence on the industry LOW


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Summary of the Five Forces

Rivalaryamong

competitors

(high)

Supplierbargaining

power

(medium)

Threat ofsubstitute

(low

Customerbargaining

power

(high)

Threat ofnew

entrants

(low)


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Analysis of key performance indicators


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Key Performance Indicators

Average Revenue Per User per month (ARPU)

Minutes of Usage per month (MOU)

Addition to the Subscriber base

Tenancy ratio (users per tower) of towercompanies

Capital Expenditure

Cost of Operations Return on Capital Employed (ROCE)

Profit after tax (PAT)


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Average Revenue (or Rate) per Minute in Rs.


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Network Operating Expenses as % of Revenue


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ROCE of Selected Companies

Source: Annual Filings of Operators with the Registrar of Companies (Extracted in July 2011).Capitaline. India Infoline, Company Website, PwC Analysis.


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OUTLOOK Telecom companies in weak financial state

New Telecom Policy awaited by the end of the year

May loosen up M&A rules, triggering consolidation Policy boost to Broadband growth

Industry to look towards increasing high payingcustomers rather than market share

Tariff increase likely after consolidation Overall outlook neutral at this point. Needs to be re-

assessed once the NTP comes into force.


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Market Perception

Stay away or remain underweight www.business-standard.com

Negative for 2012 Rating agency Fitch

Careful optimism Dua Consulting

Underweight in short term Nomura

Neutral in short term Angel Broking
http://www.business-standard.com/http://www.business-standard.com/http://www.business-standard.com/http://www.business-standard.com/


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Sources of Information

TRAI reports from website

Cellular Operators Association of India (COAI)

Capitaline

ISI Emerging Markets Asia

Datamonitor

Numerous reports available online for sale ET Intelligence Group


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THANK YOU

Indian-Telecom Industry Analysis

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