Indian Telicom Industry_MRP-1

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Indian Telecom Industry

PREFACE

It is a pleasure to keep this report in front of you. Project report is vitally

important for M.B.A students because it develops the feelings among thestudents about industrial environment and business to develop the practical

base. Theoretical knowledge is true only when we apply the same in the

practical.

In the final year M.B.A there is a subject named ‘Strategic Management’.

Under the said curriculum a student has to do a detail analysis of a

particular industry. At the same time we must know that what are the

opportunities and threats for the industry and overall attractiveness of the

industry.

In order to establish co-relation between the theoretical studies and practical

training, it was suggested that some industry should be analyzed and

accordingly we had done the analysis on “Indian Telecom Industry”.

Keyur DarjiKeyur Darji R.No. 06R.No. 06

Nirav MehtaNirav Mehta R.No. 16R.No. 16

Pankaj PrajapatiPankaj Prajapati R.No. 32R.No. 32

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ACKNOWLEDGEMENT

It is well known that practical knowledge is the pre-requisite for the

developing of business sense.

We heartily express our deep sense of gratitude to Mr. Jayaashish Sethi, the

faculty member, NSVKMS MBA College, for not only giving us knowledge

on the subject but also for constant guidance, co-operation and motivation in

preparation of report. Without which it was very difficult for us to reach at this

stage.

Keyur DarjiKeyur Darji

Nirav MehtaNirav Mehta

Pankaj PrajapatiPankaj Prajapati

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EXECUTIVE SUMMERY

As a part and partial fulfillment of Strategic Management subject of MBA

programme we have selected “Indian Telecom Industry” for general

understanding of the industry structure. However in particular our emphasis

was on to find out the opportunities and threats of the industry as well as

overall attractiveness of the industry.

The research was conducted to understand the effect of different

environmental factors and different competitive forces on the industry. We

have also considered the opportunities and threats for the industry. And on

the basis of all this we have find out the industry attractiveness.

We presented a brief history of the telecommunications along with a

description of the important players. This project also includes the study of

different features, and changes in the policies, laws, and regulatory issues in

India.

Presently there are major changes made in telecommunications industry in

India and some prominent industry players are coming up with new plans to

bring the most out of the liberalization and reform process in India. Not only

this project includes history of telecom, and the present state but also the

future provision, along with India’s projects with different countries and its

present and future plans.

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INDEX

1. HISTORY 06

2. RESEARCH OBJECTIVE 10

3. RESEARECH METHODOLOGY 11

(A) Nature of the Research 11

(B) Scope Of The Research 11

4. INTRODUCTION 12

(A) Introduction Of Telecom 12

(B) Usefulness Of Telecom 14

5. PEESTD ANALYSIS 16

(A) Political Factors 17

(B) Economical Factors 24

(C)Ecological Factors 29

(D)Social Factors 32

(E) Technological Factors 34

(F) Demographic Factors 37

6. TRAI (Telecom Regulatory Authority of India) 42

7. TELECOM REFORM PROCESS 49

8. INDUSTRY PROFILE 50

(A) Industry Structure 51

(I) Service Provider 51

(II) Equipment Manufacturer 53

(B) Driving Forces 54

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(C) Key Success Factors 56

(D) Telecom Services 58

(I) Service Category 58

(II) Service Functionality 60(E) Major Players 62

(F) Current Scenario 73

(G) Global Scenario 83

9. FUTURE TELECOM PROJECTS IN INDIA 85

10. FIVE FORCE ANALYSIS 93

(A) Rivalry among competitive sellers 94

(B) Threats from New Entries 96

(C)Threats from Substitute Product 97

(D)Bargaining Power of Suppliers 99

(E) Bargaining Power of Buyers 100

11. OPPORTUNITIES AND THREATS ANALYSIS 102

(A) Opportunities 103

(B) Threats 114

12. NEW INNOVATION IN TELECOM SECTOR 116

13. STRATEGIC IMPERATIVES 119

14. CONCLUSION 122

15. GLOSSARY 124

16. BIBLIOGRAPHY 126

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BRIEF HISTORY OF TELECOMMUNICATIONS IN INDIA

Economic liberalization has been very fruitful for Indian telecommunications

industry and brought along significant progress. One of the important

features of the liberalization process was that the entire spectrum of telecom

services was thrown open to the private sector and the operation of market

dynamics. Starting from basic telephone with manual exchange to formation

of Mahanagar Telephone Nigam Limited (MTNL) in 1986, India has seen a

lot of changes, though slowly. The National Telecom Policy (NTP)

announced on May 13, 1994 brought along the concept of

‘telecommunication for all and telecommunication within the reach of all’. It

visualized universal service covering all villages and it is satisfying to know

that out of the nearly 6-lakh villages in the country, about 4-lakh villages

have been provided with telecom services. The objective of the government

is to see that before the end of year 2002 all villages are provided with basic

telecom services, keeping in mind that the quality of telecom services has to

be of world standard.

Further in 1995 a multimedia center with video conferencing facility was

opened followed by providing commercial ISDN services. As a result of

liberalization followed by competition in the telecom services, the

Government of India set up the Telecom Regulatory Authority of India (TRAI)

in 1997. This was restructured in 2000 and an appellate authority Telecom

Disputes and Settlement Appellate Tribunal (TDSAT) was set up. Thebiggest landmark in 2001 was when MTNL invested U.S. $300 million for

operations in Bangladesh and Nepal and this year government control over

the country's telecommunication sector undergoes a change with the

privatization of Videsh Sanchar Nigam Ltd. (VSNL). The privatization of

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India’s largest telephone service provider is being considered a milestone

in telecommunication history of India.

Before liberalization VSNL had a monopoly over international long distance(ILD) calls. The end of government monopoly has made a tremendous

impact on the telecom sector as far as customers are concerned. While on

the one hand VSNL will begin to face the challenge posed by private

companies such as Bharti Telesonic, on the other hand consumers have

already started enjoying a decline in ISD tariffs and improved services in

international telephony. In fact, prominent Internet service providers have

announced tariffs slash of up to about Rs. 25 from Rs. 55 per minute(between Delhi and New York). India has a huge ISD market which accounts

for transactions of about Rs. 7,500 crore. Due to very high tariffs, the

number of calls India receives is much higher than calls made from India.

The present ISD ratio of outgoing to incoming calls is about 1:5. Various

players are working towards an improvement to this ratio.

In 1986, telecom operations for Delhi and Mumbai were moved out of the

Department of telecommunications (DoT) and given to Mahanagar Tele-

phone Nigam Ltd (MTNL), a public sector corporation. Following that, the

government launched BSNL (Bharat Sanchar Nigam Limited) in an effort to

corporate the remainder of DoT, empowering the new company to venture

into areas like basic, cellular and Internet services. BSNL has the goal of

providing telephone on demand by 2002. Another important player is the

Videsh Sanchar Nigam Ltd (VSNL), the international access network. VSNL

will remain a monopoly until 2002.

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Deregulation

The Telecom Policy of 1994 saw liberalization of the sector. Since even

aver-age telecom services were difficult for the government to provide, basicand value added services were thrown open to private players. However,

due to inexperience in dealing with such developments, some policy steps to

regulate competition led to confusion. As a result of the new Telecom Policy

of 1999, MTNL and VSNL are gaining strength. India has also opened up

the bandwidth segment for overseas communication to the private sector.

India now has a total capacity of 29 million lines. The Long Distance

Transmission Network has 300,000 kilometers of terrestrial networkincluding 100,000 kilometers of optical fiber. Fully automatic national and

international subscriber dialing service is available almost everywhere in the

country. Inter-national communications have improved thanks to the use of

satellite communication and submarine links.

The voice and non-voice telecom services include data transmission, fax,

mobile radio, radio paging, V-SAT and leased line. A dedicated packet

switched public data network, I-NET, with global access is also available.

Manufacturing

While public and private operators are the cornerstones of the Indian

telecom industry, there are many manufacturers in the fray. These include

public sector undertakings like Hindustan Teleprinters Ltd. and Indian

Telephone Industries (I.T.I. Ltd.). Additionally, there are private telecomequipment makers including local companies and the Indian subsidiaries of

foreign companies such as Alcatel. The jelly filled cables segment still

remains the largest in terms of turnover.

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Alcatel in India

Alcatel ’s initial presence in India was through a partnership with

IndianTelephone Industries (I.T.I.Ltd.)Forged in the early 1980s.This

partnership was renewed in 1991 and 1999 to incorporate technological

changes in line with the trends in the industry. In 1991,Alcatel created a joint

venture with an Indian partner, buying back its shares in 2000; Alcatel now

has a fully owned subsidiary, Alcatel India Ltd, which offers the complete

suite of telecom solutions and services to meet the needs of this challenging

market. Alcatel has invested heavily in India in terms of infrastructure and

human resources. It operates a manufacturing facility in Gurgaon, near Delhi, an enterprise-business organization in Bangalore, and software

centers in Bangalore, Chennai and Gurgaon. This accounts for 800

employees. Beyond this, approximately 2,000 Indian software engineers

contribute to Alcatel ’s worldwide high tech development program through

subcontracting agreements. Alcatel has emerged as the single largest

supplier of digital switching in India with 50%marketshare achieved through

manufacturing by I.T.I.Ltd.since 1982 and that of its own since 1993.Alcatel

supplied the first national packet switched data network,I-NET II, for BSNL

(the recently corporatized part of the Indian Department of

Telecommunications).

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RESEARCH OBJECTIVES

Research objectives include the objective of research of the researcher

before starting any research. The researcher should determine the objective

or the goal of the research for the smooth functioning of study. Predetermine

objective should be of such that researcher fulfils in the certain period of

time at minimum cost.

Following are the research objectives, which we have developed…

To identify the key success factors of the industry.

To study the different environmental factors of the industry.

To analyze the different competitive forces of the industry.

To know the opportunities and threats of the industry.

To know about the industry structure with currant scenario and with

major players.

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RESEARCH METHODOLOGY

Nature Of The Research

The nature of the research is basically of two types.

• Basic Research

• Applied Research

“Basic Research is that intended to expand the body of knowledge in a

field or to provide knowledge for the others.”

“Applied Research is carried out for solving of a particular problem or for

guiding a specific decision, and usually its results are private.”

“Basic Research is generally for common purpose and Applied research

is for specific purpose.”

Here the nature of the research is applied. The main source for data

collection is secondary data sources like different web sites, magazinesand software.

Scope of the project

We have carried out our research for the Indian telecom service

providers of cellular and fixed line.

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INTRODUCTION

Three forces--Telecommunication, Information and Globalization--are

restructuring every aspect of business and society. Telecom professionals

are the key players in this transformation. They play a crucial role as

leaders in the changing dynamics of global communications,

internetworking, the Internet, e-commerce, mobile and wireless

communications strategy.

Modern age is the age of convergence and fusion for telecommunications.This fusion of telecommunications, broadcasting and information

technologies has resulted in amazing discoveries. Voice over IP, television

web casting over Internet and video on demand is a reality.

Telecommunications is a key to modern economy infrastructure.

Telecommunications when linked with computer becomes Information

Technology, which is the most dominating technology of today as it

influences the entire spectrum of the economy. IT practically covers allaspects of business, technology, manufacturing and other services.

Today the networks and companies will no longer be categorized on the

basis of only voice, data or video services they provide. They have to

become info-communications companies providing a bundle of services.

Telecommunication has now become the backbone of any modern economy

due to its all-pervasive nature of running through almost every human

transaction - commercial, digital or even personal. The emerging new

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economy, powered by technology and dictated by the digital revolution is

incredibly forcing the telecom industry to grow more than ever before.

The changing lifestyle of human beings enhanced by Internet, facilitated by

mobile communications and enriched by e-commerce would give a realboost to this industry. As trade and industry grows, telecom services also

has to expand commensurately because it is one of the greatest

infrastructure and life-blood for the modern trade and commerce.

For the second populous country in the world and the fifth one in terms of

purchasing power parity, an average total tele-density of 4.4 basic

telephones, rural tele-density of just 1 basic telephone and around 0.5cellular telephones per 100 people points towards its potential for growth.

Against this backdrop, in advanced countries the tele-density is averaging in

50-60 (basic telephone) range.

India's telephone network with 38.45 million direct exchange lines (DEL), as

of 31 March 2002, is one of the largest in the world and the third largest

among emerging economies (after China and Republic of Korea).

Monopolized by the government, the sector was a big victim of huge

operational inefficiency and customer apathy till recently. However, the

opening up of economy per se has improved remarkably the service

conditions. The scenario is undergoing dramatic changes day by day.

Private players are now flocking to this sector with unexpected enthusiasm

and the scenario is set to witness fierce competition, both in basic telephony,

cellular, international, national long distance and other value-added services.

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In developed countries telecom industry is viewed as the prime mover of

GDP growth as telecommunications is significant for economic development

since 1% increase in telephone density leads to a 3% increase in the GDP.

(This statistical information is quoted from the websitehttp://www.indiainfoline.com/nevi/vsmt.html).

The Usefulness of Telecom

India has a huge disparity of income among its people. One reason for this is

the lack of education. In the days when telecom was a state monopoly, the

government introduced education classes through the state run TV channel.

Even now, huge numbers of students who cannot afford to go to regular

schools/colleges watches these classes. An estimated 3.5 million students

are enrolled in various distance education universities throughout the

country. Some foreign universities have seen this potential market and set

up programs. Computer education is a route to generating more employment

and prosperity. Due to the lack of proper telecom infrastructure in the

interiors of the country, there is general lack of awareness of global

developments. The spread of telecommunications will help tap this potential

market. And the sheer magnitude of the market will continue to beckon

global players for years to come.

Telecommunications services are used for a variety of purposes. Modern

communities and businesses have come to rely on these services for:

• Social contact such as keeping in touch with friends and relatives and for

organising social activities;

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http://www.indiainfoline.com/nevi/vsmt.html





• Business purposes which cover a wide range of uses from customer

contact and business transactions to inter-company communications;

• Emergency use for summoning police, ambulance and fire brigades;

• Cultural and entertainment use;

• Educational use where telecommunications services or applications

replace or augment traditional delivery of education; and

• On-line business transactions, education and entertainment using

Internet access. In this report Internet access is considered as a separate

telecommunications service.

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PEESTED ANALYSIS

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POLITICAL FACTORS

• Government Initiatives and New Projects

• The new central government has come out with revised telecom policy.

"The revamped policy would take full advantage of the latest

technological developments, to take the country's communication

services forward and make facilities truly world class," Dayanidhi Maran,

the new Information Technology and Telecommunication Minister said

while taking charge. He also unveiled a ten-point agenda for

development of the sector with emphasis on outsourcing, broadband

growth and re-introduction of the Convergence Bill. The new minister

have been updated about TRAI's recommendations and the telecom

regulator’s expectation of 20 million broadband and 40 million Internet

subscribers by 2010, amounting to penetration level of 1.7% and 3.4%

respectively. India's current penetration level is 0.4% and 0.02%

broadband subscribers compared with Korea's 25% and China's 1.4%,having increased by 50% in just 6 months.

• Government has also announced that BSNL and MTNL will not

be privatized. Government is studying a proposal to merge BSNL

& MTNL. The PSUs are revamping their operation in order to offer

value-added services like higher data transfer rates and video on

the Internet. In the latest development, BSNL is seeking

permission from Department of Telecommunication to operate in

Mumbai and Delhi.

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• Extension of time limit for tax holiday under Section 80 IA was a major

industry demand, which has been met in Budget 2003

•

Some of the demands of the Telecom industry have been metduring Budget 2003.

• The finance minister in his Budget Speech said, "Customs duty on a

number of capital goods used by the telecom and IT sector for

manufacture of components will be reduced to 15% from 25% earlier."

• Concessional customs duty of 5% on specified telecom equipment for

basic telephony, cellular mobile telephony etc. has been continued up to

31 March 2004.

• Customs duty on routers, modems and fixed wireless terminals

has been reduced to 10% from 15%.

• Telecom and domestic satellite service companies enjoy the

benefit of tax holiday. Since it takes quite some time for such

projects to materialize, It proposes to extend the deadline of

setting up the units by one more year to 31 March 2004."

Impact on the industry

Extension of time limit for providing telecommunication services, etc.

for the purpose of tax holiday under Section 80 IA was a major

industry demand, which has been met in Budget 2003. This would

give further incentives to the new telecom service operators and

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would greatly enhance viability of telecom projects. This would also

go a long way in enabling companies to achieve financial closure.

•

Increase in service tax from 5% to 8% would adversely affectthe telecom service providers. Currently, telephones are the single

largest contributor to the service tax kitty of Government at 40% of

total service tax collected by the Government.

• However, one of the biggest disappointments for the sector has

been the FDI limit kept at 49%. There were enough indications prior to

Budget that there would be hike in FDI limit to 74%. But, the group of

ministers (GoM) has already given their verdict recently to raise FDI in

telecom from 49% to 74%. However, it did not come through in

Budget. This would have been a big positive for the Telecom sector.

• Progress since New Telecom Policy – 1999 (NTP ’99).

Cellular Industry has witnessed a rapid growth in the last five years. The

number of cellular subscribers crossed the 1-crore mark for the first time

in December 2002. As at 31 December 2002, the total all-India cellular

subscriber base was 1,04,80,430, up by 91% y-o-y. In the basic

operations, India has the sixth-largest fixed services telephone network in

the world, with an estimated 40.2 million fixed lines at end-2002

In the last year's Budget, the Government addressed some of the

concerns regarding anomalies in the Customs Duty Structure. This has

helped reduce costs of imports, which in turn had a positive impact on

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network rollout. This has led to expansion in services in different service

areas and an increasing subscriber base. It is opportune that this be

further rationalized to achieve the desired policy objectives of affordable

world-class services through increased competition. In the near future,we would witness the launch of (basic as well as mobile) services in

some more circles, which have been licensed after NTP ’99, which would

help in raising teledensity. While network rollouts continue at a hectic

pace, it is imperative that the costs are reduced and efforts be directed to

keep these at minimal levels.

Prevailing tax rates and provisions

Cellular Operations (COAI):

Excise Duty issue:

Excise department is trying to include installation of tower under

manufacture term. Notices have been issued by Central Excise Dept.

to Cellular Operators for paying Excise Duty on Transmission Tower

for Radio Telephony. (TTRT) i.e. on tower installed on various sites.

Exemption under Sec 10 (23G):

Benefits of section 10 (23 G) will be available to all the cellular

operators on the condition that such infrastructure facility is approved

by the Central Government.

Telecom Equipment Manufacturers:

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Presently, customs duty on Telecom equipment (like Telecom power

plant, Line telephony equipment, transmission equipment and cables)

attracts 15% customs duty. On the other hand, the main telecom

equipment parts attract customs duty ranging between 5-25%.

Cellular Services to be out of 1/6 scheme of Income Tax:

Persons even below taxable limits should also exclude cellular phone

services like WLL services, as the cost has fallen drastically, and it is

affordable. Moreover the nature of service is same in both the cases.

Eligibility for minimum alternate tax (MAT):

Public telecom services should be covered under Section 115(J)A of

the Income Tax Act,1961, which would give the telecom companies

the status of infrastructure providers. This would enable the telecom

service providers to be eligible for exemption from MAT.

Indirect Taxes:

Customs:

- Modifications to customs duty clauses.

- Removal of basic duty for CDMA based mobile services

(WLL) offered by basic providers.

- The Government can help reduce Capital Costs by

implementing a zero duty regime for CDMA network

infrastructure equipment required for Basic Services which willhelp in substantial cost reduction in network rollout.

VAT & Service Tax:

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The Government of India and State Governments are considering the

telecom services should be included in the list of services covered by

a composite value added tax covering both goods and services and

the service tax presently imposed on telecom sector be withdrawn.

Deemed Exports:

It is important that the government should also treat indigenous

supplies to telecom infrastructure creators and service providers as

Deemed Exports. There is no denying the fact that given the

important role played by it, telecommunications services sector is also

an integral part of the infrastructure sector.

Policy regarding mobile instrument:

Currently it is important that the volume of subscribers for mobile

handsets be it CDMA or GSM substantially has to grow up, so that by

2005 indigenous manufacturing of handsets becomes economically

viable. It is therefore proposed that Custom Duty on mobile handsets

of all type be reduced to 5% or 0% depending upon the rationalization

policy being followed by government.

In order to justify indigenous manufacturing of professional

telecommunication products such as telecom power supplies,

repeaters, infrastructure equipment for GSM/CDMA network,

switches, the countervailing duty (CVD) on imports of such products

should continue. IT should not be withdrawn so that imports are not

promoted particularly from countries, which are dumping their goods

into India.

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Although effective customs duties on cellular phones have been

reduced in previous budgets, there still exists a wide differential

between the price of an imported cellular phone and a cellular phone

purchased from the gray market. Although, cellular phone prices aredeclining steadily, a reduction in effective import duties will lead to

further price declines and make a cellular subscription more

affordable.

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ECONOMICAL FACTORS

Market Share

Telecom : Market share of mobile operators

Company Feb-04 (in

’00)

% of

Total

Jan-04

(in ’00)

% of

TotalBSNL 4,954,409 20.1 4,886,095 20.91

BPL 1,764,725 7.16 1,649,337 7.06

Airtel 1,153,963 4.68 991,556 4.24Bharti 6,199,434 25.15 5,862,249 25.09

Escotel 940,165 3.81 878,621 3.76Fascel 905,725 3.67 857,966 3.67Hutch 3,357,323 13.62 3,156,754 13.51

Spice 1,184,358 4.8 1,141,967 4.89

MTNL 348,507 1.41 329,374 1.41RPG Cellular 254,993 1.03 245,480 1.05Idea Cellular 2,584,577 10.49 2,443,990 10.46

Reliance Telecom 756,415 3.07 704,746 3.02Total India 24,648,600 100 23,362,322

Market growth rate:

The high growth rates are likely to continue in the foreseeable future. Telecom

industry is posting high growth in phone subscribers. The number of subscribers

increased by 33.8% to 74.31 million for the period Apr-Feb 04, compared to the

corresponding period in the previous year.

Growth in mobile phone subscribers is over 100% through out the year. The

highest growth was in May 03 when mobile subscribers increased by 679%

to 2.26 million over corresponding month of previous year. The growth rate

was slowest in Feb. ’04 at 111% to 1.67 million.

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In February 04, 1.67 million (including WLL (M)) mobile phones subscribers

were added. Compared to Jan.’04, WLL (mobile) phones increased by 5.4%

to 7.02 million, where as cellular phones increased by 5.6% to 24.65 million.Compared to Jan.’04, mobile companies registered subscriber increase of

4% to 7.67 million in metros, 5% to 9.01 million in ‘A’ circle, 6% to 6.94

million in ‘B’ circle and 10% to 1.02 million in ‘C’ circle.

Telecom: Growth in mobile subscriber over earlier months of

2004

City/ Circle Subscriber

Base

% of

Total

Var.

(%)

Subscriber

Base

% of

TotalMetros 7,670,429 31.1 4 7,363,045 31.5

A Circle 9,013,481 36.6 5 8,548,380 36.6B Circle 6,942,389 28.2 6 6,521,428 27.9C Circle 1,022,301 4.1 10 929,469 4

All India 24,648,600 100 6 23,362,322 100

Stage in business life cycle:

The Indian telecom industry is its growth and takes off stage in business

life cycle.

• Tariffs and ARPU (Average Revenue Per Unit) :

Falling tariffs and addition of more ‘low-end’ customers have led to

unabated fall in average revenue per users (ARPU) of private GSM

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cellular operators, with the ARPU for the first quarter of ’04-05 declining

by 6.8% to touch Rs 402.1 crore, compared to the previous quarter.

With the low tariff and reducing cost of cellular handsets, increase in

consumer base was towards low end. This has resulted in reduction of ARPU by 17%. The ARPU for the March 2004 quarter (Q4) is Rs 432, a

fall of Rs 91 when compared with June 2003 quarter (Q1) numbers. As

per the COAI report, the number of subscribers with a monthly ARPU of

less than Rs 500 has gone up from 28% in 2002 to 46% in 2003.

In the January-March quarter, ARPU of cellular companies was Rs 431.3

crore, according to the latest report by Cellular Operators’ Association of

India (COAI).

Income

The income is also considered as industry’s dominant economic factor.

Before few years the telephone was considered as a luxury item. But after

few years of economic reforms in 1992 the per capita income is increasing

and technology develops, the telephone becomes a basic requirement

rather than a luxury item.

Now a days as the prices of the telecom are decreased the telephone is

become a part of family of different income groups.

Impact of Interim Budget 2004

Budget Initiatives

Customs Duty on cellular phones reduced from 10% to 5%. Special

Additional Duty (SAD) of 4% abolished. Customs duty on specified raw

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materials/inputs used for manufacture of electronic components or optical

fibers/cables reduced from 15-5% to 5%-nil. Specified infrastructure

equipment for basic/cellular/Internet/V-SAT, radio paging and parts of

such equipment exempted from basic customs duty.

• Major budget announcements

• In Budget ’04, Finance Minister has met some of the demands of the

Telecom Sector

• Telecom sector has been identified as a thrust area and universal access

to telecommunication facilities has been set has a goal. Sector cap for

FDI in telecommunications has been raised from 49 % to 74 %

Extension of the commencement date for service to March 31, 2005 for

availing benefits under Section 80 IA Customs duty exemption for import

of mobile switching centers has been extended to universal access

service providers also.

• Specified items for manufacture of telecom grade optical fibers and

cables and specified capital goods for manufacture of mobile handsets

are proposed to be exempt from customs duty.

• A rescue package of Rs 508 crore has been formulated for

Indian Telephone Industries (ITI)

• Another major impact has been the increase of service tax from

8% to 10% and additional educational cess of 2% With the low tariff

and reducing cost of cellular handsets, increase in consumer basewas towards low end.

• According to Cellular Operator Association of India’s (COAI)

report, GSM operators in India were able to increase the cellular

subscribers from 14.1 million in May 2003 to 28.1 million by May

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2004. The subscriber base of telephony services (inclusive of fixed &

mobile) has increased 39.07% from 57.15 million in May’2003 to

79.48 million by end May 2004.

Budget Impact

The reduction in the custom duty on imports of capital goods would

reduce capital cost and will help the telecom companies to increase

penetration which is around 7.4 telephone connections per 100 inhabitants

by end-February 2004.

The mobile subscribers are likely to continue to show strong growthrates for next couple of years on the back of falling entry costs, affordable

tariffs, new value added services, high-decibel marketing and higher GDP

growth.

ECHOLOGICAL AND HEALTH FACTORS

Especially from the environmental pollution point of view under the

ecological factor, the telecom industry was considered as pollution free

industry. But after some scientific findings the analysts conclude that thewaves from the cell tower can create some hazards to the environment,

which can badly affect on the physics of live bodies.

The facts regarding this issue is given below:

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WAVES and radiation from mobile phone towers can affect the health of

those in the vicinity. The point — raised by Director Health Services (DHS)

Dr. C.P. Bansal and head of Neurology Department at PGI, Dr.

S.Prabhakar — adds to the problems the administration is facing onaccount of these towers.

The issue was raised at a meeting of the officers of UT administration, PGI,

Health Department, Air Force and Department of Telecom (DoT) in which

the two said the probable impact could be on the heart or brain, depending

on the location of these towers.

Explaining, Dr. Bansal said the 30 meter horizontal area around the towers

was not safe, and precautions must be taken if a person has to go within

three meter of these.

Dr. Prabhakar said as the wave effect was in the horizontal direction, the

tower should not be lower than the neighboring buildings. Secondly,

maintenance workers should climb the towers only when they are switched

off or if they are wearing protective gear, according to minutes of themeeting. UT officials say though no exact number is available, a number of

towers in the city are lower than the surrounding buildings.

The Air Force officers said they needed to know the exact location of every

tower in the city even if they did not fall in the take-off and approach funnel

of aircraft. The officers added these towers should be provided with a

continuous red light as per the rules.

On this, officials of DoT and Telecom Regulatory Authority of India (TRAI)

said the specific location of each tower was cleared by Standing Advisory

Committee on Frequency Allocation (SACFA) in which all concerned

departments of government of India were involved. The Air Force

29




Headquarters gives nod only after consulting the field formations

concerned.

There are 168 mobile towers in the city out of which 15 are in residential

areas, according to a recent administration survey.

News Courtesy : Expressindia.com

• Some other issues showing negative effect on health

• Degenerative diseases like Alzheimer’s and Parkinson’s might be

linked to exposure to cell phone magnetic fields.

• Heavy mobile users are involved in twice as many fatal road accidents

than light user globally.

• Worldwide, risk of a car accident is four times greater when the driver

is using his mobile phone or soon after call.

• Carrying a mobile in the hip pocket or a cell phone holder on the waist

can cut sperm count by nearly 30%.

• A 2004 report from the U.S confirms the ability of low level magnetic

fields to cause DNA damage and brain cell death in rats.

• Radiation from a cell phone’s antenna can cause the formation of

micronuclei red flags for cancer in the brain, especially among children.

• 70% of the microwave radiation emitted by cell phones is absorbed by

the head, creating ‘hotspots’ in the brain, said by one British and two

American studies.

• Studies in Sweden and Switzerland show that radiation from mobile

phone calls disturbs sleep.

30

http://cities.expressindia.com/fullstory.php?newsid=95867

http://cities.expressindia.com/fullstory.php?newsid=95867




31




SOCIAL FACTORS

• As a best Interactive medium

As the cities are expanding very fast at geographically and the life style

of people growing in a faster way, telephone becomes a best interactive

medium for communication.

• To maintain social relationship

Telephone becomes a best interactive medium for our societies to

maintain social relationship. As we have the habit of living with family andstaying in continuous touch with it, the telephone becomes the best

solution for this whenever the people go out side the home, city, state or

country.

• For business purpose

Telephones are the heart of every business as it is the best way of

communication. In compare of mail the telephones are faster for

communication. While in compare of Internet, telephones are proven as

the easiest and having good coverage medium in Indian society.

As the international business grows up under the WTO the telephone

and Internet plays very important role in the business operations.

• For interacting internationally

In the earlier time it is very difficult to communicate with the people living

out side the country. The world seem the thing out of our palms. But after

the arrival of telephones the world becomes smaller. People can

32




communicate with each other by standing at any corner of the world by

just pressing few keys on telephone.

Now a days so many people go abroad so the internet and telephone are

the only way of communication to interact with their family members.

• Mobile telephony grow at the cost of FMCG industry

Large scale acceptance of mobile telephony by consumers has affected

the consumer spend on fast moving consumers durable goods.

While the FMCG market saw a compounded annual growth rate of 4% to

Rs 44,847 crore between FY1999 and FY2004, the wireless market grew

by 55%.

33




TECHNOLOGICAL FACTORS

Indian carriers offer mobile services based on both the Global System of

Mobile (GSM) communication platform and Code Division Multiple

Access (CDMA) technology.

Worldwide GSM subscribers in March 2004 were 1046 billion while CDMA

subscribers during this period was 199 million. In India also both the

technologies are competing with each other. GSM is still the preferred one.

Both GSM and CDMA service providers are of the view that a combination

of cost and value added service is the key to retain subscribers and bring in

new ones.

GSM (Global System for Mobile communication):

The working and operational process for the mobile servicing is very

complicated in compare to the fixed or lands line services. Because here the

waves for the communication are digital and analog both. And to

communicate well it is required that all the functions starting from the analog

waves entered in the mobile instrument of the user converted in the digitalwaves and then again formed in the analog waves should be completed by

the perfect calculation of the service provider’s computerized network and the

electronic circuit of the micro processor of the users mobile phone. The rules

and regulations for these whole operations should be equal and centralized

within a whole network.

And to fulfill this requirement in 1982 the European countries had adopted a

system having the equal technological standard now, which is known as

GSM. Round about 170 countries has accepted this standard and about

72% of the total mobile instruments are of the GSM standards.

34




In GSM technology there are two other technologies are in use.

1> FDMA (Frequency Division Multiple Access):

The mobile phone servicing company divides its frequency

band of its cell in small strips. For example Indian government

has given a 10 MHz frequency band for per cell. The two phone

users require a band of 200 kHz. So 10 MHz band gives 50

conversations at a time.

2> TDMA (Time Division Multiple Access)

In this system in case of frequency the time is distributed

between the user of mobile phone in which the multiplexes of

the mobile switching center do the job of cut down the time of

the different users conversations in equal period of standard

milliseconds.

CDMA (Code Division Multiple Access):

In GSM technology some times when the digital waves are passing through

the one channel there is the possibilities that they become weaker and we

cannot hear the voice clearly. To overcome this problem the new technology

called CDMA used widely now a day.

In which the instruments of the CDMA technology divide the waves and

distribute it along in a whole band giving a unique code to each part of that

wave. By this the users can have a continuous and clear conversation.

35




• In January 04, With the introduction of Unified Access Service license,

Telecom Regulatory Authority of India (TRAI) has recommended a

change in the numbering scheme of CDMA mobile services to bring them

on par with the GSM mobile numbers. Currently, while the GSM mobilenumbers are 10 digits, the CDMA numbers are of eight digits. Numbering

scheme for full mobility provided by the existing basic service operators

who have migrated to unify access service license should be at the same

level as that of GSM cellular subscribers.

• Government Policies regarding technology:

Technologies are changing fast in the Telecom Sector and it often

becomes difficult to manufacture state-of-the-art equipment all the time,

as it involves huge financial implications to upgrade the existing

manufacturing base. To get cope up with the technological innovations

and upgrade the existing manufacturing base a 10-year tax holiday is

suggested which may be extended to the existing manufacturing units as

well to the new units.

Use of domestically manufactured equipment and TEC approved

products be made mandatory in the national network as well as in the

private service providers. All the service providers may be given a benefit

of deducting 1/3rd of the cost of using indigenously manufactured

telecom equipment from the gross adjusted revenue for the purpose of levying revenue sharing charges.

• About the location and number of towers.

36




The telecom operators want to minimize the number of towers to save

money but more than two service providers cannot share a tower

because of technical reasons. If it is done, the service quality dips.

DEMOGRAPHIC FACTORS

The distribution of Telecommunications users in terms of age, employment,

size and location of businesses etc., are also major parameters for the use

and priority of Telecommunications services. The following sections provide

information on the demographics of residential and business use of IT

(Information Technology). This is considered a suitable surrogate for telecommunications services, especially because Telecommunications

services for Internet access are the focus of current Industry debate.

Residential Users

Information from Australian Bureau of Statistics (ABS) has been used

to identify relevant user groups. The demographics for these users

are extremely broad.

In February 2000, about 50% of households had computers, a 5%

increase over February 1999 and an 8% increase over February

1998. About 28% of households had Internet access, a 10% increase

over February 1999 and a 15% increase over February 1998. This

information shows that Internet access has become a significant

service and has, therefore, been included in this constancy as a

separate telecommunications service.

According to ABS 8147.0 Use of the Internet by Householders,

Australia, February 2000, the presence of children appears to be an

37




important factor in the decision to acquire Internet access. In February

2000, 37% of 'Households with children under 18 years’ had Internet

access, compared with 22% of 'Households without children less than

18 years'. Consequently, it was decided to distinguish betweenhouseholds with and without children (students) in the residential user

group.

Internet access varies substantially with age. Of persons aged 18-24

years, 77% had accessed the Internet during the 12 months to

February 2000. The number decreases with age and, of persons aged

55 years or more, only 13% had accessed the Internet during the

same period. This information strongly suggests that age is a major

driver for use of Internet access, and the Elderly were included as a

specific user group in the survey.

Business Users

The business size and use of Information Technology (IT) are major

drivers of business use of telecommunications. The use of IT by

business provides a good indication of the telecommunications needs

of different business groups. In the following are highlights from the

ABS publication Australia Now - A Statistical Profile Communications

and Information Technology, Use of Information Technology 1999.

The ABS statistics show that Small/Medium Businesses do not have

the same high penetration of computer and Internet usage as large

businesses, corporate and government users. According to ABS

publication 8119.0 Government Use of Information Technology,

Australia, 1997-98, 100% of Federal departments and agencies had

Internet access followed by 85% of State/Territory and 77% of local

38




government. In ABS’ Special Article – The Information Society and

the Information Economy in Australia (Year Book Australia, 1999), the

proportions of business using the Internet were 19% of small, 49% of

medium and 85% of large businesses.

The figures for business Internet access indicate that small, medium

and large business have quite different requirements, which justifies

the separation of business users into a number of groups.

According to the ABS, the total number of Australian businesses in

1998 was approximately 983,000. The penetration of Internet access

within businesses of different size should be seen in the light of the

total number of businesses.

Health

The health sector consists of private and public hospitals as well as

community health centres and other institutions. Other health facilities

such as GP’s, specialists, radiology clinics etc. are included in SOHO

or Small/Medium Business, as appropriate.

Little statistical information is available for use of Information

Technology within the Health sector. Based on the extensive

knowledge, Gibson Query conclude that the sector is substantially

reliant on Information Technology and operates extensive digital data

and voice networks between all sites for purposes such as

administration, education, remote diagnosis and tele medicine. Often

a teaching hospital in a metropolitan or rural area or a base hospital in

a rural or remote area will be the hub in a data network reaching out

to smaller regional hospitals and community health centres. These

39




hospitals, in turn, are often connected to each other and to a state or

national health network.

Education

Education includes all educational facilities, including primary schools,

high schools, universities and TAFE colleges.

There is an increasing trend that educational facilities have Internet

access. An example is VicOne, the Victorian Government data

network which, connects all schools to the Internet. Paul Budde

describes in the National Bandwidth Inquiry Report and in 1999/2000

Telecommunications Strategies the growth in Internet use in schools.

The NSW Department of Education has informed us that all schools in

NSW have telephone services and all TAFE colleges and

approximately 80% of schools have fixed data services.

Overall Telecommunications Service Priorities

The priority scores have been summarised for each user group. In

assessing an average of the scores, the population and priority score of

each user category within each user group has been taken into

consideration. For example, a very large population with a score of 3 will

carry a large weight over a small population (within the same User Group)

with a priority score of 5.

40




Service Priorities by User Group

The priorities for each group have been assessed and summarised below.

The scores of 1 to 5 have been used as before where: 1 indicates that

few or no users in the group use the service or few or no users rely onthe service and 5 where most or all users use the service and most or

all rely on the service when it is available.

Services

R

e s i d e n t i a l

S m

a l l / m e d i u m

B u s i n e s s

L a r g e B u s i n e s s ,

C o

r p o r a t e a n d

G

o v e r n m e n t

H e a l t h

E d u c a t i o n

Fixed Telephony Services 5 5 5 5 5Fixed Digital Data Services 1 2 4 5 5Mobile Telephones 3 5 5 4 2Mobile Data 1 2 3 2 2Public Telephones 3 2 3 5 3Internet Access 4 4 5 5 5Radio Paging 1 2 2 5 1Special Services for Disabled 3 3 3 5 3

Key to Priorities: 1 = Very Low Priority, 2 = Low priority, 3 = Medium Priority, 4 = High

priority, 5 = Very High Priority

41




TRAI

TELECOM REGULATORY AUTHORITY OF INDIA

INTRODUCTION

42




Telecom Regulatory Authority Of India, a statutory and quasi-judicial

body was formed by an Act in Indian Parliament to regulate the vast

telecom sector. The necessity to form such a regulatory body in line

with SEBI, IRDA etc. was felt when the telecom sector was open toprivate sector. Plainly speaking it’s job could be comparable to an

umpires’ of a game field. It has been given the liberty to act without the

intervention of bureaucracy or some self-serving politicians,

The skirmishes encompassing TRAI came to limelight due to conflict among

various telecom operators. That’s exactly the duty of this regulatory

body, as has been entrusted with the statutory power, umpiring on

behalf of the public for smooth telecom service.

If one reviews the sequence of it’s orders/regulations, chronologically, to

various telecom operators and the crucial policy changes with regards

to service changes, the monopolistic and arbitrary attitude is clearly

visible.

Unfortunately, It’s a matter of concern that INTER CONNECT USAGE

REGIME ordered by the same agency is being reviewed again by itself

within two month’s of it’s enforcement. It could have been reviewed

before it has been implemented or could have been kept for public

perception or operator’s opinion. If an telecom regulator of a country

having almost 7 crores telephone connections could act in such a haste

manner without taking into consideration of aspects of technical

feasibility, accounting, public psyche etc. into oblivion.

43




Though operators have the requisite expertise technically and financially to

provide cheaper telecom service, TRAI is there only to make it costlier.

e.g. BSNL and RELIANCE . If they could offer cheaper telecom

services them, TRAI should not prevent them in the name of ’PREDATORY PRICING ’.

It’s appropriate time to review the role of TRAI and other Statutory

Regulatory bodies by the public forum and parliament as well, rather

than giving it a free reign to act on this way to the tune of certain

players.

Telecom Regulatory Authority of India (TRAI) and its First judgment

On April 25, 1997, the recently constituted Telecom Regulatory Authority of

India (TRAI) gave its first judgment -- a landmark one, delivered with speed

and style. This judgment and its no-nonsense approach could well set the

stage for things to come.

TRAI quashed DoT’s (Department of Technology) order of January 29,

which had sought to hike rather steeply, the price of calls made by users of

ordinary fixed line phones to cellular subscribers in the non-metro areas.

Even the cellular operators, whose stand was accepted by the TRAI, would

accept privately that the respondent DoT was poorly served by many of its

officers and lawyers who were entrusted with the task of representing DoT’s

case.

They seemed to have cut a very sorry figure before TRAI, ignoring or not

being prepared by reading pertinent papers, such as tender documents, the

44




clarifications offered to would-be bidders, or the correspondence that DoT

was having with the operators later. Since the tender documents mentioned

that tariffs would be the same for circles and metros, it would have made

sense for DoT to seek legal advice on how to correct a mistake, if that iswhat it was. An appeal to TRAI could perhaps have been recourse, as the

body is in charge of tariffs.

Fixed line users pay local call rates when they dial a cellular number in the

four metros (Calcutta, Chennai, Delhi, and Mumbai). But users in the circles

(which are typically the same as states) would be charged Rs10 per call for

the same facility, if the DoT order in question had not been quashed.

DoT had raised current rates on grounds that such charges were low and

allowed users in the circles which are much larger than metros, to make

long distance calls without paying STD charges. On the face of it, DoT is

entitled to want to change this state of affairs. But in trying to correct one

injustice to itself, it managed to inflict several on the users and other service

providers.

The cellular operators lost no time in going to the courts, since TRAI did not

then exist. The courts in turn took an enlightened decision to pass the matter

on to TRAI on March 3, as the body had been formally constituted by then.

TRAI took a few weeks to give its judgment and ruled against the

Department of Telecom. The body was not persuaded about the justness of

DoT’s order.

Nor was TRAI particularly impressed by the operator’s contention that DoT

was not authorized to raise these tariffs. The judgment clearly says that the

order of DoT to raise the tariff was passed before the TRAI was formally

45




constituted and during the said period in question, the DoT was the sole

body with the power to amend tariffs.

Function of Telecom Regulatory Authority of India

• The main functions of the TRAI would be to recommend entry of new service

providers, ensure technical compatibility and effective connectivity between

different service providers, regulate arrangement of revenue sharing derived

by the service providers and ensure compliance of terms and conditions of

license.

• Besides, the TRAI would facilitate competition and promote efficiency and

sustained growth of telecommunications services, monitor the quality of

service provided by the service providers, inspect the equipment used and

recommend the types to be used by the service provider and settle disputes

between service providers.

• It would adjudicate disputes, which arise between service providers or between a service provider and a group of consumers.

• It would not touch matters, which lie within the purview of the Monopolies and

Restrictive Trade Practices Act and the consumer fora.

TRAI Releases “Consultation Paper On Introduction

Of Internet telephony”

I. INTRODUCTION:

46




TRAI issued a Consultation Paper on introduction of Internet Telephony.

This paper provides information on the existing global scenario regarding

Internet Telephony and gives the background on various policies, licensing,

regulatory and technical issues relating to Internet Telephony. It clarifies theoften-ignored difference between Internet Telephony and Voice Over

Internet Protocol (VOIP), the two different variants of IP Telephony. Internet

Telephony is generally considered as a cheaper option for making long

distance calls and hence may result in reduction in tariffs to the benefit of

the consumers, albeit this is accompanied with lower quality of service than

the conventional telephony (PSTN).

The Government has sought TRAI’s recommendations on various aspects

of Internet Telephony. The consultation paper has been prepared with a

view to discuss the issues in detail with various stakeholders. The main

objective of this paper is to solicit the informed views of various stakeholders

including Service Providers, Consumers, Consumer Organizations and

others interested in the subject. The main issues raised in the paper are

given below.

II. MAIN ISSUES RAISED IN THE CONSULTATION PAPER:

1. Cost of Internet Telephony in comparison to PSTN Telephony

Normally Internet Telephony is considered to be less costly than the

conventional PSTN Telephony. Important reasons for this are policy

related namely non-payment of settlement rate and different

Interconnection or Access charges. A closer look may, therefore, be

required to compare cost related to networks.

2. Quality Of Service:

47




Internet is a best effort service in terms of guarantee for Quality of

Service (QOS). Its degraded quality may have implications for

consumer acceptability.

3. Who should be allowed to provide Internet TelephonyVarious possibilities may be considered, ranging from only ISPs,

being allowed to provide Internet Telephony or only BSOs/NLDOs

being permitted to Open entry for all creating a new type of service

namely Internet Telephony Service.

4. Tariff and Interconnection Charge Policy for Internet Telephony

It is difficult to unbundled the various elements of an IP based network

to separate out the cost of local call, long distance call andinternational calls as in PSTN. In this background different charging

principles like Volume based charging, Flat Rate charging or Time

dependent charging for Internet Telephony may have to be

considered.

5. Contribution to Universal Service Fund (USO)

Normally all the providers of Telecom service are required to

contribute towards USF as a share of their revenue. It is to be

deliberated whether Internet Telephony Service Provider (ITSP) will

be treated similarly or not?

6. Level Playing Field Issues

The existing BSOs/NLDOs have to pay entry fee, licence fee and are

subject to rollout obligations etc. What would be the effect of these

factors on Level Playing Field with ITSP if their terms and conditions

are not the same.

7. Digital Divide

48




Would the introduction of Internet Telephony enlarge the digital

divide? If so, what policy should be followed to address such a

possibility.

8. Impact on Infrastructure DevelopmentWhether the Introduction of Internet Telephony would adversely affect

the growth of Telecom infrastructure in the country or would it imply a

faster spread of Telephony.

Comments on the issues raised in the Consultation Paper are to be

provided by 15.12.2001 to TRAI. This paper is also available on

TRAI's Website (www.trai.gov.in). The various issues will be

deliberated upon during the Open House Consultations planned to beheld in the next two months in major cities.

49

http://www.trai.gov.in/

http://www.trai.gov.in/




TELECOMMUNICATIONS REFORM PROCESS IN INDIA

Indian telecommunications sector has always been like a “Natural

Monopoly”. But this monopoly could not keep up with the technologicalchanges taking place in the telecom sector. Dismantling of monopoly lead to

emergence of keen competition and lowering of tariffs, leading to consumer

satisfaction, better services and sound infrastructure.

The ISPs opened in 1998 and private sector started showing a lot of interest

in the telecom growth. With New Telecom Policy 1999 (NTP-99), there was

migration from fixed license fee regime to revenue sharing. Further opening

up of the National Long Distance (NLD) market with unrestricted entry and

preponement of International Long Distance (ILD) market opening from

2002 to 2004 made a landmark in the Indian telecommunications history.

The underlying theme of the reform process was to usher in full competition

through unrestricted entry in almost all the service sectors. India is proud

today because various telecom reforms committed under NTP-99 are almost

complete, some ahead of schedule. Also there is an increased availability of

bandwidth with efficient usage. All telecom services like basic, national long

distance, cellular, VSAT etc were opened to the private sector with free

competition except those limited by Spectrum (cellular). The Indian telecom

sector is the eighth largest network, with annual growth rate of more than

22% for basic services and almost 100% for Internet and cellular services.

The lines added to basic services in last 5 years are one-and-a half times

more than that added in the last 5 decades

50




INDUSTRY PROFILE

51




INDUSTRY STRUCTURE

The telecom sector can be broadly divided into service providers and

equipment manufacturers. Service providers consist two, namely basic

(fixed line) and value-added.

(A) Service Providers

Value-added Service Providers:

The value-added services include cellular, radio paging, public mobile

radio paging, trunking, global mobile positioning communication

services, v-sat services, electronic mail, voice mail, internet services

etc. in all these areas, the policy of the government has undergone a

sea change over the period of the years and especially after the new

telecom policy '99.

In value-added category, cellular mobile service is the most visible in

which private players can operate in all the 22 circles in the country

including the 4 metros. In each circle, 2 operators were initially

allowed and later BSNL or MTNL was given the choice as the third

operator. Now, a fourth player is also allowed as per the new

guidelines and many cities have already witnessed a four cornered

fight amongst the cellular operators.

Basic Service Providers:

The basic service segment was earlier dominated by the public sector.

The department of telecom services ( Bharat Sanchar Nigam Limited)

provides basic service to the entire country except Mumbai and Delhi,

52




which is being catered to by Mahanagar Telephone Niagm (MTNL).

Videsh Sanchar Nigam (VSNL) was earlier the international service

provider catering to all the telecom services originating from India to

overseas. But now, VSNL is no longer a government company post itsdivestment. Further its monopoly has also ended from 1 April 2002

and private players can provide international telephone services.

Some players like Bharti have already taken a lead and may start

providing services in the near future.

The basic telephony sector has virtually been in the grip of the

government till a few years back. It was opened up to private sector during 1994 when six companies got licenses for operating the basic

services in six areas. The six licenses were given to Bharti telenet,

Essar commvision, shyam telecom, Hughes telecom, TATA

teleservices, and reliance telecom for Madhya Pradesh, Punjab,

Rajasthan, Maharashtra and Goa, Andhra Pradesh and Gujarat. Now,

the government has issued further licenses to players like reliance,

TATAs, HFCL, Bharti, Aircel digilink and Birla AT&T for 76 circles.

Now, there is now no bar on the number of players that can provide

basic services.

(B) Telecom equipment manufacturers

Telecom equipment manufacturers are the other category of players

in the industry, which was exclusively reserved for government

enterprises until 1984. Till that time it was dominated by Indian

telephone industries (switching, transmission and terminal

equipments). hindustan cables (cable products) and hindustan

teleprinters (telex machines/ modems). Thereafter, private entry was

53




allowed in the manufacture of telephone instruments, cables,

transmission equipment, small switching exchanges developed by c-

dot and manufacture of large exchanges.

At present, private sector is allowed to manufacture the entire range of

telecom equipment. Now several new private players like himachal

futuristic, global telecommunication, Bharti telecom, TATA telecom,

shyam telecom, etc. are serious players in the field.

The production of telecom equipment in India increased from used 1.3

billion in 1993-94 to used 2.48 billion in 1997-98, and is expected to

reach used 5 billion in 2002. The requirement of telecom equipmentby various users during the five-year period from 1997-2002 is

estimated at used 22.3 billion, of which equipment worth used 18.5

billion will be produced in India.

54




DRIVING FORCES

While it is important to judge what growth stage an industry is in, there is

most analytical value in identifying the specific factors causing

fundamental industry and competitive adjustments. Industry and

competitive conditions are change because forces are in motion that

creates incentive or pressure for change. These dominant forces are

called driving forces.

The most common driving forces for Indian Telecom Industry are.

Product innovation.

Product innovation can shake up the structure of competition by

broadening an industry’s customer base rejuvenation industry growth,

and widening the degree of product differentiation among rival sellers.

Successful new product introductions strengthen the market position

of the innovation companies, usually at the expense of companies

that stick with their old products or are slow to follow with their own

versions of the new product.

In the telecom sector, now a day, so many innovations are to be done

in telephone instruments as well as in the way of the services

provided by the companies.

Technological change.

Advances in technology can dramatically alter an industry’s

landscape, making it possible to produce new and better products at

lower cost and opening up whole new industry frontiers.

The telecom industry is highly depending on the technology. Right

now we have so many latest technologies available which are

becoming expire due to the newly coming technology everyday in

55




products, services, networking and every dimension of telecom

sector.

• Marketing innovations.

The marketing innovations are also very important driving forces as somany international companies as well as other national private

companies enter in the industry. We have the example of BSNl’s

marketing strategies, after the entry of Reliance, TATA, hutch and

other players.

Entry or exit of major firms.

The entry of one or more foreign companies into a market once

dominated by domestic firms nearly always sakes up competitive

conditions. Likewise, when an established domestic firm form another

industry attempts entry either by acquisition or by launching its own

start-up venture, it usually applies its skills and resources in some

innovative fashion that pushes competition in new direction.

The classic examples are the Indian telecom sector after entry of

Reliance, TATA, AT&T and other biog giants.

Diffusion of technical know how across more companies and more

countries.

As knowledge about how to perform a particular activity or execute a

particular manufacturing technology spreads, any technically based

competitive advantage held by firms orig9inally possessing this know-

how erodes. The diffusion of such knowledge can occur through

scientific journals.

In the Indian telecom industry, we can see the effect of this factor by

the example of Idea cellular, a joint venture of Birla, AT&T and Bharti.

56




Regulatory influences and government policy changes.

Government regulatory actions can often force significant changes in

industry practices and strategic approaches. Deregulation has proved

to be a potent procompetitive force in the telecom industry.

KEY SUCCESS FACTORS

• Technology

The entire sector is technologically intensive. Rapid advances made

in the developed countries have changed the dynamics of the sector.

Wireless communication, bandwidth up gradation and Internet is all

example of this. By the digital communication techniques there are

drastic improvements are being carried out in the Indian telecom

industry.

• Capital Requirement:

The capital requirement for the industry is vary high as India is

developing country still it requires a new development in

telecommunication.

• Government policies:

The earnings of the sector hinge on government policies. The

formation of TRAI is a right step. The role of TRAI and DOT are

spread over tariff fixation as a regulator and arbitrator. In a business

where government is both a service provider and a policy maker,

57




independent regulator is key if interests of the private sector are to be

taken care of.

• Service A service is one of the key components for success for the industry.

As price of the service is also a major one, price reduction holds

another key for the success of the industry. Value-added services and

network are some other success factors.

• Service charges and Network

The industry has to operate on a twin objective of reducing service

charges on the one side, and improve infrastructure network on the

other hand. Prices of telecom services are politically sensitive.

• Acquisition and Mergers

Acquisition and mergers with giant companies is also considered as a

key success factor because by this way companies can expand their

networks smoothly in the country and share the investments as wellas other expertise.

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TELECOMMUNICATIONS SERVICES

Telecommunications Services CategoriesFor the purpose of this report Gibson Quay consider that

telecommunications services may be classified into the broad

categories below. The broad service categories analysed are:

1. Fixed Telephony Services including Facsimile capability;

2. Fixed Digital Data Services;

3. Mobile Telephone;

4. Mobile Data;

5. Internet Access;

6. Public Telephones;

7. Radio Paging; and

8. Special services for the Disabled.

End users may use these services individually or combined with

Customer Premises Equipment (CPE) to provide other services or

applications such as video conferencing, which uses Fixed Digital

Data Services together with video conferencing equipment. The

above telecommunications services are further described and

subdivided into the lists provided in Appendix B.

The functionality, which the services provide for end users is

summarised below.

Initially, the Fixed Digital Data Services category was split into "Digital

Data Services" and "Leased or Dedicated Lines". However, during the

interviews and the data analysis it became clear that these services

and access technologies often were combined to deliver the required

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service and that, as a consequence of this, a strong correlation exists

between the priorities for these services. Thus, in the analysis and the

reporting of the results, the two services were combined in the "Fixed

Digital Data Services" category.

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Telecommunications Service Functionality

Table 1 provides definitions for the categories of telecommunications

services investigated in this report. The definitions have been derived

from common industry categorisation as well as definitions used for

example in the Universal Service Obligation.

Service Functionality

Fixed

Telephony

Services

including

Facsimile

capability

These include prepaid all Standard Telephony Services (STS)

as defined by the Universal Service Obligation (USO) and

include the ability to make and receive voice calls, local

untimed calls, long distance, international, fixed to mobile,

access to Emergency 000 number, directory assistance 12456

& 12xxxx, 13xxxx, 1300, and 1800 and other information

numbers depending on the users class of service, as well as

the provision of CLI (Calling Line Identification), predilection

(ability to automatically select a carrier for long distance and

international calls) and Carrier override code (ability to select a

carrier for long distance and international calls on a call by call

basis) throughout Australia. Additional STS features may

include call waiting call forwarding / diversion, messaging and

billing records provision. Small, medium and large businesses

may also be provided with additional functionality including

PABX, in-dial and Centrex.Fixed

Digital Data

Services

This service category includes Digital Data Service and Digital

Data Lines. These services provide digital data and voice

transmission using fixed lines from a customer’s location to the

public network where switched or dedicated point to point and

point to multiunit connections are made. Digital Data Lines may

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be further categories into Switched and Dedicated Digital Data

Lines.Mobile

Telephone

Mobile Telephone Networks enable wireless connections

between user handsets and other fixed or mobile networks.

Voice calls can be received and made while in a fixed location

or moving as long as there is radio coverage in the area.Mobile

Data

Mobile data generally involves specialized mobile data

networks (e.g. for packet data applications such as telemetry,

meter reading and courier companies).Internet

Access

Internet Access services will be subdivided into the speed of

access and whether the service is switched or dedicated. Low

speed analogue switched dial up access is available at various

speeds, ranging from 2.4kbps (minimum STS guaranteed),

through 28.8kbps to 56kbps. Low speed digital switched start at

64kbps, with higher speeds at n x 64kbps providing digital

switched connections. High speed dedicated access is from n

x 64kbps to 2Mbps, and Broadband dedicated access with

speeds from 2Mbps to over 10Mbps.

PublicTelephone

Public telephones, Prepaid and Stored Value Card Services,

Radio

Paging

Radio Paging is an economic messaging and alert service with

a wide geographic coverage and is used as an alternative or in

addition to mobile telephony.Special

Services

Special equipment and services for disabled persons e.g.

telephones for the hearing impaired.

Table 1: Definition of Telecommunications Services

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INDIAN TELECOMMUNICATION SECTOR AND MAJOR PLYERS

Already growing Indian telecommunications sector is experiencing the era of

liberalization, adding fuel to the fire. Due to open competition, privatecompanies can setup networks with state-of-the-art convergence

technologies and establish themselves directly as info-communication

companies. This advantage allows them to directly compete with the

established and traditional telcos. In India, VSNL (Videsh Sanchar Nigam

Limited), DTS (Department of Telecom Services) and MTNL (Mahanagar

Telephone Nigam Ltd) are traditional telcos. While DTS is fully owned by

government, MTNL and VSNL are public sector companies in which

government holds majority stake. Though they stand together in telecom

sector but VSNL is more monopolistic, DTS is more bureaucratic and MTNL

is more corporate in their operational outlook. Tele (Info) communications

infrastructure in India can be segmented into three parts:

1) LMA (Last Mile Access): - LMA provides direct connection to the

subscriber by means of copper/wireless local loop, ISDN access, dial-

up Internet access etc.

2) NLDA (National Long Distance Access): - NLDA deals with the

inter-connection infrastructure among the telephony exchanges,

Internet traffic nodes across the nation.

3) IA (International Access): - IA is meant for international

connectivity infrastructure comprising of voice circuits, Internet

gateways etc.

(The quote “In India IA Internet gateways etc.” has been quoted from

http://www.indiainfoline.com/nevi/vsmt.html).

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VSNL

Brief history of VSNL

VSNL was incorporated on April 1, 1986 under the Indian Companies Act ,

1956 to take over the activities of the erstwhile Overseas Communication

Services (OCS).

The company operates a network of earth stations, switches, submarine

cable systems, and value added service nodes to provide a range of basic

and value added services The first Submarine Telegraph Cable from U.K.landed in Bombay in 1870, heralding the era of external telecommunications

in India.

The Eastern Telegraph Co. (ETC) of 1872 and the Indian radiotelegraph Co.

(IRT) of 1927 merged to form the Indian Radio and Cable Communications

Co. (IRCC) in 1932.

The H.F. Radio telegraph made its appearance on the scene in 1927,

followed by Radiotelephony in 1933.

Consequent to India's Independence in 1947, there were phenomenal

developments in her communication system and technology. The

Government of India took over the IRCC, giving birth to the Overseas

Communications Service (OCS), a Government Department.

The satellite era dawned in 1970. India also had, by 1982, wideband

submarine telephone cable system and Troposcatter system in the external

telecommunications network.

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On April 1, 1986, the Videsh Sanchar Nigam Limited (VSNL) - a wholly

Government owned corporation - was born as successor to OCS. Analogue

systems all over the world gave way to the more efficient and technically

viable digital systems. Optical Fiber Cable systems now girdle the globesupplementing the satellites that the earth.

There were unexpected developments in mobile communications too. Now it

is possible to communicate and do business with people on the move - on

land, on the high seas or in the air, even while you are moving from one

place to another. These developments also made possible safety through

communications - during natural calamities like flood or earthquake or man-

made calamities like war, when conventional systems are thrown out of

gear. Meanwhile, VSNL introduced Internet services in India in the year

1995. The new era of communications started towards the new millennium.

VSNL had the monopoly in international telephony and Internet

gateways till recently but with its privatization, it is now due for a taste

of real competition from private companies. It has around 20000 voice

circuits and around 200Mbps bandwidth for international connectivity. It

is part of many international consortium projects like Inmarsat, SEA-

ME-WE, etc. and on the other; it is also an ISP providing dial-up

Internet access to some subscribers. It is now suggested that as last

mile Internet access is very low-end and highly commoditized, VSNL

should hive off this business and focus on high-end and niche IA

market. It can very well establish itself in the IA market. (Information inabove par “It has around IA market”, is quoted from


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DTS

DTS has one of the widest networks in the world, providing basic telephony

access to around 20 million subscribers. It has a truly national reach from

Kargil to Kanyakumari. Its assets include 25000 local exchanges, 300000

km of transmission media, 549 Internet traffic nodes, INET (Indian X.25 data

Network), RABMN (Remote Area Business Message VSAT Network),

HVNET (High-Speed VSAT Network) etc. It has plans to enter the ISP

market too. Actually DTS can be split into two companies DTS-LMA (Last

Mile Access), and DTS-NLDA (National Long Distance Access) bringing last

mile access infrastructure under DTS-LMA and the rest under DTS-NLDA.

This division will ensure that there is no cross subsidization between LMA

and NLDA under one DTS. It will provide an even keel to private operators

and thereby not harm the much-needed sectored growth. (Information in

above para, “ DTS has sectored growth”, is quoted from


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MTNL

Incorporated in 1986 by merging the Bombay and Delhi telephone networks,

Mahanagar Telphone Nigam (MTNL) is into telecom services of international

standards.

The company enjoys a virtual monopoly in telecom services in these two

cities, (Bombay & Delhi). It depends upon the Department of

Telecommunications (DoT) for calls made outside the respective circles, for

which it pays license fees.

MTNL has gone on a computerization spree in areas like directory inquiry,

billing, waiting list inquiry, material management, etc. During the year 1996-

97, in order to increase customers satisfaction it has commissioned number

of facilities like round the clock operatorless Computerized "Change Number

Announcement Service" based on Interactive voice response system

popularly known as 195 Seva, Introduction of On Line Registration of new

telephone connections, Fault Repair System, popularly known as FRS.

MTNL launched its cellular service branded Dolphin in Bombay on Feb.'01.

It has also started its cellular services in Delhi.

MTNL got its American Depository Receipts (ADRs) listed on the New York

Stock Exchange on 8th November 2001. During 2001-02 the company has

invested Rs.1,675 million as equity in the United Telecom Limited, a jointventure formed with M/s TCIL,M/s VSNL and NVPL, a local partner in Nepal.

This is the first for the company to foray into the International Telecom

Market.

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MTNL provides basic telephony in Delhi and Mumbai along with some dial

up Internet access. It is well positioned to become a major LMA company

since it has around 400 local exchanges providing around 4 million

connections to subscribers. Its plans to take-over telephony market inMadras and Calcutta from DTS should supplement its strength as an LMA

company. Indeed it makes sense to bring VSNL's Internet access business

too under MTNL's umbrella. As MTNL takes over profitable urban markets

from DTS, it should have some alliance with DTS-LMA in terms of cross

holding and technological cooperation to prop up DTS-LMA's commercial

viability and its universal service obligations. (Information in above para,

“MTNL provides……service obligations”, is quoted fromhttp://www.indiainfoline.com/nevi/vsmt.html).

These telcos have to proactively position themselves so as to survive the

imminent and inevitable competition. The restructuring may be painful but it

would be in everybody’s interest, otherwise it would cost them financially

and they may loose consumer confidence.

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BSNL

On October 1, 2000 the Department of Telecom Operations, Government

of India became a corporation and was christened Bharat Sanchar NigamLimited(BSNL). Today, BSNL is the No. 1 Telecommunications Company

and the largest Public Sector Undertaking of India with authorized share

capital of $ 3600 million and net worth of $ 13.85 billion. It has a network of

over 45 million lines covering 5000 towns with over 35 million telephone

connections.

With latest digital switching technology like OCB, EWSD, AXE-10,FETEX,

NEC etc. and widespread transmission network including SDH system up

to 2.5 gbps, DWDM system up to 80 gbps, web telephony, DIAS, VPN,

Broadband and more than 400,000 data customers , BSNL continues to

serve this great nation .

Its responsibilities include improvement of the already impeccable quality

of telecom services, expansion of telecom network, introduction of new

telecom services in all villages and instilling confidence among its

customers.

BSNL has managed to shoulder these responsibilities remarkably and

deftly. Today with over 45 million line capacity, 99.9% of its exchanges

digital, nation wide Network management & surveillance system (NMSS) to

control telecom traffic and over 4,00,000 route kms of OFC network, Bharat

Sanchar Nigam Ltd. is a name to reckon with in the world of connectivity. Along with its vast customer base, BSNL's financial and asset bases too are

vast and strong. Consider the figures, as they speak volumes on BSNL's

standing:

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The telephone infrastructure alone is worth about Rs. 1,00,000 crore(US $

21.2 billion) Turnover of Rs. 25,000 crore ( US $ 5.2 billion)

Add to which, BSNL's nationwide coverage and reach, comprehensive

range of telecom services and a penchant for excellence; and you have

the ingredients for restructuring India for a bright future.

BSNL leads the show

BSNL is the second largest player in the cellular services market with

impressive 21% share as of July 2003 with a subscriber base of 34.89 lakhsubscribers. However, it is the market leader in basic services with 84%

share with an estimated 369 lakh subscribers as of Mar’03.

Ambitious plans of BSNL

Bharat Sanchar Nigam (BSNL) is the largest player in the basic telecom

services with a dominant market share of about 84%, and a subscriber

base of about 369 lakh (including cellular service) as of May’03. Accordingto S D Saxena, Director (Finance), BSNL’s cellular subscriber base has

crossed 30 lakh. He further added that the company aims to reach a

customer base of 2.5 crore in the next two to three years, for its cellular

services alone. The medium term plans of the company appears to hike its

subscriber base to 1 crore and in the first phase, it plans to increase the

subscriber base of its cellular services by 25 lakh by the end of the current

year.

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RELIANCE

Reliance Infocom is the outcome of the late visionary Dhirubhai Ambani's

(1932-2002) dream to herald a digital revolution in India by bringing

affordable means of information and communication to the doorsteps of

India's vast population.

"Make the tools of infocom available to people at an affordable cost, they will

overcome the handicaps of illiteracy and lack of mobility", Dhirubhai Ambani

charted out the mission for Reliance Infocom in late 1999. He saw in the

potential of information and communication technology a once-in-a-lifetime

opportunity for India to leapfrog over its historical legacy of backwardness

and underdevelopment.

Working at breakneck speed, from late 1999 to 2002 Reliance Infocom built

the backbone for a digital India - 60,000 kilometers of fiber optic backbone,

crisscrossing the entire country. The Reliance Infocom pan-India network

was commissioned on December 28, 2002, the 70th - birth anniversary of

Dhirubhai. This day also marked his first birth anniversary after his demiseJuly - 6, 2002.

Reliance Infocom network is a pan India, high capacity, integrated (wireless

and wire line) and convergent (voice, data and video) digital network,

designed to offer services that span the entire Infocom value chain -

infrastructure, services for enterprises and individuals, applications and

consulting. The network is designed to deliver services that will foster a new

way of life for a New India.

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TATA

TATA Teleservices is part of the Rs.54,000/- crore (US$11.2 billion) TATA

Group, that has over 90 companies, over 2,10,000 employees and more

than 2.16 million shareholders. With an investment of over Rs.9,000 crore

(US$ 2 billion) in Telecom, the Group has a formidable presence across the

telecom value chain. The TATA Group plans an additional investment of

around Rs.9,000/- crore (US$ 2 billion) in this sector in the next two years.

TATA Teleservices spearheads the Group's presence in the telecom sector.

Incorporated in 1996, TATA Teleservices was the first to launch Mobile

services in India in the Andhra Pradesh circle.

The company offers services under the brand name 'TATA Indicom' in eight

key Indian circles of Andhra Pradesh, Delhi, Gujarat, Karnataka,

Maharashtra, Mumbai, Tamil Nadu and Chennai comprising 70% of the

telecom revenue potential of the country.

Starting with the major acquisition of Hughes Telecom (India) Limited [now

renamed TATA Teleservices (Maharashtra) Limited] in December 2002, the

company has swung into expansion mode. The company has recently

acquired a Universal Access Service License (UASL) for 12 new circles. The

new circles are Bihar, Haryana, Himachal Pradesh, Kerala, Kolkata, Madhya

Pradesh, Orissa, Punjab, Rajasthan, Uttar Pradesh (East), Uttar Pradesh

(West) and West Bengal. The company plans to launch its services in the

new circles by December 2004. The investment in the company as of March

2004 totals Rs.5,995 crore (US$ 120 million).

Having pioneered the CDMA 3G1x technology platform in India, TATA

Teleservices has established a robust and reliable telecom infrastructure

that ensures quality in its services. It has partnered with Motorola, Ericsson,

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http://www.tataindicom.com/misc/ttml/ttml.asp






Lucent and ECI Telecom for the deployment of a reliable, technologically

advanced network.

The company, which heralded convergence technologies in the Indian

telecom sector, is today the market leader in the fixed wireless telephony

market with a customer base of over 1 million.

TATA Teleservices’ bouquet of telephony services includes Mobile services,

Smart Wireless Services, Public Booth Telephony, and Wireline services.

Other services include value-added services like voice portal, roaming, post-

paid Internet services, 3-way conferencing, CUG, Wi-Fi Internet services

and data services.

The company has launched prepaid Smart Wireless Service (SWS) and

interactive applications like news, cricket, astrology, etc. It has exciting plans

to launch public phone booths, new handsets, Push-To-Talk services (first

across the world to partner with Qualcomm for BREW Chat), expand Wi-Fi

across public hotspots, new voice & data services such as Java & BREW

games, picture messaging and polyphonic ring tones.

It has recently launched its prepaid services.

TATA Teleservices has a strong workforce of 5500. The company is in the

process of recruiting personnel for its 12 new circles and would have

created more than 20,000 jobs by March 2005, which will include 10,000

indirect jobs through outsourcing of its manpower needs.

Today, the company serves over 2 million customers in over 290 towns.

With an ambitious rollout plan both within existing circles and across new

circles, TATA Teleservices will offer world-class technology and user-

friendly services to over 1000 cities in 20 circles by March 2005.

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CURRENT SCENARIO

The industry grew at 20% per annum over the last four years. The target set

for 2000-01 was 5.58 million lines against which 5 million connections were

provided. Waiting list in India was 19 lakh in march 1999,which has only

grown further to more than 30 lakh now which still validate the demand

supply mismatch. MTNL has no waiting list as of now, but BSNL is still

carrying it. it is proposed to add 32 million lines during 2001-06. Competition

is hotting up even for MTNL in the basic services in Mumbai with the entry of

huges tele.com.

The planning commission has set an ambitious target of adding 817.10 lakh

telephones by march 2007, of which 315.50 lakh lines will be for mobile

phones and 501.6 lakh lines will be for fixed phones. This projection takes

cognizance of the government intent to provide phone on demand by the

year 2002 and to achieve an all India tele density of 11.5% and 3% in rural

areas by mar '07.

VSNL has filed application with dot for license to run national long distance(nld) telephone services. Other companies, which have applied for nld

business are Bharti group and reliance group.

VSNL is likely to take on lease the optic fibers of other telecom companies,

and plans to decide on setting up its own optic fiber cables after reviewing

its first year of nld operations. it plans to invest about rs 2,000 crore over a

period of seven years in nld business.

VSNL has been exempted from furnishing a bank guarantee for rs 400 crore

and for the payment of rs 100 crore as entry fees. Further, other companies

entering nld business needs to cede 15% of revenues, but VSNL need not

do so for the first five years. These concessions were given to VSNL as part

74




of the government proposal to compensate it for loss of its monopoly ahead

of schedule. Originally, VSNL was to lose its monopoly by mar'04, but the

date was advanced to mar'02 to boost private and foreign investment into

the telecom business.

• IN INTERNATIONAL LONG-DISTANCE AND DOMESTIC LONG

DISTANCE TELECOM BUSINESS:

After decades of monopoly, India's international long-distance (ILD)

market finally opened to private competition in April 2002. Though this is

a long awaited opportunity, but it also poses a challenge to prospective

entrants, equipment suppliers and financiers. ILD business is fastgrowing because of growth of market for voice, data, value-added

services and bandwidth. Though the bandwidth prices and voice tariffs

are falling, so also keen competition is emerging, along with a stressed

international inter-carrier settlement system.

As mentioned earlier the incoming to outgoing ratio for ILD traffic is very

imbalance, because India is a continuous receiver of traffic and most of

the incoming traffic to India comes from the Indians leaving abroad, who

usually have a higher purchasing power than those they are calling in

India. Hence it is unlikely to trigger a higher volume of traffic originating

from India. This is largely a result of high tariffs for the outgoing

international calls in India but now there is a growing understanding in

India for the need to rebalance tariffs to make it more cost-oriented. Thus

is feasible only in a market with adequate competition, which thankfully is

keenly emerging in the telecom sector in India. Also in line with the WTO

agreement, India has reaffirmed its commitment to further liberalize the

Indian telecommunications sector through licensing of new local fixed line

75




and cellular service providers. Internet service market, DLD and ILD has

been fully liberalized with license fee waiver for the next five years.

Some of the above factors apply to both ILD and DLD business. Other

factors include VoIP that may affect the market, both in terms of price

and service variety. Even the current and emerging regulations will have

its impact on the private sector, along with falling tariffs and revenue

sharing strategies. Internet, leased line services, broadband, multimedia,

e-commerce, demand for TV uplinking and mobile are affecting this long-

distance growth.

There is tremendous growth in bandwidth requirements for voice and

non-voice traffic. If understood and worked towards patiently, these

issues can be smoothly tackled. Some players in the international

bandwidth market and satellite communication operators are trying to

enter this market. Major players are forming groups to tackle the issues

jointly, and global carriers are entering Indian markets. Today’s mantra

seems to be of ‘revenue raising’ and ‘revenue sharing strategies’ along

with foreign partnerships to bring in advanced technology and

infrastructure profits. This has resulted in competition among former state

telcos and half-dozen largest private rivals, several foreign-backed that

have emerged in recent years. And, of course, all this also means

cheaper phone calls. Analysts forecast says that long-distance rates will

fall by more than half by yearend, and by 2005, some 8.5% of the

population will have phone access, up from 3.5% now.

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• IN BASIC TELECOM SERVICES BUSINESS:

After a long wait, the basic telecom sector was finally thrown open to the

private sector in 1994. This privatization was expected to propel thecountry's teledensity from about 1 per 100 to the global average of 14.

But between 1995 and 2000, while China added 80 million new lines,

India added less than 15 million. Though by 2001, the private sector had

hardly made any effect, and the country's teledensity had crawled only

up to 2.8. But there is still hope and India's basic service sector is not as

gloomy as the macro statistics indicate it to be. The ministry of

communications, DoT, Telecom Regulatory Authority of India,

Mahanagar Telephone Nigam Ltd., and Videsh Sanchar Nigam Ltd are

among the major players in this business. Apart from these the private

operators include Bharti Telenet, Hughes Tele, TATA Teleservices,

Reliance Telecom, HFCL Infotel and Shyam Telelink.

Earlier the regulatory framework and its impact on the private sector low

volume traffic, industry economics, pricing, cost and revenue structures,

affected the basic telephony services largely. In case of basic telephone

lines, the total demand far exceeded the supply. Given the uncertainty

regarding returns on investments in broadband capacity, several foreign

telecom companies either divested or restricted their investments in non-

core and non-focus markets. For instance, foreign companies did not

show an interest in bidding for a stake in VSNL. Another reason was that

China seemed to be a more attractive market.

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But the recent convergence environment and regulatory changes have

brightened the prospects for the basic operators. This is evident from

expansion plans and strategic moves of private sector players, as well as

the incumbents, including BSNL and MTNL. The “feel-good” factor, whichwas missing now, seems to be back. Recently besides BSNL and MTNL

licenses were given to 31 other operators. Use of WLL (Wireless Local

Loop) is permitted and franchisees for the last mile access are allowed.

Major steps are taken to increase network penetration to rural areas and

fulfill the promise of universal service. BSNL and MTNL already installed

additional telephone lines and are expanding their optical fiber cable

network to all villages by installing wireless access systems. In the caseof existing telephone subscribers, demand for phone instruments is

expected to increase almost proportionately to the growth in new

installations of telephone lines. Also, the demand for wireless access

systems from private operators is expected to rise. (Source - The Credit

Rating Information Services of India Limited-CRISIL)

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• IN CELLULAR MOBILE SERVICES BUSINESS:

Cellular mobile telephony industry was opened to the private sector

in 1992. Initially there were great hopes for profits in this business that

somehow turned to despair. But once again there is euphoria in thismarket due to the revenue-sharing policy, consolidation and growth.

Several new entrants have done well, and the industry is quickly moving

to maturity, due to the attractive technology, marketing and

competitiveness. Stiffer competition, new entrants, and developments in

the limited-mobility industry have given opportunities as well as posed

challenges, generating appropriate responses. India's cellular phone

industry is considered as one of the world's fastest growing

markets.

The cellular phone industry market is affected by the hesitation of

investors in new technologies and networks. The industry is also affected

by the changing telecom and tariff policies on profit prospects and

competition. For example: COAI (Cellular Operators Association of India)

was recently disappointed at the revision in monthly rentals for WLL

(Wireless in local loop) and limited mobility services announced by TRAI.

It stated that “by abstaining from prescribing either a ceiling or a floor in

the monthly rental, consumer interest has been sidelined, as there is no

protection to the consumer from an upward revision in tariffs at any tie”,

further adding that it plans on locking the new tariff for the entire tenure of

the WLL license. This developed some apprehension among the industry

that the WLL operators, offering a competitive mobile service, with more

advantageous terms and conditions, may indulge in predatory pricing and

anti-competitive practices, as against GSM operators who paid hefty

sums for licenses.

79




Inspite of all these cellular subscribers are growing at an exponential

rate. They are expected to touch 1.15 crore by March 2003. This means

mobile phones would account for 20.5% of total telephone connections in

India. Still the cellular density will remain low at 1.1% as compared tofixed teledensity of 4.3%. Cellular growth is attributed to increased

competition, declining prices and increased pre-paid penetration. It has

drawn massive investment from private as well as global telecom giants

facing saturation in most western markets. There are around 6.9 million

subscribers in India compared to 150 million users in China. Gartner

Dataquest estimated that Indian cell phone market would expand at a

compounded annual growth rate of 46% percent over the next five yearstill 2006.

• IN INTERNET SERVICES BUSINESS

According to forecast estimation, India's IP telephony market is expected

to grow at a rate of 119% to reach Rs 13,000 core by 2005. But tomaintain its competitiveness globally, India must invest in building its

telecom infrastructure and increase PC and Internet penetration. With the

number of Internet subscribers likely to exceed 7.7 million in the years

2004 - 05, and the number of licensed ISPs already more than 470, the

market for VoIP is gearing up. (This statistical information is taken from

the report on this website,

http://www.indiabandwidth.com/dir1/longdist32.html). Most of the ISPsare now framing their business model and coming up with new

opportunities, e.g. pre-paid calling cards. The first batch of Internet

telephony products hit the retail market with three Internet service

providers — Caltiger, Net4India and IceNet — launching their services.

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http://www.indiabandwidth.com/dir1/longdist32.html





Caltiger and IceNet are selling pre-paid calling cards at retail outlets and

cyber cafes offering calls to the US at Rs 3 per minute, to the UK at Rs

2.50 per minute and to Singapore at Rs 7 per minute. These rates are

amazingly cheap and even BSNL will soon launch its cellular, WLL(wireless in local loop), VoIP (voice over internet protocol) and call center

service soon.

More and more cyber cafes are mushrooming across the country that

has resulted in net access rates falling to Rs 10 from the initial Rs 50,

over the last two years. With recent cut in STD/ISD tariffs, most booth

operators have taken a beating but the telecom industry players expect

booth operators to upgrade their set-up to offer net telephony services as

well. (The quote, “With recent telephony services as well” is taken from

http://www.indiabandwidth.com/dir1/longdist32.html). Even the PC sales

have gone up tremendously since Internet is one of the key drivers of PC

sales. Over 60 per cent of PCs sold in the country come with net

connection. (This statistics is by Vinnie Mehta, president, Manufacturer's Association for Information Technology). This also brings good news to

corporates because opening up of net telephony in the country is going

to bring down communication costs tremendously. Recognizing the cost

benefits, Indian organizations are increasingly moving over to Internet

protocol-based communication networks. There is also a felling that the

government may be forced to allow making local calls through net given

the inherent cost advantages in the technology.

This rosy Internet picture may be affected by regulatory framework,

impact on the ISPs, regional market demand estimates, wireless, value

added services offered, and cost/revenue aspects. ISPs are permitted to

81






setup international gateway using satellite or submarine cable and can

directly use bandwidth from foreign satellite and also give bandwidth to

other ISPs. ISPs in India may have thought that cheaper Internet

telephony services would actually increase revenues but at some point itwill be difficult for ISPs to charge money for subscribers using Net

telephony services from home.

• IN CALL CENTER BUSINESS:

Call Center business in India is experiencing a very favorable

atmosphere presently. Leased line prices have fallen dramatically. The

local loop is being improved, high bandwidth links are being built and toll

free long distance services are now allowed. Exposure to competition is

pushing industries to put customer service in the forefront. For foreign

companies, this new environment has created an opportunity to either

outsource their call center operations to India-based companies or set up

their own call center/ integrated back-office hub in India, capitalizing onthe availability of cheaper labor and better telecommunications. (This

quote, “Exposure to competition………….office hub in India” is taken

from http://www.indiateleservices.com/callcenreport.html)

India has become a favorite destination for outsourcing of back office

operations. This has opened the doors for India's highly skilled and

educated resource pool. In keeping with the burgeoning needs of the callcenter and contact training industry in India, one of the country's leading

IT services provider, Software Technology Group (STG), has launched a

special module called “CallSmart”, a 15-day interactive & comprehensive

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voice based training program. Graduates as well as undergraduates from

any discipline can acquire comprehensive training in soft skills, English

language and accent neutralization. It is estimated that nearly 1.1mn jobs

will be created in the IT-enabled services sector in India by 2008.Therefore there is a huge potential market for India in this business,

which will create huge employment and improve country’s infrastructure

and also attract foreign investments.

Since the US and UK will be the largest customer base, “CallSmart” will

not only focus on honing the communication skills and personality

development of students, but will also offer insights into American

Cultures and lifestyle. This will enable the students to handle

international customers efficiently. These companies have to pay

between half and a third as much as they would pay for the same

services in the United States or the United Kingdom. Analysts in India

say that the demands for personnel to man these call centers are

explosive.

To capitalize on India’s call center opportunity, entrepreneurs need to

clearly understand the dynamics of the outsourcing process in India

along with the working of global call center industry. International call

center market, regulatory framework relevant to call centers, nature of

call center business, incoming/outbound call center segments, status of

call centers in India, and relevant lessons offered by other IT-related

processing operations in India all have a significant impact on this

business.GLOBAL SCENARIO

Each country has its own regulators. in some countries like korea, australia,

uk etc. government has same regulator for telecom, internet, information

83




technology and e-commerce, where as some countries has separate

regulator for the same.

Regulations are made to help customers to provide best service and quality.Worldwide regulators are handling issues like tariffs, quality of services,

infrastructure sharing, license fees etc.

Over the time it has been seen in developed and developing countries that

the tariffs are coming down, revenues are increasing with volumes, number

of players are regulated, penetration is also increasing. in developed

countries like USA and Australian competition is increasing for secondconnection. Australian regulator "Australian communications authority" has

regulations for having more than 6 connections. Worldwide mobile phones

are replacing the fixed line connections e.g. in Italy the market share is

expected to fall to 75% by the year-end from 79.6% (2002)

Some more debatable issues like

Availability of emergency service even after expiry of prepaid or post paid

connection.

Introduction of mobile number probability (mnp) in Europe has increased the

insecurity because under this scheme customer can change the operator

without any communication to the providers.

In countries like Malaysia "call back service" is also regulated. Call back

service means a service whereby consumer gets uncompleted call signaling

from a foreign location which enables a user in Malaysia to call a foreign

point without paying the rate imposed by an authorized Malaysian service

provider.

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Charges on call termination sharing of infrastructure accounting standard for

service providers. Many regulators are planning to introduce additional

service providers to increase the competition in the region. Recent

developments Bharti is planning to sell its prepaid card overseas in localcurrency. it will help the international travelers to activate their mobile just

after landing to India. Presently, company is targeting 5 million Indians

resides in Malaysia, Singapore and the gulf. Bharti has received all

regulatory clearances and will shortly submit its Airtel prepaid cards offshore

distribution price plan with TRAI. According to analysts company is entering

overseas market to build image before listing in us market by the end of

calendar year 2004.

BSNL have expansion plans in AP with an investment of rs 500 crore. The

public sector telecom giant will commission 1.32 lakh new gsm mobile lines

by June this year, adding 63 new towns and cities covering 890 km of

highways, apart form introducing gateway packed radio services and

multimedia messaging services. And, additional 80,000 lines will be

commissioned by august.

BPL mobile, one of India’s premier mobile phone service providers, utilized

Motorola’s wireless infrastructure multi-vendor gsm ran optimization service

to analyze and improve the end-to-end performance of its network. This has

resulted in improved quality, and increased coverage and capacity, greatly

enhancing the end user experience for the operator's more than 1.2 million

subscribers, says the company.

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FUTURE TELECOMMUNICATION PROJECTS IN INDIA

The Government of India has allocated Rs. 720 crore as budgetary

support for village public telephony programme to Bharat Sanchar

Nigam (BSNL). TATA Teleservices is planning to invest Rs. 1000

crore to launch basic services in Karnataka and is expected to

generate employment for up to 8,000 people within the company and

among TTL’s franchisees. Though TTL plans to cover the entire state,

it will initially roll out its services in Bangalore, Mangalore, Hubli,

Mysore, and then extend it to over 30 towns. As part of this plan TTL’s

product offerings will include wire line, fixed wireless, CDMA mobility,

integrated data solutions and specialized products and services to the

corporate sector including virtual private networks, data center

services, network management services, and disaster recovery

solutions.

It also plans to offer CDMA (code division multiple access) based

mobile telephony to subscribers. It is understood that this service will

not attract any airtime charge and call charges will be as low as Rs

1.20 for three minutes. TTL has also designed public telephone

booths under the brand name TATA telesmart, which are India’s first

smart-card based telephones. The company has been operating basic

telecom services in Andhra Pradesh for the last three years, with a

customer base of over 1.5 lakh. It has invested over Rs 1,400 crore in

the state to build its network, which includes an OFC backbone of

1,050 kilometers. TTL operates in 10 cities in the state with over 9,000

86




people and is likely to generate employment for 7,000 more people by

2007.

TATA Teleservices, software leader TATA Constancy Services and

recently privatized VSNL have decided to work closely, mixing diversestrengths and sharpening competition by involving aggressive private

players in a market cut off from state monopoly and heading for high

growth to address customers and cut costs. These efforts in sharing

infrastructure and customer access would essentially cover domestic

telephony and Internet services, while not interfering in VSNL's

overseas telephony business- in line with regulatory requirements.

TATAs placed a bid at the stock exchange and bought a stake in

VSNL. The company further plans to announce an open offer to buy

another 20 per cent stake in VSNL soon. The acquisition of VSNL

appears to put TATAs into the category of an integrated telecom

player. With VSNL in its kitty, the TATA Group is set to emerge as an

infocom giant that could challenge the dominance of Bharti and

Reliance Groups for the telecom sweepstakes.

TATA already have a significant cellular footprint by virtue of being

part of BPL-Birla-AT&T-TATA (BPL-BaTATA). The combine will be

present in Andhra Pradesh, Maharashtra, Mumbai, Gujarat, Kerala,

Delhi, Madhya Pradesh, and TamilNadu. TATAs will also be present

in five basic telephony circles -– Andhra Pradesh, Delhi, TamilNadu,Gujarat and Karnataka. They will be able to leverage VSNL's network

to their advantage. On the InfoTech side, the group already has

companies like TCS, TATA InfoTech and CMC in its stable. TCS,

which is yet to go public, is the largest software exporter in the

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country. Control of VSNL has a lot of benefit for the TATAs. It

immediately gives them control over the largest ISP in the country. It

is now likely that TATAs will now go in for NLD and ILD operations

using VSNL's extensive nationwide network, international gatewaysand investments in trans-national under-sea companies. VSNL also

operates a huge data center in Mumbai.

The deal with TATAs is good for VSNL too, as it will now have better

professional management freedom and faster decision-making. The

company will also get flexibility of operations and marketing ability

missing so far under government control. It can be expected to go into

several new areas since it has assets worth over Rs 40 billion and its

huge cash reserves of over Rs 50 billion could be used in a more

productive manner. It can also take advantage of the convergence in

voice, data and computer networks that would give it the muscle to

enter newer areas all on its own.

For the first time in the country, VSNL plans to offer broadcasters a

fiber optic path through undersea cable for transmission of television

channels from India to New York. This will be drastically cheaper than

the normal satellite mode. Broadcasters will have to pay Rs 1.2 million

per channel per month for the transmission service but not only will this

be cheaper but even the distance to send signals to a single point in

U.S. would be significantly less.

VSNL will transmit the TV channels to New York, where broadcasters

will make their own arrangements for further distribution within the US.

VSNL is targeting several news, regional languages, Hindi

entertainment and music channels that want to enter the US market,

88




but are finding the satellite route expensive. Players like Sony, Zee

and B4U are already in the U.S. VSNL plans to bundle 20-30

channels into one pipe and it will use the STM-1 link to facilitate this

service. VSNL has 2 STMs, which can be utilized if needed. Thecompany will use the ATM-based (asynchronous transfer mode)

platform.

Reliance is setting up an extensive optical broadband IP network

covering around 60,000 km, criss-crossing 115 cities, with terabyte

capability. It plans to provide basic, mobile, NLD, ILD, and variousdata services to the customers. The cost of the project will be around

Rs 25,000 crore and Reliance Infocom is negotiating with corporate

houses like TVS, MRF and medical service providers like Sankar

Netralaya for providing various broadband services. Some of these

companies want Reliance Infocom to enable simultaneous link-up

with dealers across the country using the network. Reliance presently

wants to target corporate to build a revenue stream and then it canfocus on domestic market connecting with its broadband network.

(This information is taken from

http://www.dayafterindia.com/jan1/more.html).

British Gas provides domestic gas to homes in Surat. Recently it

obtained Foreign Investment Promotion Board (FIPB) approval for an

initial investment of $9 million for a broadband project in the south

Gujarat city. Since it is already in the kitchen, it is now a matter of

extending the connectivity to the drawing room for providing Internet

and TV. For British Gas, capital expenditure will be much less than

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any other company that would have to start from scratch and also

build trust among the customers. While continuing to focus on building

integrated gas infrastructure in India, BG is exploring opportunities in

India which have tangible synergy with existing assets that BGcontrols, such as customer database, call center systems, billing and

payment collections, right of way management, network infrastructure

build and management. (The cost of the project and the other

information in the above paragraph is obtained from,

http://www.indiabandwidth.com/dir1/bandwidth16.html).

Qualcomm is setting its sight on the Asian market to launch CDMA

wireless local loop networks. It has planned to invest around US$200

million in an alliance with Reliance communications of India to provide

CDMA wireless local loop, an attractive solution for wireless operators

providing location-based and wireless Internet services. This

technology is a good solution for densely populated areas, where

installing cable can be both difficult and costly, as well as in remote

rural areas with low subscribers. (Ref:

http://wireless.newsfactor.com/perl/story/15756.html for more

information).

The Indian government aims at increasing rural telecommunications

subscriber density from the current level of 0.4 percent to 4.0 percent

by the year 2010 and to provide reliable transmission media in all rural

areas. Qualcomm will provide CDMA wireless technology to Reliancefor limited-range, wireless local loop (WLL) mobile service to

customers as part of a nationwide rollout of telephone services in

India. Reliance has already secured government licenses to provide

basic telephone, WLL and national long distance service for areas

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http://www.indiabandwidth.com/dir1/bandwidth16.html

http://wireless.newsfactor.com/perl/story/15756.html






covering about 95 percent of India's one billion-plus population. Indian

regulations also allows Reliance to offer mobile services where it runs

landlines so it hopes to tap an $8 billion telecom market that is

predicted to grow up to $25 billion in the next of a quarter century.The investment by Qualcomm in Reliance is the largest in basic

services by any single telecom licensee company in India. Reliance

Infocom is likely to become the first nationwide full-service telecom

player in India. (Statistical information in the paragraph, “The Indian

government……in India”, is taken from

http://wireless.newsfactor.com/perl/story/15756.html).

Light Pointe, a US-based free space optics (FSO) manufacturer

has partnered with India’s Himachal Futuristic Communications Ltd.

(HFCL). FSO is a line-of-sight optical technology that sends voice,

video and data through the air on beams of light at speeds up to 2.5

giga bits per second (Gbps). This is more than 2,000 times the

capacity of a traditional high-speed connection, such as digital

subscriber link (DSL). FSO’s technology not only provides high-speed

connectivity, but also a low-cost, high-bandwidth alternative to deliver

services. FSO products are easily installed so service providers can

quickly acquire new customers in comparison to fiber installs.

Moreover, fiber deployment in urban areas cost much more given the

costs involved in digging tunnels, obtaining right-of-way and delays in

getting permissions required to dig. By contrast, a short FSO link of

155 Mbps can help in saving costs substantially. (The information andquotes are from

http://www.indiabandwidth.com/dir1/broadband1.html).

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http://www.indiabandwidth.com/dir1/broadband1.html


http://www.indiabandwidth.com/dir1/broadband1.html




Shyam Telecom that provides turnkey solutions to Indian and

overseas telecom players is the first company to offer satellite

telephone service in India. Shyam has the license to operate in Nepal,

Sri Lanka and Bangladesh, in addition to India. The services of Shyam and even their handsets would be much cheaper than the

global player Inmarsat. This brings major diversification for the Shyam

group, which is already offering basic, cellular, Internet and VSAT

services.

SMS (Short messaging system) is a fast growing habit amongstyoung Indian crowd. On an average cellular companies handle

100,000 SMS calls a day. Cellular subscribers have grown recently

mainly due to growth in the pre-paid segment. Very soon, more than 5

million mobile subscribers across the country will be able to make

significant savings on their STD bill as the tariff for mobile-to-mobile

STD calls will come down by more than 50 per cent. This is because

major cellular providers in the country are coming together to offer

services using the first private national long-distance operator Bharti

Telesonic. These operators who have entered into a revenue-

sharing interconnect agreement with the country's first national long-

distance operator include Airtel, Hutchison, Escotel, Spice, BPL-

BaTATA and Koshika. The package will wrap the country into three

distance zones and two time bands.

The distance zones are:

1) Home location (50-200 km),

2) Regional (within four regions North, South, East, and West)

92




3) National (inter-regional).

As of now, the total long distance traffic in the country generates

around Rs 15,100 crore of which the share of mobile originating calls

is just 4.30 per cent, i.e. Rs 650 crore. The mobile-to-mobile long

distance traffic is no more than 10 per cent, or Rs 65 crore of the total.

Mobile operators are however certain that this traffic will more than

double within no time, as their service price would be much cheaper,

or on par with the fixed line STD calls. This might lead to opening of

long distance traffic as a lucrative business opportunity for cellular

providers as overwhelming majority of their revenue currently comes

from local traffic.

After Y2K, the telecom software seems to be the most potent and

lasting business. Indian companies exported telecom software worth

10% of India's total software exports earlier but this does not include

the value of software developed at development centers of MNCs like

Motorola, and Hughes. NASSCOM expects Indian telecom software

exports to reach 25% of the total by 2002. The $600 billion telecom

market is seen as a more lasting source of employment. Already,

telecom software is the biggest employment generator in the industry.

Telecom software developed in India spans the entire spectrum, from

mobile Internet browser software to intelligent networks, network

management systems, automatic billing systems, 3G mobile systems,mobile satellite software, teleconferencing and e-commerce software.

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FIVE FORCE ANALYSIS

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(A) RIVALRY AMONG COMPETING SELLERS

The rivalry among competing sellers in the telecom industry is

moderately high. The followings are the main reasons for such type of

rivalry.

• The number of competitors:

Rivalry intensifies as the number of competitors increases and as

competitors become more equal in size and capability. In telecom

industry there are number of competitors exist and also increasing. So

that it is harder for one or two firms to win the competing battle and

dominate the market.

• Demand for the product:

Rivalry is usually stronger when demand for the product is growing.

Here the demand for the telephone and mobile is growing faster. The

demand in all the user groups’ i.e. residential users, business users,

educational users and health users is increasing at higher rate and as

a result of this the rivalry is increasing.

• Use of price cut methods and other competitive weapons:

The higher use of price cut methods and other competitive weapons

shows that the rivalry is higher in the industry. Here all the telecom

companies like BSNL, Reliance, TATA and all others companies are

cutting their prices for compete the other companies. They try toprovide better services like instrument, coverage facility, Internet

facility and some other extra services. So we can say that the rivalry is

moderately high in this industry.

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• Dissatisfaction of competitors:

Rivalry is stronger when one or more competitors are dissatisfied with

their market position and launch moves to bolster their standing at the

expense of the rival. In telecom industry, especially in the mobile

sector, the competitors are not satisfied with their current market

position and they are trying to capture more market share by using

various competitive weapons. And as a result of such dissatisfaction

the rivalry is becoming stronger.

The cellular segment grew by around 72% in terms of revenue and

135% in terms of subscribers. The cellular services segment nettedrevenues of Rs 14,748 crores (US $3.2 billion) in FY 2003–04.

Reliance Infocomm made history by registering a subscriber base of

6.9 million subscribers and taking the overall tally of its cellular

subscribers to 7.26 million to become the top mobile service provider

in terms of subscriber base. In terms of revenue, the top three

operators are Bharti Tele-Ventures (Rs 3,261 crore), Hutch (Rs 2,701

crore) and Reliance (Rs 2,571 crore). BSNL occupied the fourth spot

with Rs 1,984 crore.

• High exist barriers:

Rivalry tends to be more vigorous when it cost more to get out of

business than to stay in and compete. As the investment of the

various companies is vary high for entering in such industry (like

reliance has invest thousands crore of rupees for establishing fiber

optics network, BSNL has invest high amount of money for

establishing is network), it is not easy for the companies to get out of

96




the business easily so the only way for them is to stay in the business

and compete. So the rivalry is high in this industry.

(B) THREATS FROM NEW ENTRY

The threats from new entry is moderate in telecom industry because

most of the new foreign have make collaboration with Indian

companies and there is no any big foreign company operating in India

without any joint venture. The following shows how it is so for the

industry.

New Projects and Initiatives

• In the month of March 04, industry players have introduced new

plans and initiatives. Some of them are: -

Bharat Sanchar Nigam the public sector telecom operator has

come up with a mega tender of Rs 5000 crore. Tender requires to

supply and installation of a GSM network of 10 million lines. Theeligibility for this contract is so strict and stringent that all Indian

players are left behind. Only global players including Nokia, Nortel,

Siemens, HFCL, Ericsson, Motorola, Alcatel, Huawei and ZTE

have been named as potential petitioners.

• yocera Wireless (India) Pvt Ltd, a wholly owned subsidiary of

Kyocera Wireless Corp, a leading global CDMA wireless handset

manufacturer will set up a product testing lab in Bangalore. This

will be the first test lab for Kyocera that will be located outside

North America. The lab will initially be manned by 55 members and

97




work in tandem with KWC to conduct software and system tests for

Kyocera's CDMA wireless phones.

•

Mobile companies are fighting to serve 15000 expected visitorsto Pakistan in next one month. Companies wants to offer roaming

facility to its subscriber with lower charges of Rs. 25 per minute in

comparison Rs 50 per minute while roaming in USA. Bharti Cellular

has an exclusive agreement with Pakistan’s only mobile service

provider Mobilink for next two weeks. This agreement shut out the

other mobile service providers for the first two weeks.

• China’s early liberalization and the fast growing economy may

prove to be a hindrance for India.

( C ) THREATS FROM SUBSTITUTE PRODUCTS

The threats from the substitute products are moderate in the telecom

industry. The threats are depend on the following three factors.

1> Whether attractive priced substitutes are available

2> Whether buyers view the substitutes as being

satisfactory in terms of quality, performance and other relevant

attributes.

3> Whether buyers can switch to substitute easily.

The followings are some substitute for the telephone and mobile.

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• On line chat:

On line chat, which can be done through Internet is a major substitute for

the telecom services. People can communicate with each other using

web cameras and microphones. This substitute is good in performanceas well as cheaper in price. So the industry has significant threat from

the growth of this substitute facility. Obviously earlier this facility required

the use of telephone lines bur now a days using radio lines and other

facilities one can use this facilities without using telephone lines.

• Mail:

The older system of communication that is mail can be considered as a

substitute product of the telecom services. One can communicate with

others in very cheap way using mail. But the main disadvantage of the

mail is the time that is takes for communication. So in emergency

situations this substitute is not proved as beneficial. So the threat from

this substitute is not much for the industry.

• E-mail:

The faster way of communication is through electronic mail. It is cheap as

well as faster way of communication. But the main disadvantage of this

substitute is that the use of email is not easy for every one in compare of

simple mail so far as backward areas of India are concern. So we can

say that right now the threat is moderate from this substitute but it will be

high in future.

• Online call through Internet:

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The online calls, which are made by using Internet, can be considered as a

substitute of the telecom services. The calls are received through Internet and

then distributed on the local network. The uses of such facilities are actually

illegal but still their use is increasing in metro cities. So it is becoming a threat

for the telecom services.

(D) BARGAINING POWER OF SUPPLIER.

In telecom industry the bargaining power of supplier is moderately

high. The main reasons are as following.

• Number of suppliers:

Suppliers have good bargaining power over rivals whenever the items

they provide are commodities available on the open market from very

few suppliers with ample capability to fill orders. Here the suppliers of

telephone instruments and wires are few so their bargaining power is

moderately high.

• Position of the customer:

Suppliers also tend to have good bargaining power when the

company they are supplying is not a major customer. So many

companies of other businesses are also required the same hardware

for their business and that’s why only telecom companies are not only

the customers of these suppliers. So the bargaining power of these

suppliers is high.

100




• Production of components is difficult:

Suppliers are also more powerful when they can supply a component

more cheaply than industry members can make it themselves. Here

the production of telephone instruments, cables and other materials isvery costly for the telecom service provider companies so they have

to be dependent on the suppliers of these equipment. And because of

this reason their bargaining power is high.

(E) BARGAINING POWER OF CUSTOMERS

For the telecom industry the bargaining power of the customer is

moderately low. The followings are the main reasons for this

argument.

• The switching cost :

The switching cost of buyers to competing brands is relatively high.

Because switching from one service provider to another the

customers have to face many problems like changing the number,

problem of current account balance and problem of activation charge

for new connection. So they mostly prefer the existing connection

instead of switching to the new one.

• The number of buyers

As the number of buyers is low the bargaining power of the customer

is high but here the number of buyers is very high so the customers

are not that much important for the companies and their bargaining

power is low.

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• Buyers discretion in whether and when they purchase the

product

Here the customers have not discretion in whether and when theypurchase the product. Because for ex. In mobile when the card is

expire after some time, the customer has to recharge it within the

given period to remain its card number as it is. Same way in land

line for keeping the connection continue the customers has to pay

the billed amount within the given time period.

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OPPORTUNITY AND THREAT

ANALYSIS

103




OPPORTUNITY

Opportunities In The Indian Telecommunication Market:

Despite its size, India has amongst the world’s least developed

telecommunications services. The country has suffered from

decades of economic protectionism and nationalized industry. (This

quote is from

http://www.analysys.com/Articles/StandardArticle.asp). Till a few

years back Indians had to wait for several years to get even a basic

telephone line.

This trend is about to change. As mentioned earlier liberalization of the

telecom market in India is gathering speed, driven by the impressive growth

in the software industry. According to NASSCOM (National Association of

Software and Services Companies), the growth rate over the period 1995-

2000 has been close to 50%. The Indian government sees the IT industry as

India’s links to the wider world. (This statistical information is quoted from

http://www.analysys.com/Articles/StandardArticle.asp?iLeftArticle=838).

But there are some ground rules that have to be considered by the non-

Indian organizations planning to do successful business in India. They need

to learn the ropes of doing business in India. Perhaps the biggest challenge

will be to understand and foresee regulatory developments, because

surprisingly the Department of Telecommunications (DoT), a leading service

provider in most parts of the country is also the authority that grants

licenses. One needs to consider the structural complexity, and the lack of

confidence of Indian companies in regulatory policies.

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http://www.analysys.com/Articles/StandardArticle.asp?iLeftArticle=838




• Very high growth rate(over 100%) of mobile users

Over 3.6 cr people are using mobile phones in India today(on April

2004 ). More than 150% growth over last fiscal, being attributed to

increased competition and sharp fall in tariffs during the past 12-15months. Of the total mobile subscriber base, GSM cellular industry - led

by Bharti, BSNL, Hutch & IDEA - showed impressive growth of 106%.

There were 2.6 cr GSM subscribers at the end of March 2004. CDMA

was 71.5 lakh at the end of March, 2004 with Reliance accounting for

over 6.4 million subscribers, followed by TATA Tele services having 6.2

lakh customers. 15 lakh subscribers joined the GSM base last month and

over 4 lakh opted for CDMA mobile phones

• 13 lakh mobile subscribers are being added per

month

Mobile operators added 13.7 lakh subscribers in June, after reporting

similar growth for the previous two months. While GSM operators added

10.3 lakh mobile subscribers, CDMA operators added 3.4 lakhsubscribers last month. The total GSM subscriber base in the country

now stands at 2.9 crore, while mobile base of CDMA operators was at

80.7 lakh last month.

Bharti continues to be the largest GSM operator with 76.3 lakh mobile

subscribers thus commanding a 26.3% GSM subscriber base, followed

by BSNL with 19.8% subscribers and Hutch is close behind at 19.7%. In

the fourth position is Idea with 13.9% market followed by BPL at 7.4%.

Reliance's mobile base (CDMA) stood at 72.9 lakh

105




subscribers.

Mobile phone subscription in India may exceed fixed line by year

end According to a Government release mobile phone subscription in India

may exceed fixed line connections by the end of 2004 with cellular and

WLL combined comprising over 45% of the total subscribers. Releasing

the latest figures of performance of telecom sector during the first two

months of the current fiscal, government said 28.74 lakh new fixed line

connections were added compared to 25.95 lakh in the same period

last year, registering a growth of 39%. The number of mobile phones,including WLL (M), as in May 2004 stood at over 363 lakh and their

share in the total number of 794.14 lakh phones was over 45%. The

private sector has contributed more than 90% of the additional phones

provided in April-May 2004. Its share in the total number of phones has

increased to 41%. The number of village public telephony (VPTs) as on

March 31, 2004 stood at 5,22,515, while the number of rural direct

exchange lines was at 123.33 lakh. Tele-density during the period

increased to 7.29% from 7.02% as on March 31, 2004.

• Service industry to benefit from enhancement in FDI limit, reduction in

customs duties, and thrust on telecom facilities Major budget

announcements In Budget ’04, Finance Minister has met some of the

demands of the Telecom Sector

• Some positive steps announced in Budget

Customs Duty on cellular phones reduced from 10% to 5%. Special

Additional Duty (SAD) of 4% abolished. Customs duty on specified raw

materials/inputs used for manufacture of electronic components or optical

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fibres/cables reduced from 15-5% to 5%-nil. Specified infrastructure

equipment for basic/cellular/Internet/V-SAT, radio paging and parts of

such equipment exempted from basic customs duty.

ImpactThe reduction in the custom duty on imports of capital goods would

reduce capital cost and will help the telecom companies to increase

penetration which is around 7.4 telephone connections per 100

inhabitants by end-February 2004.

• Extension of time limit for providing telecommunication services, etc. for

the purpose of tax holiday under Section 80 IA was a major industry

demand, which has been met in Budget 2004.

• Extension of the commencement date for service to March 31, 2005 for

availing benefits under Section 80 IA would benefit most those

companies which were granted unified access service license as they

would avail the income tax deduction for the first 10 years of operation

• As a result of competition, the telecom sector has witnessed drastic

reduction in tariffs and the margins have also been squeezed. Cost

related to increase in service tax and newly introduced education cess

would be passed on to the consumer driving up the usage cost. This will

have a short-term negative impact.

• Universal access service providers providing CDMA service will benefit

from the customs duty exemption as it will bring down the infrastructure

cost.

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• In order to promote manufacturing of mobile phones in India, specified

capital goods for manufacture of mobile handsets are proposed to be

exempt from customs duty. Conducive duty structure, immense market

potential and hike in FDI limit to 74% could attract global players to setup manufacturing base in India.

• The high growth rates are likely to continue in the foreseeable

future

Telecom industry is posting high growth in phone subscribers. The

number of subscribers increased by 33.8% to 74.31 million for the period

Apr-Feb 04, compared to the corresponding period in the previous year.

Growth in mobile phone subscribers is over 100% through out the year.

The highest growth was in May 03 when mobile subscribers increased by

679% to 2.26 million over corresponding month of previous year. The

growth rate was slowest in Feb. ’04 at 111% to 1.67 million.

As on February 2004, In cellular market of GSM technology Bharti is

market leader with a share of 25%. Company is 5% ahead of BSNL.

Hutch is at third number with a share of 14%, where as Idea cellular is

enjoying 10%. Rest of 31% is distributed among 9 other players.

• The mobile subscribers are likely to continue to show strong growth rates

for next couple of years on the back of falling entry costs, affordable

tariffs, new value added services, high-decibel marketing and higher

GDP growth.

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• The telecom equipment manufacturers and service providers can

benefit from robust growth in telecom subscriber base as import

duties on inputs are removed

India’s 79.58 million-line telephone network is the 5th largest in the worldand is the 2nd largest among emerging economies of Asia. The sector

has already achieved tele-density of 7 per hundred, which was earlier

planned to be achieved as plan target for year 2005. The government’s

plan to raise the tele-density to 15 per hundred by 2010 offers vast scope

for growth and opportunities for investments. As per TEMA, this

translates into additional investment of RS 3,000 billion or US$69 billion

by 2010.

As per a recent survey, the mobile handset witnessed a spectacular

growth of 568% in FY 04 to record a turnover of Rs 8344 crore. The

number of instruments sold in the fixed line segment came down to 62

lakh in FY 04 from 66 lakh in FY 03 with sales dipping to Rs 269 crore

from Rs 270 crore.

• Extending coverage to cities and towns

The cellular industry achieved impressive growth in subscriber base by

effectively enhancing the coverage of number of cities and towns in the

country. The subscriber base in four metros – Delhi, Mumbai, Chennai

and Kolkata was 55.24 lakh by July 2003, accounting for 34% of the All

India subscriber base of 162.99 lakh. Though Metros still contribute a

major share in the cellular subscriber base, the penetration has been

fairly good in non-metros and smaller towns as well. The number of cities

and towns covered was merely 249 by Dec’98, which has zoomed to

1575 by Sept’02. Not resting on laurels, the industry further extends

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coverage to more and more medium and small towns and villages as

well, in its quest to maintain robust growth in subscriber base.

Sharp fall in air time tariff

Much of the growth in the industry has been achieved by sharp reduction

in airtime charges, further facilitated by reduction in hand set prices both

by vendors and by reduction in customs duty by the government.

Ongoing development in India’s telecommunication structure:

One of the unique innovations of Indian telecommunications is the

public call office spread all over the country from where people can

call any place in India or abroad. As against the NTP 1994 target

of provision of one PCO for 500 urban populations, an

achievement of urban PCO penetration of one PCO per 522 was

achieved.

4) The explosive growth of the Internet is another important development

during this decade. Government recognized the significance of Internet, and

in 1998 came up with the Internet Service Providers’ Policy that threw open

the opportunity of providing the backbone services to not only the

Department of Telecom but also other organizations.

5) The most dramatic development in this decade has been the introduction of

cellular mobile telephone services by the private sector. Recently one of the

most notable mergers was that between Birla-TATA-AT&T and BPL

Communications to form the country's largest mobile phone company (BPL-

BaTATA) which is now known as “IDEA-Cellular”.

Convergence of audio, video and digital technologies is another

important development in the global telecom scene today. The

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NTP 1999 declared, “Access to telecommunication is of utmost

importance for achievement of the country’s social and economic

goals and availability of affordable and effective communication for

the citizen is the core of the vision and goal of telecom policy”. India has seen remarkable growth of software exports from the

country. This was possible because of the high-speed data

connectivity of at least 64 kbps. The policy initiatives taken by the

government have created an environment where Indian

telecommunication can take a great leap forward. Therefore it

seems there is an exciting future for the Indian telecom industry.

• Projects with foreign countries and current connectivity

The 8.6-terabit undersea cable to link India and Singapore,

50:50joints venture between Bharti and SingTel (Singapore Telecom).

(Ref:http://www.indiabandwidth.com/dir1/bandwidth24.html).

India and China, the world's two most populous countries, are likely toemerge as powerful performers in the Asia-Pacific market. The world's

leading technology researcher, Gartner Dataquest, stated in its forecast that

Asia-Pacific fixed-line phone service revenues would grow by single digits

through 2006, as market growth slowed in the region's developed countries.

China and India are set to buck the trend. China already one of the world's

biggest telecom markets is forecast to grow by a compounded 7.9 per cent

from 2001 through 2006 to $27 billion in fixed-line revenues. India was likely

to do even better, with revenues growing by a compounded 14 per cent to

$14 billion but India has just around 35 million fixed-line phones now, which

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is way too low for a country of over a billion people.

(http://in.news.yahoo.com/020516/64/1o7tz.html).

An international consortium of 36 firms has launched the undersea link withIndia's Videsh Sanchar Nigam Ltd., one of the highest stakeholders in the

consortium. The 17,500-mile cable has an estimated life span of 25 years.

Its ultimate capacity is 120GBPS, which would enable it to carry 5.8 million

simultaneous telephone channels. VSNL believes that this will help in

developing India as a hub for Africa and the Far East.

(http://www.indiabandwidth.com/dir1/bandwidth25.html).

• Indian telecom industry grows 20% in FY04

The Indian communications industry has grown by a whopping 20% in

2003–04 according to the latest V&D 100 (2003–04), the ninth Indian

Telecom Industry Report released so far. In comparison, the growth rate

in FY 2002–03 was a more moderate 5%.

In FY03–04, India’s communications industry was pegged at Rs 56,367

crore (US $12.25 billion) in comparison to 47,121 crore (US $10.24) in

FY 2002–03. "The massive expansion in the cellular segment, both in

terms of the subscriber base and revenues, was the prime reason for this

20% growth," said Ibrahim Ahmad, project head.

• India possesses cheap labor to attract foreign investments.

•

Telecom software, telecom professionals, telecom infrastructure andtelecom services are the key players in shaping today’s economy.

112

http://in.news.yahoo.com/020516/64/1o7tz.html


http://in.news.yahoo.com/020516/64/1o7tz.html





• Revenue sharing strategies are leading to mergers and acquisitions,

helping companies to enter new business opportunities, and generate

employment, boosting the country’s economy.

• Privatization of VSNL, along with its partnership with TATA has benefited

not only the two companies but also the country at large.

• India has huge project plans with foreign countries, which can attract

further mergers, investments etc.

• Foreign companies that are facing problems in home market have

already identified India as a potential market for business and therefore

they are heavily investing in India.

• Government has already started relaxing rules for foreign participants.

• Software exports from Software Technology Parks are a huge potential

business.

• Though global telecom picture looks gloomy but India possesses the

competitive advantage in terms of its huge market size and many

undeveloped areas.

• Lot of new entrants in the telecom business are bringing investment

opportunities.

• Economic liberalization is bringing a significant amount of progress.

• Telecom educational institutes are coming up to keep the professionalsat par with the changing technology.

• New opportunities are generating more employment and creating a

knowledge-based economy.

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• Bundling of services has lot of potential in today’s market.

• Privatization of services in telecom sector has led to keen competition, as

a result of which prices are reduced and more business opportunities are

created.

• Increased availability of bandwidth has opened doors to new schemes

making efficient usage, providing value-added services and generating

profits.

• For cellular operators providing long distance is a lucrative business

opportunity and they can also concentrate on providing many values

added services.

• Provision of not only basic services, but also, internet, cellular, medical

transcription, call center, prepaid services along with telecom software

projects are potential opportunities for generating employment in the

country.

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THREATS

• Regulatory and tariff changes especially in the cellular operations areconstant threats.

• China’s early liberalization and the fast growing economy may prove to

be a hindrance for India.

• Economic protectionism and continuous political changes plays against

everybody’s favor and affects the good intentions of players even like

Reliance, TATAs etc.

• Price regulations based on pre-set rate of return hinder the growth.

Young, hardworking and intelligent workforce want to leave the country

due to poor economic conditions and exploitation.

• Indian businesses take time or can’t survive due to the constantly

changing technology and fast-paced nature of telecom business.

• Bureaucracy and politics tremendously affects the business policies.

• Slow reform process and slow liberalization affect the changes and

makes the progress slow.

• Foreign companies wanting to invest in India are put off due to

continuously changing rules and lax policies.

• Telcos though united, provide some services that bring them in close

competition and therefore lose not only profits but also consumer

confidence.

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• Compared to the global structure, India is still concentrating on universal

service in some parts of the country.

• Since 1994 reform process, telecom density has only gone up to 3 as

compared to the global average of 14.

• Though cellular is the most attractive business today, but still the overall

number of cellular subscribers is very low comparatively, and this market

really needs to be tapped.

• Embracing change and understanding the technology takes a lot of time

making the changes very slow.

• The mobile market (cellular and WLL together) is set to continue the

robust growth in cellular subscriber base

This will have an adverse impact on the basic services, wherein the

growth rates have come down to single digits at 8.8% in Mar’03 over

Mar’02. The trend is likely to continue in the short to medium term, with

mobile market registering y-o-y growth in excess of 80%. Nevertheless,

unless the industry is able to increase its average ARPU, the cellular

industry will continue to be in red. But the industry sources are confident

of increasing the ARPU, with impressive growth in value added services

like SMS etc.

• Illegal international call services

Recently, A team of officials from the Department of Telecommunications(DOT), Videsh Sanchar Nigam Limited and the Punjab Police has busted

an illegal telephone exchange in Jalandhar, Punjab for receiving

international calls through Internet and distribution on to the Local

Network.

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NEW INNOVATIONS

Television on mobile, first time in the world !!

Hutch has recently launched Hutch TV, the first multi-channel TV-on-Mobile

service in India. The Hutch TV service offers television content from 13

different television channels, ranging from news and current affairs,

business, sports, fashion to travel and entertainment. All Hutch and Orange

users across Mumbai, Delhi, Kolkata, Chennai, Gujarat, Karnataka, Andhra

Pradesh, UP East, Rajasthan, Punjab and Haryana can access clips from

CNBC-TV18, AXN, NDTV India, NDTV 24X7, Discovery, SET, Zee TV,MAX, Nick, ETV, Animax, Raj TV and Trendz through their EDGE

(Enhanced Data for GSM Evolution) enabled mobile phones.

Hutch is already offering multimedia mobile services such as cricket video

clips, mobile gaming, polyphonic ringtones, Click and Print MMS, push2talk

and corporate email through GPRS. Now, with higher speeds of an EDGE-

enabled network, it will be able to deliver video clips of longer duration

allowing the users to view clips of their favourite serials, news bulletins,

sports and lifestyle events and travel programmes, while on the move.

It's for the first time, anywhere in the world, that television clips can be

accessed on the 2.5G network. Moreover, there is no extra charge for

accessing Hutch TV. All that Orange and Hutch GPRS users have to do is to

take a monthly subscription to the Orange and Hutch GPRS services at

Rs.99. At present, Hutch TV can be accessed through the Nokia 6230 and

Nokia 3220 EDGE-enabled handsets.

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Reliance Infocomm is planning to deploy 3G EvDO services

Reliance Infocomm is planning to deploy CDMA 2000 1X EvDO technology

that will enable peak data carriage speed of up to 2.4 megabytes per second. The service would be made available initially to select high end

customers in top metros where there is a demand for high data speeds.

Both Reliance and TATA's have set up CDMA 2000 1X networks nationwide

that currently offer a peak Internet access speed of 144 kbps. EvDO is

expected to enable higher end data services where the actual output would

be around 2 mbps. In launching 1X EvDO, Reliance will join the select club

of operators in Asia-Pacific which have launched 3G CDMA services for their customers. These include KDDI in Japan, SK Telecom in Korea and

China Unicom which plans to launch it soon.

The applications that get a boost with this high speed technology are

location-based services, weather forecasts, video-on-demand, delayed

television broadcasts, high-end gaming, push-to-talk etc.The technology will

enable operator to offer not only much more capacity and better dataspeeds to its subscribers, but also high voice clarity, Net connectivity, e-

commerce and m-commerce.

Motorola launched quad-band phone in India

Motorola announced the launch of the first Quad-band phone, V600 in India.

The quad-band technology allows seamless roaming facility across 800,

900, 1800 and 1900 GSM bands, making it functional all across the globe.

Targeted at international travelers, the Motorola V600 has Personal

Information Management (PIM) functionality which keeps the user up-to-

date on important meetings and tasks and the ability to synchronies with

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POP3 and IMAP4 e-mail accounts. V600 also flaunts Bluetooth

compatibility, MP3 capability, an integrated camera, video playback, and

discreet color notification lights that assign different colors, roentgens to

one's preferred contact. Advanced messaging features, downloadablegames and applications are other features of this phone which sports a

metal exterior with clamshell design. V600 will be priced at Rs.20,495 in

India.

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STRATEGIC IMPERATIVES

The sector being capital intensive, government was the only player so far.

Though private players are now permitted, only large players with deep

pockets can enter and operate successfully in this field. Smaller players are

likely to sell out or merge with larger players. Again, the industry is very

technology-intensive and hence the chances of obsolescence are immense

for different modes of communication. in advanced countries this has

already changed the dynamics and the structure of the industry.

• Digital revolution is fast catching up and companies that remain alert to

changes and adapt accordingly in no time can only survive. The buzzword is

broadband and integrated services encompassing basic, isp, std/isd, mobile

and other value-added services under one roof or through consortium and

alliances.

• The earnings in the sector hinge on government policies to a great

extent. Cellular service is a classic example. Role of TRAI in tariff fixation is

a clear indication. in fact, one of the key issues in the telecom sector since

liberalization has been the regulatory framework. However, the

reconstitution of the TRAI and the creation of the telecom dispute settlement

and appellate tribunal (tdsat) are significant steps and will strengthen the

regulatory mechanism and provide an expeditious mechanism to resolve

disputes.

• As the world is increasingly getting connected with the advent of Internet

and its different value-additions, telecom industry's prospects are probably

the best. With a tele density of 2.9 telephone lines per 100 inhabitants

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against a world average of 15, the potential for growth is enormous in this

sector. Besides, the government has targeted 12.5 lines per 100 people by

the year 2008. With deregulation and entry of large number of private basic

service providers, the industry's growth potential has skyrocketed. Thedemand for telecom services in India is not limited to basic telephone

services but also to value-added services like cellular, radio paging, Internet

and global mobile communication by satellite services.

• The telecommunications service market is forecast to grow 24% annually

over the next three years and more than double in value to rs 77,000 crore

($16.1 billion) by 2004/05 .

• It forecast the Indian market for basic telecom services will grow 18.5%

per year over to double in value to rs 53,200 crore in the year to march

2005, The number of phone lines over the same period is expected to nearly

double to 59.3 million from 32.2 million. Chris infac expects the demand to

increase at an average annual rate of 13.9% in the "a" category circles, till

march 2005. During the period march 2001 to march 2005, demand is

expected to increase by 15.8% in the "b" category circles and 22.7% in the

"c" category circles.

• The waiting list for telephone lines are expected to decline demon 8.2%

of demand by end-march 2001 to 4.7% of demand by end-march 2005.

• According to a study by deutsche bank, though the number of cellular

subscribers is expected to increase, the cellular operators' revenue is

estimated to increase by a lower rate. The growth in subscriber base is not

fully reflected in the growth in revenues as the average revenue per user

arpu) is expected to fall.

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• Further, the study predicts that by 2004-05, the cellular subscriber base

would shoot up to 24 million and the cellular operators' revenue will zoom to

rs 137 billion while the arpu would be rs 5623. Also, the share of pre-paid

cards in the subscriber base will shoot up to 58% in 2004-05.The share of pre-paid cards is expected to be raise from to 50% in 2003-04. The study

further reveals that, the revenues from pre-paid card segment is estimated

to increase from rs 11 billion in fy 2001-02 to rs 70 billion by 2004-05. During

the same period, revenues from post paid connections will increase from rs

37 billion to rs 67 billion.

• In another study by research firm Garter, the number of cellular

connections in India is expected to touch 70 million by 2007, as cut-throat

price war lures consumers. The market is projected to grow at a cagr of 39%

to notch up a base of 70 million subscribers by 2007.

• A recent research by Garter indicates that the number of cellular

connections in Asia pacific would increase to 797.8 million by 2007 while

cellular service revenue would touch us$142.9 billion.

• The changes are expected to bring in an investment of $ 37 billion (rs

1,72,400 crore) by 2005 and $ 69 billion (rs 3,21,500 crore) by 2010.

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CONCLUSION

After analyzing the industry we conclude that the overall attractiveness of

the industry is moderately high. The followings are the main reasons for this

conclusion.

• The industry’s overall growth potential is high.

• The competition currently permits adequate profitability.

• The competitive forces are moderate and they do not create more stress

on the industry in the way of its growth.

• Looking at the high ratio of the opportunities to threats, the degree of risk

and uncertainty with the problems confronting the Industry, as a whole

will not create major problem in some years in future.

India has tremendous potential and strength in terms of trained technical

manpower, training centers, and software development potential, integrated

telecom players, motivated and enthusiastic industry players along with

foreign investment backup.

India also has an excellent R&D and training standards. India needs to

reform its rules, create more global awareness, change its policies in favor

of more opportunities and encourage its major players to invest in the

economy.

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New rules, liberalization and deregulation can and is bringing about

significant progress. According to former World Bank economist Surjit

Bhalla, every 10 million new phones lines add 0.5% to annual economicoutput. This means increased productivity because these inexpensive

phones prove to be a lifeline for business.

Thus India is definitely in a win-win situation but its players need to unite and

work really hard. It seems that telecom is becoming more exciting than

Software and can well become more stable than the software industry has

been.

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GLOSSARY

LMA…………………...Last Mile Access

IA……………………...International AccessNLDA………………....National Long Distance Access

DOT…………………..Department Of Telecommunications

TELCOS……………...Telephone Companies

GDP…………………..Gross Domestic Product

MTS…………………..Mobile Telephone Service

MTNL………………...Mahanagar Telephone Nigam Ltd.

VSNL…………………Videsh Sanchar Nigam Ltd.

BSNL…………………Bharti Sanchar Nigam Ltd.

DTS…………………..Department of Telecom Services

TRAI…………………Telecom. Regulatory Authority of India

TDSAT………………Telecom Disputes and Settlement Appellate Tribunal

ILD…………………..International Long Distance

DLD…………………Domestic Long Distance

NLD…………………National Long Distance

PCO…………………Public Call Office

NTP………………….National Telecom Policy

GMPCS..…………...Global Mobile Personal Cellular Services

IT…………………….Information Technology

ISDN…………………Integrated Services Digital Network

ISP…………………...Internet Service Provider

MoU…………………Memorandum of Understanding

POPs…..……………Points of Presence

CDMA………………Code Division Multiple Access

OFC…………………Optical Fiber Cable

FIPB………………...Foreign Investment Promotion Board

FSO…………………Free Space Optics

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DSL…………………Digital Subscriber Line

Gbps………………...Gigabit per seconds

NASSCOM…………National Association of Software and Services Companies

CVD…………………Counter Veiling Duty

ARPU……..…………Average Revenue Per Unit

TTRT…………………Transmission Tower For Radio Telephony

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BIBLIOGRAPHY

BOOK:

Strategic Management

(Thompson and Strickland – Strategic Management: concept and

cases, 13th Edition, New Delhi, Tata Mcgraw Hill Publishing Co. Ltd. 2004)

WEB SITE:

http://www.indiabandwidth.com/



http://wireless.newsfactor.com/perl/story/15756.html http://www.commercialdiplomacy.org/ma_projects/ma_india1.htm

http://www.india-cellular.com/News-July-2002.html


http://www.ibc-asia.com/Voice-Over-IP-India/indiaVoIPIntro.htm

SOFTWARE:

Capitaline Plus




http://www.commercialdiplomacy.org/ma_projects/ma_india1.htm







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