SWOT-The Indian Telecom Industry
Content
Business Environment Assignment on SWOT Analysis Of Indian Telecom Industry
Submitted to: Submitted by: Mr. Mandeep Saini Pallavi Modi Dept of Management R315A22 LSB
MBA 1st Sem
The Indian Telecom Industry
The telecom network in India is the fifth largest network in the world meeting up with global standards. Presently, the Indian telecom industry is currently slated to an estimated contribution of nearly 1% to India’s GDP. The Indian Telecommunications network with 110.01 million connections is the fifth largest in the world and the second largest among the emerging economies of Asia. Today, it is the fastest growing market in the world and represents unique opportunities for U.S. companies in the stagnant global scenario. The total subscriber base, which has grown by 40% in 2005, is expected to reach 250 million in 2007. According to Broadband Policy 2004, Government of India aims at 9 millionbroadband connections and 18 million internet connections by 2007. The wireless subscriber base has jumped from 33.69 million in 2004 to 62.57 million in FY2004-2005. In the last 3 years, two out of every three new telephone subscribers were wireless subscribers. Consequently, wireless now accounts for 54.6% of the total telephone subscriber base, as compared to only 40% in 2003. Wireless subscriber growth is expected to bypass 2.5 million new subscribers per month by 2007. The wireless
technologies currently in use are Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). There are primarily 9 GSM and 5 CDMA operators providing mobile services in 19 telecom circles and 4 metro cities, covering 2000 towns across the country.
Evolution of the industry -Important Milestones
History of Indian Telecommunications Year 1851 First operational land lines were laid by the government near Calcutta (seat of British power) 1881 Telephone service introduced in India 1883 Merger with the postal system 1923 Formation of Indian Radio Telegraph Company (IRT) 1932 Merger of ETC and IRT into the Indian Radio and Cable Communication Company (IRCC) 1947 Nationalization of all foreign telecommunication companies to form the Posts, Telephone and Telegraph (PTT), a monopoly run by the government's Ministry of Communications 1985 Department of Telecommunications (DOT) established, an exclusive provider of domestic and long-distance service that would be its own regulator (separate from the postal system) 1986 Conversion of DOT into two wholly government-owned companies: the Videsh Sanchar Nigam Limited (VSNL) for international telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for service in metropolitan areas. 1997 Telecom Regulatory Authority of India created 1999 Cellular Services are launched in India. New National Telecom Policy is adopted 2000 DoT becomes a corporation, BSNL
Major Players
There are three types of players in telecom services: • -State owned companies (BSNL and MTNL) • -Private Indian owned companies (Reliance Infocomm, Tata Teleservices,)
• -Foreign invested companies (Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea Cellular, BPL Mobile, Spice Communications.
COMPANY MARKET SHARES
Company Million Subs (Nov 2003) BSNL 40.3 Reliance 6.1 Bharti 5.7 MTNL 4.9 Hutchison 2.9 Idea Cellular 2.1 BPL 1.4 Tata Teleservice 1.3 Spice 1.0 Escotel 0.8 Fascel 0.8 Aircel 0.9 Hexacom 0.2 Shyam Telelin 0.1 % share 58.8 8.9 8.3 7.2 4.2 3.0 2.1 1.9 1.4 1.1 1.1 1.4 0.3 0.2
SWOT Analysis
Strengths
At 110.01 million connections ' Indian Telecom Industry' is the fifth largest and fastest growing in the world. The subscriber base has grown by 40% in 2005 and is expected to reach 250 million in 2007. Over the last 3 years, two out of every three new telephone connections were wireless. Consequently, wireless now accounts for 54.6% of the total telephone subscriber base, as compared to only 40% in 2003. Wireless subscriber growth is expected to grow at 2.5 million new subscribers every month in 2007. The ' Indian Telecom Industry ' services is not confined to basic telephone but it also extends to internet, broadband (both wireless and fixed), cable TV, SMS, IPTV, soft switches etc .The wireless technologies currently in use ' Indian Telecom Industry ' are Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). There are primarily 9 GSM and 5 CDMA operators providing mobile services in 19 telecommunication circles and 4 metro cities, covering more than 2000 towns across the country. And the numbers are still growing for ' Indian Telecom Industry '. ' Telecom Industry in India ' is regulated by 'Telecom Regulatory Authority of India' (TRAI). It has earned good reputation for transparency and competence. More than nine million phone connections were added last month,
taking the number of phone users in the country to some 333.84 million. India has one of the fastest growing cellular markets in the world in terms of number of subscriber additions - 19.35 million in 3 months (April to June 2007) and the Indian telecom market generated revenues of approximately US$ 20 billion in 2006–07. It registered a CAGR of approximately 22 per cent from 2002–03 to 2006–07. The CAGR from 2006–07 to 2009–10 is expected to stabilise at 21 per cent. Apart from mobile telephony services, other value-added services are also gaining importance. The Indian telecom industry has always attracted foreign investors. In fact, the cumulative FDI inflow, during the August 1991 to March 2007 period, in the telecommunication sector amounted to US$ 3,892 million. It is the third largest sector to attract FDI in India in the post-liberalisation era. Here are some key findings referring to the strengths of Indian Telecom Industry. The total number of telephone subscribers has reached 241.02 million The overall teledensity has increased to 21.20% in August 2007 The total wireless subscribers (GSM, CDMA & WLL(F)) base reaches 201.29 million The wireline segment subscriber base stood at 39.73 million (decrease of 0.16 million at the end of August 2007) Total Broadband connections in the country have reached 2.56 million by the end of August 2007.
Weakness
Slow pace of the reform process . It would be difficult to make in-roads into the semi-rural and rural areas because of the lack of infrastructure. The service providers have to incur a huge initial fixed cost to make inroads into this market. Achieving breakeven under these circumstances may prove to be difficult. The sector requires players with huge financial resources due to the above mentioned constraint. Upfront entry fees and bank guarantees represent a sizeable share of initial investments. While the criteria are important, it tends to support the existing big and older players. Financing these requirements require a little more liberal approach from the policy side. Problem of limited spectrum availability and the issue of interconnection charges between the private and state operators.
Broadband experience is very bad. Tata Indicom took 15 days to get connection in Bangalore. As compared to US, Indian net fare is too high. The Indian Telecom sector has one the highest levies and duties imposed on it. The total regulatory charges are between 17 ~ 26% exclusive of goods and service tax. This high incidence of levies and duties means a low return on capital , thus adversely impacting availability of funds for network expansion The return on capital expenditure for mobile services is very low in India at 7.8% Clubbing low tariffs, falling ARPU’s and high levies and duties means lower funds with players to reinvest in a constantly funds demanding nature of business . No base of suppliers to source components. The major challenge being the ability of an operator to adequately scale operations, retain talent and to satisfy growing subscriber demands. Penetration is a roadblock here and even amongst those in metros and large cities who own PCs, only a small minority have Apple’s iTunes on their systems. The other catch is slow internet speeds which can frustrate users attempting to download iTunes.
Opportunities
The telecoms trends in India will have a great impact on everything from the humble PC, internet, broadband (both wireless and fixed), cable, handset features, talking SMS, IPTV, soft switches, and managed services to the local manufacturing and supply chain. Indian customers are embracing mobile technology in a big way (an average of four million subscribers added every month for the past six months itself). They prefer wireless services compared to wire-line services, which is evident from the fact that while the wireless subscriber base has increased at 75 percent CAGR from 2001 to 2006, the wire-line subscriber base growth rate is negligible during the same period. In fact, many customers are returning their wire-line phones to their service providers as mobile provides a more attractive and competitive solution. The main drivers for this trend are quick service delivery for mobile connections, affordable pricing plans in the form of pre-paid cards and increased purchasing power among the 18 to 40 years age group as well as sizeable middle class – a prime market for this service. Small and medium businesses in India are on track to spend more than $6.4 billion this year on telecom equipment and services, about seven percent more than they
did last year. Small businesses account for the bulk (about 80 percent) of the telecom spending among Indian SMBs. This is due to their sheer numbers as SBs account for more than 99 percent of all SMBs in India. With the rural India growth story unfolding, the telecom sector is likely to see tremendous growth in India's rural and semi-urban areas in the years to come. According to the Geneva-based International Telecommunication Union (ITU), factors like India's current mobile telephone penetration rate of about 20 per cent and market liberalisation policies are likely to offer 'great potential' for the growth of telecom companies in India. Forthcoming services such as 3G and WiMax will further augment the growth rate. 3G capabilities present operators with opportunities to increase revenues from new domains, to strengthen their brand, foster deep-rooted customer loyalty and improve operational efficiency .In a new trend, global consumer electronics and mobile phone vendors are going green in India. Major players like Nokia, LG, Samsung and Haier, among others, are planning to introduce products that will be positioned on an environment-friendly platform, starting the trend of environment as a brand strategy in the Indian consumer electronics industry. Further, it is expected that the industry will generate revenues worth US$ 43 billion by 2009-10.Even though the Indian telecom industry has crossed a subscriber base of 225 million, its teledensity is a mere 19.9 per cent. Thus, the Indian market provides telecom service providers with a large untapped potential, given the country’s increasing population and its low teledensity. The Government has plans to raise teledensity to 40-45 per cent by 2010, thereby offering greater growth opportunities for service providers. The number of Indians using their mobiles to logon to the internet has increased from 16 million in 2006 to 38 million in 2007 (both GSM and CDMA). Players like Bharti and Spice have witnessed ~10% of user base using mobile Internet and even analysts are of the view that data usage is becoming a very significant source of revenue and will outpace voicebased VAS services by 2011.
Threats
Increase in competition from different players like virgin group The pricing of iPhone 3G sales in India proved to be a real dampener and kept customers from queuing up to buy the handset. Bharti and Vodafone have invested good amount to advertise their respective bundled schemes of iPhone 3G. But all these has resulted in not benefiting the involved players
but the grey marketers who have suddenly witnessed surge in sales since iPhone 3G launch in India. Reports say with the official iPhone 3G priced at Rs 31,000, customers are finding it more suitable price wise to purchase the handset from the grey market where it is speculated to be offered for Rs 20,000-Rs 22,000.
The industry needs to add capacity in tunes of 150 million lines to achieve the target of 250 million subscribers by 2012 . The major portion of these requirements would be catered to by importing the required telecom equipment. The telecom infrastructure equipment, majority of which is imported annually into the country at 5 percent customs duty. Whereas, duties are levied (10 - 30 percent) on inputs that go into the manufacturing of this equipment, except ICs at zero percent, making domestic production costlier than the imported equipment.
The hike in VAT on cell phones from 4 to 12.5 percent in the current budget will promote the gray market for handsets. In the years ahead, cost efficiency will be the primary challenge together with tremendous revenue opportunities that exist in the Indian telco market.
Another significant challenge is going to be how today’s communications provider will evolve to become a convergent service provider and offer service bundles to their subscribers that might include entertainment, infotainment, content, mobile transaction, advertisements and sponsorships on top of the data apart from voice services. The multi-dimensional convergence in the marketplace means that operators in India need to adapt the infrastructure and organisation for convergence. More and more communication and content providers are embracing convergence of all kinds, whether it is network convergence, service bundle offers, prepaid/post-paid convergence, or even system consolidation.
Bibliography
http://72.14.235.132/search? q=cache:UpUAMhWWuJMJ:www.iimcal.ac.in/community/consclub/reports/tele com.pdf+indian+telecom+industry&hl=en&ct=clnk&cd=1&gl=in http://indiatelecomnews.com/ http://www.ibef.org/artdisplay.aspx?cat_id=468&art_id=19784 http://www.pluggd.in/mobile/trais-report-on-indian-telecom-industry-and-thedismal-broadband-penetration-in-india-692/ http://www.pluggd.in/indian-telecom-industry/mobile-internet-morebroadband-penetration-in-india-946/ http://72.14.235.132/search? q=cache:PL7VDxV97pMJ:www.assocham.org/events/recent/event_59/A_SHEN DE_F_S_ppt_ASSOCHAM_Telecom_Conf_2006v3.ppt+challenges+in+indian+t elecom+industry&hl=en&ct=clnk&cd=1&gl=in http://economictimes.indiatimes.com/News/News_By_Industry/Telecom/Cost_ efficiency_will_be_the_primary_challenge/articleshow/1818005.cms
Submitted to: Submitted by: Mr. Mandeep Saini Pallavi Modi Dept of Management R315A22 LSB
MBA 1st Sem
The Indian Telecom Industry
The telecom network in India is the fifth largest network in the world meeting up with global standards. Presently, the Indian telecom industry is currently slated to an estimated contribution of nearly 1% to India’s GDP. The Indian Telecommunications network with 110.01 million connections is the fifth largest in the world and the second largest among the emerging economies of Asia. Today, it is the fastest growing market in the world and represents unique opportunities for U.S. companies in the stagnant global scenario. The total subscriber base, which has grown by 40% in 2005, is expected to reach 250 million in 2007. According to Broadband Policy 2004, Government of India aims at 9 millionbroadband connections and 18 million internet connections by 2007. The wireless subscriber base has jumped from 33.69 million in 2004 to 62.57 million in FY2004-2005. In the last 3 years, two out of every three new telephone subscribers were wireless subscribers. Consequently, wireless now accounts for 54.6% of the total telephone subscriber base, as compared to only 40% in 2003. Wireless subscriber growth is expected to bypass 2.5 million new subscribers per month by 2007. The wireless
technologies currently in use are Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). There are primarily 9 GSM and 5 CDMA operators providing mobile services in 19 telecom circles and 4 metro cities, covering 2000 towns across the country.
Evolution of the industry -Important Milestones
History of Indian Telecommunications Year 1851 First operational land lines were laid by the government near Calcutta (seat of British power) 1881 Telephone service introduced in India 1883 Merger with the postal system 1923 Formation of Indian Radio Telegraph Company (IRT) 1932 Merger of ETC and IRT into the Indian Radio and Cable Communication Company (IRCC) 1947 Nationalization of all foreign telecommunication companies to form the Posts, Telephone and Telegraph (PTT), a monopoly run by the government's Ministry of Communications 1985 Department of Telecommunications (DOT) established, an exclusive provider of domestic and long-distance service that would be its own regulator (separate from the postal system) 1986 Conversion of DOT into two wholly government-owned companies: the Videsh Sanchar Nigam Limited (VSNL) for international telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for service in metropolitan areas. 1997 Telecom Regulatory Authority of India created 1999 Cellular Services are launched in India. New National Telecom Policy is adopted 2000 DoT becomes a corporation, BSNL
Major Players
There are three types of players in telecom services: • -State owned companies (BSNL and MTNL) • -Private Indian owned companies (Reliance Infocomm, Tata Teleservices,)
• -Foreign invested companies (Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea Cellular, BPL Mobile, Spice Communications.
COMPANY MARKET SHARES
Company Million Subs (Nov 2003) BSNL 40.3 Reliance 6.1 Bharti 5.7 MTNL 4.9 Hutchison 2.9 Idea Cellular 2.1 BPL 1.4 Tata Teleservice 1.3 Spice 1.0 Escotel 0.8 Fascel 0.8 Aircel 0.9 Hexacom 0.2 Shyam Telelin 0.1 % share 58.8 8.9 8.3 7.2 4.2 3.0 2.1 1.9 1.4 1.1 1.1 1.4 0.3 0.2
SWOT Analysis
Strengths
At 110.01 million connections ' Indian Telecom Industry' is the fifth largest and fastest growing in the world. The subscriber base has grown by 40% in 2005 and is expected to reach 250 million in 2007. Over the last 3 years, two out of every three new telephone connections were wireless. Consequently, wireless now accounts for 54.6% of the total telephone subscriber base, as compared to only 40% in 2003. Wireless subscriber growth is expected to grow at 2.5 million new subscribers every month in 2007. The ' Indian Telecom Industry ' services is not confined to basic telephone but it also extends to internet, broadband (both wireless and fixed), cable TV, SMS, IPTV, soft switches etc .The wireless technologies currently in use ' Indian Telecom Industry ' are Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). There are primarily 9 GSM and 5 CDMA operators providing mobile services in 19 telecommunication circles and 4 metro cities, covering more than 2000 towns across the country. And the numbers are still growing for ' Indian Telecom Industry '. ' Telecom Industry in India ' is regulated by 'Telecom Regulatory Authority of India' (TRAI). It has earned good reputation for transparency and competence. More than nine million phone connections were added last month,
taking the number of phone users in the country to some 333.84 million. India has one of the fastest growing cellular markets in the world in terms of number of subscriber additions - 19.35 million in 3 months (April to June 2007) and the Indian telecom market generated revenues of approximately US$ 20 billion in 2006–07. It registered a CAGR of approximately 22 per cent from 2002–03 to 2006–07. The CAGR from 2006–07 to 2009–10 is expected to stabilise at 21 per cent. Apart from mobile telephony services, other value-added services are also gaining importance. The Indian telecom industry has always attracted foreign investors. In fact, the cumulative FDI inflow, during the August 1991 to March 2007 period, in the telecommunication sector amounted to US$ 3,892 million. It is the third largest sector to attract FDI in India in the post-liberalisation era. Here are some key findings referring to the strengths of Indian Telecom Industry. The total number of telephone subscribers has reached 241.02 million The overall teledensity has increased to 21.20% in August 2007 The total wireless subscribers (GSM, CDMA & WLL(F)) base reaches 201.29 million The wireline segment subscriber base stood at 39.73 million (decrease of 0.16 million at the end of August 2007) Total Broadband connections in the country have reached 2.56 million by the end of August 2007.
Weakness
Slow pace of the reform process . It would be difficult to make in-roads into the semi-rural and rural areas because of the lack of infrastructure. The service providers have to incur a huge initial fixed cost to make inroads into this market. Achieving breakeven under these circumstances may prove to be difficult. The sector requires players with huge financial resources due to the above mentioned constraint. Upfront entry fees and bank guarantees represent a sizeable share of initial investments. While the criteria are important, it tends to support the existing big and older players. Financing these requirements require a little more liberal approach from the policy side. Problem of limited spectrum availability and the issue of interconnection charges between the private and state operators.
Broadband experience is very bad. Tata Indicom took 15 days to get connection in Bangalore. As compared to US, Indian net fare is too high. The Indian Telecom sector has one the highest levies and duties imposed on it. The total regulatory charges are between 17 ~ 26% exclusive of goods and service tax. This high incidence of levies and duties means a low return on capital , thus adversely impacting availability of funds for network expansion The return on capital expenditure for mobile services is very low in India at 7.8% Clubbing low tariffs, falling ARPU’s and high levies and duties means lower funds with players to reinvest in a constantly funds demanding nature of business . No base of suppliers to source components. The major challenge being the ability of an operator to adequately scale operations, retain talent and to satisfy growing subscriber demands. Penetration is a roadblock here and even amongst those in metros and large cities who own PCs, only a small minority have Apple’s iTunes on their systems. The other catch is slow internet speeds which can frustrate users attempting to download iTunes.
Opportunities
The telecoms trends in India will have a great impact on everything from the humble PC, internet, broadband (both wireless and fixed), cable, handset features, talking SMS, IPTV, soft switches, and managed services to the local manufacturing and supply chain. Indian customers are embracing mobile technology in a big way (an average of four million subscribers added every month for the past six months itself). They prefer wireless services compared to wire-line services, which is evident from the fact that while the wireless subscriber base has increased at 75 percent CAGR from 2001 to 2006, the wire-line subscriber base growth rate is negligible during the same period. In fact, many customers are returning their wire-line phones to their service providers as mobile provides a more attractive and competitive solution. The main drivers for this trend are quick service delivery for mobile connections, affordable pricing plans in the form of pre-paid cards and increased purchasing power among the 18 to 40 years age group as well as sizeable middle class – a prime market for this service. Small and medium businesses in India are on track to spend more than $6.4 billion this year on telecom equipment and services, about seven percent more than they
did last year. Small businesses account for the bulk (about 80 percent) of the telecom spending among Indian SMBs. This is due to their sheer numbers as SBs account for more than 99 percent of all SMBs in India. With the rural India growth story unfolding, the telecom sector is likely to see tremendous growth in India's rural and semi-urban areas in the years to come. According to the Geneva-based International Telecommunication Union (ITU), factors like India's current mobile telephone penetration rate of about 20 per cent and market liberalisation policies are likely to offer 'great potential' for the growth of telecom companies in India. Forthcoming services such as 3G and WiMax will further augment the growth rate. 3G capabilities present operators with opportunities to increase revenues from new domains, to strengthen their brand, foster deep-rooted customer loyalty and improve operational efficiency .In a new trend, global consumer electronics and mobile phone vendors are going green in India. Major players like Nokia, LG, Samsung and Haier, among others, are planning to introduce products that will be positioned on an environment-friendly platform, starting the trend of environment as a brand strategy in the Indian consumer electronics industry. Further, it is expected that the industry will generate revenues worth US$ 43 billion by 2009-10.Even though the Indian telecom industry has crossed a subscriber base of 225 million, its teledensity is a mere 19.9 per cent. Thus, the Indian market provides telecom service providers with a large untapped potential, given the country’s increasing population and its low teledensity. The Government has plans to raise teledensity to 40-45 per cent by 2010, thereby offering greater growth opportunities for service providers. The number of Indians using their mobiles to logon to the internet has increased from 16 million in 2006 to 38 million in 2007 (both GSM and CDMA). Players like Bharti and Spice have witnessed ~10% of user base using mobile Internet and even analysts are of the view that data usage is becoming a very significant source of revenue and will outpace voicebased VAS services by 2011.
Threats
Increase in competition from different players like virgin group The pricing of iPhone 3G sales in India proved to be a real dampener and kept customers from queuing up to buy the handset. Bharti and Vodafone have invested good amount to advertise their respective bundled schemes of iPhone 3G. But all these has resulted in not benefiting the involved players
but the grey marketers who have suddenly witnessed surge in sales since iPhone 3G launch in India. Reports say with the official iPhone 3G priced at Rs 31,000, customers are finding it more suitable price wise to purchase the handset from the grey market where it is speculated to be offered for Rs 20,000-Rs 22,000.
The industry needs to add capacity in tunes of 150 million lines to achieve the target of 250 million subscribers by 2012 . The major portion of these requirements would be catered to by importing the required telecom equipment. The telecom infrastructure equipment, majority of which is imported annually into the country at 5 percent customs duty. Whereas, duties are levied (10 - 30 percent) on inputs that go into the manufacturing of this equipment, except ICs at zero percent, making domestic production costlier than the imported equipment.
The hike in VAT on cell phones from 4 to 12.5 percent in the current budget will promote the gray market for handsets. In the years ahead, cost efficiency will be the primary challenge together with tremendous revenue opportunities that exist in the Indian telco market.
Another significant challenge is going to be how today’s communications provider will evolve to become a convergent service provider and offer service bundles to their subscribers that might include entertainment, infotainment, content, mobile transaction, advertisements and sponsorships on top of the data apart from voice services. The multi-dimensional convergence in the marketplace means that operators in India need to adapt the infrastructure and organisation for convergence. More and more communication and content providers are embracing convergence of all kinds, whether it is network convergence, service bundle offers, prepaid/post-paid convergence, or even system consolidation.
Bibliography
http://72.14.235.132/search? q=cache:UpUAMhWWuJMJ:www.iimcal.ac.in/community/consclub/reports/tele com.pdf+indian+telecom+industry&hl=en&ct=clnk&cd=1&gl=in http://indiatelecomnews.com/ http://www.ibef.org/artdisplay.aspx?cat_id=468&art_id=19784 http://www.pluggd.in/mobile/trais-report-on-indian-telecom-industry-and-thedismal-broadband-penetration-in-india-692/ http://www.pluggd.in/indian-telecom-industry/mobile-internet-morebroadband-penetration-in-india-946/ http://72.14.235.132/search? q=cache:PL7VDxV97pMJ:www.assocham.org/events/recent/event_59/A_SHEN DE_F_S_ppt_ASSOCHAM_Telecom_Conf_2006v3.ppt+challenges+in+indian+t elecom+industry&hl=en&ct=clnk&cd=1&gl=in http://economictimes.indiatimes.com/News/News_By_Industry/Telecom/Cost_ efficiency_will_be_the_primary_challenge/articleshow/1818005.cms
