INTERIM REPORT ON TELECOM

INDUSTRY IN 2010
STRATEGIC CONSULTING REPORT

Indian Institute of Management, Rohtak

Submitted To: Submitted By: GROUP 1

Prof. Sujit Kumar ASTHA SHARMA

AMIT KUMAR DHAWAN

ABHINAV TRIPATHI

SHIVAM GUPTA

PRASHANT KUMAR

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 Acknowledgement

We are using this opportunity to express our gratitude to everyone who supported us throughout the
course of this MBA project. We are thankful for their aspiring guidance, invaluably constructive
criticism and friendly advice during the project work. We are sincerely grateful to our faculties and
Fpm students for sharing their truthful and illuminating view on a plethora of issues related to the
project.

We express our warm thanks Prof Sujit Kumar for his support and guidance at IIM Rohtak and we hope
to develop a recurring and intriguing interest about this topic in the future

Thank you,

Group 1

Strategy and Consulting

Indian Institute of Management Rohtak

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 Executive Summary

In India, the telecommunications industry has experienced countless irregularities in policy

development and execution over the years. Industry rulers and investors have repeatedly voiced their
view that the Indian telecommunications sector is no longer an appealing investment alternative due
to policy uncertainty. This report focusses upon the telecommunication industry during the era of
allocation of 3G/4G licenses to the tele operators in the year of 2010. The prima facia focus of the
report is to ascertain the state of telecom operators before the auction and the factors that influenced
their decision to acquire the 3G/4G spectrum in the year 2010. The reports also emphasis upon the
existing Information technology with telecom incumbents in year 2010 and how that played a pivotal
role in positioning of their strategy post allocation of the spectrum. Brief overview is being provided
in the report about the state of telecom sector worldwide and how the foreign technological
advancement played an important role in revolutionizing the Indian telecom space. The report
critically analysis the positioning of various telecom incumbents and the strategies that they adopted
to stay ahead of each other in the highly competitive and challenging environment. In the changing
environment with more service providers, the Indian government was committed of enabling telecom
sector growth as well as protecting customer interests, safeguarding from the competitive activities
of various service providers hence the report also enumerates the government policies and laws that
helped in achieving the above mentioned objectives. The report has enumerated the result of the
spectrum and how it would impact the incumbents on financial and operational fronts in the coming
years. Lastly, the report has enumerated various assumption-based decisions of the telecom players
and how strategic vision of the JIO played an important role in transforming the whole Telecom
Landscape in India.

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 Table of Contents

[Link]. Title Page

Number
1 Introduction ...................................................................................................................................... 5
2 India’s Telecom Industry before 2010 pre-3G auction .............................................................. 5
2.1 Customer Segmentation………………………………………………………………………………………………………………5

2.2 Technology Used………………………………………………………………………………………………………………………….6

2.3 Financial………………………………………………………………………………………………………………………………………7

2.4 Competition………………………………………………………………………………………………………………………………..7

3. Technological Developments in the Telecom Industry Globally Before 2010 auction ......... 8
4. Need for 3G .................................................................................................................................... 9
5. Issues regarding 3G ...................................................................................................................... 9
6. DoT Regulations & its impact ...................................................................................................... 9
7. Strategic Analysis ........................................................................................................................ 10
8. 3G Bidding Results...................................................................................................................... 10
9. BWA Bidding Results .................................................................................................................... 11
10. Readiness for 4G ......................................................................................................................... 13

Indian Telecom Sector

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 1. Introduction
India is one of the world’s fastest growing industry in the telecom sector with 1205.38 million mobile
phone subscribers (till Feb’19), 98.2% of which constitutes number of wireless subscribers and ranks
second in terms of the number of telecommunication subscriptions globally. The industry has
witnessed exponential growth over the last few years primarily driven by affordable tariffs, wider
availability, roll out of Mobile Number Portability (MNP), expanding 3G and 4G coverage, evolving
consumption patterns of subscribers and a conducive regulatory environment.

2. India’s telecom industry before 2010 pre-3G auction

The telecom industry in India has seen numerous changes in regulations since 1991. From almost
monopoly till early 1990’s, it has evolved into a vibrant industry with more number of players & call
rates as low as ½ paisa/s. India became the country with lowest ARPU across the world, raising
questions on sustainability of the business.

Some quick facts (2007-2010)

 Telecom sector contributed 5.65% of India’s GDP in 2009

 Annual growth rate of telephone subscribers stood at 47% (2006-07), Tele-density ~20%,
ARPU was USD 6.6/ month, Telecommunication equipment market USD 17 bn
 Call rates decreased from Rs.16/month in early 90’s to 0.5 paisa/s in late 2000’s
 Average mobile handset growth in India was 51% & penetration stood at 45%`

2.1 Customer segmentation

The wireless segment in India is much larger than the wire-line segment and is growing steadily due
to the convenience and utility it offers. Wireless services hold a major market share of 94.6 per cent.
The subscriber base of the wire-line segment is decreasing due to its limited usage.

Following is the trend in the increase in subscriber base in key segments:

Total
telephones Wire line Wireless Rural Urban Public Private Tele-density
Year (Millions) (Millions) (Millions) (Millions) (Millions) (Millions) (Millions) (%)
2001 36.28 - - - - - - 3.58
2002 44.97 - - - - - - 4.29
2003 54.61 - - - - - - 5.11
2004 76.54 - - - - - - 7.02
2005 98.37 - - - - - - 8.95
2006 142.09 40.22 101.87 - - 61.08 81.01 12.74
2007 205.87 40.77 165.08 47.1 158.76 71.39 134.47 18.22
2008 300.49 39.41 261.08 76.5 223.99 79.55 220.94 26.22
2009 429.72 37.96 391.76 123.51 306.21 89.55 340.18 36.98
2010 621.28 36.96 584.32 200.77 420.51 105.87 515.41 52.73

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 Increase in Subscriber base & Tele-density

500

400

300 Total telephones (Millions)

200 Tele-density (%)

100
26.22 36.98
0 3.58 4.29 5.11 7.02 8.95 12.74 18.22
2001 2002 2003 2004 2005 2006 2007 2008 2009

Rural India had started to become

the next key growth driver for the
Indian Telecom sector given the
growing population and disposable
income of rural India.

2.2 Technology Used

Telecom sector

Wire line Wireless Internet Services VSAT’s, Radio & others

GSM CDMA

Segment Subscriber Base (millions) Major Players and their market share
Wire-line 36.76 PSU’s (BSNL & MTNL) (85%)
Wireless 584.32
GSM 328.83 Bharti Airtel(31%)
CDMA 54.19 Reliance Communications(55%)
Internet 14.03 PSU’s(BSNL, MTNL) (70%)
Services
VSAT 0.108 Hughes Communications India Ltd,
Bharti Airtel(29.4 & 25.9%)

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 2.3 Financial

Turnover EBIDTA PAT Total Equity

Company (Crores) (Crores) (Crores) Assets
Tata Teleservices 2069 540 -298 - -
Reliance Communication 22130 9006 4655 92660 44060
Bharti Airtel 41829 16847 9163 69980 42728
Idea Cellular 12450 3410 950 24040 -
BSNL 32045 - -1802.8 132325 -
Bharti Airtel & RCom were more financially & operationally competent than other players. Tata
Teleservices were in losses before 2010 bidding as they had already invested in launching 2G services
in 2009. Idea was profitable & backed by financially sound parent company Aditya Birla Group

2.4 Competition

Service Providers Market Share in %

Bharti Airtel 21.84

Relianc Comm 17.53
Vodafone 17.26
BSNL 11.89
Tata 11.29
Idea 10.92
Aircel 6.31
Others 2.97

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 Year (Mar end) Total PSU's Airtel Reliance Vodafone TATA Idea Others
2008 300.49 79.55 64.27 46.67 44.13 25.05 28.21 12.61
2009 429.72 89.55 96.65 73.77 68.77 36.04 43.02 21.92
2010 621.26 105.87 130.69 103.6 100.86 67.1 63.82 49.32
Fig:Total Number of Subscribers of major players

3. Technological developments in the Telecom Industry globally before 2010 auction

Technology, service provider purchasing policy, equipment vendor strategy and consumer spending
trends, are all the factors that have shaped the global strategies for telecom sector

 As of 2006, before the 3G/4G spectrum auction in 2010 in India, 3G and 4G services had
already flourished in the developed nations of the world
 The broadband market was still at an early stage of its development with change in improved
technologies and consumer expectations
 PSTN(public switched telecommunication network) was developing as the most important
communications platform in OECD countries
 Packet-based technology using the Internet Protocol was fast developing to replace the
existing circuit-based switching technologies
 Rapid developments in the optical fibre technologies

2002- Broadband Access for Business

· ‘Broadband’ refers to high speed internet access, transmission capacity > ISDN
· Four times faster than Internet access which gave 56 Kbps
· Top player on OECD countries were keen to invest in infrastructure for Broadband Access which
showed 57% rise in subscriber base from 1999 to 2001
· Leading Technologies- Cable Modems & Digital Subscriber Line (DSL)
2006- Implications of WiMAX
· Much increase in emerging wireless technologies of high speed wireless broadband upto
40Mbit/s
· Relationship between 3G, WLAN & WiMAX became complementary, competition & crossover
· Wireless technologies were available to establish long distant but equipment was costly before
WiMAX
2008-2010 Convergence & Developments in Fibre Optics
· With the emergence of number of platforms available to provide different network services
becoming complementary, convergence of infrastructure & network became necessary
· For incumbent global players, investment in VDSL2 & FTTH seemed clearer to enter into the fibre
optics technology
· Incumbents like AT&T, Belgacom & Deutsche Telekom started upgrading their existing PSTN
enabled network to VDSL2 which will require them to bring fibre closer to the end-customer
· Business models started shifting to all fibre networks & its hybrids

Following are the trends that have been active in telecom industry pre-2010 globally:

1. Commoditization pressure on the lower network layers.

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 2. Wireless transformation to data services
3. Explosion in provider consumption of vendor professional services
4. Merging network and IT infrastructure into a common cloud

Need for 3g
 Need for telecom access to rural India
 Need for domestic development in comparison with the global development to 4G technology
had already taken place
 Need of Government to raise revenue after 2G scam
 3G services will enable video broadcast and data-intensive services such as stock transactions,
e-learning and telemedicine through wireless communications

Issues regarding 3G for:-

Providers
 High spectrum licensing fees for the 3G services
 Huge capital required to build infrastructure for 3G services
 Since in telecom sector, there is much competition, so the companies have a very marginal
price for their facilities

Users
 Health impact of electromagnetic waves
 Prices are very high for 3G mobile services
 Will 2G users switch to 3G services
 Takes time to catch up as the service is new
 The cost of upgrading to 3G device is expensive

DoT Regulations and Its Impacts

The DoT governs the Indian telecom industry. In coordination with the Telecom Commission, the
DoT oversees licensing, policy formulation, frequency management, administrative monitoring,
research and development, equipment standardization and validation, along with private
investments.
The objectives for Government of India as mentioned on DoT website, were clear and in following
order:

1) Maximize Revenue for the government

2) Ensure efficient use of spectrum and avoid hoarding
3) Stimulate competition in the sector, promote 3G roll-out and help resolve 2G congestion issues

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 Strategic Analysis

Service Providers Pre-auction services Strategic observations & assumptions for Auction 2010
PSU’s (BSNL-MTNL) Leaders in wire line segment  MTNL launched 3G services in Delhi & Mumbai, 2008
Wireless segments (GSM &  BSNL launched 3G pan India in 2010 before auction
CDMA), First to launch 3G,  Paid spectrum fees at the end of auction 2010 for 3G &
BWA services BWA
Vodafone India Offering countrywide data &  To offer 3G services to consumers
voice services based on 2 &  Selected locations where demand would be high
2.5 G networks  Assumption: To get revenue out of rising affluence &
increasing urban population
 Significant portion of their customer base has 3G devices
Idea Cellular Ltd. One of the leading GSM  Enhance competitive position in market was motivation
service provider operators  Footprint in 2.1GHz (3G Spectrum)
pan India covering entire  Assumption: penetrate high speed data services in the
telephony landscape rural India as it was untapped market.
Bharti Airtel Already leader in domestic  Wanted to have pan India 3G footprint
market, missioning to enter  Successful in Sri Lanka, wanted to expand S Asia, Africa
global markets, stake in  Interested in new technologies, BWA etc.
Warid Telecom, Zain Africa  Strategizing to become global powerhouse
 Assumption: To get revenue out of rising urban
population & to provide complimentary services
Reliance Pan India mobile services  Goal to become service providers across the entire value
(GSM & CDMA), highest chain of telecom business in the world
coverage in CDMA services  Assumption: Provide faster connectivity, mobile TV, video
calls, high-speed internet access through winning 3G
auction
 Looking forward to strengthen in data services
TataTeleservices 2ndbest CDMA service  Making net loss since FY 2007-2008
provider in terms of number  Loss is attributed to capital investment & depreciation
of subscribers, also provides  Started GSM services, launched Tata DoCoMo in 2009
internet & VSAT services  Penetrated in entire value chain, proposed to invest in 3G
auction
 Assumption : would help to get new customers and get rid
of the existing debt

Assumptions made by JIO while going for BWA

 Indian broadband landscape: India is almost at the bottom with a penetration of less than 1
percent. Hence, chance to increase customer base.

 Rising industry: From only 75,000 mobile subscribers in 1995, we now have 621 million. India
is the fourth largest economy today and Reliance’s presentation has a graph showing a
correlation between per capita GDP and broadband access. The number of broadband
connections in India is expected to grow 23% between 2009 and 2013.

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  Lack of Spectrum: The company has highlighted that the lack of spectrum is the cause for poor
userexperience on current 2.5G networks and that more spectrum needs to be dedicated to
data access.
 Low Revenues from Data Services: Indian operators have one of the lowest non-voice
revenue mix globally. Even within the approximate 10% non-voice mix, bulk of revenues come
from SMS – which is a primitive non-voice service. 3G and BWA will be key drivers for rapid
growth of advanced data services. Their contemporaries in other countries such as NTT-
DoCoMo and Verizon observe 45% of their revenues from non-voice services.
 Access: Getting last mile connectivity is also an issue in many places.
 Content: Not enough variety of content and applications to appeal to all segments of people,
especially those who do not already have Internet access. Limited content and applications
for which the people are willing to pay
 Shifting of voice driven communication to data driven communication enabled Jio to acquire
high speed BWA

3G Bidding Results
Total Investment( in Crores
Service Area
[Link]. Successful Bidder Rs)
1 Vodafone Essar Limited 11617.86 Delhi,Mumbai,Maharastra and others
2 Bharti Airtel Limited 11974.43 Delhi,Mumbai,Andhara Pradesh and others
Reliance Telecom
8585.04 Delhi,Mumbai,Punjaband others
3 Limited
Maharastra, Gujrat, Andhra Pradesh and
5768.59
4 Idea Cellular Limited others
Tata Teleservices
5864.29 Kerala, Punjab,Haryana and others
5 Limited
6 Aircel Limited 6499.46 Kolkata, Kerala, Punjab and others
7 S Tel Private Limited 337.67 Himachal, Orissa, Bihar and others

BWA Bidding Results

Total Investment( in
Service Area
[Link]. Successful Bidder Crores Rs)
Infotel Broadband Services
1 Private Limited 12103.58 Delhi,Mumbai,Maharastra and others
2 Qualcomm Incorporated 4912.54 Delhi,Mumbai,Kerala and others
3 Bharti Airtel Limited 3314.36 Maharasta, Karnataka, Kolkata and others
Tikona Digital Networks Private
4 Limited 1058.2 Gujrat, Uttar Pradesh, Rajasthan and others
5 Aircel Limited 3438.01 Orissa, Assam, North East and others
6 Augere (Mauritius) Limited 124.66 Madhya Pradesh

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Readiness for 4G
 The inability of the operators to even launch the services due to development of the
requisite device and network ecosystem.
 hardware compatible with 4G networks Difficult
 Higher data prices for the consumers
 New frequencies means new components in cell towers

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 References
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OECD reports

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