The Indian Telecom Industry

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Introduction

The telecom network in India is the fifth largest network in the world. Recently the Indian telecom industry is contribution of nearly 1% to India's GDP. The Indian Telecommunication network with 110.01 million connections is the fifth largest in the world and the second largest among the emerging economies of Asia. Now, it is the fastest growing market in the world 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 million broadband connections and 18 million internet connections 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 Event

History of Indian Telecommunications

  • 1851 First operational land lines were laid by the government near Calcutta.
  • 1881 Telephone service introduced in India
  • 1883 Merger with the postal system
  • 1923 Formation of Indian Radio Telegraph Company
  • 1932 Merger of ETC and IRT into the Indian Radio and Cable Communication Company
  • 1985 Department of Telecommunications established an exclusive provider of domestic and long-distance service that would be its own regulator.
  • 1986 Conversion of into two wholly government-owned companies: the Videsh Sanchar Nigam Limited for international telecommunications and Mahanagar Telephone Nigam Limited 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 Do to become 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)

BSNL

On October 1, 2000 the Department of Telecom Operations, Government of India became a corporation and was renamed Bharat Sanchar Nigam Limited. BSNL is now India's leading telecommunication company in the largest public sector undertaking. It has a network of over 45 million lines covering 5000 towns with over 35 million telephone connections. The state-controlled BSNL operates basic cellular GSM and CDMA mobile, Internet and long distance services throughout India. BSNL will be expanding the network in line with the Tenth Five-Year Plan 1992-97. The aim is to provide a telephone density of 9.9 per hundred by March 2007.

BHARTI

Bharti telecom inc. Established in 1985, Bharti has been a pioneering force in the telecom sector with many firsts and innovations to its credit ranging from being the first mobile service in Delhi, first private basic telephone service provider in the country first Indian company to provide comprehensive telecom services outside India in Seychelles and first private sector service provider to launch National Long Distance Services in India. Its subsidiaries operate telecom services across India. Bhartis operations are broadly handled by two companies: the Mobility group, which handles the mobile services in 16 circles out of a total 23 circles across the country and the Infotel group which handles the NLD ILD fixed line broadband, data, and satellite-based services.

MTNL

MTNL was set up on 1st April 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, introduced new services and to raise revenue for telecom development needs of India In the past 17 years, the company has taken rapid strides to emerge as India's leading and one of Asia's largest telecom operating companies.

RELIANCE INFOCOMM

Reliance is a $16 billion integrated oil exploration to refinery to power and textiles conglomerated. It is also an integrated telecom service provider with licenses for mobile, fixed, domestic long distance and international services. Reliance Infocomm offers a complete range of telecom services, covering mobile and fixed line telephony including broadband, national and international long distance services, data services and a wide range of value added services and applications. Reliance India Mobile, the first of Infocomm initiatives was launched on December 28, 2002. This marked the beginning of Reliance vision of ushering in a digital revolution in India by becoming a major catalyst in improving quality of life and changing the face of India.

TATA TELESERVICES

Tata Teleservices is a part of the $12 billion Tata Group, which has 93 companies, over 200,000 employees and more than 2.3 million shareholders. Tata Teleservices provides New Delhi, Andhra Pradesh, Tamil Nadu, Gujarat, and Karnataka. It has over 800,000 subscribers. The company hopes to start off services in these 11 new circles by August 2004. These circles include Bihar, Haryana, Himachal Pradesh, Kerala, Kolkata, Orissa, Punjab, Rajasthan, Uttar Pradesh & West and West Bengal.

VSNL

On April 1, 1986, the Videsh Sanchar Nigam Limited a wholly Government owned corporation - was born as successor to 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 and has a dedicated work force of about 2000 employees. VSNL's main gateway centers are located at Mumbai, New Delhi, Kolkata and Chennai.

HUTCH

Hutch's presence in India dates back to late 1992, when they worked with local partners to establish a company licensed to provide mobile telecommunications services in Mumbai. Commercial operations began in November 1995. Between 2000 and March 2004, Hutch acquired further operator equity interests or operating licences. With the completion of the acquisition of BPL Mobile Cellular Limited in January 2006, it now provides mobile services in 16 of the 23 defined licence areas across the country. Now Hutch India has maser of Vodafone mobile telecommunication inc.

IDEA

Indian regional operator IDEA Cellular Ltd. has a new ownership structure and grand designs to become a national player, but in doing so is likely to become a thorn in the side of Reliance Communications Ltd. IDEA operates in eight telecom "circles," or regions, in Western India, and has received additional GSM licenses to expand its network into three circles in Eastern India -- the first phase of a major expansion plan that it intends to fund through an IPO, according to parent company Aditya Birla Group.

Telecom Policy Last twenty years

Indian telecommunications today benefits from among the most enlightened regulation in the region, and arguably in the world. The sector, sometimes considered the "poster-boy for economic reforms," has been among the chief beneficiaries of the post-1991 liberalization. Unlike electricity, for example, where reforms have been stalled, telecommunications has generally been seen as removed from "mass concerns," and thus less subject to electoral calculations. Market oriented reforms have also been facilitated by lobbying from India's booming technology sector, whose continued success of course depends on the quality of communications infrastructure. Despite several hiccups along the way, the Telecom Regulatory Authority of India the independent regulator has earned a reputation for transparency and competence. India continues to derive substantial revenue from license fees $800 million in 2001-2002 leading some critics to suggest that the government has abrogated its responsibilities as a regulator to those as a seller. Early on, however, the regulator was beleaguered on all fronts. It had to contend with political interference, the incumbent's many challenges to its authority, and accusations of ineptitude by private players.

  • The corporatization of the creation of a new state-owned telecom company, Bharat Sanchar Nigam Ltd (BSNL), in 2000;
  • The opening up of India's internal long-distance market in 2000, and the subsequent drop in long - distance rates as part of TRAI's tariff rebalancing exercise;
  • The termination of VSNL's monopoly over international traffic in 2002 and the partial privatization of the company that same year, with the Tata group assuming a 25% stake and management control.
  • The gradual easing of the original duopoly licensing policy, allowing a greater number of operators in each circle;
  • The legalization, in 2002, of IP telephony (a move that many believe was held up due to lobbying by VSNL, which feared the consequences on its international monopoly); The introduction in 2003 of a Calling Party Pays system for cell phones, despite considerable opposition by fixed operators. It was not until late 2003 that the issue was finally resolved, under considerable government pressure, when cellular operators agreed to withdraw their many cases against the fixed-line operators. Fixed operators would in effect be allowed to enter the mobile business; in return, the government granted cellular players several concessions, including lower revenue-share arrangements estimated to total over $210 million. Perhaps most notably, the government announced its intention to adopt a "unified access licensing" regime, which would in the future provide a single, technology-neutral license for fixed and cellular operators. The hope is that this new license category will prevent a repeat of the recent controversy, and allow new technologies to enter the Indian market without requiring a wholesale rewrite of licensing laws.

MAJOR MARKET TRENDS

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. This report discusses key trends in the Indian telecom industry, their drivers and the major impacts of such trends affecting mobile operators, infrastructure and handset vendors.

Higher acceptance for wireless services

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. Some of the positive impacts of this trend are as follows. According to a study, 18 percent of mobile users are willing to change their handsets every year to newer models with more features, which is good news for the handset vendors. The other impact is that while the operators have only limited options to generate additional revenues through value-added services from wire-line services, the mobile operators have numerous options to generate non-voice revenues from their customers.

Some examples of value-added services are ring tones download, coloured ring back tones, talking SMS, mobisodes etc. Moreover, there exists great opportunity for content developers to develop applications suitable for mobile users like mobile gaming, location based services etc. On the negative side, there is an increased threat of virus spread through mobile data connections and Bluetooth technology - in mobile phones, making them unusable at times. This is good news for anti-virus solution providers, who will gain from this trend.

MERGERS

Demand for new spectrum as the industry grows and the fact the spectrum allocation in done on the basis of number of subscribers will force companies to merge so as to claim large number of subscribers to gain more spectrum as a precursor to the launch of larger and expanded services. However it must also be noted that this may very well never happen on account of low telecom penetration.

Foreign Direct Investment in the Telecommunication Industry of India

Introduction:

Inflow of capital from abroad in the form of private investment is essential for the growth of a developing economy. Foreign investment has beneficial effects in terms of encouragement to the development of technology, managerial expertise, exports and higher growth. Foreign investment can take the form of Foreign Direct Investment (FDI). The World Trade Organization defines FDI as: "FDI occurs when an investor based in one country acquires an asset in another country with the intent to manage the asset. The management dimension is what distinguishes FDI from portfolio investment in foreign stock, bonds and other financial instruments," There are three main categories of FDI namely

  1. Equity Capital
  2. Reinvested earnings
  3. Other Capital. FDI can be classified into

Government is, therefore, making all efforts to attract and facilitate FDI and investment from Non Resident (NRIs) including Overseas Corporate Bodies to complement and supplement domestic investment. To make the investment in India attractive, investment and returns on them are freely repairable, except where the approval is subject to specific conditions. FDI is freely allowed in all sectors including the services sector, except a few sectors where the existing and notified sectoral policy does not permit FDI beyond a ceiling. FDI for virtually all items\activities can be brought in through the Automatic Route under powers delegated to the Reserve Bank of India (RBI), and for the remaining items\activities through Government approval. Government approvals are accorded on the recommendation of the Foreign Investment Promotion Board (FIPB).

Objective

The objectives of this study are as follows:

  1. To provide a conceptual explanation of FDI.
  2. To provide a comprehensive view of FDI in the Telecommunication Industry of India.
  3. To study the trends of inflow of FDI in the Telecommunication Industry of Maharashtra and other state.
  4. To suggest measures to increase the inflow of FDI in the Telecommunication Industry of India.

Methodology

This study is essentially an interpretation of secondary data on FDI in Telecommunication Industry in India. The data was collected from, Directorate of Industries, Government of Maharashtra, Ministry of Commerce & Industry, Government of India, RBI Bulletin Economic Survey of India and various websites.

Tools of analysis

The data collected from various sources was tabulated and analyzed with the help of time series method and compound growth rate.

Significance

FDI Plays an important role in the long-term economic development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure, raising productivity, and generating new employment opportunities. FDI also has an important role in enhancing exports. As FDI is seen as a developmental tool it becomes important to study FDI in context of Telecommunication Industry of India.

FDI in Telecommunication Industry of India

The importance of infrastructure for sustained economic development is well recognized. High transaction costs arising from inadequate and inefficient infrastructure can prevent the economy from realizing its full growth potential regardless of the progress on other fronts. Physical infrastructure covering transportation, power and communication through its backward and forward linkages facilitates growth. There has been considerable progress in the last ten years in attracting private investment into the infrastructure sectors; first in telecommunication.

Impact of FDI in Telecommunications Industry and the Technological Developments

FDI is play greater role in India development of telecommunication Industry. In recent years, the telecommunications industry has evolved from manufacturing and providing basic fixed line telephony to an industry that offers mobile telecommunications services, and integrates IT and media into its services. In particular, mobile telecommunications innovation and digitalization have substantially changed the telecommunications landscape. The mobile telecommunications innovation has offered new forms of communications and services such as digital cellular services, cordless telephony, trunk and paging services. Particularly the use of mobile services has dramatically grown in the last decade. According to the International Telecommunication Union, the total number of mobile subscribers in the world increased from approximately 145 million to 1405 million respectively over the period 1996-2003. However, the total number of fixed line subscribers in the world increased only from 738 million to 1143 million over the same period. Hence, the total number of subscribers for mobile services exceeded the total number of subscribers for fixed services in 2002. Figure 1 presents the development of the number of subscribers in fixed line and mobile services. The evidence shows the tremendous increase of mobile services starting at the end of the 1990s.

The other main development by the FDI that has had a significant impact on the landscape was the digitalization. Since the digital technological development, a convergence between the telecommunications industry and the information technology industry is observed. The digitalization of the telecommunications industry is the direct effect of the rapid expansion of Internet. The number of users globally rose from 20 million in 1996 to 400 million in 2000. The convergence of industries or digitalization of the telecommunications 4 Cellular telephony takes up the largest part of mobile services. 5 The International Telecommunication Union is responsible for the development and standardization of telecommunication services in Western countries. Furthermore, it also stimulates and supports the construction of telecommunication networks and services in Less Developed Countries. The International Telegraph Union was established May 17th, 1865.When the telephone came into commercial use, the International Telegraph Union got involved into this part of communications as well. In 1903, the preliminary forms of radio communications became a part of the union as well. The mixture of these two fields was the underlying cause for the official name change in 1934 of the International Telegraph Union into the International Telecommunications Union. The ITU is an affiliation of the United Nations (UN) and 186 countries are member. industry is the interplay of four different areas: customer devices, networks, network devices and content/software. Customer devices are the apparatus to receive and communicate, like telephones and PCs. Networks are links that transfer information. Network devices are the tools that control and accumulate the information. Content/software denotes the applications people employ. An additional integration is observed between telecommunications and consumer electronics and mass media. Nowadays, telecommunications services can generally be classified into two categories: basic services and enhanced services. Basic telecommunication services consist of all voice and non-voice services transmitted without processing. Enhanced telecommunications services include specialized voice and non-voice services, requiring information processing, which adds value. The information transferred from one point to the other needs restructuring or a format change during this process. An example of enhanced services is the features on a mobile phone. Nowadays, mobile phones include the ability to make photos, tape a short video, or listen to the radio and mass media can deliver their content via satellite and telephony. Another recent development in the telecommunications industry is the emergence of the so-called value network. In a value network, companies from different industries jointly offer products to customers. These value networks are made up of firms from the traditional economy but also from the New Economy. The value network is comprised of six areas: equipment and software, network, connectivity, navigation and middleware, applications and consumers. Related to the value network is the concept of one-stop-shopping. Within one-stop-shopping, customers prefer only one incumbent to maintain all links leased through the network. Here, all services needed by the consumer should operate as if they belong to the same overarching network. Companies are, therefore, forced to engage in a search process for additional activities in an attempt to improve their 'fit' with these new business requirements. Especially, incumbent telecommunications companies are offering one-stop-shopping. For example, BT acquired Tymnet, a network systems company, in order to provide customers with one-stop-shopping. Through this acquisition, BT is able to offer customers a portfolio of products in global data networks.

Indian Telecom Sector:

India is the fourth largest telecom market in Asia after China, Japan and South Korea. The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. Indian telecom sector has undergone a major process of transformation through significant policy reforms. The reforms began in 1980s with telecom equipment manufacturing being opened for private sector and were later followed by National Telecom Policy (NTP) in 1994, NTP'1999 and Broadband Policy 2004. With 359 million telephone subscribers today, India now boasts of having the second largest telecom network in the world after China.

Confederation of Indian Industry CII, in collaboration with Ernst & Young, has put together the report "India 2012: Telecom Growth Continues", which brings out the current status of the industry with a brief perspective on how that growth has been achieved, and sets the context for the landscape in 2012. It focuses on current issues and the envisaged future concerns and potential points of debate, which would need to be jointly addressed by the industry and the Government in order to enable this industry to continue on its already-impressive growth trajectory, and become the cynosure of the Telecom world.

Literature review

What would be some of the basic requirements for companies considering a foreign investment?

According to read this article Depending on the industry sector and type of business, a foreign direct investment may be an attractive and viable option. With rapid globalization of many industries and vertical integration rapidly taking place on a global level, at a minimum a firm needs to keep abreast of global trends in their industry. From a competitive standpoint, it is important to be aware of whether a company's competitors are expanding into a foreign market and how they are doing that. At the same time, it also becomes important to monitor how globalization is affecting domestic clients. Often, it becomes imperative to follow the expansion of key clients overseas if an active business relationship is to be maintained.

New market access is also another major reason to invest in a foreign country. At some stage, export of product or service reaches a critical mass of amount and cost where foreign production or location begins to be more cost effective. Any decision on investing is thus a combination of a number of key factors including:

assessment of internal resources,

competitiveness,

market analysis

market expectations.

From an internal resources standpoint, does the firm have senior management support for the investment and the internal management and system capabilities to support the set up time as well as ongoing management of a foreign subsidiary? Has the company conducted extensive market research involving both the industry, product and local regulations governing foreign investment which will set the broad market parameters for any investment decision? Is there a realistic assessment in place of what resource utilization the investment will entail? Has information on local industry and foreign investment regulations, incentives, profit retention, financing, distribution, and other factors been completely analyzed to determine the most viable vehicle for entering the market. Has a plan been drawn up with reasonable expectations for expansion into the market through that local vehicle? If the foreign economy industry or foreign investment climate is characterized by government regulation, have the relevant government agencies been contacted and concurred.

Outside of the analysis of internal resources a vast amount of information is needed to assess the viability and ultimate method of foreign investment as outlined above. Much of this information is available online through a range of websites and portals. They include:

Impact of telecommunication on rural development?

According to this article The significance of telecommunication in the economy is being increasingly felt in recent times because of the enormous impact of this technology across the entire economic spectrum. Information technology is nothing but the synthesis of computers and communications. There is no activity involving manufacturing or services where one cannot apply information technology and not get the benefits in terms of productivity, competitive advantage, profitability or quality of service. In fact, Alan Greenspan, the Federal Reserve Chairman observed some years back that the inflation rate in the United States will be one per cent higher but for the extensive use of information technology.

The explosive growth of the network is demonstrated by the impact of the Internet which is a network of networks. In the age of the Internet, perhaps the most critical element is the bandwidth. Copper wire is being increasingly replaced now by the optic fibre which has enormous bandwidth. In fact, so great is the growth of the bandwidth that there is a third law called the Guilder's Law which says that the bandwidth will triple every year and do so for the next 25 years. The enormous impact of the technological realities of convergence and its impact on the economy can be well appreciated. It is necessary that the government has the requisite legal framework so that the technology can be properly harnessed.

The liberalisation process started in India after 1991 when the earlier approach was replaced by an approach to the economy where the market dynamics prevailed. This meant that there had to be more than one player in the market and a healthy competition. This concept has an impact so far as the infrastructure is concerned. Earlier the approach to financing infrastructure was that infrastructure required very up-front lumpy heavy investment and these resources were not available in the private sector. Further, the return on investment may not be attractive and there is a long gestation period.

After the concept of liberalisation, this entire approach underwent a sea change mainly because the government did not have the resources needed for the increasing demands of the infrastructure. It became an operational necessity to attract investment from outside from the private sector both within the country and abroad. The liberalisation policy measures taken by the government after 1991 has an important aspect of opening up what was considered traditional infrastructure areas which were reserved for the government to the private sector. The infrastructure sector covers telecommunication, road, ports, power and, even education. After all, in the knowledge age of the knowledge economy, education should be considered as an infrastructure.

Conclusions

The telecommunications industry has been through some mayor developments in its lifetime. It started out with a mixture of privately owned and state-owned companies throughout the world. In the first half of the 20th century, the telecommunications industry turned into a relative stable industry, which was completely government-owned. During the last decades, due to the liberalization and the privatization wave in the world, the telecommunications industry has rapidly changed. In the 1990s, the New Economy emerged and created new market opportunities for telecommunications firms. This study showed that many countries experienced a gradual process of liberalization with the goal of full liberalization. When competition was allowed in the industry, the trend was to first allow one vertically-integrated competitor into the market to create a player of similar strength with comparable resources as the previous monopolist had. The succeeding phase was one of more open competition. However, liberalization and privatization not only turned around the outlook of the telecommunications market but also the speed and extent of technological developments. Due to innovations, the telecommunications industry, together with other industries, is rapidly transforming into a new industry, the so-called multimedia-information industry. The industry is the focal industry in the third generation of leading industries Deregulation, globalization, the emergence of the New Economy and introduction of new technologies such as mobile phones and broadband have forced the telecommunications companies to reconsider their strategy, their technological base and their product portfolio. In that context, companies have tried to develop and gain access to desired capabilities and resources and expanded across national boundaries to sustain their competitive advantages. Companies that lack some of the necessary new competencies used mergers, acquisitions, and partnerships with other companies to acquire the essential technological knowledge and to penetrate new markets. During the 1990s, the telecommunications companies were major acquirers of other companies and interesting partners for alliances. This study also presented a general overview of major trends in inter-firm partnerships and M&As in the telecommunications industry since 1985, examining both the general developments and the distribution according to internationalization and industries. The overall trends demonstrated an increase in importance of inter-firm partnerships and M&As. The number of domestic inter-firm partnerships and M&As as well as the international inter-firm partnerships and cross border M&As showed an increasing pattern. Another interesting pattern was the increase in importance of other industries. In relative terms, the growth of alliances with partners outside the telecommunications industry superseded the increase in the number of alliances within the industry. M&As demonstrated the same pattern as the inter-firm partnerships. An explanation for this specific pattern can be found in the companies' need for new capabilities and resources emerging from the New Economy, to compete in an industry that is transforming into a multimedia information industry.

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