Overview of Telecom Industry in INDIA

ANKIT SAXENA

• At the end of 2007, the country's mobile operators had a total of 233.6 million connections

• As 2008 ended, India's mobile service providers boasted nearly 347 million connections

• In the first two months of 2009 alone, the mobile operators activated more than 28 million additional connections

• According to the Telecom Regulatory Authority of India (TRAI) ,the total number of telecommunications services connections reached nearly 414 million at the end February 2009

• Teledensity is rising steadily but had only reached 35.65 percent at the end of February 2009, leaving significant potential for additional market expansion

The majority of growth will now come from outside the metro circles as major urban centers has reached 82 percent

India's rural teledensity currently stands at less than 13 percent

It's the potential for rural area growth that drew five new players into the market in 2008

The Telecom Regulatory Authority of India (TRAI) has divided the market into 22 service areas known as “circles.” The circles are divided roughly in line with the country’s 29 provinces and are divided into four categories, as shown below. Service providers require a separate license for each circle

• Metro circles (major cities*):

• Mumbai

• New Delhi

• Kolkata

• A circles (regions that include other large cities):

• Andhra Pradesh

• Gujarat

• Karnataka

• Maharashtra

• Tamil Nadu*

• B circles (regions with smaller urban areas and towns):

• Haryana

• Kerala

• Madhya Pradesh

• Punjab

• Rajasthan

• Uttar Pradesh (East)

• Uttar Pradesh (West)

• West Bengal

• C circles (rural areas):

• Assam

• Bihar

• Himachal Pradesh

• Jammu & Kashmir

• Northeast

• Orissa

• * Chennai, in the southeast, was previously a separate Metro circle, but as of March 31, 2008, it was integrated into the Tamil Nadu A circle as a single entity.

• There are three types of telco operation in India: international long distance; national long distance; and domestic

• Within India, telecom licenses are issued per operator, per circle, and have evolved with the market

• There are three types of domestic license: Basic (fixed); Cellular Mobile Telephony Service (CMTS); and Universal Access Service (UAS)

• In 1999, the New Telecoms Policy introduced technology neutrality and lifted the restriction that limited each circle to just two operators

• In 2001, guidelines and licenses were issued for fourth operators. However, it was the introduction in 2003 of Universal Access Service licenses that defined the market India has today

• In January 2008, five new entrants -– Loop Mobile , Datacom Solutions, Swan Telecom, S-Tel, UniTech -- were awarded UAS licenses and existing players, Tata Teleservices, Shyam Telelink, Spice Telecom , and IDEA Cellular Ltd. , added to their existing circles, bringing the total number of licenses issued to 281, distributed as follows:

• Basic license holders: 2 • Cellular Mobile Telephony Service

(CMTS) license holders: 39 • Universal Access Service (UAS) license

holders: 240

Under the original terms of the UAS license, service providers were required to meet rollout obligations within the first year

The license further stipulated that if service providers weren't able to offer mobile services due to lack of spectrum, they would need to meet their rollout requirements using fixed-line services

• All UAS license holders are entitled to deliver 3G services, but, of course, they need the spectrum to do so. That spectrum will be allocated by the DoT, which plans to run a spectrum auction

• In addition to UAS license holders, companies fulfilling the eligibility criteria of a UAS license holder and possessing previous experience of running 3G services can bid for spectrum

• The auction, however, has been delayed several times, due to the lack of available spectrum in the 2.1 GHz band, and the inability of the government to agree on reserve prices for the auction, among other factors

• Experts expect the auction to take place in the second half of 2009

• State-owned BSNL and MTNL, however, were allocated their 3G spectrum during the second half of 2008, and both have launched services in their respective metro circles

• Once the auction is complete, up to five 3G licenses will be issued to operators across 60 MHz of spectrum in each coverage area, and a further five operators may be added in the future

• Rollout obligations apply:– 90 percent of metro

areas should be covered within five years from the date of spectrum allocation

– Operators will pay an annual spectrum charge of 1 percent of adjusted gross revenues after the first year, in addition to existing 2G spectrum charges

• Fixed-line voice connections have been declining at a slow but sustained rate each month as the volume of mobile connections grows

• At the end of February 2009 India had 37.73 million fixed-line connections, down from 39.18 million a year earlier

• Broadband represents a much greater opportunity than voice, although the high-speed Internet access market is still in the very early stages of development

• 5.85 million by the end of February 2009, a 40 percent year-on-year increase

• By the end of 2008, 84 of India's 164 ISPs were providing broadband services

• The total number of wireless connections in India stood at 376.12 million at the end of February 2009

• Adding up to 15 million new connections a month since breaking through the 10 million-per-month ceiling for the first time in October 2008

• That growth rate puts India some ways ahead of China, China added about 8.5 million new mobile connections in January 2009

• There are three important caveats to consider when analyzing these headline numbers, especially when direct comparisons are made:– China has cleaned up its figures to remove non-active

connections, something India hasn't done– fixed wireless access (FWA) connections are included in India's

wireless numbers, alongside cellular connections– multiple-SIM subscribers are commonplace

• Therefore the total number of connections does not directly equate to the number of end users with mobile connections.

• India’s current wireless operators fit into four main categories:– State-owned operators:

BSNL, which covers 20 circles, and MTNL, which offers mobile services in the remaining two (Mumbai and New Delhi), offer GSM services.

– The original private service providers with a national presence: Bharti Airtel and Vodafone Essar .

– Those who took fourth-round licences or the opportunity provided by UAS licenses to create a national presence: Reliance Communications, Tata Teleservices, and, more recently, IDEA Cellular, Sistema Shyam, and Aircel Ltd.

– Greenfield operators issued new licenses in January 2008: Datacom Solutions, Loop Telecom, S Tel, Swan Telecom, and Unitech.

• The leading "towers" company in India is Indus Towers, a joint venture amongst Bharti Airtel, Vodafone Essar, and IDEA Cellular

• Indus is an independent entity and provides services to its three founder members as well as other service providers and has the scale to drive down mobile tower site costs and prices

• The other tower companies fall into three categories:– operators– national independents– and small independents

• The average tenancy is currently just over one, but with revenues per tenant falling to around INR25,000 ($501) per month, the business case only stacks up with more than two tenants

• About 70 percent of India's near 1.2 billion inhabitants live in rural communities

• rural teledensity was a mere 12.6 percent • Rural wireline connections totalled 10.68 million at the end of December,

down by 2.46 percent from 10.95 million at the end of September 2008• The rural wireless subscriber base hit 93.15 million at the end of the year, up

2.38 percent from 90.98 million at the end of September• Department of Telecom and BSNL have signed an agreement to provide

861,000 connections to individual users and government institutions through rural and remote exchanges by 2014

• To promote rural rollout by the private operators, the Indian government imposed Universal Service Obligations (USO) on the country's operators to build a fund that can finance the rollout of services in areas where there isn't an obvious or pressing business case to do so

• The first phase of mobile infrastructure deployment under the USO fund scheme commissioned six different service providers to deploy 7,871 towers

• However, by the end of October 2008, only 1,934 towers had been installed• The second phase, complete with a tender for an additional 11,049 sites, has

yet to be started• The phased rollouts associated with the USO scheme require an additional

40,875 mobile towers to be erected• Add this to the number of towers required for the five new 2G networks,

additional coverage and capacity for existing operators, and the introduction of 3G networks, and there is a huge demand for new cell sites right across the country