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Foreword
India is amongst the fastest growing telecommunications markets across the globe. The average monthly mobile subscriber
growth over the past year has been 15-17 million customers. Currently, the mobile subscriber base is approximately 671 million (as
of August 2010). The overall teledensity for India has already surpassed 60 percent and the market continues to exhibit unabated
growth1.
With the successfully concluded auctions of the 3G and BWA spectrum, this growth is set to become even more aggressive.
Indian telecom operators have very effectively worked with rest of the telecom ecosystem to enable India emerge as the country
which offers the lowest mobile tariffs across the globe2. All these achievements have helped India emerge as one of the most
attractive investment destinations for all international players looking to win a share of the second largest mobile market in the
world3. These players can also look at leveraging on the successful low-cost model that India has pioneered.
During the past year, several telecom players in India have made tremendous efforts to establish themselves on the global
level through cross border mergers and acquisitions. These strategic alliances are a step towards the globalization of the Indian
telecommunication industry.
The credit for the growth witnessed by the sector has to be attributed to the well-defined regulatory provisions designed by the
government. The government has been instrumental in making key policies to drive the rural growth which is expected to keep
this bullish phase going strong over the next decade. Within the rural area, there is additional focus to enhance the penetration of
broadband and data usage. The aim is to wirelessly connect villages and remote areas through broadband and provide access to
basic facilities for health, education, banking and others.
On the occasion of India Telecom 2010, the 5th International Conference and Exhibition, the Department of Telecommunications
is pleased to release this report on ‘Indian Telecom Success Story – Broadband for All’. Developed by KPMG in India and FICCI,
it provides an overview of the Indian telecommunications sector and will serve as a useful reference manual for all stakeholders
including regulators, policy makers, telecom operators and the general public.
R. Chandrasekhar
Secretary
Department of Telecommunications & IT
Government of India
New Delhi
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The Federation of Indian Chambers of Commerce and Industry (FICCI) and KPMG are proud to present this report on “India
Telecom 2010 – Broadband for All”, in association with the Department of Telecommunications (DoT).
The present phase is extremely exciting for the telecommunication industry which is looking forward to 3G and BWA rollout to
help re-invigorate the aggressive growth that the industry has witnessed in the past two years. Rapid swelling in the subscriber
numbers has resulted in urban teledensity exceeding 100 percent. The rural market is expected to drive the next round of growth
for the voice-based services, while data services will create the much needed churn within the maturing urban markets.
This report highlights the importance of broadband and data services market in India. Our aim has been to highlight the key
ecosystem requirements and strategies that telcos may follow in order to achieve the government targets of broadband
subscriptions. This report provides the reader an insight into how the telecom industry has evolved over the last decade. The report
also highlights the growing importance of broadband and how it has the potential to contribute to the overall socio-economic
development of rural India
We are extremely grateful to the Department of Telecommunications (DoT) for providing us with this opportunity to work with
them for the India Telecom 2010 event.
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Executive
summary
Ranked amongst some of the fastest growing economies of The penetration of broadband in India has not been as
the world, India has registered steady growth over the last few aggressive as the wireless communication services. As
years, especially in comparison to the OECD and other similar of August 2010, the broadband subscriber base in India is
emerging economies1. The strengthening domestic market and approximately 10.08 million. The government, in recognition
enhanced domestic consumption helped India to successfully of the potential of broadband as a key enabler in furthering its
weather the global economic turmoil. growth agenda, has taken a strong stance to address the issue
of low penetration and enhance broadband coverage across
The Indian telecom sector particularly, witnessed aggressive the country. The recently concluded 3G and BWA auctions are
growth during the last two years, emerging as a global likely to be the catalyst that furthers the government’s agenda
benchmark for other developed countries as well. All major of providing broadband connectivity to the remotest parts of
international operators are exploring opportunities to make India. The government as well as other telecom stakeholders
inroads into the Indian telecommunication sector, both for believe that these wireless technologies will help overcome the
the vast customer base as well as to leverage on the low barriers of expensive wireline infrastructure, especially in the
cost outsourcing model which India has been successful in low revenue generating zones.
pioneering.
The primary aim of the ‘Broadband for All’ movement is to
As of August 31, 2010, the country’s subscriber base (wireline ensure that all Indians are able to connect with the world
+ wireless) stood at 707 million2, with the overall teledensity and are able to remotely access basic facilities like health,
reaching 60 percent. With increasing maturity of urban markets, education, banking, commerce, entertainment, utility and
the next round of growth is expected to be generated from the e-governance services to enhance their quality of life.
rural areas in the form of increased uptake of voice and data-
based services, as well as broadband services.
1 Ministry of Finance
2 ‘Monthly Telecom Scenario – August 2010’, DoT, October 2010
3 ‘Consultation Paper on National Broadband Plan’, TRAI, Business Line, June 2010
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The government, along with TRAI and DoT, has been making The private telecom players are also expected to play an
tremendous efforts to achieve the desired results. TRAI is important role to achieve the objective of ‘Broadband for All’,
considering plans to roll-out a national optical fiber cable network by covering the key aspects of relevant content, seamless
which will act as a backbone to broadband services across connectivity and affordable end user device by introducing
the country. The funding for this project is likely to be routed innovative business models for their broadband service
through the Mahatma Gandhi National Rural Employment offerings. Due to the rich diversity in India, locally relevant
Guarantee Scheme (MGNREGS) for non-skilled work and from content is essential to make an impact and enhance penetration
the Universal Services Obligation Fund (USOF) for material of telecom services, especially in the rural areas.
and equipment cost3. The Indian government has unveiled
a prototype tablet computer that would sell for a mere INR The regulatory environment in India has been extremely
1,500 or USD 354 thus increasing affordability of the end user supportive for the telcos to have achieved such phenomenal
device which is essential to access the broadband services. The growth in the past years. The industry is now eagerly awaiting
government is considering making broadband connections along the roll-out of 3G and BWA which is expected to have a
with other equipments such as computer, printer and telephone significant impact on the sector and its growth in the next few
more affordable to every gram panchayat. These initiatives, years.
which are intended to provide universal broadband access to
the rural residents of the concerned gram panchayats, are likely
to be funded through the Universal Services Obligation Fund5. The Indian telecommunication industry is at the brink of entering
All these steps are clear indicators of the efforts that are being a fresh round of growth, to be stimulated by the launch of
directed towards achieving strong broadband growth in India. wireless data services. The policy makers and the private
players have successfully come together with various initiatives
to ensure that the industry continues to remain a shining star for
India.
4 An IIT, IISc-designed laptop for just INR 1,500’, Times of India, July 2010
5 ‘Special purpose vehicle planned for broadband push’, Hindu Business Line, July 2010
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Table of Contents
Macro-economic view of India 1
Broadband infrastructure 34
Telecom manufacturing 59
Green telecom 73
Conclusion 89
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1
Macro-economic
view of India
India is one of the fastest growing economies across the globe. The economic size
of the country, at the end of the fiscal year 2010, is expected to be worth INR 49
trillion (GDP at market prices). It is also the fourth largest economy in PPP terms
after USA, China and Japan1.
The country experienced rapid economic growth between 2003 and 2007,
registering an average annual GDP growth rate of 8.8 percent. In fiscal 2009, the
country weathered the global downturn successfully and registered a GDP growth
of 6.7 percent, which is significantly higher than the performance of both the OECD
countries and emerging Asian economies. This performance was primarily driven
by the services sector, which posted a year-over-year growth of 9.7 percent. For
2010, the country is expected to post a GDP growth of 8.5 percent2. By 2020, the
economy is expected to quadruple its current size driven by nominal annual growth
of 13 percent3.
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
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3
Industry
14%
18% Services
81% 71%
58%
28%
28% 18% 27%
1% 2%
54%
USA Japan
India
Source: EIU
5 ’World Population Prospects: The 2008 Revision Population Database’, United Nations Population Database
6 ‘India India car sales are No. 2 in world’, Financial Express, April 09, 2009
7 ‘LIMITS OF PEOPLE’S WAR- Naxalism faces serious hurdles that can be used against it’, The Telegraph, January 21, 2010
8 ‘India’s urbanization bonus’, Mint, August 16, 2007
9 National Productivity Council
10 EIU
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4
Economic indicators
Quarterly Net FII Inflows (USD Millions) Quarterly IIP (%)
17.6
6421 14.5
5428 14.8
4372
4017 3811
8.9 9.3
8 8.3 5.8
7
2199 2272 5.5 5.4 6 5.6
1417
824
407 357 114
-0.2 0.3
-236 -27
Dec-07
Dec-08
Dec-09
Sep-07
Sep-08
Sep-09
Mar-07
Mar-08
Aug-10
Mar-09
Mar-10
Jun-07
Jun-08
Jun-09
Jun-10
-1807
-2359
Dec-07
Dec-08
Dec-09
Sep-07
Sep-08
Sep-09
Mar-07
Mar-08
Mar-09
Sep-10
Mar-10
Jun-07
Jun-08
Jun-09
Jun-10
Dec-08
Dec-09
Sep-07
Sep-08
Sep-09
Mar-07
Mar-08
Mar-09
Mar-10
Jun-07
Jun-08
Jun-09
Jun-10
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
5
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6
Labor costs
Labor Costs per Hour (USD) 2.5 2.2 25.3 27.0 29.0 38.1 28.3
Labor Productivity Growth (%)* 6.5 9.5 3.7 2.3 1.7 2.8 -0.2
Source: Economist intelligence Unit; Data for 2010(Estimated); *Efficiency of labour measured in terms of output per worker (real GDP per person employed)
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
Global
telecommunications
market
Telecom services will continue to be one of the key growth sectors having
generated revenues of roughly INR 67 trillion in 2009. Global wireless subscribers
reached 4.6 billion1 in 2009 with a CAGR of 22 percent over 2004-20091. This
occurred despite some carriers experiencing marginal declines or flat trends
in revenues with enterprises and consumers exercising cut backs on telecom
spending during the global economic slowdown.
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8
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9
Mobile Devices
Mobile Devices
11%
15%
Mobile Services
45%
Fixed Services
36%
Mobile Services Fixed Services
45% 31%
33
29
30
21
20 14
12
10 8
10 5 4 4
0
U.S.
Japan
Brazil
Australia
South Africa
India
China
Indonesia
Russia
France
Netherlands
Philippines
Germany
Italy
UK
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10
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
11
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
12
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
13
Indian
telecommunications
market
The Indian telecommunications market has continued to show consistent growth
during the last one year, with exciting developments such as rollout of newer
circles by operators, successful auction of 3G and BWA spectrum, growing push by
telecom operators to rollout network in semi-rural areas and increased focus on the
value added services market.
Telecom continues to be one of the fastest growing sectors of the Indian economy,
becoming a strong contributor to India’s overall GDP and is expected to grow
further.
Others China
65% 16%
India
13%
USA
6%
Overall teledensity in India has risen to the levels of ~59.6 percent (as of
August’10)1. With a large part of the population yet to obtain access to the
telecommunication market, there is immense potential for the sector to grow,
especially in non-urban areas, where wireline and internet services are yet to make
significant in-roads. Wireline services have shown relatively slow growth with
low teledensity of approximately 7.6 percent and 1.1 percent2 in urban and rural
regions respectively. Even the mobile services space which has seen exponential
growth in urban areas, has not yet reached the vast majority in rural areas with rural
teledensity of approximately 27.8 percent3, indicating huge untapped potential for
the sector.
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
14
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15
Broadband is yet to reach a critical mass despite rapid growth; The Calling Party Pays regime was introduced in 2003-
the numbers have risen from 6.98 million in August 2009 04 which allowed free incoming calls for the subscribers.
to 10.08 million by August 2010, registering a growth of 55 This revolutionary change can be designated as one of the
percent on an annual basis4. With subscriber penetration watershed milestones in the growth of the Indian telecom
under 2 percent5, the sector has potential for aggressive sector.
growth in the future.
The 22 telecom circles in India have been classified into 4
Mobile services categories viz. Metros, Category A, B and C. With penetration
The Indian mobility market can be characterized as one with rates in metros touching 100 percent, the market in Metros is
a very large subscriber base4 (~671 million as of August nearly saturated. However, there is still immense potential in
2010), high growth5 (addition of 16-18 million subscribers other circle categories, particularly B and C.
every month in last six months), low ARPUs (~INR 122 per
month in June, 2010) and significant churn rates. In the pre- Mobile subscriber base and mobile teledensity across
paid segment, ARPU declined by 6.2 percent from INR 113 in telecom circles
March, 2010 to INR 106 in June, 20105.
J&K
4.68 mn
42.09%
Growth of wireless subscriber base (year end numbers)
HP
Punjab 5.86 mn Delhi
700 636 85.57 mn 32.76 mn
91.81%
69.86% 195.33%
600
Subscriber base in mn
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
16
cost for a new subscriber. With downward spiraling ARPUs, However, the potential for wireline services remains large
changing economic profile of subscribers and the need to due to very low penetration in the wireline industry and the
meet the aggressive roll-out targets, the operators have ability of wireline to deliver broadband at lower operating
been under tremendous pressure to bring in operational costs than wireless broadband. New players in the telecom
efficiencies. Operators have been realizing efficiencies space had hitherto concentrated on wireless space leading to
through extensive outsourcing across the telecom value low competition and promotion of wireline services. Greater
chain. This has resulted in large scale opportunity for players pan-India expansion by private players can significantly lead
belonging to all the categories within the telecom ecosystem. to growth of wireline services. In addition, with combined
Some of the prominent categories include network offering of internet/ broadband and allied services like
equipment vendors, tower infrastructure companies, telecom IPTV, the sector can bounce back in the future. But, the
implementation vendors and IT vendors. Active sharing is a aggressiveness of mobile operators in rural areas due to
newer area which is being looked at by telcos to reduce costs easier and cheaper rollout and newer offerings on BWA
of rollout further. spectrum can further slow down the wireline penetration.
Subscribers in Mn
markets nearing saturation, operators are actively seeking 30
to tap growth in rural India. The entire telecom ecosystem 25
of operators, network equipment players and passive 20
infrastructure players are expected to evolve low-cost 15
delivery solutions such as significant reduction in telecom 10
gu 0
0
2
8
6
5
7
’0
’1
Au e’ 1
’1
serving the large but potentially low ARPU rural opportunity
’0
’0
’0
’0
’0
’0
’0
’0
ar
st
ar
ar
ar
ar
ar
ar
ar
ar
ar
n
M
M
M
M
M
M
M
Ju
increasingly viable. As a testimony to this growth potential,
rural teledensity has increased from 17 percent5 in June, 2009 Source: TRAI Annual Report and Quarterly Reports on Telecom Services
to the current 26 percent5 in June 2010 which translates into Performance Indicators
addition of 83 million rural subscribers in the last one year. We
expect to see continued heightened activity in this direction in
the near future as well.
Wireline services
While wireless has seen consistent growth over the years,
wireline over the last few years has actually seen a decline in
the subscriber base.
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17
18 57% 60%
54%
51%
16 50% Growth of VAS revenues
46% 47% 50%
14 43%
40%
Subscribers in Mn
0 0%
2008 2009 2010 (Estimated)
Internet Subscribers Share of Broadband
This growth has been accompanied by an associated increase Prior to 2008, majority of VAS revenues were attributable to
in the number of internet users which have attributed to the SMS and that too peer-to-peer (P2P) text messages. Over
growth of public internet cafes and multiple members of a the last few years, non-P2P SMS VAS has been gaining
household accessing internet. importance and is likely to become a dominant contributor
to VAS revenue over the next few years. In 2009, non-P2P
Access technologies play a crucial role in broadband SMS VAS accounted for 5-6 percent8 of operator revenues.
penetration. Right of Way (RoW) issues and costs of the This is expected to go up further, as operators focus more
existing broadband technologies has been a constraint for on VAS, especially with the launch of 3G services and with
the growth of internet. While there a number of technologies the availability of differentiated and customized content. The
being used by service providers to provide broadband addressable market for non-P2P SMS VAS has historically
services, DSL continues to be the most preferred technology been dominated by ringtones and caller ring back tones
and constitutes nearly 86.6 percent of total broadband (CRBT), but its contribution has been fading gradually and was
subscribers7. Cable modem technology follows with 6.9 within the range of 35-37 percent8 of VAS revenues in 2010.
percent connection. On an overall basis for accessing internet,
DSL leads with 51 percent while dialup stands second at 33.3
Market split for non-P2P SMS VAS
percent7. Wireless technologies have carved a unique niche
in terms of connectivity to internet with a share of nearly 7.6 Others
11% CRBT
percent which is a significant shift in the last two years.
37%
Newer access technologies like BWA and 3G can completely GPRS/ WAP Products
11%
transform the character of Internet/ broadband scenario in
India. BWA will overcome the key hindrance of RoW in India,
while 3G has the potential to make the mobile phone, a
ubiquitous device for accessing the internet.
P2A SMS & Alerts
18%
Voice Portals
23%
7 ‘The Indian Telecom Services Performance Indicators January – June 2010’, TRAI, October 2010
8 Industry consensus estimates, KPMG analysis
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18
3G and BWA
The last 5 years have been transformational for Indian telecom
industry and the next few years are expected to bring about
more stimulating and aggressive changes. One of the key
frontiers which would make the journey in coming years even
more exciting is the launch of 3G and BWA technologies.
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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
19
The policy and regulatory framework for telecommunications in India consists of,
among others, the following key bodies1:
• The Telecom Regulatory Authority of India (TRAI): TRAI is the Regulator for the
sector and has a mix of mandatory and recommendatory powers. It mandates in
areas related to tariffs, interconnection and standards for quality of service. TRAI
has recommendatory powers in areas related to licensing, timing, licensing
terms and conditions, license revocation, competition, facilitation
• The Telecom Disputes Settlement and Appellate Tribunal (TDSAT): The TDSAT
was set up to resolve all disputes between a licensor and a licensee; two
or more service providers; and between a service provider and a group of
consumers
• Group on Telecom and IT (GoT – IT): This was formulated to take care of ad-hoc
issues.
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Section or Brochure name | 20
18
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21
National Telecom Policy (NTP) A further addendum to NTP 1999 was made in November
2003. This amendment permitted a licensee to make available
The National Telecom Policy was instituted in 1994, to initiate wireline and wireless services using any technology in a
and sustain aggressive growth for the telecom sector and pre-determined license area after conversion to a Universal
ensure on-demand access to a telephone for every Indian. The Access Service License (UASL).
policy’s key objective was to establish telecom infrastructure
across all remote locations of the country. It also encouraged Key regulatory bodies
privatization of the telecom equipments industry to help India
emerge as a telecom manufacturing hub. World class service TRAI4
quality and special redressal of customer complaints are the
other essential pre-determined objectives of the policy2. Telecom Regulatory Authority of India was established as an
independent body under the TRAI Act of 1997. The act was later
A fresh round of reforms was introduced by the government amended in 2000. The entry of private players into the industry
in 1999 when it enforced the New Telecom Policy. This policy prompted the establishment of the act to effectively regulate the
was an improvisation over the NTP 1994, to help achieve telecom players.
stronger growth by escalating the control to a regulatory body.
The key objectives of the policy were3: TRAI safeguards the interests of the consumers through
transparency, ensuring conformity with service quality
• Availability of affordable telecom services for all. Ensure benchmarks, enforcing measures to safeguard national security,
penetration of integrated multimedia services including fixing tariffs for players, counseling the government on matters
ISDN services, remote database access, and government relating to telecommunication development and tracking
and community information systems performance and efforts of all players within the industry.
Regulatory evolution
ILDservices Calling Party Pays Proposed MNP
Attempt to
opened to (CPP) boost Rural implementation
competition implemented telephony
TRAI Number
MVNO
established as BSNL Intra-circle merger portability
guidelines for
Private players Independent established guidelines proposed Discussions
Go-ahead to 3G as well
allowed in VAS regulator by DoT the CDMA established on 3G as 2G
technology spectrum bid disclosed
process
1994 1999 2002 2003 2004 2005 2007 2009 2010 2012 2013
1992 1997 2000 2006 2008 2011
Unified Access DoT to
Internet Licensing regime release
telephony introduced guidelines
initiated Decision on VOIP
NTP-99 led to on 3G Proposed
FDI limit was
National migration from services auction of 4G
Reduction of from 49 to 74
Telecom Policy high-cost fixed (awaited) spectrum
(NTP) licence fees Reference Broadband percent
license fee to low
- policy 2004
formulated cost revenue Interconnect ADC Completed the
order issued formulated auction of 3G
sharing regime abolished
and BWA
spectrum
Reduction in
IUC
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22
Telecom FDI policy Recent reports revealed that during the first two months of
this financial year, India’s telecommunication sector attracted
India is the fastest growing telecommunications market almost USD 891 million in FDI, the highest amongst all
across the globe. The urban teledensity has already breached sectors. On the other hand, during the same period last year,
the 100 percent mark5. Rural India, which has nearly 27.76 the sector attracted USD 612 million worth of FDI8. Overall,
percent teledensity as of August 2010, has shown impressive this sector has attracted FDI of about USD 9.98 billion (from
growth over the past6. April 2000) as of June, 20109.
India has achieved such aggressive growth primarily through The regulations governing Foreign Direct Investments have
urban areas, which account for only 30 percent of the total gone through different phases of transition to ensure market
population. Rural India, which accounts for 70 percent of the attractiveness for globally recognized players along with
population, holds immense potential and remains relatively safeguarding the interests of the Indian counterparts. The
untapped. This makes the Indian telecommunications sector well-defined regulatory policy has been the fundamental
one of the most attractive investment destinations for global reason for the inflow of huge international investments into
players7. the Indian telecommunication sector.
Sr.
Sector/Activity FDI Cap/Equity Entry route
No.
74% (including
FDI, FII, NRI,
FCCBs, ADRs,
Basic and cellular, Unified Access Services, National/
GDRs, convertible
International Long Distance, V-Sat, Public Mobile Radio Trunked - Automatic upto 49%
1 preference shares,
Services (PMRTS) Global Mobile Personal Communications - FIPB beyond 49%
and proportionate
Services (GMPCS) and other value added telecom services
foreign equity in
Indian promoters /
Investing Company)
- Automatic upto 49%
2 ISP with gateways, radio-paging, end-to-end bandwidth 74%
- FIPB beyond 49%
a) ISP without gateway*
b) Infrastructure provider providing dark fibre, right of way, duct - Automatic upto 49%
3 100%
space, tower (Category –I) - FIPB beyond 49%
c) Electronic mail and voice mail
6 ‘The Indian Telecom Services Performance Indicators’, TRAI, January - March 2010
7 ‘India Telecoms - Positives priced in, tougher road ahead’, JP Morgan, August 16, 2010
8 ‘Telecom most favored FDI sector’, Press Trust of India, September 01, 2010
9 ‘Fact sheet on FDIs’, Department of Industrial Policy & Promotion Ministry of Commerce and
Industry, August 2010
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23
New and upcoming regulations education, finance and healthcare in rural areas.
The Indian Telecommunication sector has seen remarkable
growth and is designated as one of the fastest growing
markets in the world. It is also the second largest wireless MVNO
network across the globe, after China10. The aggressive
The Indian Government is in the process of reviewing the draft
growth has resulted in saturation of the urban markets and the
guidelines for the introduction of MVNO. TRAI had issued a
Indian telecommunication authorities are looking to introduce
draft proposal for MVNO in August, 2008 and the DoT had
new technologies to sustain the market growth rate.
accepted the proposal in February, 2009.
3G Services
The present landscape is considered to be ripe for MVNOs to
The government recently concluded the 3G and BWA auctions be introduced in India since it will allow the telcos, who did not
in June, 2010. The auctions were initially estimated to raise manage to win any 3G spectrum, to offer these data services
INR 350 billion and help the government contain the fiscal via the MVNO route.
deficit11. However, the government received approximately
A few companies have already made inroads into the MVNO
INR 1,060 billion as spectrum fees for 3G and BWA,
market by leveraging the franchise agreements.
cumulatively.
VoIP
3G technology has been highly anticipated over the past few
years and is expected to drive the next round of sustainable The growing telecommunication industry has necessitated
growth for the Indian telecom market through convergence of the demand for low cost domestic and international calls.
entertainment, infotainment and voice communications into This is where Voice over Internet Protocol (VoIP) will make
one single device. The anticipation around 3G services can its impact with a technology that allows the exchange of
be gauged from the fact that the 3G auctions was concluded voice over internet protocol packet switches. The primary
after 183 rounds of bidding over a period of 34 days12. Inspite requirement for this low cost option to deliver impeccable
of a huge amount being generated through the auctions, none quality is high bandwidth.
of the participating operators were able to win a pan-India
license. Many of the spectrum winners have announced that This technology can be used to effectively communicate
they will be ready to roll out 3G services within the next few between two personal computers, a personal computer and
months. a conventional phone as well as between two conventional
phones.
The key drivers for the growth of 3G in India will be innovative
content, improved customer services and increased Recent reports reveal that the internet subscriber base in
affordability of handsets as well as availability of VAS. These India has risen from 13.54 million in March 2009 to 16.72
drivers will help ensure growth of 3G not just in urban areas million in June 201016. These numbers suggest a 23 percent
but in rural areas as well. The rural expansion will help in the growth in internet subscriber base, which also implies greater
progression of tele-density and broadband penetration which propensity to utilize VoIP based services. The only major
will in turn have a positive impact on the overall economic deterrent for the adoption of these services will be the costs
growth of the country. involved in setting up these services, especially in rural areas
across the country.
Broadband Wireless Access (BWA)
VoIP has received significant regulatory attention over the
The auction of the BWA spectrum helped the government past decade. In 2002, TRAI had recommended to DoT to open
raise as much as INR 385 billion after 117 rounds of bidding up this sector in a restricted manner. In 2005, DoT permitted
that lasted 16 days. At the end of the auction, only one unlimited internet telephony to all access providers in India.
company managed to successfully bid for a pan-India license13. In 2006, limited access was also given to internet service
providers, who were asked for 6 percent of their revenues as
Broadband Wireless Access is expected to provide an
license fee and were restricted from termination and carriage
effective solution to the challenge of low broadband
in India17.
penetration. The launch of this technology is expected to bring
India closer to the achieving the target broadband connectivity
to Gram Panchayat level by 201214. Presently, India has a
broadband subscriber base of only 10.08 million15.
10 ‘Annual Report 2009 – 10’, DoT 16 ‘The Indian Telecom Services Performance Indicators’, TRAI, April - June 2010
11 ‘3G sale nets Rs. 67,710 cr.’, The Hindu, May 20, 2010 17 DoT; TRAI; ISPAI; ‘VoIP Market-India’, Research on India, August 2009
12 ‘3G Auction - Final Results’, DoT Press Release, May 21, 2010
13 ‘BWA Auction- Final Results’, DoT Press Release, June 12, 2010
14 www.indiatelecom.org
15 ‘Telecom Subscription Data as on 31st August 2010’, TRAI, October 2010
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25
1.6
1.38
1.4
1.21
1.2 1.12
1
0.81 0.77
0.8 0.73
0.6
0.6
0.43
0.4
0.2
0
Fixed Mobile Internet Broadband
Source: Qiang and Rossotto, World Bank, Information and Communication for
Development Report 2009
The successful auction of 3G and BWA spectrum has laid a good foundation for a
push towards achieving pan India broadband infrastructure; which will lead us to
the dream of providing “Broadband for all”. This vision demands a synergetic push
across technologies (DSL, Fiber, Cable, and wireless), amongst telecom operators
(public and private) and across the broadband value chain (device manufacturers,
service providers, content providers & regulators); so as to provide this “universal
service” to residents living anywhere in the country (urban or rural) and to the
match the customer expectations across all segments (Enterprise, Government and
Retail).
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27
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2000 Availability
1410
1500 795
770
1000
318
500 55 1027 1099
22 747
377 532
0 155
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
5 ‘IT Industry Performance Annual Review: 2009-10’, MAIT-IMRB, 28th July 2010
6 ‘Monthly Telecom Scenario – August 2010’, DoT, October 2010
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29
Affordability – Broadband tariffs at the right price Internet is largely in English and to an extent in Hindi, and is
not customized as per local needs and diversity. The content
The entry level tariff7 for broadband services has come down in Indian vernacular languages will increase relevance and
drastically from INR 1,500 per month in 2004 to INR 200 consequently interest of the local population in broadband
a month in 2007, which is still higher than most countries. uptake and utilization. Therefore considering specific regional
The ICT Development Index report of the International requirements, content development in vernacular languages
Telecommunications Union (‘ITU’) indicates that the needs to be encouraged. Large numbers of softwares
Broadband rates are higher at 7.7 percent of GNI as compared are available to translate the content from one language
to the price basket for mobile telephony which stands at 2.2 to the other. Conversion from speech to text and text to
percent. speech is also available for different languages. Though the
High Cost of PC and other access devices commonly accuracy of such software depends on the product and
known as CPEs is one of the major impediments in spread actual requirement, there is sufficient scope to further work
of broadband. Economical options like use of thin client, on these areas to boost the development of the content
recycling of old PCs / Laptops will make CPEs more affordable in Indian vernacular languages. Given India’s strengths in
for the masses. One of the measures to make CPEs more IT and the recent trend in the traditional entertainment
affordable may be to provide incentives through fiscal policies. industry, infotainment can be a big booster for broadband.
Incentives could be in the form of reduction of taxes and Entertainment content can be targeted to boost broadband
levies on CPEs and financial incentive in terms of rebate in demand. This can be a high growth driver which may require
income tax to encourage affordability of CPEs. The broad some initial nurturing but may enhance broadband demand
objectives of providing fiscal incentives are to make CPEs especially to the non English literate subscribers.
affordable to the consumers and to stimulate investment Accessibility to applications - Increasing the scope of
for the domestic manufacturers for boosting indigenous broadband from just e-mail to more value added applications,
production. effective use of broadband in automation of operations and
functions, innovative use of technology in imparting education
Growth of internet and broadband users (in Millions) and increasing literacy is likely to drive the penetration of
broadband in India. Few of the areas/applications which hold
United States Canada UK Netherlands Japan India France Brazil Russia
significance to the broadband popularity and growth are:
Mobile cost as %age of per capita GNI
8
Overall telephony cost
7
(as a %age of GNI) high in Brazil
6
5 Email Internet Surfing
High
Significant difference in
4
Broadband and Cellular costs broadband cost and
3
Uptake/Popularity
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• Healthcare: Another sector which can be benefited from Hence, the scope of broadband can be enhanced from
broadband penetration is healthcare. A significant problem just e-mail to more value added applications. Effective use
plaguing the nation’s health care system is the fact that of broadband in automation of operations and functions,
there are significant disparities in availability of reliable innovative use of technology in imparting education and
health care facilities between urban and rural areas. Rural increasing literacy will drive the penetration of broadband in
India, for example, experiences higher mortality rates due India.
to non-availability of expert advice and timely treatment.
A lot of development is taking place within the e-health
field. Many gadgets are now available, which can assist
in remotely capturing vital parameters of the body which
can be utilized by people living in rural areas to provide
information and seek timely expert advice of doctors
available in any corner of the world at a fraction of the costs
• E-Banking & E-Commerce: Broadband is also useful for
various utility services like online banking, bill payment,
rail ticket booking, online application filing and trading. It
allows job seekers to effectively search for employment
opportunities. New content creation and distribution
systems have enabled millions of people to distribute
their contributions online with least expenditure. There
are significant financial as well as social benefits of online
shopping. It helps ensure the cheapest deal and also helps
to save time when using price comparisons on the web.
Broadband services in rural and remote areas can also be
a very cheap and effective medium for providing banking
services to the “unbanked” population of India and further
the financial inclusion agenda of the Government
• Entertainment: There is dramatic increase in consumer
behavior towards real-time applications i.e. “experience
now”. Share of real-time entertainment traffic (video and
audio streaming, Flash media, peer casting, place shifting)
is increasing. Thus, entertainment seems to be key driver
for generating huge demand for broadband especially in
rural and computer literate population
• Utility: Remote management of security for homes
and business premises, and an increasing number of
household appliances and machines communicating
over IP networks, is expected to drive the demand for
broadband
• E-governance: For any technology to go main stream
and find maximum applications and utility, one of the
biggest customers is the government. Broadband can
be an important lever in helping government realize its
objectives laid out under “National E-governance Plan”.
With e-governance being the new mantra, it has significant
potential to bring about convenience, transparency and
efficacy in government functions and take these services
to the doorstep of the citizens.
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31
“Broadband for All” To support the broadband infrastructure roll-out in the rural
areas, the Department of Telecommunications (DoT)11 has
Despite the historical challenges identified so far, the regulator also proposed to offer a slew of freebies at the panchayat
as well as the government has shown willingness to reignite level. This includes giving three broadband connections to
the broadband growth, and provide a platform to support every gram panchayat free of charge for three years along
“Broadband for all”. with free installation of computer and printer; three telephone
connections and one cable TV connection without any charge.
National broadband plan
The incentives will cost about INR 2,000 crore, which will be
TRAI has suggested the roll-out of a national optical fiber cable funded through the Universal Services Obligation Fund.
network which will act as a backbone to broadband services
across the country. The robust national infrastructure would
be scalable to cater to our future requirements not only in
urban areas but also in the villages. For making all villages Conclusion
broadband-enabled, an option is being explored to take optical Broadband is the much needed catalyst to bring about the
fiber cables to 3.74 lakh villages having a population of 500 or socio-economic growth in the country. India, therefore, needs
more (basis Census 2001 data). The regulator has suggested a National Broadband Plan encompassing initiatives across
that funding for such a project could be considered from the various ministries which would provide a platform for provision
Mahatma Gandhi National Rural Employment Guarantee of quality broadband services across the country. It would
Scheme (MGNREGS) for non-skilled work and from the take a holistic view covering various aspects like customer
Universal Services Obligation Fund (USOF) for material and requirements (demand drivers), customer segment (urban
equipment cost9. India is taking a step in the right direction as well as rural), technologies (wireline as well as wireless);
as global references suggest that developed countries like nature and type of CPE; regulatory aspects. The regulators
Japan, Singapore and Australia have taken similar initiatives to as well as the government and the industry players across
proliferate high-speed broadband services to their masses. the value chain need to join hands so as to provide the best
3G/BWA spectrum auction possible support to this national vision of “Broadband for All”.
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33
Broadband
infrastructure
Out of the total telephone subscriber base (wireline and wireless) of over 706
million and total internet connections of approximately 17 million, India has only
10.08 million broadband connections. Hence, availability of broadband services in
India is still at a nascent stage, and enormous opportunity exists in provisioning
broadband services to current telephone users1.
1 ‘The Indian Telecom Services Performance Indicators January – June 2010’, TRAI, October 2010 and
‘Telecom Subscription Data – August 31, 2010’, TRAI, October, 2010
2 ‘DoT USOF website
3 Bharti Airtel, Tata DOCOMO Press Releases, 2010
4 ‘National Broadband Plan Consultation Paper’, TRAI Release, June 10, 2010
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35
infrastructure Given the factors of capacity and cost effectiveness, OFC has
emerged as one of the preferred medium of transmission
Network architecture globally. On the last mile network, various countries have
adopted different OFC based deployment methodologies,
A broadband infrastructure consists of three layers of
primarily to serve the growing capacity need of customers.
network i.e. core, access and last mile network. The last mile
In the US, Verizon Communications provides a Fibre-to-the-
network consists of Customer Premise Equipments (CPE)
Home (FTTH) service to select high ARPU markets within its
such as wireless or wireline routers, modems, switches and
existing territories. AT&T leverages Fibre-to-the-Node (FTTN)
the medium of transmission between the base station and
service with twisted pair to the home. Japan, South Korea and
subscriber. In case of wireless medium, radio frequencies
most recently China have emerged as countries having largest
are transmitted from the base station through the antennae
deployments of FTTH services. The above countries are also
hosted on the towers. Hence, tower infrastructure is a critical
extensively using OFC for broadband access network. Various
component of last mile wireless network. The access network
standards such as Ethernet Passive Optical Networking
consists of equipments such as the base station, base
(EPON), Broadband PON (BPON) and Gigabit PON (GPON)
station controller, gateways, mobile switching center and is
have been adopted and are supported by standards
responsible for managing and routing the traffic within a zone
organizations such as International Telecommunication Union
or a circle. The core network typically consists of the backbone
(ITU) and Full Service Access Network (FSAN).
network, which is primarily responsible for interconnection
and switching traffic across multiple access networks/zones/ India is a unique market with both affordability and capacity
circles. being the key drivers for demand of services. Emergence
of DTH and IPTV services, e-governance initiatives of state
Technologies
governments and impending launch of 3G services are drivers
The capacity and coverage requirement for the network that are expected to shoot up the demand for bandwidth. OFC
increases manifold with the rise in consumer interest for rich based transmission is expected to emerge as the primary
data usage. The choice of technology further takes account solution and India is expected to witness large scale FTTN/
of parameters such as cost efficiency, coverage, and the FTTH deployment going forward. In fact, India and China
availability of resources like frequency spectrum and optical currently account for about one-third of the global optical fibre
fibre. Hence, operators are opting for new technologies demand. However, cost effectiveness of such large scale
across the core, access and last mile networks for offering OFC deployment needs to be ensured, especially for last mile
broadband. network. In this regard, wireless infrastructure especially for
last mile network could be a viable alternative for offering
Transmission in core network is shifting towards packet based broadband.
technologies such as IP/Ethernet/optical primarily on Optical
Fibre Cables (OFC), which results in efficient handling of vast
amount of voice, video and data. In case of access network,
the traffic is presently handled on both wireline (OFC, DSL)
and wireless (RF, Microwave) media, and like the core
network, it is also moving towards packet based technologies.
The last mile connectivity is provided either through wireline
(OFC, DSL) or wireless (RF, satellite) media, but is currently
dominated by the former. In wireline network, OFC is
replacing DSL as a more efficient solution, but is saddled with
the usual challenges of deploying wireline infrastructure.
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Wireless infrastructure
Cumulative BTS rollouts (FY08-10E)
Given that wireless broadband network shall be overlaid
on an existing 2G footprint, most of the existing wireless
infrastructure is expected to be used for broadband
deployment, thus reducing time-to-market and improving
affordability of services.
Coverage
Outlook for evolution of wireless
All the operators together have around 1.15 million route
km of wireline deployed, which is largely OFC based and broadband
covers almost all the inter and intra cities and towns in India.
Technologies such as WiMax and/or LTE in the BWA spectrum
However, there is limited availability of last mile OFC based
and CDMA-EVDO, HSPA+ in 3G are expected to enable
network in villages and it is estimated that an additional
wireless broadband. The coverage led roll out from operators
quarter of the existing wireline network would be required to
based on such new technologies will drive the roll out of
cover 80-90 percent of these villages. GoI’s ‘Broadband for All’
active and passive infrastructure in the near future. Within the
project involves laying optic fibre backhaul network to ensure
technologies, 3G is expected to provide wireless broadband
that broadband connectivity reaches every panchayat in the
access to mobile users in the coming 12 – 18 months.
country by 20126.
India’s wireless operators have managed to provide coverage Cumulative BTS rollouts (FY08-12F)
to a vast majority of the country7, indicating that wireless
infrastructure is now available almost everywhere in India.
However, there still exists a significant urban-rural difference
in terms of return on investment (RoI); it takes approximately
twice the time to achieve positive ROI from rural areas vis-à-
vis urban areas, primarily driven by lower subscriber uptake8.
Other reasons for a lower ROI in rural areas include escalation
in costs and delays in setting up infrastructure in rural areas
due to slow process of leasing and purchasing land from local
panchayats, irregular and non-availability of power supply.
5 ‘GIL Annual Report 2010’, GIL company website, March 2010; KPMG Analysis
6 Common Service Center Scheme, Government of India website
7 ‘Bharti Annual Report 2010’, Bharti Company Website, March 2010
Source: B&K 2007, Citi 2007, IDFC 2009, Industry discussions, KPMG Analysis
8 ‘5th Telecom Summit’, Assocham 2009
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39
Broadband - catalyst
for convergence
Convergence is generally defined as the ability of different networks to carry similar
kinds of services (e.g., voice over Internet Protocol (IP) or over circuit switched
networks, video over cable television or Asynchronous Digital Subscriber Line
(ADSL). It can also be defined as the ability to provide a range of services over a
single network, such as the so-called “triple play.”
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1 Press Reports
2 KPMG Analysis
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42
Conclusion
While, India is one of the most compelling telecom markets
in the world, better telecom infrastructure is needed towards
achieving the wide availability of converged services in the
country. In this chapter, we reviewed the successful rollout
of converged services in Europe, utilizing a wide range of
infrastructure such as DSL and fibre, as well as upgrading
infrastructure such as analogue cable networks.
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43
As the mobile subscriber base has grown by over 50 percent over last year, the
growth opportunity for the VAS industry in India has remained relatively intact
in 2010. This aggressive increase in the subscriber base is one of the significant
reasons that helped maintain the momentum in mobile VAS revenues. This year
also saw a strong interest in 3G and BWA auctions by both domestic and global
investors, raising hopes for an increase in demand of data and content based
services.
Even so, VAS operators in particular have faced the growing challenge of reducing
revenue shares as a direct fall out of pressure wielded by telecom operators. The
entry of a number of new 2G telecom license holders in 2008 and 2009 took tariff
wars to a whole new level, with MNOs frantically trying to garner customer base
through nation wide advertising campaigns of potentially attractive plans and
freebees.
In addition, a variety of other factors have become critical for VAS service providers
to become successful, key among which include innovation, scale, value chain
supremacy, insight into the evolving VAS user base and creating real pull factors.
In a post convergence paradigm, the value chain at an industry level may need to
transcend towards content, broadcast mediums and distribution platforms. In
addition to the above success factors, in the long run, VAS service providers may
need to evaluate their strategy in terms of higher focus either on platform or on
content, in order to remain sustainable and ahead of the competition.
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The Mobile VAS business is more B2B in nature, thus a VAS businesses would focus on developing and aggregating
significant share of revenue is retained by telecom Operators content which can be streamed across a multiplicity of
(55-75% of revenue). On the other hand, purchase of platforms. These businesses would also undertake requisite
application / content through platforms such as internet technology platform development so as to be able to deploy
or device tends to be more B2C in nature, thus the VAS the content. In order for VAS companies to create relevance,
provider is able to garner a greater share of revenue (90- the mobile would need to become one of the numerous
95% of revenue). In a platform agnostic scenario, mobile channels on which they have the capability of streaming
content
Presently, Most VAS players focus on a niche set of A content agnostic value chain is a resemblance of what some
technology or content to provide services to MNO’s. For industry protagonists have termed a “managed services
instance few players are focusing on services based around model”. Such a scenario is relevant if companies in the VAS
music and entertainment content, while others may be space intend to continue to restrict themselves to the mobile
focusing on m- advertising or enterprise VAS etc. delivery platform. Under this circumstance, businesses may
need to become proficient in delivering all forms of content
under each VAS mode of delivery i.e. whether it be Music
delivered through IVR or SMS or Games and Data delivered
via GPRS or 3G or BWA, each facet must fall under the same
umbrella thereby making VAS players a one-stop-shop for
MNOs.
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Source: “Indian Telecoms – Positives Priced in, tougher road ahead”, JP Morgan Research, 16, August 2010
In the wake of continued tariff pressures and falling margins, decline. The industry as a whole may have gained impetus,
revenue shares of VAS service providers have continued to however the addressable market for Mobile VAS players came
under pressure.
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47
Source: “OnMobile – Market leader now spreading its wings abroad”, Deutsche Bank
– Global Markets Research , 26 Feb 2009 “OnMobile Global”, IIFL, 4 Aug 2010
Although relatively stable, the non-SMS VAS market in India World over, consumers are beginning to transition
continues to be dominated by Music – Ring-tones (RT) towards using their mobile devices for retail purposes i.e.
and Caller Ring Back Tones (CRBT). Together, RT and CRBT m-commerce. KPMG’s global Consumers and Convergence
continue to account for over 40 per cent of non-SMS VAS. 2010 survey noted that the percentage of consumers
surveyed that say they used an online retailer’s site from their
Source: “OnMobile Global”, IIFL, 4 Aug 2010
mobile phone jumped 18 percentage points, from 10 percent
in 2008 to 28 percent in 2010. The Asia Pacific region emerged
a leader, with 41 per cent of the surveyed population saying
they had used their mobiles to buy a product/service. Another
Growth drivers key finding of the survey was that age plays a significant role
in outlining the success of m-commerce, younger consumers
A number of factors are expected to provide a fillip to the in all parts of the globe readily engage with retailers through
their mobile phones.
sector in the coming months, some of which include:
Given the growing penetration of mobile devices, there is a
• Buoyancy in subscriber additions
significant opportunity for businesses to use this medium as
• Importance of m-commerce and m-advertising a mode to increase awareness around their brand and product
portfolio. It has also been noted that consumers in BRIC
• Service innovation driven by consumer preferences. economies are far more amenable to getting mobile ads in
exchange for a wide range of cheaper or free mobile content
or services1. These trends may perhaps auger significant
Subscriber additions service innovation thereby enabling players to address the
India continues to remain one of the fastest growing mobile market opportunity.
markets globally. Subscriber additions have followed an
exponential trend over the last five quarters and recently the
subscriber base has crossed the 650 million mark. As the end-
user base for Mobile VAS companies continues to expand, the Service innovation driven by consumer
addressable population and thus product penetrations may preferences
benefit. One of the biggest challenges being faced by the industry
today revolves around understanding customer preferences
Source: Press Release, TRAI , September 2010 in terms of the type of VAS they would be most likely
to consume. Presently, the telecom operators lack the
information on customer preferences. This coupled with poor
Importance of m-commerce and m-advertising understanding of customer preferences leads to generic VAS
Mobile commerce, outside of mobile banking transactions, products instead of targeted products for different customer
and mobile advertising continue to represent growth groups. Certain independent research bodies have put
opportunities in the Indian market. If global experiences are significant effort to assess the same; however, significantly
anything to go by, then India does possess the necessary greater research is required so as to generate a greater
characteristics for these services to succeed. customer pull for VAS.
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Agents of change
The larger challenge lies in identifying the players in the value A constant need to sustain and grow business in this space
chain who would deal with this particular issue. It would be is forcing VAS service providers to think innovatively to stay
fair to assume that in a walled-garden MNO led VAS scenario ahead of the curve. These strategies are interesting because
a certain degree of this research may be commissioned they are seemingly aimed at de-risking the fundamental
by them. However, given the tariff war and a race to add business issues.
incremental subscribers MNO’s may rather initiate marketing
Some incumbents have set-up their own developer networks
spend in garnering additional subscribers as against trying to
whereby they provide the seed capital for niche product
understand what type of VAS will sell. For the VAS industry
centric businesses thereby allowing them to grow and
to develop targeted products for end user there is a need for
eventually leverage the incumbent’s operator relationships to
partnering between MNOs and MVAS providers to conduct
make products/services successful. Although nascent from
research/ maintain database on consumer preferences for
an India perspective, this business model shift does auger
gaining an insight on the customers preferences.
well for the creation of intellectual property that may bring in
Given the above, the onus of creating relevance from a the necessary balance in the revenue sharing regime.
customer perspective lies with the aggregator/developer
A number of incumbents have also started to explore
and technology enabler community in the value chain. These
geographies outside India as an avenue for growth. In
businesses may need to set-up innovation cells and invest
this respect, Africa and the Middle East are among the
in adequate customer research so as to produce products
geographies that are being examined closely by Indian
and services which can create stickiness of the customer for
business houses. As their platforms have matured in India,
the MNO’s. In such a scenario not only could revenue shares
VAS service providers may reap benefits by deploying them in
improve, MNO’s may also be willing to put more advertising
other markets as well. Targeting the Indian diaspora with local
dollars behind relevant services.
content is another strategy that these players are examining
to achieve an immediate footprint in the new geographies.
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Activity 2007 2008 2010 On the other hand, MOU’s in India currently stand at an
average of about 385 minutes per subscriber per month2.
Chatting or instant Incumbents however, operate at MOUs of over 400 minutes
6% 5% 29%
messaging per subscriber per month3. Taking into account that a typical
cell site at full capacity may support up to 350 minutes per
Talking (e.g. Skype) - - 29%
subscriber per month (working on the industry average of
Accessing maps/Directions - 4% 23% 1,150 subscribers per site), this strain on the networks may
directly result in poor Quality of Service (QoS).
Reading a book - - 21%
Therefore whilst, Video on demand and other live streaming
Playing games 6% 7% 17% services may gain prominence amongst the high ARPU
Accessing news and customers, enhanced bandwidth may also simply lead
1% 2% 13% to increased usage of existing mobile VAS services and a
information
consequent augmentation of voice capacity.
Social networking 3% 1% 11%
E-mailing - - 10%
Banking/personal finance - 2% 8%
Watching TV/Movies/
7% 5% 5%
Video’s
Shopping 1% 2% 5%
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Further, rural India contributes close to 45 percent of India’s total GDP2. Thus the
significance of development of rural India cannot be underestimated in the pursuit
of the achievement of socio-economic growth targets for India.
In terms of telecom connectivity, the urban teledensity across all metros has
crossed 100 percent3 and the market for voice services is tending towards
saturation. However, the rural teledensity is still below 30 percent4 and the rural
market is expected to drive the next round of aggressive growth. The government
has set a target for 40 percent teledensity by May 2014 for this market5. This rural
teledensity target seems achievable but a lot more needs to be done to reduce the
widening urban-rural telecom divide.
1 ‘India Telecoms - Positives priced in, tougher road ahead’, JP Morgan, August 16, 2010
2 ‘India Market Strategy’, Credit Suisse, June 17, 2009
3 ‘Monthly Telecom Scenario – August 2010’, DoT, October 2010
4 ‘The Indian Telecom Services Performance Indicators’, TRAI, April - June 2010
5 ‘Annual Report 2009 – 10’, DoT
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Source: ‘The Indian Telecom Services Performance Indicators’, TRAI, April – June 2010, KPMG Analysis, ‘India Telecoms - Positives priced in, tougher road ahead’, JP
Morgan, August 16, 2010
Rural - urban telecom divide Rural vs Urban Market – Key Indicators (As of August,
2010)
The Indian telecom sector has seen aggressive growth
over the past decade. The urban market in India is tending Total population 1,183.39 millions
towards saturation in terms of voice based services. The
operators have been constantly reducing tariffs to enhance Urban population 30.00% 355.02 millions
penetration which has resulted in multiple connections being Rural population 70.00% 828.38 millions
held by a single customer to take advantage of the various
innovative pricing schemes offered by operators. Presently, Total subscribers - 706.37 millions
the operators are awaiting the launch of 3G and WiMAX to
ensure sustainable growth in the urban markets through data Urban subscribers 67.70% 476.17 millions
services. Rural subscribers 32.30% 230.20 millions
The rural market too, has shown tremendous growth over the Total teledensity 59.63 percent
past decade with rural teledensity going up from 1.21 percent
in March 2002 to 27.76 percent as on August 31, 20106. Urban teledensity 134.08 percent
Despite this growth, the rural market still remains largely Rural teledensity 27.76 percent
under-penetrated7.
Rural subscribers 230.20 millions
According to TRAI, 91 percent of the villages in India are
covered by at least one operator. Overall, 51 percent of the Rural wireline 4.35% 10.01 millions
villages in India are covered by three operators and 31 percent Rural wireless 95.95% 220.19 millions
of the villages are covered by four operators8.
Source: TRAI, DoT, Monthly Telecom Scenario – August 2010
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Source:‘India Telecom Sector Brochure’, DoT Website; ‘Annual Report 2009 – 10’, DoT
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• In a pilot project of The Byrraju Foundation, the wireless • In late 2007, as a part of Gramjyoti project, Ericsson
network created using smartBridges radios currently in partnership with Apollo hospitals provided ECG,
connects 12 villages. blood pressure and heart beat measurements,
teleconsultation and basic medical check ups, including
• The Bhimavaram network potentially impacts 500,000
live interactive check ups and reporting.
lives in 32 villages in the Bhimavaram district.
• A Real-Time Bio-surveillance Programme was piloted
• The Ashwini Centers established in each village provide
in the Sivaganga District of Tamil Nadu. The aim of the
video-conferencing and Internet access for all the
program is to use sophisticated analytical tools on data
villagers
sent on mobile phones by village level nurses, there
• IGNOU has started SMS service to send SMS alerts to by harnessing mobile technology for disease reporting,
students about various developments surveillance and health strategy planning in Tamil Nadu
Education
Financial services
The importance of mobile medium in education is slowly but
India has one of the most expansive banking systems in
steadily being realized by players in the telecom industry,
the world. A combination of scheduled commercial banks,
who are now developing the necessary applications to work
regional rural banks and specialized financial institutions cover
towards mobile education (m-education or m-learning).
a large section of society in India. Despite these focused
Several operators have started offering m-education
efforts, only 31 percent or little over 20,000 of the total bank
services such as English lessons, dial-in tutorials, school
branches in India are in rural areas. Access to basic financial
syllabi, question sets, vocabulary general knowledge
services remains elusive to millions of Indians in rural areas.
tutorials, exam tips, exam result alerts and education for the
physically challenged. These operators usually partner with In rural areas, a larger number of people subscribe to mobile
VAS companies to develop the applications. Some such services than banking services; thus mobile phones can be
applications are m-Gurujee, English Seekho service and Learn used as platform to provide a variety of services such as long
English. distance remittances, micro payments and informal airtime
bartering schemes. Mobile banking will likely also help in
Additionally, mobile broadband can help expand tertiary
bringing down costs for other channels, such as microfinance,
education especially among low and middle-income students.
since utilizing mobile phone technology significantly lowers
With increased 3G network coverage and decreasing cost
transaction costs while expanding outreach to rural areas.
of mobile broadband access, tele-education will likely see
greater adoption both in rural and semi-urban areas. Video
conferencing also allows the qualified teachers based in
towns or cities to teach several classrooms simultaneously,
thereby bringing quality higher education to the village level.
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Government services
Mobile technology can help drastically improve the access to Successful Rural Projects
government services in developing countries. According to an
estimate provided by Department of Information Technology, • In July, 2008, HDFC bank setup a BPO centre at
Government of India, approximately 50 to 60 percent of Tirupati in Andhra Pradesh through its subsidiary Atlas
government services in India can be delivered through mobile Documentary Facilitators. The centre employs 550
channels. 12Launch of mobile broadband will allow citizens people who are entrusted the task of data capturing
to access government services virtually in any place covered and indexing of customer details. This same job was
by high speed mobile network. By leveraging connectivity, being handled by more than 1,000 people in Chennai
the government can process Government to Citizen (G2C) and Mumbai.
transactions such as the filing of tax returns, death and birth
registration, land records, as well as receive feedback helping • The Tata group company, Tata Chemicals, has also
enhance the level of Governance. setup two BPOs at Mithapur in Gujarat and Babrala
in Uttar Pradesh. The centre in Babrala functions as a
back office logistic support for Tata Indicom customers
Media/Entertainment in Uttar Pradesh.
Broadband wireless access (BWA), using technologies
like WiMAX/LTE, provides high-speed internet access, IP
telephony, TV services and other voice and data multimedia
services in regions where there is no suitable wireline
alternative. The high speed broadband access will enable
value added services tailored to local rural needs and
requirements.
Employment
The Business Process Outsourcing (BPO) creates
employment by allowing rural citizens to participate in the
economic growth brought by outsourcing of manufacturing
and back-office functions to low cost regions which is
currently driving the economy of India. Availability of reliable,
quality and cheap telecom connectivity is an essential
requirement for setting up BPO operations in rural India.
12 ‘m-Government: The New Frontier in Public Service Delivery’, World Bank, 2007
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Telecom manufacturing
The year 2009 was a tough year for telecom equipment manufacturers globally, with
the infrastructure and handset segment registering a decline of 3.6 percent and 9.9
percent, respectively1. India too, has witnessed slower growth in telecommunication
equipment, especially compared to the aggressive subscriber growth that has been
observed during the previous year. While the equipment market’s growth stood at 20
percent in 2008, it declined to 18.6 percent during 2009. However, compared to global
peers, this was still a positive reflection on the sector considering the impact of global
recession as well as the loss of incremental growth due to delay in the roll out of 3G
services2.
Over the past year India has shown tremendous growth in terms of subscriber
numbers. This aggressive growth has laid the path for development of the
telecommunication equipment industry in India as well3.
Several home-grown handset manufacturers have begun to take control of the market
and these incumbents have been playing a crucial role in promoting the use of mobile
VAS among people in lower income groups. These players at this point in time control
close to 14 percent2 of the handset market. The numbers suggest that the home grown
manufacturers have registered explosive growth during the past year4.
The recently concluded 3G auctions are likely to further enhance the role of mobile
VAS to compliment the growth of the handset market in India. Many multinational
corporations have already or are in the process of setting up a manufacturing facility
in India. The success of the 3G auctions may also encourage international as well as
domestic players to start manufacturing 3G mobile communications infrastructure
within the country as well. The government has also made tremendous efforts to
establish India as the hub for telecom manufacturing through incentives as well as
supporting R&D efforts through low cost labor.
1 ‘World Telecom Equipment Market and expected USD 370 billion in 2013’, Cellular
News, June 30, 2010
2 ‘India’s telecom equipment industry grew 18.6% last fiscal’, The Economic Times,
June 10, 2010
3 TRAI Subscriber Numbers, KPMG Analysis
4 ‘India: the next mobile manufacturing hub’, Telecom Yatra, July 20, 2010
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07
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Key milestones Along with this growth there is growing emphasis on export
of telecom equipment from India as well. With multinationals
setting up base in India, India is emerging as a manufacturing
The foundations of developing the telecom equipment
hub which aims at enhancing its telecom exports each year.
manufacturing industry in India were laid in 1999.
In 2006-07, India exported equipment worth INR 18.98 billion
• 1999: Opening up the industry to private sector and as of 2009-10 this number has gone up to INR 135 billion;
participation a growth of almost 600 percent5.
• 2010:
- The Union Budget decided to eliminate the Special
Additional Duty of Customs (SAD) of four percent on
parts imported for manufacturing mobile handsets
from July 06, 2010 to March 31, 2011
5 TEPC
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India – progression towards global • Meeting at least 70 percent of Indian domestic telecom
demand from Indian manufactured products
manufacturing hub • At least a few IPR-driven, billion dollar Indian product
companies.
India is fast emerging as a hub for global telecom
manufacturing. The production and exports of telecom Indian government has been taking initiatives and doing
equipment have been on a steady rise in the last few years. As timely policy changes to ensure the achievement of the above
per industry estimates, India is expected to gain a third spot ambitious targets. The long term goal of the government is
by capturing 8.5 percent of Asia-Pacific’s telecom equipment not only to become a global telecom manufacturing hub but
production revenue of INR 12,465 billion by 2014 as compared also focus on the inclusive growth for the country by focusing
to that of 5.7 percent share of INR 8100 billion in 20096. on areas like employment generation.
India is likely to be the fastest growing telecom equipment
production market in this region over the next five years. This In order to attract more investment in the country, Indian
is evident from: government has recently announced the exemption of basic
duty, countervailing duty (CVD) and special additional duty
• A large and booming domestic telecom equipment market (SAD) of about 24 per cent on components/raw material
of over INR 450 billion with Indian operators reaching imported for manufacture of batteries, chargers and other part
out to the global market providing wider access to Indian and accessories in budget 2010-119.
telecom companies7
6 IBEF, Telecommunications Report, July 2010 9 Voice & Data, “Finally, TRAI pushes telecom manufacturing”, February 27, 2010
7 TRAI, Presentation - 2010 10 TEMA press release, “Telecom Equipment Production to Cross Rs. 50,000 Crores in
8 TEPC, Policy recommendation to increase domestic telecom growth in exports of 2008-2009”, November 20, 2008
telecom equipment and services
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Indian government has also been promoting its export sector • In 2005, Elcoteq had started manufacturing facility
by establishing special economic zones (SEZs), which led in Bangalore. It is one of Elcoteq’s three volume
exports grow by 33 percent in 2008-2009 as compared to manufacturing plants in the Asia-Pacific region and the first
just 4 percent elsewhere in India. Thus, in recent times SEZs one in India
has been one of the primary drivers for India’s increasing
manufacturing capability11. • In 1994, Ericsson India established a manufacturing unit at
Kukas, Jaipur (Rajasthan), producing AXE Digital Switching
Indian government has been facilitating more and more System, EDGE Based GSM Radio Base Station
telecom specific SEZs to promote India as a hub for telecom
manufacturing. Moreover, it has also allowed 100 percent • Many other major companies such as Foxconn, Aspcom,
FDI in manufacturing sector under automatic route. This has Solectron, etc. have decided to set up their manufacturing
resulted in foreign players investing more than INR 450 billion bases in India
as FDI in Indian telecom sector in last 10 years.
• In October 2010, Huawei confirmed its plans to set up an • Creating new and varied opportunities to earn a livelihood
INR 22,500 million state-of-the-art telecom equipment • Provide ways to enhance capabilities to exploit varied
manufacturing facility near Chennai. It has invested opportunities
approximately INR 6,750 million per year over the past
decade. The company employs more than 6,000 people, • Providing security against a permanent loss of livelihood
while creating indirect employment for 20,000 additional
people through its partner ecosystem12. Telecom manufacturing is one such industry that could
contribute in providing this inclusive growth that India is
• In 2010, Wynn Telecom plans to set-up a facility at looking for. Manufacturing units in rural area would help
Himachal Pradesh, that will churn out 1.2 million handsets provide employment and income generation opportunities
every month thereby aiding in reducing the dependence of people on
agriculture. This would help rural people to access better
• In 2008, Motorola started manufacturing facility at education facilities for their children and in turn is likely to
Sriperumbudur, Chennai. It manufactures products that improve country’s literacy rates and employability.
includes GSM and CDMA mobile devices and networking
equipment such as base stations and system controllers Better telecom connectivity and other innovative applications
can play a vital role in extending health care services to the
• In January 2006, Nokia had earlier started manufacturing remotest part of the country. For instance, a hospital can
facility near Chennai. It has increased employee base from employ telemedicine to assist doctors in rural areas as they
500 to more than 8000 today. This facility has reached a analyze and treat patients.
milestone of production volumes of 350 million handsets
in April 2010. It exports to more than 70 countries now. Apart from benefiting the rural areas, telecom manufacturing
The current production in this facility caters to the demand can also bring a lot of positives for the country as a whole.
of both the domestic market as well as that of countries
in the Middle East and Africa, Asia, Australia and New Employment generation – Telecom manufacturing industry
Zealand, besides North America and Europe will enable the ancillary and other related components
industries to grow. Currently, telecom sector employs over 1
• In 2005, LG has set up plant of manufacturing capacity for million directly and is estimated to employ another 4 million
20 million GSM mobile phones near Pune. people indirectly.13
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Large export potential – Apart from the strong domestic Increased competitiveness – Growing Indian telecom
demand, telecom equipment industry offers a tremendous manufacturing industry will not only make telecom services
potential for increasing India’s exports. Indian players or affordable in India but also make this industry competitive
MNCs based in India have exported telecom equipments to across the globe. This will in turn helps in bridging the rural
other countries at a CAGR of more than 22 percent over 2008 urban divide and reduce the socio-economic barriers of the
- 2011.14 country. The competitive industry will also enable new related
industries to emerge and provide employment
Creation of Intellectual property (IP) – Heavy investment in
R&D by players in telecom manufacturing sector creates the
opportunity for Indian IP rights which can in turn lead to value
additions and innovations in other related industries such as
components and semi-conductors.
Conclusion
Self-reliance in Strategic sectors – Increased capabilities in India’s telecom equipment production as well as its exports
telecom manufacturing will help India to become a self reliant has been on the steady rise for the last few years. Various
in strategic sectors such as defense and internal security, favorable policies and initiatives implemented by the Indian
e-governance, education and research, and others. government over the last few years have gone a long way in
promoting the country’s indigenous telecom manufacturing
sector.
14 TEPC, Policy recommendations to increase domestic telecom growth in exports of
telecom equipment and services; KPMG Analysis
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Telecom research
& development
Government of India has set an agenda in terms of pre-eminence of India as a
technology solutions provider. India has the potential of converting its strong
R&D infrastructure into a global research, design and development platform.1 This
includes R&D and installation of comprehensive security infrastructure for telecom
networks. Moreover, as India gears up for access to next generation networks, R&D
on advanced testing mechanisms is another focus area to ensure interoperability
amongst these networks, related services and devices.2
Modern technology inductions are being promoted by the Government of India. Pilot
projects on the existing and emerging technologies have been undertaken including
WiMax, 3G and those having the potential to improve rural connectivity.
Associate
S. No. Sponsor Areas of focus
institute
Reliance
5 IIT Chennai Telecom Infrastructure & Energy
Communication
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Apart from application oriented research, the centres have Indian IT companies have considerable number of engineers
been designed to assist and offer training to corporate working in VLSI design and embedded systems as well. The
managers for the management of networks and services focus of embedded system R&D has shifted from products
as well as decision makers of telecommunication entities to end-to-end solutions, associated services and applications.
to manage sector reforms. Each centre has a focused area These companies have begun to solve key issues related
of excellence, thus the seven centres cover all aspects to security in telecom equipments, energy efficiency, and
of telecom from technology to disaster management of convergence across devices, networks and services, and also
telecom infrastructure to customer care and business model the availability of VAS on mobile devices including handsets,
innovation. Projects currently on across the COEs include tablets and net books.
use of non-conventional sources of energy and energy
efficient power conversion and devices for rural applications,
promoting broadband wireless access, rural education
and livelihood related applications, VAS such as mobile Designed for India
based video conferencing and development work on next
generation networks. In addition, the TCOE at IIT Chennai The unparalleled growth of the Indian telecom market,
has been accepted by ITU-R as an evaluator for International innovative telecom business models, and challenging
Mobile Telecommunication- Advance (IMT-A) proposal for 4G environmental conditions, make it ideal for innovation and a
networks. focus area for global telecom original equipment manufacturer
R&D. The idea of ‘reverse innovation’ from India has started
with vendors starting to believe that the knowledge gained
from the Indian market is invaluable, and gives them a
Contract R&D: Laying the significant edge, improving their product offerings to global
customers. Telecom vendors in India are able to increase
foundation scalability and add newer functionalities on existing platforms
without the need to replace legacy equipments. This lowers
There is a rising trend for contract R&D moving out of the the total cost for the solution, which makes them a valuable
headquarters of Telecom Equipment Manufacturers (TEMs). proposition to be deployed in other telecom markets.
This is because of companies looking for more cost effective, For example, products developed with the Indian market
faster and innovative models of product development, and in mind are capable of expanding their capacity fourfold
to leverage the expertise available elsewhere, in order to simply by swapping the platform’s line cards. In response
achieve cheaper, faster and unique product differentiation. to India’s harsh environmental and climatic conditions and
India has come out as a favorable R&D destination for many the resulting local and international standards, vendors
of such companies. The Economist Intelligence Unit3 (EIU) have begun applying anti-sulphur coating to cards deployed
global survey in September 2004 has defined India as an in India to protect them from chemicals in the country’s
R&D hotspot: a place where companies can tap into existing ambient polluted air. In addition, the chip packaging for critical
networks of scientific expertise; which has good links to components is upgraded to industrial-grade to sustain a
academic research facilities; and provides an environment wider range of temperature levels ranging from -5 C to 80
where innovation is supported and easy to commercialize. C degrees. Hence, the reliability and flexibility that these
Moreover, India is a large country where English is spoken, solutions bring will help increase a vendor’s success around
wages are modest and western education is available. The the globe offering operators the same benefits of scale and
availability of quality talent is bolstered by the presence adaptability dictated by the India market.
of numerous higher educational technological institutes Vendors working in India believe that their presence here and
and a large network of government research labs. The best relationship with Indian companies will eventually benefit all of
results for outsourced R&D have been most evident in the their customers globally. Multinationals are increasingly taking
technology – VLSI and embedded systems. These outsourced notice of India beyond just its talent pool and viewing it as a
R&D initiatives have enabled TEMs, its suppliers, and mobile key development ground for their R&D efforts.
device players to effectively target their global markets
3 ‘Contract Research for Global Firms Creates Hotspots for IT, Telecom & Biotech’,
Knowledge Wharton, November 2005
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What has made the Indian telecom sector an incredible growth story is the fact
that inclusive growth has been achieved and the growth momentum is being
sustained even though urban market is increasingly getting saturated, with the urban
teledensity already at 134.08 as on August 31, 20101. The industry has witnessed an
aggressive tariff war in the previous year, with the maximum correction happening in
Q3, FY 2010 and Q4, FY 2010. There has been a 30 percent decline in tariffs and as a
result the aggressive growth has not been reflective in the profit margins2.
With the changing landscape of the sector in the form of rural expansion, increasing
competition and the ever-declining ARPUs, operators are experiencing rate erosion
and are now finding it difficult to sustain the profit margins they enjoyed over the
last few years. Coupled with the Government’s vision of providing quality telecom
services to the remotest parts of the country and facilitating its social agenda
through widespread availability of broadband services, the time is now ripe to
explore and evaluate next generation technologies which will help drive the next
phase of growth for the sector.
Due to the euphoria surrounding the 3G rollout, the Indian consumer has awakened
to the advantages offered by these advanced technologies in the form of improved
quality and reliability at reduced costs, and is eagerly waiting for their introduction in
the country.
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Source: Wikipedia
7 ‘WiMAX Poised for Portable Broadband Success’ , Yankee Group, Nov 11, 2009
8 ‘LTE’s Five-Year Global Forecast: Poised to Grow Faster than 3G’, Pyramid Research,
May 2009
9 ‘2012 Will Be a Bellwether Year for 4G’, ABI Research, May 13, 2010
10 ‘Consultation Paper on National Broadband Plan’, TRAI, June 10, 2010; KPMG Analysis
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Green telecom
Since the late 1900s, the Telecommunications industry has played a major role
in shaping how we live, and today it is the backbone of the global economy, with
total revenues in excess of INR 84 trillion1. The growth in the industry is led by the
increase in wireless subscription expected to continue and cross 82 billion by 2020
from current subscriber base of 4.61 billion globally.
With increase in demand for telecom services, the energy consumption has also
grown significantly and poses an environmental challenge in terms of larger carbon
footprint of the telecommunication industry. The total global carbon footprint
of the ICT industry as a whole is in the order of 8003 million ton CO2 which is
approximately 2 percent3 of global emissions. Of this, the contribution from global
telecommunication systems - mobile, fixed and communications devices are around
2303 million ton CO2 or approximately 0.7percent3 of global emissions.
The Greenhouse Gas (GHG) emissions from the mobile industry arise mainly from
sources like:
• Energy consumed by mobile handsets and other devices, when they are
manufactured, distributed and used
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Additionally the discarded mobile phones are among the industry consumption of c. 1.8 billion litres of diesel every
fastest growing waste streams worldwide and the rate of year9. With each liter of diesel used, 2.488 kg of CO2 is
increase is about 6505 million units per annum. Mobile phones emitted and for every KWH of electricity consumed 0.848
and the various network devices contain substances that kg of CO2 is emitted leading to emissions of around 5
are potentially hazardous which may be released into the million tons of CO2 due to diesel consumption and around
environment if they are mismanaged at the end of their life 8 million tons of CO2 due to grid power per annum
cycle.
• Operators spend around 25 percent5 of their network
operating costs on energy. The high transportation cost of
diesel in remote areas, where the physical infrastructure
Green telecom – India perspective like roads is underdeveloped, adds to the overall
operational expenditure. Also there is significant pilferage
of fuel in these remote areas
India is ranked 5th6 amongst the countries in the list of
global GHG emission, contributing 4.7 percent6 of the global • Economic viability of renewable sources of energy is very
emissions. In December 2009, the Minister of State for less especially in remote areas where the ARPU is less
Environment and Forests announced the Indian Governments than INR 90. For example the initial investment for a solar
commitment to reduce 20-25 percent6 of carbon intensity solution will be around INR 40-455 lakh per site depending
from 2005 levels by 2020. Indian Government is already on power supply required as compared to the DG set
providing various incentives for the initiatives involving the use which costs lesser.
of renewable energy resources.
Challenges in India
Low energy base station sites
The significant challenges for the India telecom industry are: Considerable improvements in energy efficiency of base
stations have been realised in recent years. For example10,
• A large part of the country (rural areas) is power-starved,
Ericsson has reduced the annual direct CO2 emissions per
especially regions like Uttar Pradesh, Bihar, Orissa, North
subscriber in the mobile broadband base stations from 31
East, and Rajasthan. As per GSMA, India has only 56
kg in 2001 to 17 kg in 2005 and eventually to 8 kg in 2007.
percent electrification rate. With increasing coverage
Nokia Siemens Networks in 2009 developed a new cabinet-
of mobile services in off grid areas, the cost of network
based BTS with a power consumption of 790 W, versus 4,100
operations through alternate energy (diesel and battery) is
W in 2005. Alcatel-Lucent has also developed innovative
very high
techniques such as the dynamic power save feature for mobile
• India has over 300,0007 telecom towers with an average network, which reduces power consumption when the traffic
power consumption of 5-68 KW and average 88 hrs of drops with no impact on service quality. This enhancement
diesel generator running to provide back-up during power reduces average power consumption by 25-30 percent.
outages. Each tower currently consumes an average of
c. 4,000 litres of diesel every year, implying the telecom
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Cooling systems are an integral part of the telecoms • China Mobile has one of the world’s largest deployments
infrastructure and consumes significant amount of power. In of green technologies to power its base stations. China
the past, the operating temperature of the BTS equipments Mobile had 2,135 base stations powered by alternative
was required to be around 25°C. But now BTS are deployed energy in 2008. Of these, 1,615 are powered by solar
having passive cooling components as opposed to air energy, 515 are powered by solar and wind energy and 5
conditioning, thereby reducing the power requirement. are power by alternative sources
Examples11 include:
• In Vanuatu, an island nation located in the South Pacific
• Airtel has also been rolling out its “Green Shelter” concept Ocean east of northern Australia, Digicel is working with
leading to major savings in energy consumption by its the GSMA Development Fund to assess and develop
network in India commercial scale roll outs of green power technology.
There are currently 24 live sites in the Digicel Vanuatu
• Ericsson has developed the Ericsson Tower Tube, which network running on green power, including eight mission-
uses natural convection cooling, to greatly reduce feeder critical backbone sites carrying up to 60 percent of
loss, resulting in a reduction of up to 40 percent in power Digicel’s traffic
consumption. Furthermore, the Tower Tube is designed so
that backup-batteries can be placed below ground, thus • In India, Idea Cellular and Bharti Infratel have started
lowering their operating temperature and increasing their deploying solar and bio-fuel resources on trial basis for
lifetime significantly their base stations.
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Investment
opportunities after
broadband rollout
The Indian broadband landscape of 2010 with a large addressable population and
around 10.08 million broadband subscribers is quite similar to the Indian cellular
market of 1997, with a large addressable population and only 340,000 subscribers1.
Infotel 22 2,733
Broadband
Qualcomm 4 1,045
Aircel 8 731
Tikona 5 225
Augere 1 27
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3 Estimated based on analyst commentary with respect to RIL’s BWA network Capex, 4 RIL – Infotel: Reliance Industries, BWA Analyst Presentation, June 12 2010;
’India Telecoms – The night is darkest before dawn’, Credit Suisse, July 2010 ‘Qualcomm seals stake sale deal’, The Telegraph,, July 31, 2010
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International best
practices
This chapter will entail key initiatives, best practices, exemplary developments and
milestones achieved in telecom sector largely in developing countries for the growth
of the telecom services especially among economic backward section of the society
and remote areas. Through various case studies we would bring up the context and
reasons why these initiatives have been successful and its overall impact.
There have also been a large number of pilot and commercial initiatives globally
to deliver the wide spectrum of benefits of mobile based services with green and
renewable power resources at the base.
Sri Lanka’s leading mobile operator has leveraged HSPA mobile broadband
technology for bringing affordable internet access to bottom of the pyramid.
To address the bottom of the pyramid in the villages where PC penetration is
extremely low, the operator started the Last Mile initiative ‘Easy Seva’1 developed in
partnership with Qualcomm, the US Agency for International Development, the Sri
Lankan National Development Bank and Synergy Strategies Group.
Through shared-access Easy Seva centres, the operator has been able to bring data
services to remote villages. Operator and its partners provide local entrepreneurs
assistance to set up internet cafes. Each Easy Seva centre has multiple PCs,
IP handsets, a router, and a 3G modem that utilizes HSPA for fast broadband
connectivity. The franchisees are selected following an extensive review process
to make sure that Easy Seva is the right fit for the local community and businesses.
They then receive comprehensive training, marketing support, 24/7 help desk
and preferred data pricing. The Easy Seva partnership also provides loan and lease
facilities for the franchisees to help purchase the equipment and pay for the lease
on the premises. The low hardware and operational costs ensure that prices for
end users, who are the ultimate beneficiaries of the project. Users have access to
information on jobs, educational tools and micro-loans.
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Similarly in South Africa, the community in Alexandra (Sub Thus, the increased use of mobile technology can help reduce
urban area in Johannesburg) now has access to fast, reliable health care costs by improving efficiencies in the health care
internet access through HSPA network from an innovative system and houses the idea that there exists a powerful
Internet cafe concept. One of the largest operators of South potential to advance clinical care and public health services
Africa founded a community payphone kiosk, which offers by facilitating health professional practice and reducing health
the very poor community access to voice telephony services, disparities.
and for the first time, cheap access to the Internet. The
kiosk belongs to local entrepreneur with support from local Education
operator, and the GSM Association’s Development Fund. The In the Philippines, a local mobile operator is helping public
Alexandra Community Payphone2 site is part of a nationwide elementary schools access educational materials through the
project, to bring broadband to low-income townships, ‘Text2Teach program’4. Text2Teach is a project that focuses on
boosting education and healthcare and providing a platform the 11 to 13 year old age group. In the first phase, Text2Teach
for entrepreneurship. The community Internet cafe enterprise enables teachers to simply use the mobile phone to order
offers convenient access to health and education information video clips, which are then delivered via satellite, stored in
as well as job vacancies and advice for finding employment. the media master, and viewed on TV. The second phase, the
It is supported by a dedicated online portal developed by local teacher were able to just plugs the mobile phone pre-loaded
operator, which features a wealth of valuable, up-to-date local with educational videos to a TV set and plays the video lesson.
information. New videos are accessed by downloading them through the
mobile phone.
Agriculture
Proliferating citizen and Google Trader4 is a marketplace mobile application used in
governance services through Uganda to buy and sell goods and services using SMS. This
application was developed in response to challenges faced by
mobile the Uganda’s rural producers and consumers in reaching out
to the markets, due to inefficient transport network and lack
Healthcare of knowledge of market conditions. This application ensures
While the health community debates whether a specialized transparency and enables small producers to realize higher
field of ‘M-Health’ exists and how to define it, most people prices when dealing with larger traders, thus increasing
will agree that individuals around the world are using mobile their incomes. Google Trader is primarily in English but also
technologies to access health services and information responds to the primary commands in three local languages.
and that health professionals are formally and informally The initial pilots of Google Trader in banana-producing
integrating mobile technologies into public health and clinical regions of Western Uganda appealed to small producers,
activities. As mobile phones and other mobile devices who felt more confident about their ability to reach buyers
become part of everyday life, people become better equipped and receive better compensation for their produce. The
to respond to emergencies, consult with peers and health widespread adoption of the application is expected to lead to
professionals about health issues as they arise, and access lower transaction costs, greater efficiencies and higher price
health services that are increasingly being delivered through transparency across various markets; resulting in increased
mobile phone based systems. incomes to small farmers as well as other traders and buyers
in the value chain, enabling them to save time and transport
Government of Uganda spends a substantial amount of the costs, which will result in greater wealth for all involved.
health budget in finding a cure for diseases like AIDS. A new
healthcare awareness program, ‘Text to Change’3 (TTC) was
recently introduced. The program is spearheaded by a local M-Commerce
mobile operator, a Dutch non-profit organization, sponsored In 2007, only one out of five people in Kenya had access to
by the UN’s Department of Economic and Social Affairs banking facilities, mainly due to the high transaction fees and a
and Uganda’s Ministry of Health. The program offers text scarcity of bank branches. In March 2007, Vodafone launched
message based multiple choice interactive quizzes which an M-commerce system in Kenya with its local partner Safari.
are administered to mobile phone subscribers in the rural com called M-PESA4. The service enables its users to deposit
region. Free airtime is offered to the users to encourage them and withdraw money, transfer money to other users and non-
to participate in the program; this was determined to be a users, pay bills, and purchase airtime through a network of
powerful incentive since users were allowed to exchange the agents that includes airtime resellers and retail outlets acting
airtime with other subscribers as a type of currency. as banking agents. Teaming up with Kenya Commercial Bank
and Western Union, M-PESA has become a market leader,
acquiring just under six million users — one in six Kenyans
— since its launch. M-PESA is so popular that more than 10
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Conclusion
The Indian telecom sector has proved to be an international success story. Nearly all
major international telecom operators have made significant efforts towards making
inroads into the Indian market in order to tap the immense potential offered as well
as to leverage on the low cost outsourcing model which has been pioneered in India.
The sector has witnessed a commendable growth over the past 2 years. At present
there are 15 operators in the market offering the lowest mobile tariffs across the
globe. With an overall subscriber base of 706.3 million and a teledensity of about 60
percent, the sector continues to growth from strength to strength.1
With the urban teledensity crossing 100 percent, the market has been showing
signs of maturity, especially in case of the uptake of voice-based services. The urban
markets may continue to add more users; however, usage of multiple SIMs, multiple
tariff corrections and swelling competition continues to exert immense pressure
on the operator margins. Rural India is the key target market likely to drive the next
round of growth, particularly for voice-based services. 3G and BWA are expected
to reinvigorate the maturing urban markets and help the telcos to achieve margin
enhancement.
The government appreciates the importance of broadband for India and how
this technology can help the rural population across the country to leverage the
advantages of modern education, healthcare, commerce and banking. To further this
agenda, the government has setup a robust regulatory environment to work towards
the development of the sector. This proactive regulatory environment will also be the
harbinger for the next phase of development for the telecommunications sector.
1 Telecom Subscription Data as on 31st August 2010, TRAI, October 05, 2010
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The Indian member firms affiliated with KPMG International were established in
September 1993. As members of a cohesive business unit they respond to a client
service environment by leveraging the resources of a global network of firms,
providing detailed knowledge of local laws, regulations, markets and competition.
We provide services to over 2,000 international and national clients, in India. KPMG
has offices in India in Mumbai, Delhi, Bangalore, Chennai, Hyderabad, Kolkata,
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We strive to provide rapid, performance-based, industry-focused and technology-
enabled services, which reflect a shared knowledge of global and local industries
and our experience of the Indian business environment.
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Contact Us
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This knowledge document has been developed by KPMG and FICCI for providing an overview of the Indian telecommunications
sector. It is meant to be used for the limited purpose of ‘India Telecom 2010’ only. It may not be considered, in any form, as a policy/legal
document of the government, directly or indirectly.