Indian Telecom Sector

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Indian Telecom Sector

  1. 1. Indian Telecom Sector A) Significant Policy changes and the roadmap: An Ordinance has been promulgated on 30.10.2006 as the Indian Telegraph (Amendment) Ordinance 2006 to amend the Indian Telecom Act, 1885 in order to enable support for mobile services and broadband connectivity in rural and remote areas of the country. Subsequently, an Act has been passed on 29.12.2006 as the Indian Telegraph (Amendment) Act, 2006 to amend the Indian Telegraph Act, 1885. The Rules for administration of the Fund under this Ordinance, Indian Telegraph (Amendment) Rules 2006 have been published on 17.11.2006. The summary of the new USF activities being taken up under the Rules are as given below: i) Creation of infrastructure for provision of Mobile Services in rural and remote areas. A scheme is being launched by the Government to provide support for setting up and managing infrastructure sites for provision of mobile services in the specified rural and remote areas of the country, where there is no existing fixed wireless or mobile coverage. ii) Provision of Broadband connectivity to villages in a phased manner With the aim to provide e-governance and data services to the rural masses, a proposal is also under consideration of the Government to provide subsidy support for Broadband connectivity in rural and remote areas of the country in a phased manner by utilizing the infrastructure created for provision of mobile services. The broad parameters under which the connectivity is required to be provided are being worked out. The detailed scheme in this regard is being prepared. iii) Creation of general infrastructure in rural and remote areas for development of telecommunication facilities. iv) Induction of new technological developments in the telecom sector in rural and remote areas. B) Policy Initiatives taken and Targets Network Expansion: The Indian Telecommunications network, with about 190 million connections and tele-density of about 16.83% by December 2006 is the fastest growing market in the world and has emerged as one of the key sectors responsible for India’s resurgent economic growth. A target has been set for providing 250 million telephone connections by December 2007 and 500 million mobile by December 2010. Efforts are being made for mobile coverage of geographical area of 85% by 2007 and 90% by 2010. The project at a cost of Rs. 980 crore for release of 45 MHz. spectrum from other user organization for growth of mobile services has been launched. This additional spectrum is likely to be made available by June, 2007. 1/7
  2. 2. Mobile Operators' Shared Tower (MOST) The project for sharing of passive and active infrastructure and network operating expenses by mobile operators has been launched in Delhi and Mumbai. It aims at reducing the number of towers in the skyline of the city, optimal utilization of resources and reduction in clearances from local agencies. The sharing of infrastructure will be increased in urban areas from present 25% to 40% by 2007 and 70% by 2010. Focus has been laid on localization and development of local content to help bridge digital divide in development of tools and fonts in all major Indian languages by 2007. Further, it has been planned to announce 3G Policy, introduction of Internet Protocol TV (IPTV) in 70 towns and Mobile TV in top 20 cities/towns in 2007. Rural Telephony: 90% of the villages have already been provided with Village Public Telephones (VPT). Under Bharat Nirman, out of 66,822 uncovered villages, 38,795 villages have been provided VPTs till December 2006. Remaining villages will be provided with VPTs by November 2007. Emphasis is being given to the technologies having potential to improve rural connectivity. To facilitate speedy rural penetration, efforts are on to make available the mobile handsets at about Rs. 1000/-. A target has been set for 50 million rural connections by 2007 and 80 million by 2010. With the passing of the Indian Telegraph (Amendment) Bill 2006, USO support will be provided for the mobile services and Broadband connectivity in rural areas. USO subsidy support scheme will be utilized for shares wireless infrastructure in rural areas with about 8,000 towers by 2007 and 10,000 more by 2010. A target has been set for reduction of urban-rural digital divide from present 25:1 to 5:1 by year 2010. Support is being extended for rural household telephone connections on landline and Fixed Wireless Terminals (FWTs) in 1685 Short Distance Charging Areas (SDCAs) out of a total of 2647 SDCAs. Broadband: The Year 2007 has been declared the year of broadband. The broadband penetration has not increased as expected and at present 2 million broadband connections have been provided, covering more than 600 towns. Target has been set for 9 million broadband connections with maximum speed upto 2 mbps by 2007 and 20 million connections by 2010 and providing Broadband connectivity to all secondary and higher secondary schools, public health institutions and panchayats by 2008. In rural areas, connectivity of 512 KBPS with ADSL 2 plus technology (on wire) will be provided from about 20,000 existing exchanges in rural areas having optical fibre connectivity. Community Service Centres, secondary schools, banks, health centres, Panchayats, police stations etc. can be provided with this connectivity in the vicinity of above mentioned 20,000 exchanges in rural areas. DoT will be subsidizing the infrastructure cost of Broadband network through support from USO Fund to ensure that Broadband services are available to users at affordable tariffs. 2/7
  3. 3. Roll out of Broadband services in the remaining areas of the country will be done on wireless media with a minimum speed of 512 KBPS. This coverage is proposed to be extended before the end of 2007. Research and Development: For pre-eminence of India as a technology solution provider it has been planned to provide affordable technology for masses, comprehensive security infrastructure for telecom network, tested infrastructure for enabling interoperability in Next General Network and doubling the telecom equipment R&D by 2010 from the present level of 10%. International Bandwidth: Government is facilitating availability of adequate international bandwidth at competitive prices to drive ITES sector at faster growth. C) Status of Telecom Sector and achievements: The Indian Telecommunications network with 203 million connections is the third largest in the world and the second largest among the emerging economies of Asia. Today, it is the fastest growing market in the world. The telecommunication sector continued to register significant success during the year and has emerged as one of the key sectors responsible for India’s resurgent India’s economic growth. The sector, which was growing in the range of 20 to 25 per cent up to the year 2002-03, has moved to a higher growth path of an average rate of 40-45 per cent during the last two years. This rapid growth has been possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sector. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provide easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. The Government has taken following main initiatives for the growth of the Telecom Sector: • All telecom services have been opened up for free competition for unprecedented growth. • Foreign Direct Investment (FDI) in Basic and cellular, Unified Access Services, National/ International Long Distance, V-Sat, Public Mobile Radio Trunk Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added telecom services is permitted up to 74% (including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible preference shares, and proportionate foreign equity in Indian promoters/ Investing Company). • Foreign Direct Investment (FDI) in Manufacturing of Telecom Equipments is permitted up to 100% under automatic route. • 217 ITA-I items are at zero Customs Duty. Specified capital goods and all inputs required to manufacture ITA-I, items are at zero Customs Duty. • Availability of low cost mobile handsets. • The international Long Distance Services (ILDS) opened with effect from April 2002. • Calling Party Pays (CPP) regime was implemented with effect from 1st May 2003. • Guidelines for Unified Access Service License regime were issued in November 2003, 27 licenses out of 31 Basic Service Licenses were converted to Unified Access Service Licenses. • In April 2004, license fee for Unified Access Service Providers (UAS) was reduced by 2%. 3/7
  4. 4. • License fee for infrastructure Provider-II reduced from 15% to 6% of the Adjusted Gross Revenue in June 2004. • Entry fee for NLD licenses was reduced to Rs. 2.5 Crore from Rs. 100 Crore. Entry fee for ILD reduced to Rs. 2.5 Crore from Rs. 25 Crore. • Lease line charges have been reduced to make the bandwidth available at competitive prices to facilitate growth in IT enabled services. • One India plan i.e. single tariff of Re. 1/- per minute to anywhere in India was introduced from 1st March 2006 by the Public Sector Undertakings. This tariff was emulated by most of the private service providers also. This scheme has led to death of distance in telecommunication and is going to be instrumental in promoting National Integration further. • The robust telecom network has also facilitated the expansion of BPO industry that is having 500,000 employees now and adding 400 employees per day. • Annual license fee for National Long Distance (NLD), International Long Distance (ILD), Infrastructure Provider-II, VSAT commercial and Internet Service Provider (ISP) with internet telephony (restricted) licenses was reduced to 6% of Adjusted Gross Revenue (AGR) w.e.f. Jan 2006. • The Government’s policy is neutral on use of technology by telecom service providers subject to availability of scarce resources such as spectrum etc. • Licence Fees 6-10% of Adjusted Gross Revenue (AGR) • The Telecom Regulatory Authority of India(TRAI) was set up in March’ 1997 as a regulator for Telecom sector. The TRAI’s functions are recommendatory, regulatory and tariff setting in telecom sector. • Telecom Disputes Settlement and Appellate Tribunal (TDSAT) came into existence in May, 2000. TDSAT has been empowered to adjudicate any dispute -  between a licensor and a licensee  between two or more service providers  between a service provider and a group of consumers  hear and dispose of appeal against any direction, decision or order of TRAI • Tariffs for telecommunication services have evolved from a regime where tariffs were determined by Telecom Regulatory Authority of India to a regime where tariffs are largely under forbearance. TRAI intervenes by regulating the tariffs for only those services, the markets of which are not competitive. • Universal Service Obligation Fund (USOF) exclusively for meeting the Universal Service Obligation was established in April’2002. The Universal Service Levy is presently 5% of the Adjusted Gross Revenue (AGR) of all telecom service providers except the pure value added service providers like Internet, Voice Mail, E-Mail service providers etc. Indian Telegraph Act has been amended in October’2006 to provide support for all telegraph services including mobile and broadband to bridge the digital divide. National Long Distance There is now no limit on the number of service providers in this sector. The licence for National Long Distance service is issued for a period of 20 years, extendable by 10 years at one time. The annual licence fee including USO contribution is @ 6% of the Adjusted Gross Revenue and the fee /royalty for the 4/7
  5. 5. use of spectrum and possession of wireless telegraphy equipment are payable separately. At present 16 NLD (14 Private and 2 Public Sector Undertaking) service providers are there. International Long Distance In the field of international telephony, India had agreed under the GATS to review its opening up in 2004. However, open competition in this sector was allowed with effect from April 2002 itself. There is now no limit on the number of service providers in this sector. The licence for ILD service is issued initially for a period of 20 years, with automatic extension of the licence by a period of 5 years. The annual licence fee including USO contribution is @ 6% of the Adjusted Gross Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. At present 10 ILD service providers (9 Private and 1 Public Sector Undertaking) are there. As per current roll out obligations under ILD license, the licensee undertakes to fulfill the minimum network roll out obligations for installing at least one Gateway Switch having appropriate interconnections with atleast one National Long Distance service licensee. There is no bar in setting up of Point of Presence (PoP) or Gateway switches in remaining location of Level I TAXs. Preferably, these PoPs should conform to Open Network Architecture (ONA) i.e. should be based on internationally accepted standards to ensure seamless working with other Carrier’s Network. Unified Access Services Unified access license regime was introduced in November’2003. Unified Access Services operators are free to provide, within their area of operation, services which cover collection, carriage, transmission and delivery of voice and/or non- voice messages over Licensee’s network by deploying circuit and/or packet switched equipment. Further, the Licensee can also provide Voice Mail, Audiotex services, Video Conferencing, Videotex, E-Mail, Closed User Group (CUG) as Value Added Services over its network to the subscribers falling within its service area on non-discriminatory basis. The country is divided into 23 Service Areas consisting of 19 Telecom Circle and 4 Metro Service Areas for providing Unified Access Services (UAS). The licence for Unified Access Services is issued on non-exclusive basis, for a period of 20 years, extendable by 10 years at one time within the territorial jurisdiction of a licensed Service Area. The licence Fee is 10%, 8% & 6% of Adjusted Gross Revenue (AGR) for Metro and Category `A’, Category `B’ and Category `C’ Service Areas, respectively. Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. The frequencies are assigned by WPC wing of the Department of Telecommunications from the frequency bands earmarked in the applicable National Frequency Allocation Plan and in coordination with various users subject to availability of scarce spectrum. At present 3 to 6 service providers (2-5 Private and 1 Public Sector Undertaking) are there in most of the service areas. Internet and Internet Telephony Service Providers Internet services were opened to private sector in November’1998 without internet telephony. The token licence fee is Re.1 for Internet Services. The Internet with Telephony (computer to computer, SIP to SIP and computer to out side India) was 5/7
  6. 6. opened in April 2002. The licence fee is 6% of AGR for Internet Telephony. There are 385 internet service providers and 125 internet telephony service providers. Growth of subscribers The telecom sector has shown robust growth during the past few years. It has also undergone a substantial change in terms of mobile versus fixed phones and public versus private participation. The following table shows the growth of telecom sector since 2002: Subscribers’ base (in Million) March’02 March’03 March’04 March’05 March’06 Dec.’06 Fixed lines 38.29 41.33 40.92 41.42 40.23 40.32 CDMA 0.25 0.61 9.46 15.92 32.67 44.17 GSM 6.43 12.69 26.15 41.03 69.19 105.42 Wireless 6.68 13.30 35.61 56.95 101.86 149.59 (CDMA&GSM) Gross Total 44.97 54.63 76.53 98.37 142.09 189.91 Internet 3.23 3.64 4.55 5.55 7.05 8.6 subscribers Broadband - - - 0.18 1.32 2.03 subscribers Thus, the number of telephones has increased from 44.97 million as on 31.03.02 to 142.09 million as on 31.03.06 and 190 million till December 2006 and 203 million by Feb. 2007. Wireless subscribers increased from 6.68 million as on 31.03.02 to 101.86 as on 31.03.06 and 149.6 million as on 31.12.06. With the opening of telecom sector to the private operators, their share in the number of subscribers has been steadily increasing which is evident from the following table: Number of Telephones (in million) Year PSU PSU Total Private Private Total Grand %age (March) Fixed Wireless PSU Fixed Wireless Private Total share of PSUs 2002 37.70 0.47 38.17 0.59 6.21 6.80 44.97 84.88 2003 40.02 3.16 43.18 1.31 10.14 11.45 54.63 79.04 2004 39.77 6.71 46.48 1.15 28.90 30.05 76.53 60.73 2005 39.87 12.21 42.08 1.55 44.74 46.29 88.37 47.62 2006 39.25 21.83 61.08 0.98 80.03 81.01 142.09 42.99 Dec.,’06 37.27 29.20 66.47 3.05 120.39 123.44 189.91 35.0 6/7
  7. 7. The share of private sector in the number of telephones has increased from 15.12% (6.80 million telephones) in March 2002 to 65.0% (123.44 million telephones) in December 2006. The preference for use of wireless phones has also been predominant in the sector. This is confirmed from the rising share of wireless phones, which increased from 14.85% (6.68 million telephones) in March 2002 to 78.8% (149.59 million telephones) in December 2006. At present, the mobile subscriber additions in India is more than 6 million mark, the highest in the world. Trend in Tele-density Tele density in the country has steadily increased from 4.29% as on 31.3.02 to 16.83% as on 31.12.2006. The rural telephony has not kept pace with the impressive growth in urban connectivity. Tariff Changes The Indian Telecom Sector has witnessed major changes in the tariff structure. The Telecommunication Tariff Order (TTO) 1999, issued by regulator (TRAI), had begun the process of tariff balancing with a view to bring them closer to the costs. This supplemented by Calling Party Pay (CPP), reduction in ADC and the increased competition, has resulted in a dramatic fall in the tariffs.  The peak National Long Distance tariff for above 1000 Kms. in 2000 has come down from US$ 0.67 per minute to US$ 0.02 per minute in 2006.  The International Long Distance tariff from US$ 1.36 per minute in 2000 to US$ 0.16 per minute in 2004 for USA, Canada & UK.  The mobile tariff for local calls has reduced from US$0.36 per minute in 1999 to US$ 0.009 - US$ 0.04 per minute in 2006.  The Average Revenue Per User of mobile is between US$ 5.06 - US$ 7.82 per month Manufacture of Telecom Equipment Rising demand for a wide range of telecom equipment, particularly in the area of mobile telecommunication, has provided excellent opportunities to domestic and foreign investors in the manufacturing sector. The last two years saw many renowned telecom companies setting up their manufacturing base in India. Ericsson has set up GSM Radio Base Station Manufacturing facility in Jaipur. Elcoteq has set up handset manufacturing facilities in Bangalore. Nokia set up its manufacturing plant in Chennai. LG Electronics set up plant of manufacturing GSM mobile phones near Pune. Ericsson recently launched their R&D Centre in Chennai. Flextronics has set up an SEZ in Chennai. Motorola is likely to go into production in the first quarter of 2007. Other major companies like Foxconn, Aspcom, Solectron etc have decided to set up their manufacturing bases in India. The aim is for US$ 2 billion FDI in manufacturing, doubling the production in 2007 and quadrupling it in 2010. Target has been set for achieving exports of 6 times from present level of 0.5 billion in 2010. The Government has already set up Telecom Equipment and Services Export Promotion Forum and Telecom Testing and Security Certification Centre (TETC). A large number of companies like Alcatel, Cisco have also shown interest in setting up their R&D centers in India. With above initiatives India is expected to be a manufacturing hub for the telecom equipment. 7/7
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