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ConneCting RuRal india
The Untapped Growth Opportunity
Contents



Foreword                                                                3



Executive Summary                ...
Foreword


                                              India today offers the most exciting growth opportunities in the ...
Message


The Federation of Indian Chambers of        Dr. Amit Mitra
Commerce and Industry (FICCI) and           Secretary...
Executive Summary


                                              Today, India is at the cusp of its next phase of growth,...
6
Macro Economic View of India
       The emergence of a global contender




                                              ...
India’s GDP Growth




                                          Figure 1:     India’s GDP in US $ Bn and YoY Growth in %,...
Figure 3:    Real GDP Growth Rate in Select Countries, 2000-2008, (%)


      12%



      10%



       8%



       6%

...
Growth of Foreign Direct Investment in India




India’s high levels of growth in the recent   Figure 4:     FDI in India,...
Figure 5:       FDI Investment by Sector, 2000-June 2008, (US$ Bn, %)


             21.9%




                           ...
India’s Changing Demographics




The demographic nature of India is changing rapidly. Post 1970, India’s demography
has s...
Figure 6:       Changing demographics of India, 2008 & 2015


                                  Population Age Structure, ...
14
Global Telecoms Markets
       The changing landscape of opportunity




                                                I...
Introduction




The global telecom industry has been                   for over 50% of all mobile subscribers
growing ste...
Figure 8:     Revenues of Major Telecom Operators in the World, FY 2008, US$ Bn


                                        ...
Trends in Global Markets




Convergence                                                services that were hitherto imposs...
Shift in Technologies                         fixed line operators around the world                        Mobile Operator...
Focus on Content: IPTV                                  Entry of Online Players

Fixed operators around the world are     ...
Figure 12: Online Players Initiatives in the Communication Services Space




     Complexity                             ...
The Shift to Emerging Markets            Fixed Mobile Substitution

Emerging markets today represent         In recent yea...
Figure 13: Estimated % of Revenues from Emerging Markets for Select Telecom
                             Operators, 2007

...
24
Indian Telecom Sector
       A growth story of seismic proportions




                                                Int...
Introduction




The telecom market in India has                The rapid growth in mobile services       the developing c...
Figure 16: Attractiveness of the Indian Telecom Market Measured With Respect to Growth and Mobile
                 Penetra...
India’s Fixed Line Market




                                                                                       Figur...
Connecting Rural India: The Untapped Growth Opportunity   29
India’s Mobile Market




The mobile telephony market in India       and consequently, a prepaid connection               ...
Figure 20: Subscriber Split by Payment Mode, FY 04- H1 08, Millions




       Proportion
       of Prepaid               ...
Future Growth Forecast


The Indian mobile market has been           multiple forecasts of the Indian
growing at an extrem...
Connecting Rural India: The Untapped Growth Opportunity   33
34
Telecommunications
       for Rural India
       Rural reach: The next phase




                                         ...
Fixed Line Telephony in Rural India


India’s rapid growth in mobile subscribers has been quite lop-sided. While urban
sub...
Figure 22:     in India, 2004-Sep 2008, Phones per 100 people



       80

                                              ...
Key Barriers Towards Development of Telecom Services
in Rural India




Telecom growth in rural India has been   Network C...
Stakeholder Initiatives to Increase Growth of Telecom
in Rural India




Stakeholders in the Indian telecom            Ini...
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
Connecting Rural India - The Untapped Growth Opportunity
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Connecting Rural India - The Untapped Growth Opportunity

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  • a thoroughly informative document.
    Thanks Mr. Subramanyam, would love to get more info from you on this.
    If the 2010 report is available, please send to shantanu.sahajpal@gmail.com

    Would really appreciate.

    Best Regards
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  • thanks sir
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  • Hi Tarun, You can download this from http://bit.ly/S968M
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  • 'Connecting Rural India - The Untapped Growth Opportunity'-
    A nice n informative approach. Can u plz forward this to me. My mail ID is tannujim@gmail.com......

    Thanks n Ragards
    Tarun
       Reply 
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Transcript of "Connecting Rural India - The Untapped Growth Opportunity"

  1. 1. ConneCting RuRal india The Untapped Growth Opportunity
  2. 2. Contents Foreword 3 Executive Summary 5 Macro Economic View of India 7 Global Telecom Markets 15 Indian Telecom Sector 25 Telecommunications for Rural India 35 Broadband for All 49 Operator Initiatives in Delivering Low-Cost Mobile Services in India 57 Value Added Services 63 Telecom Manufacturing 71 Regulatory and Policy Environment 75 Conclusion 81 About Us 83 Contact Us 84
  3. 3. Foreword India today offers the most exciting growth opportunities in the telecom sector. The proactive policies of the Government with active support and involvement of stakeholders have changed the face of this sector which has now emerged as the world’s fastest growing telecom sector. With a base of more than 325 million mobile subscribers, India has become the second largest wireless network in the world. From a teledensity of a mere 5% in March 2003, the Indian Telecom sector has grown manifold and the teledensity is now over 32%. The gigantic size of the telecom market in India can be easily judged from the fact that we still have to provide connectivity to 70% of our population mainly in small cities, towns and rural areas and broadband connectivity to a majority of population. Connecting Rural India is thus a key focus for future growth, a challenge as well as a great opportunity. On the occasion of India Telecom 2008, the 3rd International Conference and Exhibition, the Department of Telecommunications is bringing out this report on “Connecting Rural India – The Untapped Growth Opportunity”. Capgemini & FICCI have put in a lot of effort into compiling this report which covers the key areas of Indian telecom sector and would form a useful reference manual for telecom operators, regulators, vendors, policy makers and all those involved in this rapidly growing sector. Siddhartha Behura Secretary Department of Telecommunications Ministry of Communications and IT Government of India New Delhi 11th December 2008 Connecting Rural India: The Untapped Growth Opportunity 3
  4. 4. Message The Federation of Indian Chambers of Dr. Amit Mitra Commerce and Industry (FICCI) and Secretary General Capgemini are pleased to present this FICCI, India report on “Connecting Rural India.” We are grateful to the Department of Telecommunications (DoT) for this opportunity to work with them as Knowledge Partner for the India Telecom 2008 conference. The Indian telecom industry has seen Didier Bonnet strong growth on the back of a Managing Director & Global Head significant rise in mobile subscribers. Capgemini Telecom, Media and Entertainment Consulting The next phase of this growth is likely to see mobile operators spread out into the hinterlands of the country, and tap the large rural market. Emphasis in connecting the unconnected India presents the next big challenge and opportunity for operators and the Government alike. In this report, we look at how the Greg Jacobsen telecom story has panned out over the Global Sector Leader last few years in India, and how rural Capgemini Telecom, Media & Entertainment India is likely to leave its own imprint on the telecom sector in the coming years. The real challenge for all of us, though, lies in translating the telecom successes into a harbinger of sustainable growth across India. 4
  5. 5. Executive Summary Today, India is at the cusp of its next phase of growth, driven by an economy that has been growing at over 9% for the last three years. India’s changing demographics, along with strong domestic markets, are attracting the attention of major global organizations, resulting in strong foreign investments in the country. Globally, telecom sector players are coming to terms with saturation in developed countries and looking at newer streams of growth from emerging countries. In India, the telecom sector has seen exceptional growth in the last few years. This growth has largely come through a rapid rise in mobile subscriptions and makes this a key market for many global operators. One attractive proposition is the falling entry barrier, which has ensured swift uptake of mobile connections and increase in teledensity. With increasing penetration in urban circles, operators are looking to continue growth by tapping the large rural Indian markets. In doing so, all the stakeholders in the ecosystem—including operators, device vendors and the Government—are playing an active role. With the recent issuance of guidelines for 3G and Broadband Wireless Access (BWA), broadband in India is likely to receive an impetus. In addition, the high cost of wireline infrastructure is bringing wireless broadband services into focus. The advent of 3G services is likely to result in a rise in data usage, along with innovative service launches from operators. Over the years, delivering mobile services in India has been a tricky business for operators to date. The high Minutes of Usage (MoU) clubbed with low Average Revenue Per User (ARPU) has meant that operators have had to innovate in their service delivery. In doing so, operators have initiated activities such as network outsourcing, network sharing, and micro- prepaid schemes that have enabled them to work around the limitations of the Indian market in an innovative manner. India’s mobile markets have thus far been largely focused only on voice services. However, with the advent of advanced devices and a strong marketing push from operators, uptake of value-added content services has been steadily increasing over the recent months. In driving this growth of content, operators would do well to take the examples of Japan and South Korea, where content ARPUs are some of the best in the world. Growth of telecom services in any country is, to a large extent, determined by the regulations that drive it. Telecom regulatory bodies in India, along with the Government, have ensured that through a series of initiatives, past and present, the interests of the Indian consumer are upheld whilst ensuring a competitive marketplace. Connecting Rural India: The Untapped Growth Opportunity 5
  6. 6. 6
  7. 7. Macro Economic View of India The emergence of a global contender India’s GDP Growth 8 Growth of Foreign Direct Investment in India 10 India’s Changing Demographics 12 Connecting Rural India: The Untapped Growth Opportunity 7
  8. 8. India’s GDP Growth Figure 1: India’s GDP in US $ Bn and YoY Growth in %, 2004-2008 India’s economy has been experiencing a strong period of growth in the last few years. Today, the Indian market 9.6 9.0 9.4 represents one of the fastest growing 8.5 G economies in both the emerging and 7.5 G the developed world. India’s GDP grew by 9% in FY 2008, the third consecutive year in which growth has 1,171 been above 9% (see Figure 1). Despite a global slowdown, growth is expected 916 809 to remain strong at around 7-8% 701 599 In recent years, India’s GDP growth has been led by the services sector 2003-04 2004-05 2005-06 2006-07 2007-08 which contributes a significant portion. In 2007-08, it is estimated  GDP that over 56% of India’s GDP growth  GDP Growth was contributed by the services sector. The services sector includes sub- Source: Capgemini Analysis; Exim Bank, “India’s Macroeconomic Indicators”, Sept 2008 sectors such as hospitality, financial services, and transport among others. The industry and agriculture & allied sectors contributed around 27% and Figure 2: Sector Contribution Towards GDP, 2003-2008, (%) 18% respectively (see Figure 2). A comparison with similar emerging markets around the world reveals that India is currently one of the fastest 53% 53% 54% 54% 55% 56% growing markets. Apart from China, which is currently experiencing similar growth, India represents one of the largest opportunities for growth 27% 26% 28% 26% 27% 27% (see Figure 3). 21% 21% 19% 20% 19% 18% 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08  Agriculture & Allied  Industry  Services Source: Capgemini Analysis; Exim Bank, “India’s Macroeconomic Indicators”, Sept 2008 8
  9. 9. Figure 3: Real GDP Growth Rate in Select Countries, 2000-2008, (%) 12% 10% 8% 6% 4% 2% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008  China  India  Russia  Brazil Source: Capgemini Analysis; IMF, “World Economic Outlook”, April 2008 Connecting Rural India: The Untapped Growth Opportunity 9
  10. 10. Growth of Foreign Direct Investment in India India’s high levels of growth in the recent Figure 4: FDI in India, 2004-2008, US$ Billion past have meant that the country has needed a constant inflow of resources 29.9 from global companies and institutions. Aided by the increasing globalization of the Indian economy, and the positive steps taken by successive Governments, 22.1 foreign institutions have made a beeline for investments in the country. With the Government liberalizing most sectors, and allowing up to 100% ownership by foreign investors, many FIIs (Foreign 9.0 Institutional Investors) and large global 6.1 companies have invested significantly 4.3 in India in the recent past. While initial Foreign Direct Investment (FDI) had focused on low value-added and labor- 2003-04 2004-05 2005-06 2006-07 2007-08 intensive industries such as textiles and food processing, over the years Source: Capgemini Analysis; Department of Industrial Policy & Promotion, FDI Fact Sheet, June 2008 industries with higher value-add such as electronic components and automotives have started to see significant benefits of FDI. Most of these investors came to rising over the past few years. For for promoting telecom equipment India looking for the cost arbitrage that instance, the consumption growth rate manufacturing in India. Taking the country’s labor markets offered, but was pegged at 5.1% during FY 2004 to advantage of this, multiple global have since expanded their presence, FY 2008 and estimates for 2008-09 Original Equipment Manufacturers buoyed by the high quality of the skills are at 5.3%. (OEMs) and Electronics Manufacturing and products. Services (EMS) providers have set FDI growth in India’s economy has up shop in India with a view to The large growth in FDI in recent been led by the services sector, a export, as well as serve the booming years (see Figure 4) has helped India’s reflection of the larger contribution domestic market. For instance, global economy in multiple ways. FDI inflows of services to the country’s overall majors such as LG, Motorola, Nokia, into India have helped generate GDP. However, other sectors have also Ericsson, Flextronics and Hon Hai employment, increase the FOREX started to see significant investments have set up telecom manufacturing (foreign exchange) reserves through in the recent years (see Figure 5). operations in India. exports, and have expanded the overall supply and availability of goods. Many In the telecom sector, the Government global corporations, which had used allows up to 74% FDI for fixed and India initially as a base for exporting, cellular services. Taking advantage of are increasingly looking to target the this policy, multiple global companies domestic market whose consumption have entered India over the years. The is fast scaling up. India’s per capita Government has also allowed 100% consumption has been constantly FDI through the automatic route 10
  11. 11. Figure 5: FDI Investment by Sector, 2000-June 2008, (US$ Bn, %) 21.9%  % of Total 11.9%  Amount of FDI In ows 14.3 6.6% 6.4% 5.6% 7.5 4.1% 4.1% 3.6% 3.0% 2.4% 4.3 4.1 3.7 2.6 2.6 2.4 2.0 1.5 s are s ns te r try s s ) ers we ce itie trie Ga sta tio us rdw rvi Po iliz tiv us ral ica lE Ind Se ert Ac Ind Ha atu ea un ile nf on dR dN mm nd al ob tha gic cti a an tom an co tru re lur er ing e wa m oth ns Au tal Tel leu us oft Co Me ls ( tro Ho rS ca Pe ute i em mp Ch Co Source: Capgemini Analysis; Department of Industrial Policy & Promotion, FDI Fact Sheet, June 2008 Connecting Rural India: The Untapped Growth Opportunity 11
  12. 12. India’s Changing Demographics The demographic nature of India is changing rapidly. Post 1970, India’s demography has shifted to a more favorable ratio of working to non-working population. This translates to India having one of the most work-friendly populace in the world (see Figure 6). Demographic changes are an important parameter for future growth as consumer consumption and savings are closely linked to it. Other countries around the world such as Ireland and Japan have exhibited a strong positive correlation between favorable demographics and rise in GDP. 12
  13. 13. Figure 6: Changing demographics of India, 2008 & 2015 Population Age Structure, Millions 2008 Population Age Structure, Millions 2015 29 60-64 41 41 55-59 51 51 50-54 60 59 45-49 68 67 40-44 78 76 35-39 89 86 30-34 99 97 25-29 109 107 20-24 118 117 15-19 120 121 10-14 121 121 5-9 122 124 0-4 122 Age Source: Capgemini Analysis; Euromonitor International from National Statistics, August 2008 Connecting Rural India: The Untapped Growth Opportunity 13
  14. 14. 14
  15. 15. Global Telecoms Markets The changing landscape of opportunity Introduction 16 Trends in Global Markets 18 Connecting Rural India: The Untapped Growth Opportunity 15
  16. 16. Introduction The global telecom industry has been for over 50% of all mobile subscribers growing steadily, both in terms of in the world, while Africa and the subscribers and revenues. By the end Americas together contribute close to of 2007, global mobile subscribers had 40%. Going forward, Asia Pacific is already crossed 3 billion. The current likely to be the driver of growth. growth in subscribers is being led by mobile operators from Asia, and in The strong growth of subscribers has particular, India and China. These two resulted in operators witnessing a countries have been accounting for the significant increase in their revenues bulk of net additions of subscribers (see Figure 8). In 2008, it is estimated following the saturation of developed that industry revenues are likely to top markets in Western Europe, the US €1 trillion. and Japan. Asia Pacific now accounts Figure 7: Mobile Subscriber Base in Different Geographies, 2007, Millions 1,323 860 270 361 363 161 Russia North Latin Middle East Europe Asia Paci c America America & Africa Source: Capgemini Analysis; Digiworld 2008 Yearbook 16
  17. 17. Figure 8: Revenues of Major Telecom Operators in the World, FY 2008, US$ Bn 119 94 94 86 77 71 73 42 43 40 32 24 22 17 10 m N KT k DI tel BT lia ne m ica m T s T on an NT & KP co co ko KD Ita ex afo AT fón ftb ati ele e ele tN m Tel d nic e So Vo eT eT co Tel rin SK mu e ch nc Sp Tel om uts Fra nC De zo ri Ve Source: Capgemini Analysis; Cellular News, “SK Telecom, KT Freetel and LG Telecom Q2 2008 Results”, Aug 2008; Mobile Burn, “Japan’s NTT DoCoMo begins phasing out its 2G network”, Aug 2008; Communications Direct, “Subscribers Run from Sprint while T-Mobile Meets Trend as Net Additions Fall in Q2”, Aug 2008; Fortune, “Global 500 :2008 Rankings”, Jul 2008; Company websites Connecting Rural India: The Untapped Growth Opportunity 17
  18. 18. Trends in Global Markets Convergence services that were hitherto impossible major device vendors such as Nokia, to deliver on the mobile handset. For and Sony Ericsson, have combined One of the key areas where operators, instance, over the last few years–feature music services with their mobile equipment vendors and value added phones with the capability to play handsets, and in doing so are directly service providers in the industry music, take pictures and tell a user’s reaching out to consumers, thereby are focused is the rising importance location–have become available in the bypassing the mobile operators. of convergence and its impact on market. In ensuring that consumer Companies in the telecom, media and consumer spending patterns. The uptake of these services is high, entertainment space are increasingly pace at which device development players in the mobile ecosystem have coming to terms with the new found has progressed in the last few years built multiple business models that reality that they need to extend their has enabled the rise of a new class are creating challenges for traditional presence across the content, delivery, of devices, and enabled a new set of service providers. For instance, today, and device value chain. Figure 9: What is Convergence? Convergence is both a threat and an opportunity for players Content Delivery Device Traditional Media Portable  Video Mobile Media Player  Music  News Handsets Vertical Convergence Fixed Web Content  Pictures Home  Blogs Gateways  Podcasts Broadcast PC/Laptop Advertising Pay TV TV Horizontal Convergence Source: Capgemini Analysis 18
  19. 19. Shift in Technologies fixed line operators around the world Mobile Operators: While fixed operators are re-evaluating the capabilities of are gearing up to deploy fiber in order Over the past few years, there has been their copper line network. In doing so, to deliver the next generation of content a slow but steady shift in technologies most operators have embarked on an rich services, most mobile operators that have been typically used for expensive, but future-proof rollout of across the developed world have delivering fixed and mobile services. fiber networks. Operators have adopted already deployed 3G services that have These technologies promise to bring multiple strategies in delivering these been capable of delivering most of these a significant change in the service fiber networks, with options varying services. However, that hasn’t held back delivery experience for consumers, and between fiber to the node, fiber to the mobile operators in deploying advanced bring in additional service capabilities curb, fiber to the building, and the most 3.5G networks. These networks include for operators. expensive option being Fiber To The those that operate on HSPA (High Home (FTTH). These options differ in Speed Packet Access) such as HSDPA Fixed Line Operators: Fixed line the extent of rollout of fiber network, (High Speed Downlink Packet Access), operators across the world are and its distance from the consumer’s and HSUPA (High Speed Uplink Packet increasingly realizing that their home. Operators across the world Access). Operators are utilizing HSPA last mile copper connectivity is not have adopted differing approaches in networks in ensuring the uptake of going to be useful to them in the deploying these networks (see Figure mobile broadband services. As per coming years. With a rapid increase 10). For instance, while Verizon in the the GSM Association, over 200 HSPA in multimedia rich applications, and USA is adopting a FTTH approach, networks are currently operational in increasing usage of the Internet to rival AT&T is deploying Fiber To The over 93 countries. deliver content-rich services such as Node (FTTN) networks. high definition IPTV/Internet TV, Figure 10: Status of Fiber Rollouts by Select Operators, 2002-2008 2002 2004 2006 2008 AT&T 2007: Allocates $6.5B for GPON and selects vendors USA Verizon 2004: Starts 2005: Launches deploying ber ber-based TV services Orange 2006: Testing 2007: plans to FTTH in six invest 3-4.5 billion districts in Paris Euro on FTTH Europe T-Mobile 2005: Rollout of 2007: Covers 5.5 VDSL in 50 cities million households in Germany Hanaro 2004: Fiber to 2007: Selects Telecom the premise Alcatel-Lucent’s using Ethernet GPON FTTH for IPTV and HDTV Asia NTT 2002: Rolls 2004: 1.2M 2007: Reaches out FTTH subscribers 4.5M subscribers Source: Capgemini Analysis Connecting Rural India: The Untapped Growth Opportunity 19
  20. 20. Focus on Content: IPTV Entry of Online Players Fixed operators around the world are Of late, multiple Internet players have increasingly looking to offer triple- actively entered the domain of services play packages, combining data and traditionally dominated by telcos. voice with video services. In doing so, Spurred by the growth in online operators are tying up with content advertising, and with an intention to providers in delivering Internet grow their online audience, online Protocol Television (IPTV) services. players are increasingly making an Across the world, most of the major entry into delivering communication operators, specifically in Europe, have services. In doing so, they aim to gain already launched IPTV services. While an increased share of online spend. many others across Asia and other Services delivered by online players geographies are actively considering today include instant messaging, following suit. Success in IPTV has mobile VoIP (Voice over Internet largely been determined by the Protocol), and location-based services strength of the content offering and among others. Aided by the strength the pricing of the triple play packages. of their brands, several online players France Telecom and Telefonica have have also launched mobile versions successfully demonstrated the growth of their services that not only directly possibilities of IPTV (see Figure 11). impinge on operator-provided services, but also go a step further in interacting directly with devices and creating new Figure 11: IPTV Subscriber Base for business models around them. In doing Select Operators as % of so, most online players are banking Total Broadband Subscribers, on emerging open mobile ecosystems (’000s, %), Q2 2008 where device players, operators and online players have a level playing 17% ground for reaching the consumer. Internet players have built their business models around ad-supported 11.5% 1,389 free services. Their forays into telecom with VoIP on IM and Wi-Fi access 576 are also guided by the same model (see Figure 12). Recent growth in Telefónica Orange France the online advertising market has (IPTV launch in 2005) (IPTV launch in 2003) resurrected the online industry which had been lying low after the burst of the dot.com bubble in the early years Source: Capgemini Analysis. Enders-Analysis, “Triple-Play in France”; CSMG Triple Play whitepaper; of the decade. Company websites 20
  21. 21. Figure 12: Online Players Initiatives in the Communication Services Space Complexity MSN: Partnerships with various mobile operators High Google: Launch of Mobile Google: Bidding for FCC’s 700MHz Email client spectrum auction Yahoo/Nokia: Partnership Fring: Launched Mobile VoIP to embed IM on handsets Google: Released Android platform Yahoo: Acquisition of Dial Pad eBay: Acquisition of Skype Mobile MSN: Acquisition of Teleo Messaging Mobile Voice PC-to-Phone Advanced WiFi/ Mobile Apps Internet Access Yahoo/MSN: Nimbuzz: Launched Google ■ PC-PC Video Calls Multi-Platform mobile ■ City-wide WiFi in PC-to-PC on IM IM ■ PC-PC Voice Calls San Francisco ■ Investments in Fon, Skype: Launch of on IM Skype Mobile a WiFi Community Low Time 2001-03 2004-05 2006-08 Source: Capgemini Analysis Connecting Rural India: The Untapped Growth Opportunity 21
  22. 22. The Shift to Emerging Markets Fixed Mobile Substitution Emerging markets today represent In recent years, voice usage has the next growth frontier for telecom significantly moved to mobile phones, operators around the world. With which are increasingly substituting growth saturating in developed landline phones as the primary means economies, most major operators are of communication. Moreover, with today looking at developing economies the growth in mobile broadband such as India, Africa, Latin America speeds, the utility of the fixed line and China for driving future growth. for delivering both voice and data is increasingly getting blurred. In most The importance of emerging markets developed markets, mobile operators has been underscored by the fact that are increasingly bundling fixed services many major mobile operators have into their mobile offerings in an effort already stepped up their presence in to boost stagnating voice revenues and emerging markets. Interest in India reduce customer churn. as a key market for global players was vindicated when Vodafone acquired Across Western Europe subscribers Hutchison India’s mobile operations are increasingly replacing their for $9.6 Bn in 2007. Most of the other landlines for mobile phones. In Nokia’s major operators have evinced keen homeland, Finland, this change has interest in entering markets such as been most evident. By the end of India and China, attracted by the 2006, 74.6% of call minutes originated significant opportunities that they from mobile phones. In Germany as offer (see Figure 13). well, where fixed lines have been traditionally dominant, at the end of 2006 24.3% voice traffic originated from mobile handsets. Wireless substitution continues to increase in the US as well by 3-4 percentage points per year. At the end of 2007, 16.4 percent of USA households had abandoned their landline phone in favor of mobile phones, but by the end of June 2008, just 6 months later, that number had increased to 17.1 percent (see Figure 14). In line with this global trend, India witnessed a fall of 3.9% in the total number of wireline subscribers between September 2007 and September 2008. This figure declined from 39.58 million to 38.35 million as of September 2008. 22
  23. 23. Figure 13: Estimated % of Revenues from Emerging Markets for Select Telecom Operators, 2007 10% 9% 8% 8% 18% 38% 8% 4% 92% 75% 72%  APAC  Latin America 58%  Middle East/Africa  Eastern Europe  Developed Markets FT Telefónica Vodafone T-Mobile Source: Capgemini Analysis; Company websites; Company annual reports Figure 14: Percentage of Mobile-Only Households in Select Countries, 2005-2007 61 47 47 38 37 32 27 25 25 23 24 20 16 15 13 13 13 7 9 8 4 3 4 0 Sweden Netherlands USA UK Poland Spain Italy Finland  2005  2006  2007 Source: Capgemini Analysis; European Commission, E-Communications Household Survey, 2005-2007, AC Nielsen, “Wireless Substitution in the United States”, Sept 2008 Connecting Rural India: The Untapped Growth Opportunity 23
  24. 24. 24
  25. 25. Indian Telecom Sector A growth story of seismic proportions Introduction 26 India’s Fixed Line Market 28 India’s Mobile Market 30 Future Growth Forecast 32 3G Arriving in India 32 Connecting Rural India: The Untapped Growth Opportunity 25
  26. 26. Introduction The telecom market in India has The rapid growth in mobile services the developing countries, India’s undergone a seismic change in the can be clearly seen in the complete attractiveness as a country for offering last few years. With rapidly increasing change in split between wireless versus mobile services is extremely high (see teledensity, India is set to join the league wireline connections in India between Figure 16). of nations that have been transformed 1997 and now. Mobile operators have by the availability of cheap, and yet managed to significantly drive home India’s rapid growth in telephony quality, telecommunications networks. the advantages of a mobile phone as a services can be traced back to the India’s telecom growth story has communication instrument of choice significant rise of private mobile essentially been one of two distinct for the consumer. operators who have steadily increased halves. The first half, which panned the addressable market through a range out over 50 years, is the growth of the Faced with a saturating market in of innovative tariffs and extended wireline industry; and the other half the developed countries of the world, network coverage. In doing so, the witnessed the rapid rise of the wireless the Indian market represents one of industry on the whole has enabled industry over the past ten years (see the last remaining pockets of growth access to communications services to Figure 15). for global operators. Even amongst a completely new set of subscribers who were hitherto untouched by the telephony revolution. Consequently, Figure 15: Number of Telephone Connections in India, FY1997-FY2008, Millions private operators have steadily increased their control over the market and their market share (see Figure 17). 400 350 300 250 200 150 100 50 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Sep-08  Total  Wireless  Wireline Source: TRAI Note: CAGR from March 1997 to September 2008 26
  27. 27. Figure 16: Attractiveness of the Indian Telecom Market Measured With Respect to Growth and Mobile Penetration, June 2008 High India Egypt % Growth Brazil China Germany USA Belgium Italy Spain Netherlands France UK Low High % Mobile Penetration Low Bubble thickness represents the total number of mobile subscribers (in millions) Source: Capgemini Analysis; TRAI. Credit Suisse European Factsheet 2008. CTIA. Various Regulator Websites Figure 17: Market Share of Private Operators (%), 2003-September 2008 77.0% 65.3% 57.0% 47.1% 39.3% 20.9% 2003 2004 2005 2006 2007 Sep-08 Source: TRAI Connecting Rural India: The Untapped Growth Opportunity 27
  28. 28. India’s Fixed Line Market Figure 18: Market Share of Fixed India’s fixed line market has historically fixed mobile substitution setting in, Line Operators, been dominated by the incumbent there has been negative growth in September 2008, (%) operator Bharat Sanchar Nigam fixed line connections since 2004. Limited (BSNL) in the entire country, However, if we were to take a look at except for Mumbai and New Delhi the overall growth of the market in the Others where Mahanagar Telecom Nigam past decade, fixed lines have grown 12% Limited is the Government operator. from around 14 million to over 38.3 MTNL 9% However, fixed line growth in India million by the end of September 2008. has been slow due to the expensive From two fixed line operators in the nature of last mile rollouts. Growth past, the Indian market has grown to BSNL 79% of fixed lines has been steady over the accommodate five new entrants in the years until around 2004. Thereafter, recent years. BSNL continues to have the strong growth of mobile telephony the lion’s share of the market in fixed has meant most new consumers to lines (see Figure 18). the telecom market preferred to opt for a mobile connection rather than Source: TRAI a fixed line connection. In fact, with 28
  29. 29. Connecting Rural India: The Untapped Growth Opportunity 29
  30. 30. India’s Mobile Market The mobile telephony market in India and consequently, a prepaid connection Call rates for voice calls in India are has paved the path for the strong appeared more attractive. Operators have among the lowest when compared to rise in teledensity that India is also strived to innovate by introducing other emerging telecom markets. As currently experiencing. From a mere offers such as prepaid with lifetime a result of a series of regulatory and 0.3 million subscribers in 1997, the validity at low costs. Such initiatives competitive developments, call rates, market has grown to over 315 million have ensured that prepaid has become when compared to cost of living, are subscribers at the end of September the preferred mode of connection for quite low in India (see Figure 21). 2008. India today has the world’s most Indian subscribers. second largest wireless subscriber base after China. The rapid rise in India’s mobile market can be attributed to a host of factors, but most importantly Figure 19: Minutes of Usage (MoU) and Average Revenue Per User (ARPU) per to the regulatory action of opening month, June 2007, minutes, US$ up the market to private operators. Operators and equipment vendors High have also contributed to the rapid rise through innovative tariff structures and attractively priced handsets. The interesting part about India’s rapid US growth in mobile telephony is the (812, 52.5) fact that this growth has come in a Minutes of Usage market where Average Revenue Per India (448, 8.6) User (ARPU) is the absolute lowest China (420, 10.8) in the world, and Minutes of Usage (MoU) among the highest in the world Developed Europe (see Figure 19). Russia Brazil (89, 17.2) (116, 10) Japan (161, 38) (138, 52.4) Growth of India’s mobile market has been led by the prepaid segment. Operators have constantly focused on reducing the entry barriers towards owning a mobile connection, and in the process, Low this has skewed the ratio of the prepaid to postpaid subscriber mix (see Figure Low ARPU High 20). Additionally, Indian middle class consumers have traditionally preferred Source: Capgemini Analysis; Fitch Global Wireless Review 2008. Various Broker Reports to have control over their monthly expenditure on mobile communications, 30
  31. 31. Figure 20: Subscriber Split by Payment Mode, FY 04- H1 08, Millions Proportion of Prepaid 78% 74% 80% 87% 92% Subscribers 271 22 165 21  Prepaid 249 Subscribers 99  Postpaid Subscribers 20 57 144 36 15 79 9 42 27 FY2004 FY2005 FY2006 FY2007 1H2008 Source: TRAI Figure 21: Revenue Per Minute, December 2007, US$ 0.23 0.22 Mobile Tariffs in India are Globally the Lowest 0.19 0.17 0.16 0.11 0.11 0.11 0.09 0.05 0.05 0.04 0.03 0.01 nd n m ly UK e s an a a g ina ia zil ta ine nc tin asi on Ita Ind lgiu Bra aila w kis Ch Fra en gK lay p Tai ilip Be Pa Th Arg Ma n Ph Ho Source: Department of Telecommunications Connecting Rural India: The Untapped Growth Opportunity 31
  32. 32. Future Growth Forecast The Indian mobile market has been multiple forecasts of the Indian growing at an extremely strong market, in terms of future mobile pace over the past few months. In subscriber growth. The Government March 2008, net additions topped of India has kept a target of reaching 10.37 million subscribers, which is 650 million subscribers for mobile and considered to be the highest ever fixed telephony by 2012. additions by any country in 30 days. As recently as September 2008, India The fixed line subscriber base in India added over 10.07 million mobile is likely to remain stagnant, with subscribers indicating that the pace falling net additions. Fixed operators of growth has not slowed. However, are looking to make attractive bundled it has to be noted that growth in offers by offering triple-play services. urban India is fast reaching saturation. With the Government of India recently In most metros, mobile penetration issuing the guidelines for IPTV today stands at over 80%. Future services, fixed operators are looking to growth will have to come from the expand their share of the household significantly under-penetrated rural spend on voice, data and video. markets of India. There have been 3G Arriving in India The 3G spectrum auction process successful in the 3G spectrum auction, opens the door for a whole new set are likely to use the spectrum to of entrants into the Indian mobile reduce their network congestion while space. Operators who have missed simultaneously launching rich data out on the voice-led growth in the services with which they can migrate past few years are keen to capitalize their high ARPU users. on this opportunity and launch services targeted at capturing the Similarly, the regulator has recently strong potential of data services that made public the recommendations 3G services offer. The Government, for allowing Mobile Virtual Network through a set of initiatives, has enabled Operators (MVNOs) in India. Once foreign telcos to participate in the MVNOs are allowed to operate in auction process. The entry of players India, targeted mobile service launches through the 3G route injects a new by niche players in banking, retail and competitive dimension into the Indian other sectors are likely to receive a telecom market. In the search for new boost. Moreover, the MVNO route is subscribers, this move is likely to also likely to be adopted by some of galvanize competition and expand the international telecom operators network coverage into the hinterlands that have thus far stayed away from of the country. Existing operators, if the Indian market. 32
  33. 33. Connecting Rural India: The Untapped Growth Opportunity 33
  34. 34. 34
  35. 35. Telecommunications for Rural India Rural reach: The next phase Fixed Line Telephony in Rural India 36 Growth of Mobile Telephony in Rural India 36 Key Barriers Towards Development of Telecom Services in Rural India 38 Stakeholder Initiatives to increase Growth of Telecom in Rural India 39 Success Stories in Rural Telecom 44 Potential for Telecom Services in Bridging Economic Divide 46 Connecting Rural India: The Untapped Growth Opportunity 35
  36. 36. Fixed Line Telephony in Rural India India’s rapid growth in mobile subscribers has been quite lop-sided. While urban subscribers have been growing significantly year-on-year, similar growth has not been seen on the rural front. The divide between urban and rural teledensity has been rapidly widening, and it is in recent years that all the stakeholders involved in the telecom industry have realised the significant growth opportunity that the rural markets offer. While urban teledensity has touched nearly 75%, rural teledensity is around 13%. In fact, in most of the major cities in India, teledensity has crossed over 90% (see Figure 22). Growth in the rural telecom market has historically been driven by fixed line deployments that were undertaken by the incumbent operator, BSNL. However, with the rapid network deployments undertaken by some of the private mobile operators, there appears to be a clear fixed mobile substitution scenario happening in the rural markets (see Figure 23). Growth of Mobile Telephony in Rural India Growth in teledensity in rural India has been led by a strong uptake of mobile telephony services. Falling entry barriers, led by lower handset and per-minute calling costs, have ensured a rapid uptake of mobile telephony in rural India. Today, the mobile phone has become the first communication device for many rural subscribers who are skipping the traditional step of a fixed connection. The Indian rural markets offer significant opportunities for telecom operators. Considering that over 70% of India’s population is resident in rural and semi- urban India, these markets offer an extremely strong potential for growth. While average income levels might be significantly low in comparison to urban markets, these rural markets offer significant potential for profitable growth, as has been demonstrated by operators such as Grameen Phone and others across the world. Today, operators who have made early moves into the rural markets of India are reaping the fruits of their investments, and are looking eagerly forward to the next phase of growth when these markets take the lead that has hitherto been with urban India. 36
  37. 37. Figure 22: in India, 2004-Sep 2008, Phones per 100 people 80 O 70 60 U 50 R 40 30 20 10 0 2004 2005 2006 2007 Mar-08 Jun-08 Sep-08  Urban  Overall  Rural Source: Department of Telecommunications Figure 23: Rural Wireline Market in India, June 2007 - March 2008, Million 12.27 12.04 11.94 11.63 11.36 Jun-07 Sep-07 Oct-07 Mar-08 Jun-08 Source: Department of Telecommunications Connecting Rural India: The Untapped Growth Opportunity 37
  38. 38. Key Barriers Towards Development of Telecom Services in Rural India Telecom growth in rural India has been Network Coverage percolate down to the local retailer. In constrained by multiple factors, some doing so, operators end up in a strong financial and some technological: One of the most significant barriers for battle for acquiring influential local mobile network operators’ expansion entrepreneurs. plans in India has been the large investments that rollouts in rural areas Low Population Density entail. With the average cost of setting up a base transceiver station crossing Population in rural India is spread Rs.5 million, most operators have not unevenly (see Figure 24). There are been willing to expand their network pockets where population density is coverage beyond urban and semi- below 100 people per square km, urban areas. and there are areas where the density exceeds 650. Given these wide Distribution variations, it becomes imperative for operators to pick and choose the most Lack of organized retail beyond major optimal location for their operations cities and towns in India is acting as a in a given region. In doing so, they significant constraint in the expansion also have to contend with the socio- plans of major mobile operators. Most economic realities of the regions, operators have to build their own which tend to be quite different even exclusive distribution systems that amongst contiguous areas. Figure 24: Distribution of Population in Rural Indian Villages, 2001, ‘000s 155 159 126 114 69 12 3 Less than 200-499 500-999 1000-1999 2000-4999 5000-9999 10,000 & 200 People People People People People People Above People  Number of villages Source: Capgemini Analysis; Census 2001 38
  39. 39. Stakeholder Initiatives to Increase Growth of Telecom in Rural India Stakeholders in the Indian telecom Initiatives by the Government to rural rollouts. Keeping this in mind, industry have recognized the existence of India the DoT has also announced rollout of of these barriers, and are now taking phase II of its mobile expansion plans active steps to eliminate them. Abolition of Access Deficit Charge in rural areas. In Phase I, around 7,871 In March 2008, TRAI abolished towers are being set up in 500 districts the access deficit charge which was spread over 27 states. Rollout of phase being paid by private operators to II of this program will ensure spread the incumbent for providing service of mobile telephony to all villages with to rural areas. Operators have over 500 people. Future phases are committed to pass on the savings likely to provide over 10,000 towers in accrued from the ADC to the rural the unconnected areas of rural India. areas in expanding coverage. In encouraging operators to invest more Rural infrastructure funding in the rural areas, the Government from USOF has also waived license fee for rural The Universal Service Obligation Fund telephony (wireline) and similarly, have (USOF) was started by the Government decided to reduce the USO fee from of India in April 2002. As per the 5% to 3% for existing operators that guidelines issued, all telecom service have over 95% coverage compliance in providers had to contribute 5% of their license areas. their Aggregate Gross Revenues (AGR) towards the USOF. This fund is to be Setting up of Telecom Export used in delivering telecom services Promotion Council in the rural areas of India where In order to give a boost to the fast teledensity was quite low. However, growing telecom equipment sector in disbursements from the USOF have India, the Government, in April 2008, been low, leading to a large amount announced the setting up of a telecom of unutilized funds. By end of FY 08, export promotion council. Along with the unutilized fund pool has grown to the launch, the Government has also over Rs.14,000 crore. set a target of achieving US$10 billion in telecom equipment exports by The Department of Telecommunications 2012. The export promotion council (DoT) has been taking multiple steps and renewed focus on manufacturing in ensuring the appropriate and timely exports is likely to give a boost to utilization of these funds. In order to domestic telecom manufacturers. achieve this goal, the DoT announced in June 2008, that operators were free to draw funds from the USOF for setting up infrastructure in rural areas. Similarly, earlier in April 2008, the DoT allowed telcos to jointly bid for support from the USOF. These initiatives are likely to give an impetus Connecting Rural India: The Untapped Growth Opportunity 39

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