The Canadian Trade Commissioner Service May 2012 Contact: firstname.lastname@example.org India NewsWatch: Telecom Sector India NewsWatch is a package of news articles compiled by the Canadian Trade Commissioner Service (TCS) to help Canadian businesses stay on top of new developments. Look for TCS Insights in blue. Disclaimer: India NewsWatch is a compilation of articles from various media, packaged for the convenience of TCS clients. As such, the opinions and information in the included articles do not reflect the views of the Canadian Trade Commissioner Service (TCS) or the Government of Canada. Users should be aware that information from media and other sources may not be subject to the Official Languages Act and may be available only in the language(s) in which it was originally written. TELECOMAnalysts say telcos may see stable, volume-driven expect Idea to continue reporting the highest trafficgrowth growth (6% q-o-q), followed by Bharti (3% q-o-q),” KhareLivemint.com, April 12, 2012 added. RCom, Khare estimated, will post a net loss of `10 crore for the fourth quarter on a revenue of `5,191 crore,After an eventful year, the Indian telecom sector is re- down 4% over a year ago.entering a period of stable volume-driven growth drivenby stable pricing and some margin expansion from data Another contributor to the positive sentiment is theand regulatory clarity, say analysts. Fiscal 2012 began increase in incremental revenues from 3G and 4G datawith the launch of 3G-based telephony services and services. Bharti became the first operator to launch 4G-ended with 4G technology-based services set to launch. based Long Term Evolution (LTE) services on Tuesday,But it also saw the Supreme Court cancel 122 licences in Kolkata, and has already attracted some eight millionallocated to nine telcos, and the finalization of the 3G subscribers. The total number of 3G subscribers inNational Telecom Policy (NTP) 2012 that is expected to the country is estimated at 15-20 million, with more beingoverhaul the sector. A survey of six brokerages ahead of added every day. The year 2011-12 saw a significantthe telcos’ fourth-quarter results shows revenues for drop in subscriber additions, from 15-20 million a monthBharti Airtel Ltd and Idea Cellular Ltd are expected to during most of 2010-11 to seven-nine million a monthgrow at an average of about 16% and 24%, respectively, now. “We believe the decline in net adds is driven byover the preceding quarter. market saturation in urban areas (market penetration is approximately 75% on pan-India basis), and lowerAs for Reliance Communications Ltd (RCom), Barclays aggression and high churn rate for many challengers. Wepredicts its quarterly revenue will fall as much as 35% believe lower net additions are unlikely to impact industrysequentially, while Motilal Oswal sees a fall of only 4%. revenue and could also drive cost savings,” Khare wrote.Net profits for the telcos show significant deviations. Thebrokerages predict Bharti’s net profit to fall by 7-18% over “Though the pace of subscriber addition sported by eacha year ago. For Idea, the forecast is for a fourth-quarter of these companies remains modest, additions made byprofit growth of 1% on an average, with Barclays Bharti and Idea are value additions, whereas those bypredicting a fall by almost 18% and Motilal Oswal RCom are more of volume additions,” Ankita Somani,expecting a rise of over 25%. The biggest contributor to analyst with Angel Broking, wrote in a quarterly previewthe relatively positive sentiment is the tariff hikes report. But there is also some pessimism going around,undertaken in the second quarter of 2011-12 by as much because of the falling rupee as well as penalties andas 20%. additional charges that the department of telecommunications (DoT) is considering. “Players in the“After two consecutive quarters of increase in wireless telecom sector (especially Bharti) continue to be hauntedRPM (revenue per minute) since the tariff hikes by rupee depreciation against the dollar due to huge forexundertaken in July/August 2011, we expect RPM to debt in their books. Bharti has foreign currency-remain flat this quarter as compared to the previous one denominated loans worth approximately $11.5 billion in(q-o-q, or quarter on quarter) due to relatively higher its books,” Somani wrote, adding, “Given the rupeecompetitive activity from market leader Bharti (to protect depreciation, the company will suffer from higher interestdeclining volume/revenue market share) and new outgo, which will negatively affect its profitability on aentrants like Uninor (to prevent subscriber migration post year-on-year basis.”license cancellation order by the Supreme Court),”Shobhit Khare, telecom analyst with Motilal Oswal Also, as part of NTP 2012, incumbent operators may beSecurities Ltd, wrote in April report. “Within operators, we asked to pay significant sums of money for additional
The Canadian Trade Commissioner Service Everywhere You Do Businessspectrum they hold above 6.2MHz. “The liability for Bharti spectrum of people. On a recent trip to India to keynotedue to the one-time fee could be approximately `2,750 his firms B2B conference in Mumbai, Weiner-the 42-crore, while for Idea the impact boils down to year-old former executive-in-residence, with two ventureapproximately `1,085 crore,” wrote Somani, adding that capital firms in Silicon Valley-said the firms mobiletelecom licences will come up for renewal in a few years, business accounts for a fifth of its user base today,which means a further outgo from the books of the older compared to 8% in January 2011.operators. The 2 February Supreme Court verdictcancelling 122 licences is also expected to affect the "Mobile is our fastest-growing business," says Weiner.balance sheets of the operators in the short term. The "LinkedIn connects talent with opportunity at a massivecoming spectrum auction, as mandated by the court and scale. Ultimately, our vision is to create an economicwhich the DoT says will be completed in a year, will likely opportunity for every professional," he adds. The stagelead to more debt in the balance sheets of telecom firms. may now be set for monetisation. In February, on an earnings call after announcing the companys fourth-This is expected to have a bigger impact on Idea and quarter results of 2011, Weiner had said that now thatRCom than on Bharti, as the latter may be unable to bid LinkedIn had got the product and user experience right,for spectrum above what it already has. The national the time was ripe to test ads in the mobile environment.budget has estimated a `40,000 crore windfall for thegovernment from the auction of spectrum. The apex court Indias booming mobile user base-around 700-plus millionverdict also had a positive impact on the telcos as with and growing rapidly-is a clear opportunity for LinkedIn.the reduced competition, pricing power is back with the More importantly, according to estimates of GSMA, aolder, stronger operators and the chances of another global mobile services lobby, India is expected to becomedebilitating tariff war, as seen in 2009, is less likely to the second-largest mobile broadband market globally,occur. However, not all analysts are pessimistic. with 367 million connections in four years, compared to“Stronger minutes growth and lower-than-expected forex 20-30 million today.losses could result in upside surprise,” Aditya Narain,analyst with Citi Investment Research and Analysis, "The Indian market has shown a real propensity for socialwrote in an 11 April report. For Bharti, the Africa business connectivity," says Weiner. "So, in that regard, it is notstill seems to be unpredictable. “We expect the fourth surprising." He adds that LinkedIn has been able to reachquarter relatively challenging for the Africa business, critical mass with English - unlike other markets such asgiven seasonal weakness, disruptions in Nigeria during China, where local language is the key to building athe early part of the quarter, and 1-1.5% depreciation in successful Internet business.the African currency basket against the dollar,” Kharewrote. That may explain why India is a larger market for LinkedIn than China, where it has barely a millionTCS Insights: Good article that describes well the members. LinkedIn has also been trying to promote itscurrent status of the sector: volume-driven growth. With B2B business. Homegrown firms such as Wipro and thetariffs levelling out, telecom companies are struggling to Indian arm of multinationals such as Cisco, SAP andfind new revenue streams to enhance typical low Indian Huawei use LinkedIn as a platform to connect withARPUs. With possible increase in incremental revenues employees, vendors and business partners. Weiner willfrom 3G and 4G data services, and other data-content be keen to press home this advantage as he seeks adrivers, Telcos show relatively positive sentiment. This stronger foothold in this market.would open doors to content-driven mobile applications,including gaming where Canadian mobile developers Unlike many other software firms that hire in thehave significant capabilities. hundreds, if not thousands, LinkedIn has been flying below the radar in India. It barely has a 100 people__________________________________________ across its offices in Mumbai, Delhi and its R&D unit in Bangalore. This number will only rise incrementally,LinkedIn: India becomes second largest market rather than in the dozens. The strategy is not to focus onThe Economic Times, April 24, 2012 R&D (like many of its larger rivals), but on India as aSocial networking site LinkedIns Indian user base has market.grown 300% in the three years it has had a marketingpresence in India. The firm, today, has about 14 million For the moment, the US accounts for two-thirds ofusers from India, which has quickly become its second- LinkedIns business and "international", including fast-largest market globally, bigger than China and only growing businesses in India, account for the rest. To drivebehind the United States, according to Jeff Weiner, its international business, LinkedIn wants to not justLinkedIns chief executive. increase the number of users, but also deepen its relationships with them. 2Those 14 million Indian users join another 135 million-odd For example, this February, it launched India-specificwho are tapping into some 2 million companies and many pricing for some of its recruitment products such asmore individuals to seek out jobs (or be sought out for LinkedIn Recruiter, Jobs Network and Talent Direct.one), organise conferences and network with a broad LinkedIn wants to mine the mountain of data it generates
The Canadian Trade Commissioner Service Everywhere You Do Businessto 2020.improve the quality of its recommendations (who toconnect to on the site), as well as convert its recruiting The department has presented three scenarios withbusiness-the firms mainstay in India-into a more dynamic different production targets. If the production reachesone. $400 billion by 2020, then the Government subsidy will amount to $32.85 billion while the revenue accruals willTCS Insights: The Indian market has contributed be $58.52 billion according to the projections made bysignificantly in driving revenues of social media DEITy.companies in the otherwise stagnant internationalmarket. India’s young population along with the country’s This is part of Governments efforts to boostexponential growth of mobile phones (900 million manufacturing in the country. Over the past few months,connections and counting), has helped foster explosive the Government has taken a series of steps includingadoption of all social media platforms. Canadian formulating a National Policy on Electronics. The policycompanies providing ancillary solutions to such platforms had made it mandatory for Government agencies to givewill find the Indian market a huge opportunity to tap. preferential access to electronic products made in the country.___________________________________________ TCS Insights: Analysts have traditionally felt that IndiaRs 10,000-cr incentive package for electronics mfg. was losing out to China as the global manufacturing hub.on the anvil India’s strength has historically been software andThe Hindu Business Line, April 23, 2012 technology services and with China catching up to this niche segment, the Indian government is under pressureNew Delhi: The Government is formulating a special from the private sector to formulate a policy to promoteincentive package to encourage local manufacturing of local manufacturing. This policy will hopefully pave theelectronic goods including mobile handsets, path for this change and will thus help India with thesemiconductor wafer fab, consumer electronics and impetus to maintain its edge on IT – both on software andtelecom network equipment. hardware.The package includes reimbursement of indirect taxes _____________________________________________and a subsidy of 20 per cent on capital expenditure madeby high-tech manufacturers in SEZ units. Investments Indias first PPP telecom startup village inauguratedmade in non-SEZ units could get a subsidy of 25 per The Economic Times, April 15, 2012cent. The Ministry of Finance has agreed to the proposalwith a ceiling of Rs 10,000 crore during the 12th Plan. As part of the process to support new product initiatives and turn them into successful ventures, the countrys firstThe subsidy element may be linked to the project Public Private Partnership telecom business incubator --outcome in a bid to ensure that companies invest in Start-up Village -- was today inaugurated here by Infosyscutting edge technologies thats marketable. Co-founder Kris Gopalakrishnan.For example, in the case of semiconductor wafer fab, 75 Describing it as a "milestone" in Kerala, Gopalakrishnan,per cent of the overall subsidy could be linked to who is also chief mentor of the start-up village, said theproduction milestones. concept was to create an ecosystem "to increase the confidence and probability of success."The incentive package was discussed on Monday at ameeting between the Department of Electronics and IT Technopark in Thiruvananthapuram is one of the most(DEITy) and the Planning Commission. A senior official successful ventures of Kerala, but many are not aware oftold Business Line, “The Planning Commission is in it and there is need to change this perception, he said.favour of such a policy. It will take some more meetingsto finalise the draft.” Start-up Village, set in KINFRA Park at Kalamassery, will focus on student initiatives from college campuses andAccording to top Government sources, the Department of would be modelled on technology incubators in theCommerce has also concurred with the proposal, Silicon Valley.confirming compatibility to Indias commitment to variousinternational bodies including the WTO on subsidies. The National Science and Technology Entrepreneurship Development Board (NSTEDB), the Department ofIn order to raise the initial corpus for the project, the Science and Technology (DST), Government of India,DEITy has proposed to levy a cess on all electronic Technopark and MobME Wireless have joined hands to 3products sold in the country. The revenue earned from set up the Start-up Village - Indian Telecom Innovationthe cess will be put into the National Electronics Mission Hub. It will create a vibrant ecosystem for start-ups tofund. According to estimates made by DEITy, the create breakthrough technologies for the globalGovernment will end up being a net revenue earner by telecommunications industry.
The Canadian Trade Commissioner Service Everywhere You Do Business TCS Insights: The private sector’s need (to desperatelyThis would be made possible in association with leading look for new saleable products and technologies) and thecompanies in the Telecom Sector by setting up Telecom Kerala government’s ambition (to promote itself as an ITInnovation Zones that bring the latest technology destination) has resulted in what is a unique PPP modelplatforms and products to the start-ups in the incubator for incubation. This is a unique concept since until now,before it is released in the commercial markets, Sanjay incubation units were largely private fund or angelVijayakumar, CEO, MobME, said. investor/Venture Capital driven whose primary objective was either strategic investment or the identification andTwo start-ups have started functioning in the village, the procurement of innovative IP’s. This kind of incubationfirst phase of which was inaugurated today. Start-up unit provides entrepreneurs with the genuine climatevillage will give a slew of perks from three year service required to start and nurture their company without thetax holiday to funding opportunities for Tech start-ups. odds that a traditional start up faces. ____________________________________________ For more information on Telecom Sector consult Telecom Sector Profile – India (see http://www.tradecommissioner.gc.ca/India) Want to know more? Contact the Information and Communication Technologies Sector Team in India at email@example.com Disclaimer India NewsWatch is a compilation of articles from various media, packaged for the convenience of TCS clients. As such, the opinions and information in the included articles do not reflect the views of the Canadian Trade Commissioner Service (TCS) or the Government of Canada. Users should be aware that information from media and other sources may not be subject to the Official Languages Act and may be available only in the language(s) in which it was originally written. 4 4