Snapshot of Telecom in India


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  • With the waves of economic liberalisation that swept the country in the early nineties, it was felt by the planners that telecommunications would be an important sector for private sector participation. The status then was that India had a teledensity of 0.8% way below some of our other South Asian neighbours and not to speak of world average of 10%. One would recall the long waiting period of several months if not years in some cases, the ‘tatkaal’ connection which came at a premium of Rs 15,000/- since exchanges did not have capacity to dole out connections on demand. This lead to a huge waiting list of nearly 2.5 million phones every year and demand always outstripped supply. Rural connectivity was also very poor and only 25% villages had access to telephone facilities. Looking at this grim situation, telecom services were given national priority status for increased economic development. It was felt that all different services available internationally should be available in India too. Some early signs of these services being available in the country did show up in limited pockets restricted to the metros, leave alone any other cities and towns. However, once the plan targets were revised, it was seen that there was a huge resource gap which could be bridged only with private sector participation. Thus telecom services provided a great opportunity for the private sector and threw open the sector to foreign investment in keeping with the economic reforms drive the Government had undertaken. The National Telecom Policy 1994 was thus announced which allowed private sector entry into a Government dominated sector and tenders were floated for selection of players for Basic and Cellular Mobile services in early 1995.
  • After inviting bids for services from the private sector with compulsory collaboration from foreign service providers, the Government in 1995-97 period was able to award 8 metro licenses alongwith 34 circle licenses for cellular mobile services and was able to issue only 6 licenses for Basic Services. Competition was restricted to two private players for mobile services from the private sector, whereas a single private player in Basic Services to compete with the Government who provided these services then. Huge bids were made by the award winning licenses since attractiveness of the bid was one of the important criteria. Stringent conditions were levied on operators who had to rollout their networks in a time bound manner and start generating revenues to pay their annual license fee dues. Ultimately, network rollouts got mired in various procedural bottlenecks as the Government authorities slowly learnt how to “liberalise” and let go of their ‘super-power’ status. As a result, the actual revenue realisations were well short of expectations and the projections on the basis of which bids were made to win these licenses resulting in operators being unable to arrange finance for their projects and complete rollouts. After seeing the problems the private operators had landed into, the Government took a macro-level decision to allow for mid-course corrections and allowed a bailout.
  • Snapshot of Telecom in India

    1. 1. Snapshot of Telecom in India (prepared in Feb ’04)
    2. 2. Reforms (liberalisation) started in telecom <ul><li>Status in 1994 </li></ul><ul><li>0.8% teledensity – far below world average of 10% and other neighbouring countries. </li></ul><ul><li>Total phones: 8 mn with a waiting list of 2.5 mn. </li></ul><ul><li>Below 25% villages (1.7 lakhs) covered. </li></ul><ul><li>National Telecom Policy 1994 announced. </li></ul><ul><li>Telecom a national priority for increased economic development. </li></ul><ul><li>Plan targets revised to have telephone on demand and all villages covered. </li></ul><ul><li>All services available internationally to be available in India by 1996. </li></ul><ul><li>Value-added services opened in 1992 (cellular mobile, radio paging, email, etc.) </li></ul><ul><li>Resource gap of Rs 23,000 cr to meet the revised targets necessitated private sector participation. </li></ul><ul><li>Tendering process for selection of private players for Basic and Cellular services. </li></ul>
    3. 3. 1991-96 : Pre-privatisation scenario Million telephones
    4. 4. Introduction of Privatisation <ul><li>Licenses awarded (in 1995-97) after tendering and bidding process: </li></ul><ul><ul><li>8 GSM licenses in 4 metros (no bidding – beauty parade). </li></ul></ul><ul><ul><li>34 GSM licenses in 18 state circles </li></ul></ul><ul><ul><li>6 Basic Service Licenses in 6 state circles </li></ul></ul><ul><li>Results not satisfactory due to: </li></ul><ul><ul><li>Actual revenue realisations far short of projections leading to operators being unable to arrange finance for their projects and complete rollouts. </li></ul></ul><ul><li>Government appreciates the concern of the operators and allows for mid-course corrections. </li></ul>
    5. 5. NTP ’99 - new telecom policy <ul><li>Focus on creating an environment which enables continued attraction of investment in the sector and allows creation of communication infrastructure by leveraging on technological development. </li></ul><ul><li>Targets revised: </li></ul><ul><li>Telephone on demand by 2002 – teledensity of 7% by 2005 and 15% by 2010. </li></ul><ul><li>Encourage development of telecom in rural areas with suitable affordable tariff structure – to raise rural teledensity from 0.4% to 4% by 2010. </li></ul><ul><li>Internet access in all District Headquarters (DHQs) by 2000. </li></ul><ul><li>High speed data and multi-media capability using technology including ISDN to all towns with a population greater than 200,000 by 2002. </li></ul><ul><li>Universal Service Obligation defined to provide voice and low speed data services to all uncovered villages. </li></ul>
    6. 6. Role of private sector in the early years Million telephones
    7. 7. 2001: the turning point <ul><li>Policy announced for additional licenses in Basic and Mobile Services (Jan 2001). </li></ul><ul><li>Entry fee: </li></ul><ul><ul><li>Basic Services: US$ 0.2mn – US$ 25.5mn (+ Bank Guarantees = 4 times entry fee for rollout obligations) </li></ul></ul><ul><ul><li>GSM Mobile Services (4th Operator bid): US$ 0.2mn – US$ 45mn </li></ul></ul><ul><li>License fee (revenue share) reduced from provisional 15% to 12%, 10% & 8%. </li></ul><ul><li>Limited Mobility allowed to Basic Services (CDMA spectrum allotted to BSOs). </li></ul><ul><li>Rollout Obligations to cover Urban / Semi-Urban / Rural areas in equal proportion. </li></ul><ul><li>New licenses awarded in Jul - Sep 2001 : Basic (25), GSM Mobile (17). </li></ul>
    8. 8. 2001: Mobile revolution triggered Millions <ul><li>CDMA WLL(M) launched in limited manner in few circles. </li></ul><ul><li>Tariff for GSM cellular mobiles reduced. </li></ul><ul><li>Existing Operators expand service coverage. </li></ul><ul><li>3 rd & 4 th GSM Operator networks rollout - further tariff reductions. </li></ul><ul><li>Newly licensed BSOs roll out networks for WLL(M) on CDMA. </li></ul>
    9. 9. Tariff & Interconnection Regulations <ul><li>Movement towards cost-based tariffing. </li></ul><ul><li>Tariffs closely regulated by TRAI between 1999-2002. </li></ul><ul><li>Interconnection Usage Charges established on the principles of “work done” – termination charges introduced. </li></ul><ul><li>Calling Party Pays (CPP) for mobile tariffs – free incoming calls ushered in. </li></ul><ul><li>Access Deficit Charges (ADC) for cost-minus fixed line services. </li></ul><ul><li>Forbearance allowed recently on all tariffs (except rural fixed line). </li></ul>
    10. 10. Long Distance Peak rate tariffs (Rs / min) Local Call Tariffs (Rs / min) Increased competition leads to tariff reduction and affordable services
    11. 11. Convergence of tariffs Rs / min for 400 mins of use / month
    12. 12. 2003: Mobile boom has begun Net Additions / month (mn) Total Additions 2002: 5.15 mn 2003: 17.49 mn
    13. 13. Growth drivers <ul><li>Declining entry costs and falling tariffs have lowered the bar in terms of affordability coupled with branding and advertising. </li></ul><ul><li>High percentage of population owning two-wheelers are prospective mobile telephone users. </li></ul><ul><li>Upper middle class that spends 6% of its income on telecom services. </li></ul><ul><li>India lags behind other Asian economies (approx. 10 years) - therefore India is poised for growth. </li></ul>
    14. 14. 2003 : CDMA gains acceptance Millions % of mobile market
    15. 15. Unified Licensing introduced <ul><li>Unified Access (Basic & Cellular) Service License (UASL) introduced (Nov 2003) as a first step towards Unified Licensing Regime. </li></ul><ul><li>Technology neutral and allows provisioning any kind of service. </li></ul><ul><li>4th Cellular GSM license used as benchmark. </li></ul><ul><li>BSOs offering WLL(M) allowed migration to UASL - additional entry fee equivalent to 4th Cellular bid. </li></ul><ul><li>Rollout obligations to cover 50% DHQs in 3 years. </li></ul><ul><li>License fee reduced w.e.f 1.4.2004 by 2% across the board for all access licensees. </li></ul><ul><li>Rural telephony to be covered under Universal Service Obligation. </li></ul><ul><li>Intra-circle Mergers & Acquisitions recommended by TRAI - competition not to be compromised, SMP to be checked. </li></ul><ul><li>Spectrum pricing and allocation guidelines to be reviewed, present allocations to continue. </li></ul>
    16. 16. Future Investments * Market Analysts' Estimates
    17. 17. Revenue Projections * Market Analysts' Estimates
    18. 18. Projections : Fixed & Mobile * * Market Analysts' Estimates
    19. 19. Teledensity - Urban vs Rural Teledensity (%)