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Indian Telecom Industry


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Indian Telecom Industry

  1. 1. Telecommunication Industry Spectrum Allocation
  2. 2. Executive SummaryTitle of the project: “Issue in Spectrum allocation in Indian Telecom Industry “Objective Of the project:The main objective of this project is to identify the problem concerning to theIndian telecom industry. This project also carried out Overview of the industry andthe performance of the Indian telecom industry.Scope of the Study:The scope of the study is limited to the issue in spectrum allocation in Indiantelecom industry.Limitations of the project:The data used is secondary data and limited companies were taken into account forthe purpose of study out of huge telecom sector.Data collected from websites is historical in nature and market conditions andregulations are subjected to change in the meantime.Research MethodologyResearch includes systemic method, which includes enunciation of problem,collection of the facts and conclusion in form of solution towards the problem. Thestudy is based on the facts collected through internet.Method of data collectionSources of secondary data:  Internet and websites  Annual report of the sectorFindings:  Growth of Indian telecom sector largely depends on how we manage our spectrum.  Need for spectrum allocation  Spectrum Assignment & Pricing  Spectrum Related Issues 1
  3. 3. Table of ContentsS. No. Contents Page No.1. Executive Summary 12. Introduction 3-63. Objective 74. Research Methodology 75. Findings 8-96. Analysis 10-167. Recommendations 178. References 18 2
  4. 4. IntroductionThe growth of Indian telecom industry has been very impressive. Indiantelecommunication network has transformed through significant policy reforms,particularly begin with announcement of NTP 1994 and carried forward under NTP1999. The Indian telecom sector has witnessed a complete transformation in lastdecade.Current ScenarioToday The Indian telecommunication network comprise of around 621 millionconnections which credit it as the world’s third largest network and second largestwireless network.The Subscriber Base has increased exponentially registering a growth of 2.36%over the previous quarter as against 4.69% during the QE Jun-11.This reflects thegrowth of 25.39% over the same quarter of last year. The overall Teledensity ofcountry’s telecom sector has reached 75.48 as on 30 th September 2011.Subscription in urban and rural areas also has shown growth from 587.94 million to601.72 million and 298.05 million to 305.51 million respectively. The share of ruralareas in total subscription has been around 33.49% at the end of jun-2011 and theshare of urban area have been 63.52 % 3
  5. 5. The total revenue of the telecom service sector went up with a growth of 8.69% .Public sector contribution to the revenue was 20.37 % and private sectorcontributed 79.63% 4
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  7. 7. Key Drivers for growth of Indian telecom industry  Large un-banked population base.  Increase in income levels  Large young population.  Rural areas, still does not have access to quality telecommunications services and therefore it presents significant opportunities for growth."Some of the major Issues in Indian telecom sector facing are:  Spectrum allocation  Decline in ARPUEffect of Budget 2012 on Indian Telecom SectorThe budget is seen to have neutral effect on the industry. With the increase inservice tax from 10 % to 12 % costs of mobile bills for customers will increase andwill consequently have negative impact on profits of telecom companies. As parts ofmobiles phones are exempted from custom duty that gives relief to the industry.Inclusion of infrastructure and various incentives will strengthen rural penetration.The industry is disappointed as there is no reference in context to broadbandservice. 6
  8. 8. ObjectiveThe objective of this project is to understand the issue of spectrum allocationconcerning to the Indian telecom industry. MethodologyResearch includes systemic method, which includes enunciation of problem,collection of the facts and conclusion in form of solution towards the problem. Thestudy is based on the facts collected through internet.Method of data collectionSources of secondary data:  Internet and websites  Annual report of the sector 7
  9. 9. FINDINGSWith the advent of third generation mobile technology, the challenge beforeauthority is to deliver the benefits of technology more widely to the peopleconsidering spectrum issues in a holistic manner. Being a scarce resource the issueof sufficient spectrum availability for mobile services is central to the growth oftelecom services in the country.Need for Spectrum allocation:Spectrum not only gets consumed upon its usage but also when it is not efficientlyand optimally used. Hence Spectrum allocation is necessary to ensure interferencefree operation for each radio service efficiently. As each frequency band is sharedamongst various radio services, the sharing is possible only with the use of similarsystems. Sharing is also possible by way of geographical separation, time-sharingand through technical solutions like smart antenna and intelligent radio systems.The issues related with spectrum are as follows:  Spectrum Related Issues  Identification of spectrum bands for commercial usage: Government should not consider allocation of 2G spectrum same as 3G spectrum allocation. 3G systems are the next step in the evolution of mobile cellular communication. 2G systems focus on voice communication, while 3G systems support increased data communication. They allow high-speed data of at least 144 kbps, mobile Internet access, entertainment, and triple-play converged communications services, and have markedly greater capacity and spectrum efficiency than 2G systems. The Authority has identified the 450 MHz, 800 MHz, and 2.1 GHz bands for immediate allocation for 3G services.  Assessment of demand for spectrum and its availability: As it is clear that many competing users and uses are competing for this scarce spectrum. The Authority must ensure that for the growth of telecom services, which is mainly concentrated in wireless services, a clear roadmap for spectrum availability is essential. Thus, the authority must have certain spectrum management in the Indian context.  Ensuring efficient utilization of available spectrum: As unlike other natural resources spectrum not only consumed when it is used but also when it is used in effectively. 8
  10. 10.  Spectrum Assignment & Pricing  Spectrum assignment mechanisms: Some operators may have to wait for additional spectrum till it is identified in the bands because of its scarcity. The Authority therefore has to determine the allocation criterion and the order of allocation for 3G service providers based on spectrum availability and the quantum of spectrum allocation. The key is first come first serve. Identify the first lot of telecom service operators and then gradually entry of the remaining as and when additional spectrum is available.  Spectrum pricing: The blind adoption of the global spectrum allocations trends may not be feasible for Indian conditions. The Authority does not wish to burden operators with unviable spectrum acquisition fees. The objective is to ensure that 3G services are affordable and do not hurt the operators financially. As the quantum of spectrum is limited, and effective measures need to be taken to discourage spectrum hoarding, encourage its efficient use, and recover the Present and future costs of vacation by incumbent spectrum users. Various pricing methods are as: 1. Auctioning 2. Beauty contest 3. A Fixed Fee A hybrid of 1 to 3 above.Auctioning: It is transparent and an efficient means to allocate spectrum whendemand is greater than supply; it allocate the resource to the provider that valuesit the most. However, auctions could result in frenzy.Beauty Contest: Participants are scored based on parameters set by a judge.Spectrum allocation through a beauty contest can be used when demand exceedssupply. The process might not be transparent and could be quarrelsome.A Fixed Fee: The spectrum is allocated to anyone who pays the predeterminedprice. The disadvantage is in the Indian situation and existence of such highlycompetitive market may not reflect the real market price. 9
  11. 11. AnalysisMobile communications in India has grown immensely during the last couple ofyears by adding up to 20 million new subscribers per month, but the influx of newmobile subscribers dropped to 5-7m per month during the latter part of 2011. Theexplosive growth has resulted in a mobile customer base of 870 million (Oct 2011),translating into a mobile penetration of 73%. However, it varies considerablebetween urban and rural areas with a mobile penetration of 160% and 36%respectively. The average revenue per user is around EUR 2-3 per month, and callcharges are around INR 0.9-1.5 per minute (1.2- 2.2 euro cent).The Indian mobile operators have access to 10- 15 MHz (downlink) of which 5 MHzis 3G spectrum, but it differs between service areas and operators. Although 3Glicenses were auctioned in 2010 and networks have been deployed the growth of3G has so far been limited. India had about 12 million 3G subscribers’ by the end of2011, representing 1.5% of the total mobile subscribers. The slow start for 3G is,according to the Industry, explained by the lack of affordable handsets andsmartphones.The Indian authorities allocated three 3G licenses with 5 MHz per license in mostservice areas. But given that there are at least six 2G operators in most serviceareas the major operators have entered into roaming agreement, so called intracircle roaming (ICR) agreements with the holder of 3G licenses, in order to be ableto provide 3G services nationwide. But the Department of Telecommunications(DoT) has questioned the roaming agreements which initiated legal processes bythe end of 2011. On back of a limited availability of fixed broadband, with apenetration of 1.1%, 2G data with GPRS and EDGE have been the primarily carriersfor mobile data. But given that non-voice revenues generates 15% of total mobilerevenues, of which SMS makes up around 50%, the revenue stream from theestimated 347 m mobile internet users have so far been limited. 10
  12. 12. Source : Operators data and TRAI analysisSpectrum HoldingThe limited availability of spectrum for the Indian operators is explained by thatthere are a large number of operators that share a limited amount of spectrum forcommercial use. We focus on ten service areas which altogether cover 42% of theIndian population and which have between 6 and 10 operators with 2G licenses and3 operators with 3G licenses. The spectrum holding for the four major operators inthe ten service areas varies from 4.4 MHz to 15 MHz, with an average of 10 MHz. Adetailed table of spectrum holdings for ten service areas shows that the totalamount of spectrum in these areas varies between 50-70 MHz. On back of thelimited availability of spectrum and that there were only three 3G licenses availablein most circles it was a fierce competition on spectrum which resulted in auctionprices that were significantly higher than the reserved price that the authorities hadset. The mobile operators paid the equivalent of EUR 0.27 up to 4.36 per MHz/pop.License period is 20 years. 11
  13. 13. Source: Operators data and TRAI analysis Source: Operators data and TRAI analysis 12
  14. 14. Deployment optionsSource: Operators data and TRAI analysisThe engineering value of spectrum is calculated as the cost savings provided thatthe spectrum band was acquired. Hence, a comparison is made requiring networkdeployment options that could be used assuming that the spectrum band of interestwas not acquired.When it comes to the 2.6 GHz band to be used for LTE mobile broadband servicesone option is to use the 2.1 GHz band and 3G technology in order to provideadditional capacity. This means a denser 3G network and that at least two timesmore sites needs to be deployed in order to double the capacity. Taking intoaccount the higher spectral efficiency of LTE compared to HSPA an even densernetwork needs to be deployed. In our calculation we assume four times densernetwork in the capacity limited areas. For Hi3G with 10 MHz of 2.6 GHz spectrumtwice the number of sites is needed in order to offer the same capacity as theoperators with 20 MHz of spectrum.When the 900 MHz band is used for mobile broad band existing 2G and 3G sitescould be re-used. The existing site grid would be sufficient to provide coverage.However, no operator would be able to allocate 10 MHz needed in order to providethe same capacity and data rates as in the case with the 10 MHz in the 800 MHzband. Hi3G just have 5 MHz and the other operators use the 900 MHz band for GSMvoice services. For comparison we can assume that 5 MHz will be used implyingtwice the site density in order to provide the same capacity. 13
  15. 15. Source: Operators data and TRAI analysisIndian market – value of spectrumOn back of the prices paid at the 3G-auction in 2010 and the intense debate about2G spectrum and the value of spectrum in India it is interesting to calculate themarginal value of spectrum for the Indian market. The analysis is explorative as itis based on a number of assumptions, like the number of cell sites in each servicearea and the share of geographical area that the networks in the different serviceareas covers. We therefore incorporate a sensitivity analysis of the key parameters 14
  16. 16. Indian marketGiven the high mobile penetration in urban areas in India the major growthopportunities are in rural areas. This requires extension of networks in order toextend coverage and capacity calling for more capex. The slow start for 3Gindicates that India is lagging behind within mobile data. But with a limitedavailability of fixed broadband mobile is set to be the primary vehicle for digitalaccess and applications.This analysis shows that 5 MHz can support a first stage for mobile broadband andmobile internet. But in order to provide sufficient with capacity for supportingsmartphones as well as dongles driving considerable higher data volumes theavailability of more spectrum are required. The high gearing level for the Indianoperators in combination with extensive capex requirements and high prices forspectrum will be challenging for the companies. Ultimately, the willingness for theIndian consumers to pay for mobile data will be pivotal for how this will play out.Although capex in relation to sales have come down for the Indian operators theyare facing lower growth as the mobile voice market is maturing, and they areexperiencing high cost for capital as their financial flexibility are impacted by thefinancial turmoil.The improvement in the effectiveness of total spectrum utilization has been over atrillion times in the last 90 years, and a million times in the last 45 years. Of themillion times improvement in the last 45 years, roughly 25 times were the result ofbeing able to use more spectrum, 5 times can be attributed to the ability to dividethe radio spectrum into narrower slices — frequency division. Modulationtechniques like FM, SSB, time division multiplexing, and various approaches tospread spectrum can take credit for another 5 times or so. The remaining sixteenhundred times improvement was the result of confining the area used for individualconversations to smaller areas, what we call spectrum re-use.Hence it is the use of small cell that accounts for the largest improvement ofcapacity. The increase of spectrum accounts for just 25 times of the 1 million 15
  17. 17. improvements but it is the bandwidth that is the raw material and makes it possibleto exploit the benefits of the other types of development. The operators can use thesame type of modulation, radio technology and deployment strategy but it is theamount of bandwidth that makes a clear difference. We can also identify differencesbetween operators and their different options when it comes to the networkdeployment approaches. Network and spectrum sharing (like 3GIS andNet4Mobility) enables both higher cost efficiency (site re-use) and the possibility tooffer higher data rates. Operators with a large fixed network can to a larger degreeexploit offloading from macrocell networks to private WLAN or femtocell networks 16
  18. 18. RecommendationsAs the subscriber base is increasing exponentially demand for additional spectrumis also increasing by mobile operators. To serve the need department oftelecommunication has to evolve its guidelines for the allotment of extra spectrum.And this allotment has to be done on certain justifications and criteria such asdemographic characteristics, average traffic per subscriber, and number of basestations at a particular location.Being a scarce resource, its equal allotment for systems using different technologiescan be the solution. Government should try to create a policy for a flexible andtechnological neutral regime to allow new technologies have equal access to thespectrum. It should also enable market mechanism to promote efficient use ofspectrum. The government must permit public and private users to trade spectrumto allow new users to access spectrum and to provide them option to move toanother frequency bands if possible. And government must make the allotmentprocedure more transparent and opened so that this scarce resource can be put tothe optimal use. 17
  19. 19. References1. industry3. Telecom Regulatory Authority of India recommendations on Spectrum Management and Licensing Framework. 18