The guys at 2point6billion.com have a long post on an industry close to the heart of China-watchers: telecoms.
The Indian telecom market is amongst the largest in the world and 2nd among emerging economies in Asia with an estimated 5-6 million subscribers being added every month.
Indian telecom is more than 160 years old, beginning with commissioning of the first telegraph line between Kolkata and Diamond Harbour in 1839. Reforms in the Indian Telecom sector began in the 1980s when equipment manufacturing was opened to private players and the Centre for Development of Telecommunication (DOT) was established for the development of indigenous technologies. It was in 1986 that DOT was converted into two wholly owned Government bodies like Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL) were set up. In 1997, Telecom Regulatory Authority of India created.
With the coming into force of the National Telecom Policy (NTP) in 1994 and the New Telecom Policy in 1999, the telecom industry was heading towards a significant change. Now comes 2000, when DOT was renamed Bharat Sanchar Nigam Limited (BSNL). BSNL is today India’s leading telecommunications company and the largest public
sector undertaking.
Within around a decade now India has emerged as one of the largest and high potential telecom sectors in the world and the Indian telecom market now is in the third place after China and the US.
Current scenario:
1. Telecom Sector in India is dominated by two leading players. Reliance and Bharti Airtel being the leaders.
2. Lowest tariffs in the world: air-time rates (Local calls) : From 7 years back when the incoming and outgoing call charges were Rs18/minute (0.45 USD) to today when incoming calls are free and outgoing are charged as low as Rs 1/minute (0.02 USD)
3. International call charges: Calling out of India, one had to think twice as the charges were extravagant to say the least. You would pay upto Rs 75/minute (1.86 USD) to make a call to the US whilst today this is down to Rs 6/minute (0.15 USD)!
4. In the urban areas almost every person from a street vendor to a college student or a house cleaner has one mobile phone at least. Currently, the number of fixed and mobile phones in New Delhi equals 93% of the city’s population.
5. Handset prices are falling rapidly. Handset financing schemes are abundantly available.
6. Under easy payment plans among others such as Airtel’s Rs 495 (12.29 USD), you can get a lifetime incoming call for free!!
7. India is emerging as telecom manufacturing hub.
A quick look:
Subscribers: Jan 2007 (Million)
Fixed : 40.82
Mobile : 178.00
Internet : 8.5
Broadband: 2.0
The story so far:
1 The ‘licensing by circles’ policy initially not considered a great act on the part of the government has now been credited with establishing a highly competitive and healthy telecoms market with immense growth potential.
2. A large number of MNCs like British Telecom, AT&T, and others had “flown” away from India during the last decade or so. Some of the local companies too could not stand the test of competition and took a back seat. But one player never did want to stay away from India and this was Vodafone, which had also exited the Indian market earlier on, but on winning the bid of $ 18.8 billion for Hutchison-Essar, it was back with full force.
3. India’s Internet sector represents a significantly untapped market. A large number of households don’t have access to internet. Many in the country still consider having a PC and internet at home expensive!! Further there are affordable internet cafes effecting the rapid growth of internet in the country. With ‘Cable TV providing Indians one shop stop package, there seems no justification for them to have separate connections at home.
Use of broadband in India has been sluggish around 2 million only inspite of the growth in Internet over the years. The government as a measure to promote the use of broadband has declared 2007 as the year of Broadband in India.
4. At present just about 2% rural households have access to telephones. India’s rural sector, constituting 70% of its entire population, is where the growth of its telecom sector in the future lies. The service providers are moving ahead with their ambitious plans for mobile phones for the rural sector.
5. While GSM technology has continued to be dominant in the country’s mobile market, Tata and Reliance are main players of the CDMA market. CDMA has been increasing its market share and had grabbed a 30% share by early 2007.
We share with you the excerpts of an interesting report from Credit Suisse Bank in the Asian Daily this month on the Indian Telecom Sector.
“1. Reliance’s announced GSM expansion plan was widely considered as a first step towards the demise of CDMA in India. 2. The key challenges that faced the CDMA operators in 2006 were uncompetitive low –end handsets pricing and decline in number of handset vendors are being addressed. The ramp of QCOM’s single chip (Qsc) platform and increased competition from new Chinese and Korean vendors have driven handset prices below US $30 thus reducing the differences between lowest priced CDMA handset and lowest price GSM handset to US $ 1
2. Given improving economies and significantly lower churn rates than GSM operators Reliance is more likely to continue to invest in CDMA inspite of expansions in GSM presence. It recently indicated a significant increase in its CDMA capex. On the other hand the Bank is positive on the GSM players to move towards handset bundling.
3. The progress of 3G recommendations is limited due to government approval and lack of spectrum. For security reasons there has been no change in spectrum release and would take early 2008 for 3G licenses to be issued. On the other hand due to increasingly aggressive 3G efforts from major mobile operators indicates that widespread network deployments would quickly follow license grants.
4. The overall mobile growth in India seen as an up 43 percent YOY. Ongoing improvements in network coverage and low end handset pricing would drive the market upwards significantly in next three to five years.”
India is and will remain one of the worlds most dynamic and promising telecom markets for the next five years, and is expected to surpass China in terms of market vitality. The number of mobile phone users in India has grown at over 6 million per month over the past few months, compared to 5 million per month in China. India is the only country rivaling China in terms of subscriber growth these days. According to the reports:
1. China and India will be the world’s largest mobile phone markets by 2010, accounting for a combined 30 per cent of all mobile users in the world. (In 2006, China’s telecom penetration was three times that of India and China’s telecom revenues reached US$83 billion i.e. four times that of India.)
2. India has real expertise in telecom services, and China has inherent strengths in manufacturing and technology.
India and China will be the top two markets worldwide in terms of annual mobile net additions by 2008, with between 64 million and 70 million new subscribers, followed by Russia, the US and Brazil.
……. And it goes without saying that this increased user base will help in further strengthening the already vibrant economies of these two countries.