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Although India's teledensity has improved from under 4% in March 2001 to over 18% by the end of March 2007, we are still way behind other developing nations. The total annual telecom revenue is estimated to be over Rs 700 bn and the sector can broadly be divided into three segments – basic telephony, cellular telephony and the Internet.
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The cellular telephony segment has emerged as the fastest growing segment in the Indian telecom industry. The mobile subscriber base (GSM and CDMA combined) has grown from 1.9 m at the end of FY00 to touch 166 m at the end of March 2007 (compounded annual growth of nearly 90% during this seven year period). A slew of tariff reduction has helped the segment to gain in scale. The cellular segment is playing an important role in the industry by making itself available in the rural and semi urban areas where teledensity is the lowest.
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As far as the Internet services are concerned, India currently has a subscriber base of around 8 m users. Of this, around 20% is accounted for by broadband users (>=256 kbps). PSU major, BSNL holds the top spot with a market share of over 40%, followed by MTNL with a share of 12%. This is followed closely by Sify, which ranks third with a market share of 11%.
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On the international basic telephony front, the end of VSNL's monopoly in 2002 brought three private players in the international basic telephony business and the immediate effect was the fall in tariffs. In the first six months only, the tariffs fell by 50% and the trend is likely to continue. With the most favored customer status given to VSNL by fixed line majors like BSNL and MTNL going away, the segment has been witness to fierce competition.
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| Supply |
Intense competition has resulted in prompt service to the subscribers. However, smaller towns and villages continue to have waiting periods on account of non-availability of adequate infrastructure.
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| Demand |
Given the low penetration levels in the country and continuously falling tariffs, demand will continue to remain higher in the foreseeable future across all the segments.
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| Barriers to entry |
High capital investments, older and well-established players who have a nation wide network, license fee, continuously evolving technology and falling tariffs.
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| Bargaining power of suppliers |
Improved competitive scenario and commoditisation of telecom services has led to reduced bargaining power for services providers.
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| Bargaining power of customers |
A wide variety of choices available to customers both in fixed as well as mobile telephony has resulted in increased bargaining power for the customers.
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| Competition |
The entry of fourth cellular player and commencement of WLL services has resulted in intense competition in the bigger cities. Reducing tariffs will hurt the new entrants, as they will be unable to recover their high capital investments. |
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FY07 saw the continuance of strong growth for the Indian telecom market, which added a net of 66.5 m subscribers during the 12-month period. At the end of March 2007, the country’s total telecom subscriber base (fixed plus mobile) stood at 207 m, which indicates a teledensity of 18.3%.
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Growth remained robust in the GSM mobile space, with the same growing its subscriber base by 52 m, thus contributing to 78% of the total incremental subscriber addition for the entire Indian telecom market. After a strong 73% YoY increase in subscriptions during FY06, the GSM industry recorded another stupendous performance during FY07, growing subscriber base by 75% YoY to over 121 m.
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There was a decline in both the tariffs as well as Average Revenue Per User (ARPU) in during FY07. While the fall in tariffs was to the order of about 15% YoY, ARPUs declined by nearly the same amount. However, the decline in tariffs led to a strong rise in the average Minutes of Use (MOU) per subscriber.
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The year also saw a strong 70% YoY rise in the Internet broadband subscriber base. The current base stood at 2.3 m users by the end of March 2007, against 1.4 m at the end of March 2006.
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As far as the fixed line business goes, the low penetration levels in the country and the increasing demand for data based services such as the Internet will act as major catalysts in the growth of this segment, which had a subscriber base of over 40 m at the end of FY07. The huge market share of public sector behemoths, MTNL and BSNL (together they account for 82% of the total fixed line connections) is likely to get reduced further as the penetration by private players spreads. In spite of this the PSUs will continue to retain their dominant position this is on account of high capital investments required in setting up a nation wide network. As a result, the private sector players will have to rely on key business centers and pockets of high urbanization for their growth.
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Increasing choice and one of the lowest tariffs in the world have made the cellular services an attractive proposition for the average consumer. The segment has grown by over 75% YoY in FY07. Policy measures like lowering of taxes on the cellular industry and benefits of enhanced FDI limits shall further the prospects of the cellular industry.
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The International Long Distance (ILD) telephony business is expected to witness increased competition with the entry of private players. Already, private players like Bharti, Reliance and Data Access have started providing ILD services and this has pulled the tariffs significantly down. Although increased competition will result in depressed revenues in the near term, low tariffs would ultimately result in increased volumes and higher usage.
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