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Telecom Sector Analysis Report

 

[Key Points | Financial Year '13 | Prospects | Sector Do's and Dont's]

  • India's teledensity has improved from under 4% in March 2001 to around 73% by the end of March 2013. Cellular telephony continues to be the fastest growing segment in the Indian telecom industry. The mobile subscriber base (GSM and CDMA combined) has grown from under 2 m at the end of FY00 to touch 863 m at the end of March 2013. Tariff reduction and decline in handset costs 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.

  • The fixed line segment continues to decline in terms of the subscriber base. It has declined to 30.21 m subscribers in March 2013 from 32.17 m in March 2012. The decline was mainly due to substitution of landlines with mobile phones.

  • As far as broadband connections (>=256 kbps) are concerned, India currently has a subscriber base of 15.05 m. Broadband penetration received a boost from the auction of broadband spectrum. The network providers have stated that they would be looking at boosting the contribution of data to their revenues. This bodes well for the future of broadband services.


     Key Points


    Supply

    Intense competition has resulted in prompt service to the subscribers.

    Demand

    Given the low tariff environment and relatively low rural and semi urban penetration levels, demand will continue to remain higher in the foreseeable future across all the segments.

    Barriers to entry

    High capital investments, well-established players who have a nationwide network, license fee, continuously evolving technology and lowest tariffs in the world.

    Bargaining power of suppliers

    Improved competitive scenario and commoditisation of telecom services has led to reduced bargaining power for services providers.

    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.

    Competition

    Competition has intensified with the entry of new cellular players in circles. Reduced tariffs have hurt all operators.

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     Financial Year '13


  • FY13 saw the mobile subscriber base decline by 6% YoY. This was because of shutdown of services by some of the operators whose licenses were cancelled in February 2012. At the end of March 2013, the country’s total telecom subscriber base (fixed plus mobile) stood at about 898 m. The tele-density level stood at about 73% by the end of the fiscal.

    Data source: Trai, Company Data
    Data source: Trai, Company Data

  • Despite the loss of subscribers of operators who shut down services, growth remained robust in the GSM mobile space. GSM added 1.9 m subscribers during the year.

  • During FY13, India's mobile subscriber base de-grew by 6% YoY, from 919 m to 863 m, while the fixed subscriber base declined by about 8%, from 32.17 m to about 30.21 m.
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     Prospects


  • 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. However, the growth would be mitigated by increasing substitution of landlines by mobile phone. The PSUs will however continue to retain their dominant position. This is on account of high capital investments required in setting up a nationwide network. As a result, the private sector players will have to rely on key business centers and pockets of high urbanisation for their growth.

  • Increasing choice and one of the lowest tariffs in the world have made the cellular services in India an attractive proposition for the average consumer. The mobile penetration levels in urban areas have already crossed 100%. Therefore the main driver for future growth would be the rural areas where wireless tele-density is around 40.23%. .

  • After a failure of not one but two rounds of spectrum auction, the regulator has proposed a slashing of the reserve rates for the upcoming auction. However the same has questioned by the DoT panel. The operators are in desperate need for spectrum. In addition to this the prices for the upcoming license renewal would also be decided on the basis of the auction price. Therefore the operators are keen that the reserve prices be slashed. However, whether this happens or not, remains to be seen.

  • The operators continued to operate on thin margins during FY13. Due to intense competition, tariffs continued to remain low. However in recent times operators have seen better realizations. This is more a function of the elimination and cutting down of subscriber related costs rather than an increase in tariffs. Therefore there has not been any adverse impact on usage despite better realized rates. Rationalization of costs and tariffs is expected to continue in the current fiscal as well. However, if the auction prices are cut in a substantial way, there could be a return of competition which in turn could limit tariff increases or cut down of acquisition costs.

  • Balance sheets of operators continued to remain under pressure. Operators are also in the process of shoring up funds for the upcoming license renewals and payments of one time fees. The incumbents Bharti Airtel and Idea Cellular have raised money in recent times through stake sales and qualified placements respectively.
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