• JUNE 3, 2008

Opportunities in infrastructure-IV

In the previous article of this series, we discussed the opportunities that construction companies have in the XIth five-year plan (2007-2012). In this article, we take a look at another vital aspect of infrastructure - telecom and connectivity - and read about the opportunities therein.

  • Opportunities in infrastructure-III

    The Planning Commission of India (PCI) has allocated nearly Rs 2,670 bn (assuming a 15% spillover into the next five-year plan) for developments in the telecom space during the XIth Plan period. The PCI has allotted the telecom space an increase of 116% over the previous five-year plan (Xth plan - 2002-2007). The main reason for such increase in expenditure is to achieve a bold target of attaining 600 m subscribers by 2012, from 165 m subscribers at the beginning of the current plan (about 300 m subscribers at the end of April 2008).

    The PCI has set a remarkable target of rural India to be atleast one-third of those 600 m subscribers by 2012. Another interesting fact that can be pointed out here is that in the XIth plan, the public-private break up has been reversed to 34:66 from being 64:36 in the Xth five-year plan, going by the growth that private sector players have been clocking all this while.

    Estimates for the XIth plan
    The Indian telecom space can be broadly divided into two segments - public and private companies. The major public companies are BSNL and MTNL while the dominant private players are Bharti Airtel, Reliance Communications, Vodafone and Tata Communications/Teleservices.

    Proposed investments in telecom during XIth Plan
    (Rs bn) 2007-08 2008-09 2009-10 2010-11 2011-12 Total
    BSNL 136 145 162 183 196 820
    MTNL 16 13 16 12 16 73
    Private 179 241 325 439 593 1,777
    Total 331 398 503 634 804 2,670
    Source: PCI

    As we can see from the above table, the total expenditure is slated to increase at a compounded annual rate of 25% during the plan period. Out of this, while the private sector investment is expected to rake in a growth of 35% CAGR during the period, public sector investment (BSNL and MTNL combined) is expected to clock a compounded annual growth of just around 9%.

    Focus on rural connectivity
    Rural phone connectivity has become one of the core areas of focus for the government and companies alike. And with the Indian telecom companies' business models of providing affordable telecom services, both in terms of call rates and cheap handsets, the ambitious targets mentioned above do look likely to be achieved in the given timeframe. The PCI has estimated that nearly Rs 160 bn out of the total investment will be spent in developing the telecom infrastructure in rural areas, which is nearly 6% of the total spending in this sector. Further, the goal of attaining a rural tele-density of 10%, from levels of 1.9% (October 2007), has been intended.

    The paragraphs mentioned above are mainly in relations to connectivity related voice transfer. Another segment picking up great momentum is the process of data connectivity and transfer - the Internet. The PCI's estimate in regards to this is to establish 40 m Internet connections along with 20 m broadband connections by the end of the plan period.

    Resource and infrastructure constraints remain
    Spectrum (radio waves) is the raw material for mobile services companies. With the government and rival groups from the sector (GSM and CDMA) locked in a battle over the allocation of this resource, risks with respect to India reaching the proposed goal (as mentioned above) stand to increase. Further, as per a report from the industry research agency, Frost & Sullivan, India needs to have a telecom tower base of 330,000 by 2010 from the current levels of 130,000. Any delay in setting up this incremental capacity can also impede the planned growth of the sector and its constituent companies.

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