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Telecom Sector Analysis Report 

[Key Points | Financial Year '11 | Prospects | Sector Do's and dont's]

  • India's teledensity has improved from under 4% in March 2001 to around 71% by the end of March 2011. Cellular telephony has emerged as 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 812 m at the end of March 2011 (average annual growth of nearly 73% during this eleven year period). 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 has actually seen a decline in the subscriber base. It has declined to 34.73 m subscribers in March 2011 from 36.96 m in March 2010. 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 11.9 m. It has grown at an average annual growth rate of 45% since 2008. The auction for broadband wireless license and spectrum was carried out last year. Once the operators complete their network rollouts, this will further boost the broadband penetration in the country.

How to Research the Telecom Sector (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 '11

  • FY11 saw the continuance of strong growth for the Indian telecom market, which witnessed a 39% YoY increase in its subscriber base during the 12-month period. At the end of March 2011, the country's total telecom subscriber base (fixed plus mobile) stood at about 846 m. The tele-density level stood at about 71% by the end of the fiscal.
  • Data source: Trai, Company Data

    Data source: Trai, Company Data

  • Growth remained robust in the GSM mobile space. GSM added 220 m subscribers during the year. After a good 22% YoY increase in subscriptions during FY10, the GSM industry clocked another robust performance during FY11, growing subscriber base by 46% YoY to about 698 m.
  • During FY11, India's mobile subscriber base grew by 39% YoY, from 584 m to 812 m, while the fixed subscriber base declined by about 1%, from 36.96 m to about 34.73 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. 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 segment's subscriber base has grown by over 39% YoY in FY11. As per Pricewaterhouse Coopers, India's mobile subscriber base is expected to exceed 1 bn by 2014 and will be driven by additions in the rural areas. India's rural tele-density for mobile subscribers currently stands at 32.75%.
  • During FY11, a number of things were carried out. The government finally implemented mobile number portability (MNP). The 3G spectrum was allotted to the operators who had been successful in the bidding process. The telecom scam was unearthed that highlighted the need for the new telecom policy.
  • The MNP was not as big a game changer as it was made out to be. As reported by TRAI, only 1% of the total subscriber base has opted for MNP. The other key development during the year was the rollout of the 3G services. Most operators have rolled out services in the circles for which they were granted the spectrum and license. And most of them are either in the process of or have already signed roaming agreements with other operators to provide 3G services in the circles for which they do not have the license. While it is still very early to judge the impact of 3G services, nevertheless, operators expect it to be the game changer in the future.
  • During the current fiscal year a lot of focus will be given to new policy initiatives in the industry. The new telecom policy is expected to address several key issues that include guidelines for charging spectrum fee and for mergers and acquisitions in the sector. The operators are hopeful that these guidelines would be conducive for the growth of the sector as a whole. The telecom minister has promised that the new telecom policy would be drafted by the middle of this fiscal year. He has also assured the industry that the policy would keep in mind the interest of the industry as well as that of the consumers.
  • In a latest move, some operators have raised their tariffs. The reason given by them is that such a move is essential to cover the increasing costs of servicing the existing as well as the new customers. However, they have rolled out these price increases only in select circles to view its impact on subscriber additions as well as on minutes of usage (MOU). Indian consumers are known to be highly sensitive to price increases. Therefore, there are fears that net additions and/or MOUs may come under pressure through such increases. Another fear that operators have is what if other operators do not follow suit? This would lead to a loss of market share. While tariff increase will have to happen eventually, it remains to be seen if all operators would make this move in the current fiscal or not.

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Related Links for Telecom Sector
Quarterly Results | Sector Quote | Over The Years

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