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Telecom Sector Analysis Report 

[Key Points | Financial Year '08 | Prospects | Sector Do's and dont's]

  • Although India's teledensity has improved from under 4% in March 2001 to over 26% by the end of March 2008, we are still way behind other developing nations. 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 261 m at the end of March 2008 (compounded annual growth of nearly 85% during this eight 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.
  • As far as Internet services are concerned, India currently has a subscriber base of around 11 m. 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%.

How to Research the Telecom Sector (Key Points)

  • 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.
  • 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.
  • 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.
  • 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
  • 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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Financial Year '08

  • FY08 saw the continuance of strong growth for the Indian telecom market, which witnessed a 46% YoY increase in its subscriber base during the 12-month period. At the end of March 2008, the country’s total telecom subscriber base (fixed plus mobile) stood at 300 m. Teledensity crossed the 26% mark by the end of the fiscal.

  • Growth remained robust in the GSM mobile space, with the same growing its subscriber base by 71 m, thus contributing to 76% of the total incremental subscriber addition for the entire Indian telecom market. After a strong 75% YoY increase in subscriptions during FY07, the GSM industry recorded another good performance during FY08, growing subscriber base by 59% YoY to over 192 m.
  • During FY08, India's mobile subscriber base grew by 58% YoY, from 165 m to 261 m, while the fixed subscriber base declined by 3%, from 40.8 m to 39 m.
  • The year also saw a strong 67% YoY rise in the Internet broadband subscriber base. Currently, the base stands at around 4 m users, as against 1.4 m at the end of March 2007.

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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, which had a subscriber base of over 39 m at the end of FY08. The huge market share of public sector behemoths, MTNL and BSNL 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.
  • 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’s subscriber base has grown by over 57% YoY in FY08. Policy measures like lowering of taxes on the cellular industry and benefits of enhanced FDI limits shall further the prospects of the cellular industry.
  • 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.
  • According to industry estimates, total subscribers are expected to increase by about 34% to touch 402 m by 2009. Cellular subscribers will continue to propel the subscriber growth. As per the CMIE, cellular subscriber base is estimated to grow by around 40% during FY09. On the other hand, landline subscribers are expected to decline by 6% to 37 m, while the total teledensity is expected to touch 35% by the end of the fiscal.

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

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