India's teledensity has improved from under 4% in March 2001 to around 75.23% by the end of March 2014. 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 almost 932 m at the end of March 2014. 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 28.59 m subscribers in March 2014 from 30.21 m in March 2013. The decline was mainly due to substitution of landlines with mobile phones.
As far as wireless broadband connections (>=512 kbps) are concerned, India currently has a subscriber base of about 43.2 m. Broadband penetration received a boost from the auction of broadband spectrum. The contribution of data to revenues continues to grow steadily for all leading telcos. This bodes well for the future of broadband services. Consumption of data services is growing at an exponential pace.
Intense competition has resulted in prompt service to the subscribers.
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 has intensified with the entry of new cellular players in circles. Reduced tariffs have hurt all operators.
After the fall in mobile subscriber base in FY13 due to the cancellation of spectrum licenses of some of the operators in February 2012, the sector bounced back by adding about 60 m wireless subscribers in FY14. At the end of March 2014, the countryís total telecom subscriber base (fixed plus mobile) stood at about 931.95 m. The tele-density level stood at about 75.23% by the end of the fiscal.
Data source: Trai, Company Data
Data source: Trai, Company Data
In February 2014, the government concluded the auction process for 900 and 1,800 MHz spectrum. Out of the 431.2 MHz that was put up for auction, 353.2 MHz was sold for a consideration of Rs 611.622 bn.
During FY14, the Indian government issued new merger and acquisition (M&A) norms as well as fixed the uniform license fee at 8% of adjusted gross revenue (AGR) for all telcos for the unified license.
The fixed line business continues to remain muted despite the low penetration levels in the country. 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 continues to 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.
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 teledensity in urban areas is nearly 150%. Therefore the main driver for future growth would be the rural areas where wireless tele-density is around 43.67%. .
After a failure of not one but two rounds of spectrum auction, the government finally concluded the auction process for 900 and 1,800 MHz spectrum. Out of the 431.2 MHz that was put up for auction, 353.2 MHz was sold for a consideration of Rs 611.622 bn. The operators are still in need of spectrum for their 3G roll out plans. 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 of 2G and 3G spectrum be kept as low as possible. However, whether this happens or not, remains to be seen.
The operatorís margins improved during FY14. Due to reducing competition, tariffs remained stable. The operators continued to see better realizations. This is more a function of the elimination and cutting down of subscriber related costs rather and free promotional offers 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. This will be aided by good growth in the rural and semi-urban customer base.
Balance sheets of operators continue to remain under pressure. Operators took a lot of debt in the process of shoring up funds for the license renewals and payments of one time fees. The incumbents Bharti Airtel and Idea Cellular have raised money through stake sales and qualified placements respectively and in the case of Bharti, the sale of its tower assets in Africa.