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Telecom Sector Analysis Report 

[Key Points | Financial Year '18 | Prospects | Sector Do's and dont's]

  • India is the world's second-largest telecommunications market, with around 1.2 billion subscribers as of September 2018. The telecom market can be split into three segments – wireless, wireline and internet services. The wireless market comprises 98.1% of the total subscriber base. India's telephone subscriber base has expanded at a CAGR of 19.6%, reaching 1,183.4 million at the end of FY18. Tariff reduction and decline in handset costs has helped the segment to gain in scale.
  • The cellular segment is the dominant segment in the industry by making itself available in the rural areas where the teledensity is far lower (56.9%) than that in urban India (171.1%).
  • Strong policy support from the government has been crucial to the sector's development. Foreign Direct Investment (FDI) cap in the telecom sector has been increased to 100% from 74%.
  • With daily increasing subscriber base, there have been a lot of investments and developments in the sector. The industry has attracted FDI worth US$ 31.75 billion during the period April 2000 to June 2018, according to the data released by Department of Industrial Policy and Promotion (DIPP).

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
  • Complex regulations, 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, mobile number portability (MNP), 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 will increase as Reliance Jio Infocomm (RJio) has entered the industry in 2016. Reduced tariffs have hurt all incumbent operators. Also, customers' low switching cost and price sensitivity are increasing competition among players.

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Financial Year '18

  • FY18 was a decisive year for the Indian Telecom Sector on numerous counts. Industry revenue table continued to remain under pressure, with the launch of aggressive price offerings by the latest entrant. The continuing disruption hastened consolidation and operators with stretched balance sheets found it difficult to survive.
  • The sector is witnessing exponential data traffic growth led by increased smartphone penetration, cheaper data tariffs, and proliferation of regional content. Though the mobile broadband penetration is approximately 30% today, it is expected to grow manifold and make India the second largest smartphone market (ahead of US and just behind China). Further, data traffic is expected to grow 7-fold from 2016-2021.
  • The year saw financial stress across the industry ultimately leading to hastening of the eventual consolidation in the industry. The year saw a host of operator shut downs and M&A announcements. This has fast tracked the customer consolidation and consequently the customer base has registered a muted growth of 1% in FY18 vis-à-vis 1,194.6 million last year and there has been a marginal decline in the tele-density from 93% last year. The tele-density level stood at about 92.8% as on 31 March 2018.
  • The sector has witnessed a strong growth of internet users and remains to have world's second highest number of internet users. The wire-line customer base was at 22.8 million at the end of 31 March 2018 as against 24.4 million at the end of 31 March 2017.
  • The sector regulator, Telecom Regulatory Authority of India (TRAI) has announced a reduction in International Termination Rate (ITR) from H 0.53 per min to H 0.30 per min w.e.f. 1 February 2018. With the enactment of GST Act, 2017, various central and state taxes have been subsumed in a unified Goods & Services tax (GST) w.e.f. 1 July 2017. The GST rate for telecommunication and broadcast services has been fixed at 18%.

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Prospects:

  • Revenues from the telecom equipment sector are expected to grow to US$ 26.4 billion by 2020. The number of internet subscribers in the country is expected to double by 2021 to 829 million and overall IP traffic is expected to grow 4-fold at a CAGR of 30% by 2021.
  • The Indian Government is planning to develop 100 smart city projects, where IoT would play a vital role in development of those cities. The National Digital Communications Policy 2018 has envisaged attracting investments worth US$ 100 billion in the telecommunications sector by 2022.
  • 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 is the major catalyst in the growth of the sector. The scale of the mobile opportunity in India is therefore immense.
  • Increasing choice and one of the lowest tariffs in the world have made the cellular services in India attractive for the average consumer. The teledensity in urban areas is about 153.5%. Therefore, the main driver for future growth would be the rural areas where wireless tele-density is around 57.6%.
  • India's growth momentum is likely to accelerate in FY19, with continued focus on infrastructure creation and manufacturing, and trickle-down impact of past policy reforms. In addition, long-term economic growth will be driven by major factors: low interest rates; benign inflation; favourable demographics (half of the population is below the age of 35); and greater focus on formalisation and digitisation of the economy.

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

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