The Indian telecommunications industry is one of the fastest growing in the world and India is projected to become the second largest telecom market globally by 2010. In April 2008, India overtook the US as the second largest wireless market, and as a pointer to the increasing global influence of Indian telecom companies, seven Indians have featured in the list of the world's 100 most influential telecom leaders, compiled by Global Telecoms Business, an industry magazine. According to CRISIL Research estimates, eight infrastructure sectors, which include the telecom sector, are expected to draw more than US$ 345.28 billion investment in India by 2012.

With the rural India growth story unfolding, the telecom sector is likely to see tremendous growth in India's rural and semi-urban areas in the years to come. By 2012, India is likely to have 200 million rural telecom connections at a penetration rate of 25 per cent. And according to a report jointly released by Confederation of Indian Industry (CII) and Ernst & Young, by 2012, rural users will account for over 60 per cent of the total telecom subscriber base.

According to the Geneva-based International Telecommunication Union (ITU), factors like India's current mobile telephone penetration rate of about 20 per cent and market liberalisation policies are likely to offer 'great potential' for the growth of telecom companies in India. Forthcoming services such as 3G and WiMax will further augment the growth rate. According to Business Monitor International, India is currently adding 8-10 million mobile subscribers every month. It is estimated that by mid 2012, around half the country's population will own a mobile phone. This would translate into 612 million mobile subscribers, accounting for a tele-density of around 51 per cent by 2012. It is projected that the industry will generate revenues worth US$ 43 billion in 2009-10.

Growth in Segments

According to a Frost & Sullivan industry analyst, by 2012, fixed line revenues are expected to touch US$ 12.2 billion while mobile revenues will reach US$ 39.8 billion in India. Fixed line capex is projected to be US$ 3.2 billion, and mobile capex is likely to touch US$ 9.4 billion. Further, according to a report by Gartner Inc., India's mobile subscriber base is projected to exceed 737 million connections by 2012 growing at a compound annual growth rate (CAGR) of 21 per cent and India is likely to remain the world's second largest wireless market after China in terms of mobile connections. The overall cellular services revenue in India is projected to grow at a CAGR of 18 per cent from 2008-2012 to exceed US$ 37 billion. Cellular market penetration will rise to 60.7 per cent from 19.8 per cent in 2007.

GSM companies added over 6.3 million new customers in June 2008, (excluding the GSM subscriber base of Reliance Telecom) crossing the 212 million mark, with a growth of 3.07 per cent over May 2008, according to the Cellular Operators' Association of India (COAI). According to an analyst firm, Springboard Research, India will become the leading market for WiMax in the Asia pacific region and is expected to have 15.8 million WiMax subscribers by 2012, accounting for 46.7 per cent of total subscribers in Asia-Pacific and 35.7 per cent of revenues from the region.

In a new trend, global consumer electronics and mobile phone vendors are going green in India. Major players like Nokia, LG, Samsung and Haier, among others, are planning to introduce products that will be positioned on an environment-friendly platform, starting the trend of environment as a brand strategy in the Indian consumer electronics industry.

Value-Added Services Market

A report by market research firm IMRB stated that the mobile value-added services (MVAS) industry was valued at US$ 1.15 billion in June 2008, and is expected to grow rapidly at 70 per cent to touch US$ 1.96 billion by June 2009, while according to another report by PricewaterhouseCoopers (PWC), the Indian VAS market is all set to grow to US$ 2 billion in 2008.

Currently, MVAS in India accounts for 10 per cent of the operator's revenue, which is expected to reach 18 per cent by 2010. According to a study by Stanford University and consulting firm BDA, the Indian MVAS is poised to touch US$ 2.74 billion by 2010. Mobile advertising, which is an important VAS segment, is still miniscule in India. According to analysts, it has the potential to grow at 200 per cent a year, becoming an important revenue source.

Marketers are increasingly using MVAS as a step ahead of SMS-based marketing to sell soaps and shampoos, banking, insurance products and also entertainment services and rural markets are proving to be very receptive for such marketing. Further, Venture Capitalists like Canaan Partners, Draper Fisher Juvertson, Helion, and Nexus India are also innovating with services like mobile payment options, advertising, voice-based SMS and satellite video streaming.

According to Venture Intelligence, there were nine deals worth US$ 41 million in 2007, in the mobile VAS space, and till August 2008, seven deals worth US$ 91 million have already been finalised. Presently, mobile VAS has a US$ 700 million market with a 20 per cent y-o-y growth, which is likely to touch US$ 3 billion by 2012.

Major Investments

The booming domestic telecom market has been attracting huge amounts of investment, which is likely to accelerate with the entry of new players and launch of new services. Buoyed by the rapid surge in the subscriber base, huge investments are being made into this industry.

• Norway-based telecom operator Telenor has bought a 60 per cent stake in Unitech Wireless for US$ 1.23 billion.
• Japanese telecom major NTT DoCoMo has bought a 26 per cent stake in Tata Teleservices' (TTSL) for US$ 2.7 billion.
• Mauritius-based P5 Asia Holding Investments (Mauritius) Ltd will be investing around US$ 545.13 million to hold a 20 per cent stake in Aditya Birla Telecom Ltd (ABTL). The funds will be utilised for network rollout and operations of ABTL in the Bihar circle.
• Bharat Sanchar Nigam Ltd (BSNL) is planning an investment of around US$ 201.5 million in the Tamil Nadu Circle for an additional 23 lakh mobile connections under both 2G and 3G technologies by 2009.
• Etisalat, a Gulf-based telecommunications company has picked up a 45 per cent stake in Swan Telecom.
• Kavveri Telecom Products Limited is planning to set up a new subsidiary - Kavveri Telecom Infrastructure Limited (KTIL) - with an investment of US$ 20.11 million over the next two years, to offer in-building telecom infrastructure to telecom service providers.
• Juniper Networks, which is the second-largest maker of networking equipment, plans to invest US$ 400 million in India, over the next five years, with a focus on its research and development (R&D) activity.
• BSNL, India's leading telecom company in revenue terms, will put in about US$ 1.16 billion in its WiMax project.
• Bharti Airtel will be spending US$ 2.5 billion in a major expansion bid.
• Reliance Communication has committed US$ 5.69 billion as capital investment for the fiscal year ending March 2009.
• Idea Cellular will spend about US$ 2.36 billion in the fiscal ending March 2009.
• Maxis Communications-owned mobile service provider Aircel is planning to invest close to US$ 5 billion over the next four years in India for network enhancement and expansion.
• Srei Group's Quippo Telecom Infrastructure Ltd (QTIL) plans to invest US$ 3 billion in 2008-09 to ramp up its telecom infrastructure business to grow both organically and inorganically.
• Vodafone Essar will invest US$ 6 billion over the next three years in a bid to increase its mobile subscriber base from 40 million at present to over 100 million.

Investments Abroad

After the amazing growth story in the domestic market, Indian telecommunication companies are now set to have a major global footprint.

• The Bharti Group, which already has operations in Seychelles, (begun over a decade ago), and in the Channel Islands in Europe, will be foraying into the Sri Lankan market. Bharti Airtel will launch 2G and 3G services with an initial investment of US$ 200 million.
• Reliance Communications will be launching its mobile services in Uganda by the end of 2008, with an investment of US$ 500 million. It also plans to foray into Sri Lanka. MTNL too has launched its services in Mauritius, after a wireless operation in Nepal as a joint venture.
• DTH company Spize TV (owned by Pyramid Saimira Group) has bought France Telecom's European DTH operations called WorldTV Europe.

Manufacturing

India's telecom equipment manufacturing sector is set to become one of the largest globally by 2010. Mobile phone production is estimated to grow at a CAGR of 28.3 per cent from 2006 to 2011, totalling 107 million handsets by 2010. Revenues are estimated to grow at a CAGR of 26.6 per cent from 2006 to 2011, touching US$ 13.6 billion.

Presently the telecom hardware manufacturing sector is dominated by international majors like Nokia, Ericsson, LG, Motorola, Samsung and Alcatel-Lucent, who have set up manufacturing bases in India. Domestic manufacturers have little contribution in the segment. Other foreign majors that have set up manufacturing bases in India include Foxconn, Flextronics Elcoteq Celestica, Elextronics Aspocomp, Salcomp, Siemens, Cisco, Perlos and Solectron. LG Electronics has announced that it will be further expanding its handset manufacturing facility in India and Nokia will now be targeting rural India in its expansion plans. In fact, Nokia Siemens Networks launched its new facility for the production and distribution of mobile communications infrastructure at Oragadam near Chennai.

Rural Telephony

Rural India had 76.65 million fixed and Wireless in Local Loop (WLL) connections and 551,064 Village Public Telephones (VPT) as on September 2008. Therefore, 92 per cent of the villages in India have been covered by the VPTs. The target of 80 million rural connections by 2010 is likely to be met during 2008 itself. Universal Service Obligation (USO) subsidy support scheme is also being used for sharing wireless infrastructure in rural areas with around 18,000 towers by 2010.

Policy Initiatives

The government has taken many proactive initiatives to facilitate the rapid growth of the Indian telecom industry.

• 100 per cent foreign direct investment (FDI) is permitted through the automatic route in telecom equipment manufacturing.
• FDI ceiling in telecom services has been raised to 74 per cent.
• Introduction of a unified access licensing regime for telecom services on a pan-India basis.
• Introduction of mobile number portability in a phased manner, starting in the fourth quarter of 2008.
• The government is implementing a program of connecting 66,822 uncovered villages under the Bharat Nirman programme. The government will invest US$ 2 billion to set up 1.12 lakh community service centres in rural India to provide broadband connectivity in 2008-09.
• The Finance Ministry has declared a five-fold (from US$ 100 million to US$ 500 million) increase in the external commercial borrowings amount, which companies involved in infrastructure sectors can borrow from overseas to spend in India.
• In another move, the Department of Telecommunications (DoT) has stated that foreign telecom companies can bid for 3G spectrum without partnering with Indian companies. Only after winning a bid, would they need to apply for unified access service licence (UASL) and partner with an Indian company in accordance with the FDI regulations.
• Further, the Reserve Bank of India (RBI) has eased its mobile-banking norms, by raising the caps on fund transfers as well as mobile-based payments, and increasing the transaction limit to Rs 5,000 (US$ 100) per day for fund transfers.

The Road Ahead

As on October 17, 2008, there were 350 million mobile and fixed line subscribers in India, with 8 million subscribers being added each month. The Union Minister for Communications and Information Technology, Mr A Raja, has stated that the target for the 11th Plan period (2007-12) is 600 million phone connections with an investment of US$ 73 billion. Apart from the basic telephone service, there is an enormous potential for various value-added services. In fact, the real potential for telecom service growth is still lying untapped.

The Indian rural market is going to be the next big thing for wireless telecom providers. With the tele-density in rural areas being still about 10 per cent against the national average of about 21 per cent, there seems to be huge untapped potential for mobile phone penetration in rural India. The government also plans an investment of US$ 2 billion, during 2008 to 2009, for the development of around 100,000 community service centres in rural India to provide broadband connectivity.

Additionally, by 2010, the government targets:

• 80 million rural connections
• Mobile coverage of 90 per cent geographical area
• Internet Protocol Television (IPTV) in 600 towns
• Quadrupling manufacture
• Two-fold increase in telecom equipment R&D from the current level of 15 per cent.

According to the CII Ernst & Young report titled 'India 2012: Telecom growth continues', revenue from India's telecom services industry is projected to reach US$ 54 billion in 2012, as against US$ 31 billion in 2008. According to Mr Prashant Singhal, Telecom Industry Leader, Ernst & Young India, "Going forward, rural telephony, 3G, WiMax and data services will drive sector growth in 2012. The industry will witness sustained growth in mobile services and data revenues. Network expansion will continue in order to support the rural growth."