telecom dms, iit delhi finicky

8/3/2019 Telecom DMS, IIT Delhi FinICKY

1/7

Analysis of

Indian Telecom

Sector

Anshul Mehta DMS, IIT Delhi 9718402347 [email protected]

Pranshu

SrivastavDMS, IIT Delhi 8860218849 [email protected]

1


2/7

Introduction:

Telecom sector plays a very vital role in the socio-economic development of any nation and India is no

exception. Indias telecom sector has witnessed a phenomenal growth during the last few years and is poised

to take a big leap in the future also. Since the time of National telecom policy 1994, to the recent times of

Mobile number portability, the telecom sector has surpassed all imaginable bounds of growth. Either it is the

employment provided to millions or the reduction of the distances, the economic and social impact of telecom

on our society is huge. Over just a short span of few years, the sector has changed completely, both in terms of

coverage, efficiency and variety of services offered.

Major Segments within the sector :

Major Players:

The major players can be shown segment wise. The top service providers, along with their market shares at

the end of May11 are shown with the pie-chart. Bharti Airtel with close to 20% share is the biggest service

provider, followed by Reliance and Vodafone. Private operators hold 88.30% of the wireless market share

where as BSNL and MTNL, two PSU operators hold only 11.70% market share.

Current state:

2

The major segments within the telecom

sector are: services & manufacturing.

Services includes - wireline and

wireless, while manufacturing includes

switching equipments, terminal

equipments, telecom cables etc.

Terminal equipments include telephone

instruments like handsets, fax

etc.Services also comprises smaller

segments, such as radio paging services,

Very Small Aperture Terminals

(VSATs), Public Mobile Radio Trunked

Services (PMRTS) and Global Mobile

Personal Communications by Satellite

(GMPCS).

The complete segmentation of the whole

sector is shown with the help of a chart.

The top players in the telecom equipment

manufacturing sector, includes the names like:

AGC Networks

Alcatel-Lucent

Bharti Mobile

GTL

H F C L

HTL

ITI

NELCO

S Mobility


3/7

With a quarterly growth rate of close to 7.5% and the annual addition of more than 220 mn customers, India is

the world's fastest-growing cellular market. India is also the 2nd largest telecom market in the world, second

only to China. The table summarizes the industry data till the end of May11.

Total subscribers 874.68 mn

Urban subscribers 580.62 mn

Rural subscribers 294.07 mn

Total tele-density 73.11%

Urban tele-density 161.37%

Rural tele-density 35.15%

Average revenue per user (ARPU) GSM Rs. 100

Average revenue per user (ARPU) CDMA Rs. 66

# Industry Concentration:

The current tele-density stands at 73.11% with the urban market more than 150% penetrated. Out of this

73.11%, 70.23% is accounted for by the wireless segment only. For wireless, every two connections in the

urban market correspond to one in the rural; while the ratio of the same for the wireline is three to one,

demonstrating clearly higher acceptance and ease of deployment of the wireless compared to other. On

account of high capital investments required in setting up a nationwide network, the PSUs hold a dominant

position in the wireline space.

# Trends:

3

The addition of an average 18.75 million

connections per month puts the Indian

telecom sector on a strong foot. The market

has shown a very steep upward growth in

terms of number of subscribers added. With

the number of wireline subscribers steadily

declining over years, explosive wireless

growth is the reason behind the Indian

telecom boom.

Internet penetration is also steeply increasing

with the share of the broadband subscribers

out of the total subscribers, rising constantly.


4/7

# Price Competition:

India is a country with the lowest telecom rates in the world. These fiercely cut tariffs are taking a toll on the

sector profits. During the last two years, profits and revenues of Indian telecom companies have suffered, with

tariffs as low as, less than one US cent a minute. In the month of May, Indias biggest operator Airtel,

reported a 31% dive in the quarterly net profits from a year earlier.

However, the companies are making a move to get out of this self destructive price war and the pressure on

the sector is expected to abate. In the month of July, Airtel hiked the prices of few of its plans by 20%, in 6

circles of its operation. Tata Docomo has also hiked the prepaid tariffs in Tamil Nadu. The other major

operators are also expected to follow suit soon.

# Industry Capacity:

While the Urban Tele-density already exceeds 150%, the rural tele-density is still close to 33%. In cities, for

every 2 individuals there are 3 mobile numbers and in rural areas, there is 1 mobile number for every 3

individuals. With the saturation of the urban market, companies have put in great efforts to tap in the only

35% penetrated rural markets. Rural market, with growth of 2.15% continues to outperform urban wireless

telecom which grew by 1.34%. The companies are looking for options like infrastructure sharing to reduce the

very high installation costs in the rural areas.

Non-voice services and VAS can be the revenue drivers in the current market. It is expected that 3G and

BWA will increase the demand for data and content based services such as cloud computing, remote

surveillance, fleet management and retail supply chain. Services such as mobile TV, mobile banking and

mobile governance are also expected to witness a higher demand in future. Companies have also realised these

huge opportunities and are putting in great efforts to develop content of practical value, so as to substantiate

the falling ARPUs (Average Revenue per User) with increased earnings.

# Industry Lifecycle:

4
http://trak.in/tags/business/2010/04/15/rural-india-mobile-telephony-wishlist/http://trak.in/tags/business/2010/04/15/rural-india-mobile-telephony-wishlist/http://trak.in/tags/business/2010/04/15/rural-india-mobile-telephony-wishlist/http://trak.in/tags/business/2010/04/15/rural-india-mobile-telephony-wishlist/


5/7

The rural and the urban industry are in the different phases of the life cycle. While the urban market is in the

maturity stage, the rural market is still in the growth stage. Companies are planning big to capitalise on the

vast Indian rural market. The ARPU is at an all time low, and companies are investing huge in non-voice

services to check this decline. With the now available 3G, VAS is seen as the industry driver that can break

this urban market saturation, emulating the NTT Docomo story of the Japanese market.

Macro & Micro Environment:

Over the past two decades, the Indian telecom sector underwent a huge transformation, evolving from a

monopolistic to a highly competitive, productive and an increasingly innovative sector. The regulatory

framework has played a pivotal role in shaping the Indian telecom sector, the way we see it today. TRAI

(Telecom Regulatory Authority of India) till date has successfully accomplished its objectives of protecting

the consumers and stirring the competition in the market. Though, National Telecom Policy 1994 and 1999

have laid an overall framework for the industry, they failed to achieve their objectives in totality. And this has

raised a digital divide amongst the rural and urban areas. This financial year, govt. plans to raise money

through recurring license fees and other usage charges from the telecom sector, a move which will put an

additional financial burden on the service providers. In future also, the government policies will have a

decisive role in determining how the future of the sector will look like. In the upcoming National Telecom

Policy 2011, Mr. Kapil Sibbal is supposed to deal with many contentious issues like M&A, spectrum trading,

MVNO, green telecom etc.

Talking of the micro environment, companies are most hurt by the prevailing price war, declining profits, skyhigh debts and a pesky stock market. The huge amount of money spent in procuring the 3G auction, has

strained the balance sheets of a lot of companies. With the new entrants fighting hard with the biggies to grab

a chunk in the market share, the competition is expected to stiffen, and survival in such times will mean leaner

and agile organizations.

Competitive Analysis :

The telecom sector is fortunate to have a true competition in terms of market share and subscribers. While

currently Airtel leads with the maximum number of subscribers, it is Vodafone that showed the maximum

additions in the recent quarter.

Introduction of MNP has made this sector even more competitive, with every operator striving to retain their

customers and reduce the churn outs. The companies, who are not able to meet the QoS (Quality of Service)

standards, will be at the receiving end. This will force the companies to offer better services to the customers,

thus leading to improved QoS for the whole sector.

5


6/7

By the end of May 2011, about 105.70 lakh subscribers have submitted their requests to different service

providers for porting their mobile number. The maximum number of requests pertains to Gujarat, where a

whopping 10,52,582 requests were made for porting till the month of May11.

Industry drivers and Challenges:

Drivers Challenges

Advent of 3G and BWA

Huge potential of m-Commerce

Unexplored VAS markets

Presence of positive regulatory framework

Growing economy resulting in better lifestyle of

people.

Tremendous scope in rural markets

Improvements literacy standards in India.

Dwindling profit margins

Lack of support for manufacturing sector

Scam ridden industry (2G scam)

Steeply declining ARPU

Very less efficient spectrum use

Lack of consumer awareness for VAS

Very high market competition

Financials Analysis:

Key Financial Ratios ofThe Telecom Service Sector over the years

Year201

0

200

9

200

8

200

7

200

6

200

5

200

4

200

3

200

2

200

1

Debt-Equity Ratio 0.35 0.31 0.32 0.29 0.26 0.27 0.34 0.36 0.36 0.39

Long Term Debt-Equity

Ratio

0.3 0.21 0.25 0.25 0.22 0.24 0.29 0.33 0.34 0.38

Current Ratio 1.22 1.3 1.33 1.36 1.28 1.2 1.01 1.01 1.04 1.1

PBIDTM (%)39.5

3

32.9

6

39.2

3

40.8

1

40.5

440.3

42.2

934.8

45.0

8

37.8

6

PBITM (%)19.0

3

16.7

6

21.1

1

21.2

7

19.8

617.2 18.1 6.99

19.6

415.7

PBDTM (%)35.1

2

27.8

2

35.4

5

37.4

5

36.6

5

37.8

3

39.3

5

30.3

6

40.9

5

34.1

3

CPM (%) 35.9 26.2 32.8 35.6 36.4 41.7 33.9 28.0 37.4 31.5

6


7/7

1 3 5 2 7 5 8 8 2

APATM (%)15.4

1

10.0

3

14.7

3

16.0

6

15.7

4

18.6

79.75 0.27

12.0

59.36

ROCE (%) 9.72 7.3510.6

4

10.9

5 9.37 8.25 8.43 3.07 9.211.3

2

RONW (%)10.1

15.97 9.78

10.7

79.34

10.8

76.76 0.18 7.92 8.98

Future outlook:

Many exciting things like 3G, Broadband wireless access (BWA), and Mobile Number Portability (MNP) are

happening in the sector, ensuring that the future will be equally or even more interesting than the past.

With this astonishing rate of growth, India will soon be touching the 1 billion subscriber mark, in a

year or two.

The overheated competition in the sector, will lead to a few mergers and acquisition activities in the

nearby future, after which an entirely new sector structure will emerge.

With the price war taking a toll on the companys profit, we can expect to see the price hikes by a

number of operators, anywhere between 10 to 20%.

Value added services, touted as the next big thing in telecom, will see a lot of innovations happening,

creating a demand for the regional content.

M-commerce after the full fledged deployment will serve the governments dream of financialinclusion for all.

With Reliance backed Infotel being awarded with the pan India BWA license in the recent auctions,

the broadband space will get a huge push.

In the wireline segment, Broadband is expected to push growth and check the declining numbers.

Conclusion:

The Indian telecom sector, after shaping Indias growth story for more than a decade, still looks strong; strong

enough to push the giant for years more on the paths of prosperity. With markets still untouched, opportunitiesstill huge and trends still in favour, the India telecom industry is all poised to create another growth story.

7

telecom dms, iit delhi finicky

Documents