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EXECUTIVE SUMMARY
The Indian telecom industry is the fastest growing industry with an addition of 9- 10 million monthly subscribers. The Indian telecommunications network with over 375 Million subscribers is second largest network in the world after China. Major players in this sector are BSNL, MTNL, Airtel, Vodafone, BPL, Tata, Idea, etc. Buyer power and threat of rivalry is very high in Indian Telecom Sector. Both these factors are formidable. This could be reason of consolidation in the industry. Companies try to reduce threat of rivalry by merging or buying out rival companies. Telecom sector is one of the integrated parts of economy of any country and the Government regulatory and policy initiatives have also been directed towards establishing a world class infrastructure in India also. It provides an ideal environment for the investment but it also has a very complex structure. The challenges imposed on the Indian telecom market are increasing day by day because of the new technologies and knowledge. The government has taken many proactive initiatives to facilitate the rapid growth of the Indian telecom industry. 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. Despite the gloomy outlook owing to the global recession/slowdown in the economy, the telecom sector of India continues to attract record number of new subscribers. The Indian mobile phone operators have been adding about 8-10 million subscribers every month throughout this year, and the figure has regularly topped the 10 million mark during the last three-four months. Considering the current pace of fresh additions per month, India has the potential of taking the total tally of subscribers to 700 million in the next five years from the current level of about 350 million, second only to China.
The rapid growth in Indian telecom industry has been contributing to India's GDP at large. Telecom industry in India started to set up in a phased approach. Privatisation was gradually introduced, first in value-added services, followed by cellular and basic services. Telecom Regulatory Authority of India (TRAI) was established to regulate and deal with competition (the service providers). This gradual and thoughtful reform process in India has favoured industry growth. Upcoming services such as 3G and WiMax will help to further augment the growth rate
State owned companies (BSNL and MTNL) Private Indian owned companies (Reliance Infocomm, Tata Teleservices, Shyam) -Foreign invested companies (Vodafone, Aircel, Bharti Tele-Ventures, Escotel, Siestema Idea Cellular, BPL Mobile, Spice Communications)
Wireless Service: A. Service Providers' share in net additions during the month SOURCE:
http://pib.nic.in/archieve/others/2010/feb/r2010022476.pdf
Bharti-Airtel leads the wireless market with 22% market share. The company recently achieved the magic figure of 100 million subscribers. However, Bharti-Airtel expects a bloodbath in the Indian telecom market in the near future, and is looking to spread its risks by entering new geographies .With 12-13 players present in the market there would be a severe pressure on margins. Be it an Aircel or Etisalat, the new operators would not remain fringe players in the Indian market, but would try and rock the applecart of existing operators. The growth in Indian market could start tapering off very soon. According to an industry expert the subscriber base will not expand beyond 800 million in coming years from current number 400 million. Also, ARPUs in India have steadily falling ($5-$6). There have been talks about 3G and IPTV pushing growth, but it all seems far-fetched. The third generation of mobile services (3G) will be used by telecoms to gain more spectrums. Besides, the services will be used only in urban areas.
Service Provider wise Market Share as on 31-1-2010 SOURCE: http://pib.nic.in/archieve/others/2010/feb/r2010022476.pdf 1.4.2 Broadband ( 256 Kbps download)
Total Broadband subscriber base has increased from 7.83 million in December-09 to 8.03 Million in January-2010, there by showing a growth of 2.42%.
POLICY INITIATIVES
The government has taken many proactive initiatives to facilitate the rapid growth of the Indian telecom industry.
100% foreign direct investment (FDI) is permitted through the automatic route in telecom equipment manufacturing FDI ceiling in telecom services has been raised to 74% Introduction of a unified access licensing regime for telecom services on a pan-India basis Plan to introduce mobile number portability in a phased manner The government is implementing a program of connecting 66,822 uncovered villages under the Bharat Nirman programme. The government will invest US$ 2 billion to set up 112,000 community service centres in rural India to provide broadband connectivity in 2008-09. 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
The Russian government picked up equity amounting to US$ 670 million-US$ 700 million in Sistema Shyam TeleServices Ltd (SSTL), a joint venture between Russiabased telecom major Sistema and Shyam Group in India, by the end of this financial year. SSTL is also planning to invest US$ 5.5 billion over the next 5 years in India. 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 acquired a 27.31 per cent equity capital of Tata Teleservices for about US$ 2.6 billion in November 2008. Bahrain's Batelco has signed a deal to buy 49 per cent in Chennai-based S-Tel, a GSM service provider, for US$ 225 million. BSNL, India's leading telecom company in revenue terms, will put in about US$ 1.16 billion in its WiMax project. 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. Telecom operator Aircel, which launched GSM mobile services in Bangalore in February 2009, plans to invest US$ 220.58 million over the next year to set up base stations across the state.
REVIEW OF LITERATURE
Jain (1993) analyzed that in response to the business needs of faster, cheaper, and more varied modes of communication, the telecommunication sector in many countries has been undergoing rapid technological and structural changes over the past few years. Since the mid 1980s, the telecommunication sector in India, too, has undergone major transformations. Private participation in the manufacture of end user equipment and services, reorganization of the monolithic Department of Telecommunication, and raising finances from the public for investment in the state owned factories and organizations have been some of the policy initiatives of the government. The Indian telecom sector is characterized by under-investment, amalgamation of regulatory and operational functions, ill-defined sector policies, and lack of financial and administrative autonomy - features which are common to many other developing countries. In such a scenario, the consequences of sectoral changes have implications both for decision makers at the national level as well as in other developing countries. The policy changes initiated by the government and the lessons to be drawn from India's experience are reviewed. Monie (2002) stated that India is the great big oasis most multinational corporations are looking to as they consolidate their position in Indian companies. This was evident during the past year where foreign players accounted for approximately 35% of the value of Indian acquisitions. The
telecoms sector dominated the M&A scene accounting for 24% of all deals done last year. The Batata-BPL telecom deal ($662 million) represented 10% of all deals done during 2001. This study show that M&A deal requires active management of desired business synergies, market prospects, price, structure, negotiations and human resources. However, before considering an M&A the acquirer would need to consider the legal and tax aspects of the deal. Singh (2005), stated the role that information and communication technologies are playing for Indian society to educate them formally or informally which is ultimately helping India to emerge as an information society. Though India has a huge population, the illiteracy rate is also huge in this country. The paper has taken an approach to find the historical situation and present the prevailing scenario as well as the change that are taking place with the application of ICT to the advantage of the society in different areas including daily life. India is making all out efforts to be counted among the developed nations of the world. The article also describes the considerable attention India is taking for application of technology, development of infrastructure and human resource for meeting national needs. Basically India is building an information society. Technology has helped society to cut across the traditional boundaries for getting converted into an emerging information society. The study concludes that The Indian software and services industry has significantly helped to boost the Indian economy. In ITenabled services too, India has been clearly perceived to be the dominant hub. The Indian software sector is being recognized as the single largest contributor to incremental market capitalization in India but the sector is still small in terms of contribution to GDP, especially when compared to other large sectors in the economy like agriculture and manufacturing. Similarly, the telecommunication sector has contributed a lot but still has a considerable way to go. The paper also enforces that comparisons of India's telecommunication statistics with those of developed and other emerging economies show that the country is still far behind its contemporaries. Kokil et al. (2006) emphasized that the Telecom sector is one of the integrated parts of economy of any country and the Government regulatory and policy initiatives have also been directed towards establishing a world class infrastructure in India also. It provides an ideal environment for the investment but it also has a very complex structure. The challenges imposed on the Indian telecom market are increasing day by day because of the new technologies and knowledge. India's 21.59 million-line telephone network is one of the largest in the world and the 3rd largest among emerging economies (after China and Republic of Korea). Given the low telephone penetration rate -2.2 per 100 people of population, which is much below the global average, India offers vast scope for growth. There is great need of Indian Telecom companies to be flexible. This paper basically deals with the different kind of flexibilities and types of flexibilities exist in any company. Here, basic research is done for two Indian companies that are Bharti Tele-Ventures Limited (BTVL) and Bharat Sanchar Nigam Limited (BSNL) and this shows how any company do well in market if it is flexible. Gupta (2008) stated that even there was slow down in the market but merger and acquisition were happening in the telecom sector, it showed that it is only sector which is on boom .the main thing is it's also boosting the Indian economy. near about 20 deals has done in telecom sector and worth $9.15 bn The study reveal that maximum of the telecom deals were inbound with foreign companies infusing money to the tune of $ 8.065 bn .in order to gain ground on the on the Indian
soil during April to November 2008 merger worth $676 million was announced. The main considerable thing is that there is not any effect of Global liquidity Crisis on the telecom sector. Indian telecom market is fastest growing market in the world in 2008 the growth of telecom sector was near about 70 %. And cellular companies add their 26.1% subscriber in that year though there was liquidity crunch in the market. The telecom sector showed their 30% growth in September 2008. Narayana (2008) estimated the contribution of telecommunication (or telecom) services to aggregate economic growth in India. Estimated contribution is distinguished between public and private sectors to highlight the impact of telecom privatization on economic growth. Knowledge of policy determinants of demand of telecom services is shown to be essential to enhance growth contribution of telecom services. Using a recent sample survey data from Karnataka State in South India, price and income determinants of demand for telecom services are estimated by capacity of telephone exchanges. Estimation results offer evidence for significant negative own price elasticity and positive income elasticity of demand for telecom services. Mani (2008) addressed a number of issues arising from the growth of telecom services in India since the mid-1990s. It also discusses a number of spill over effects for the rest of the economy and one of the more important effects is the potential to develop a major manufacturing hub in the country for telecom equipment and for downstream industries such as semiconductor devices. The telecom industry in India could slowly become an example of the service sector acting as a fillip to the growth of the manufacturing sector. A beginning towards this has been made. The formation of a Telecom Equipment Export Forum and the announcement of the Indian Semiconductor Policy 2007 are steps in this direction. Success crucially depends on the response of the private sector to these incentives. Given the importance that a regulatory agency can play in this crafting, no effort should be lost in strengthening the powers of the TRAI. The benefits to the Indian economy from having both a strong services and manufacturing segments in the telecom sector cannot be undermined. Debnath et al. (2008) stated that Technological modernization is increasingly viewed as a premeditated necessity in today's era of growth and prosperity for any country. Telecommunications has entered a new age of development with advanced technology and increased competition with established players. The technological advances in the telecommunication sector are associated with an uninterrupted growth of the mobile sector. The prime focus of the service providers is to create a loyal customer base by benchmarking their performances and retaining existing customers in order to benefit from their loyalty. The paper aims to address these issues. This paper employs the method of data envelopment analysis (DEA) to compare the relative efficiency of mobile service providers in India. The identification of the strongest and the weakest service providers could be very useful in improving their efficiency and performance. Mathematically, DEA determines the best weights for each input and output for a particular unit under study so as to maximize its relative efficiency. The results are insightful to the telecom policy planner as benchmark them in terms of their efficiency. It also identified the inefficient service providers who can improve their efficiency by making the efficient providers as their role model. This research paper contributes to the literature in two ways: firstly, this research identifies the different parameters for the mobile service providers in India for the benchmarking of the service providers. It also categorized them into various input
and output parameters contributing towards the number of subscribers for different service providers. In the next stage, this research takes a further step and examines whether there are differences between the number of subscribers and the performance of the service providers. Benchmarking of the service providers would depend on the efficiency and quality of service. There is still great diversity in the relative performance of various service providers, which is a matter of concern to the telecom planner in this country. Srinivasan (2009) stated that India is the fastest growing economy post its liberalization and globalization activism and Asia's third largest economy behind Japan and China. India's telecom density is not so high as compared to the western market. Many companies are easily attracted to the telecom sector and are interested in investing large amount which is good for both the telecom sector as well as the economy of the country. India's telecom market is the fastest growing investment pocket in the world. By 2010, it is expected that the investment will be around $24 billion and that the total number of subscribers to be around 500 to 600 million. Bharat Sanchar Nigam Ltd, Reliance Communication, Tata Teleservices, IDEA Cellular, Vodafone Essar and Bharti-Airtel are interested in investing further in the sector between $12 million to $15 million in 2009-10. Mishra (2010) stated that the economy of India has grown leaps and bounds during the last few years. The growth is eminent and is a motivation for targeting growth despite the challenges of global economic environment. The phenomenal growth of the industrial and services sector has been the real thrust creator in the aspiring Indian economy. Against this background, to give a further fillip and to sustain the past performance, infrastructure bottlenecks are posing challenges. There is a substantial lacuna between the desired and the actual availability of the infrastructural facilities in the country. Besides inadequacy, the other emerging challenge is unequal availability of the facilities across the country. One such vital area of physical infrastructure is the telecommunication services. The telecom sector has grown at a furious pace over the last decade but still there are constraints. The rising inequality in the availability of services in urban and rural areas is also a matter of concern, as it is creating a digital divide. This paper analyzes the growth and inequality in the availability of telecommunication services in the country and the role of Eleventh Five Year Plan in providing the required thrust to the sector's future growth and bridging the digital divide.
Data collection
: The secondary data has been collected from various websites, books, journals, newspapers & magazines etc.
Now let us understand the implication of degree of rivalry in Indian telecom sector. The dimensions of this parameter are determined by: High Exit Barriers:
In any industry, if the exit barrier is high it increases the difficulty of any organization to leave the industry sector. The telecom industry suffers from high exit barriers, mainly due to its
specialized equipment. Networks and billing systems cannot really be used for much else, and their swift obsolescence makesliquidation pretty difficult.
Price wars:
The price war is really very fierce in this industry. Price war in telecom industry has commoditized the market that branding has taken a backseat.
SUGGESTIONS
Should focus more on new rural area where tele density is very low and competition is less. Make strategic alliance with equipment supplier so that become a market leader in the terms of technology.
Both potential and existing competitors influence average industry profitability. The threat of new entrants is usually based on the market entry barriers. They can take diverse forms and are used to prevent an influx of firms into an industry whenever profits, adjusted for the cost of capital, rise above zero. In contrast, entry barriers exist whenever it is difficult or not economically feasible for an outsider to replicate the incumbents' position. The most common forms of entry barriers, except intrinsic physical or legal obstacles, are as follows:
2. Economies of Scale:
Already established players in telecom Industry are enjoying economies of scale and if new entrant want to enjoy such economies has no choice but to start out at a relatively large scale of operations, in order to achieve unit costs close to existing players.
4. Licensing Requirement:
Licensing requirement also act as barrier to entry. Sometimes it became very difficult for the new entrants to obtain license. (i) Unified License for Telecommunication Services permitting Licensee to provide all telecommunication/telegraph services covering various geographical areas using any technology. (ii) License for Unified Access (Basic and Cellular) Services permitting Licensee to provide Basic and /or Cellular Services using any technology in a defined service area.
SUGGESTIONS
Since tele density is still around 21% therefore telecom companies have to try to those market which is still untapped by the other telecom companies. Keep their technology up to date so that they should always offer something new to their existing customer and also new customer. Should provide better customer service through better customer relation so that old customer doesn't left.
Product-for-product substitution (email for mail, fax); is based on the substitution of need; Generic substitution (Video suppliers compete with travel companies); Substitution that relates to something that people can do without (cigarettes, alcohol).
Now let us discuss this concept for Indian telecom industry. The potential major substitutes for telecom industry are as follows:
All of these technologies have a huge potential, though none of the above a major threat in current scenario.
5. Providing the facility of substitute product in the current product or service range. For example. To tackle the threat the GSM mobile service the CDMA mobile Service provider have started to provide the additional GSM service in the same set. 6. Negotiation with suppliers for high quality service or raw materials.
SUGGESTIONS
Indian telecom companies should invest more in self Research & Development activity rather than depending upon foreign suppliers to tackling the threats of substitute.
In the context of Indian telecom industry we can say that the following points influence the buyer power:
Lack of differentiation among the service provider Cut throat competition Customer is price sensitive Low switching costs
SUGGESTIONS
Keep the price lowest in market. Actively participate in research and development activities to offer new technology. Try to maintain the uniqueness of product as long as possible. Try to be market leader in product and service range offerings.
Try to eliminate the intermediaries involved in providing products and services to reduce the cost
SUGGESTIONS
Indian telecom industry should make alliance with foreign supplier and invest jointly in Research & Development activity.
Telecom has been an active sector in India in terms of M&A deals in the last six-seven years.At a time when the economies globally are witnessing recessionary trends and mobile handset manufacturing companies are cutting their projections of handset sales in 2009, the Indian telecom industry continues to ring aloud with multi-billion dollar deals. Mega investment plans for India are being drafted by overseas telecom service providers, as they seek to participate in the world's fastest growing mobile telecom market.
Telecommunications Corporation (Etisalat) has acquired a 45 per cent stake in Swan Telecom for $900 million, valuing the company at $2 billion in September 2008. Swan, a part of Mumbaibased real estate and hospitality business house Dynamix Balwas (DB) Group, has secured licences for 13 circles (two more licences in process) out of the total 23 circles.
MORE TO FOLLOW
Telecom has been an active sector in India in terms of M&A deals in the last six-seven years. Yet, we can expect many more equity deals to take place sooner or later. The rush of overseas telecom companies will continue, as they are facing saturated markets at home, while the Indian market has a huge potential for further growth. The prominent overseas telecom companies that are seeking an entry into the lucrative Indian market include a number of Middle-East and European service providers such as Qatar Telecom, Kuwait-based Zain Group, Bahrain Telecom, Italy-based Telecom Italia SpA and a leading Turkish telecom company Turkcell. South Africa's MTN Group has also been interested in acquiring, or being acquired by, or merging with an Indian company. Acquiring a stake in an existing Indian company is the only certain way of entry in the Indian market, and the other option available right now is to participate in the auction for 3G services, which are expected to happen very soon. The government of India has set a target of 45 per cent tele-density compared with the current level of 31.50 per cent. It has estimated that the telecom sector will need $73 billion during the next five years to achieve the target of 45 per cent teledensity, and a major chunk of the required investment is expected to come through foreign direct investment (FDI) inflow, which has gone up to $1261 million in 2007-08 from$478 million in 2006-07.
AN ANALYSIS OF THE INDIAN TELECOM INDUSTRY UNDER THE PORTER'S DIAMOND MODEL REVEALS THAT INDIA OFFERS A
Some of the key advantages of investing in India are outlined below. Stable Economic Outlook
A decade of reforms has opened the country to greater competition and spurred industries to become more efficient. India is currently the fourth-largest economy on PPP basis and is well positioned on a continuously increasing growth curve. India's emergence as a leading destination for foreign investment is a result of positive indicators such as a stable 6 per cent annual growth, rising foreign exchange reserves of over US$ 266.18 billion(July 24th 2009) and Foreign Direct Investment (FDI) of US$ 15 billion. Goldman Sachs had earlier predicted that India will become the third-largest economy in the world. However, it has now revised its previous estimates and claims that by 2050, India will even surpass the US and become the second-largest economy after China. The country's economic growth has become more attractive due to the rising share of the services sector in the GDP.
FINDINGS:
The telecom industry is fastest growing industry in the Indian market with an addition of 9- 10 million monthly subscribers. The Indian telecommunications network with over 375 Million subscribers is second largest network in the world after China. Major players in this sector are BSNL, MTNL, Airtel, Vodafone, BPL, Tata, Idea, etc. Buyer power and threat of rivalry is very high in Indian Telecom Sector. Both these factors are formidable. This could be reason of consolidation in the industry. Companies try to reduce threat of rivalry by merging or buying out rival companies.Indian Telecom Sector has been an active sector in India in terms of M&A deals in the last six-seven years. Yet, it is expected that many more equity deals would take place sooner or later. The rush of overseas telecom companies will continue, as they are facing saturated markets at home, while the Indian market has a huge potential for further growth..Telecom industry in India has undergone a revolution in the recent years. The country is ranked second worldwide in terms of having the largest telecommunication network, after China. With the ongoing investments into infrastructure deployment, the country is projected to see high penetration of Internet, broadband and mobile subscribers..India's emergence as a leading destination for foreign investment is a result of positive indicators such as a stable 6 per cent annual growth, rising foreign exchange reserves of over US$ 266.18 billion(July 24th 2009) and Foreign Direct Investment (FDI) of US$ 15 billion.
CONCLUSION
The Indian telecom industry is a fine example of what can be achieved by easing governmental regulations with respect to production, imports and exports and focusing more on tariffs and other conditions of sale. In order to sustain this high growth, the government ought to be very serious about examining various proposals for bridging the digital divide through the support of private sector service providers as well. The policy focus of the government should be to maximize the spillovers of this activity to local Indian companies especially downstream industries such as components and semiconductor manufacturing. A beginning towards this has been made. The formation of a Telecom Equipment Export Forum and the announcement of the Indian Semiconductor Policy 2007 are steps in this direction. Success crucially depends on the response of the private sector to these incentives. Given the importance that a regulatory agency can play in this crafting, no effort should be lost in strengthening the powers of the TRAI. The benefits to the Indian economy from having both a strong services and manufacturing segments in the telecom sector cannot be undermined.