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Managerial economics
Prof-K.M. KUMAR
1995
19 more telecom circles get mobile licenses
1995(August)
Kolkata became the first metro to have a cellular network
1997
Telecom Regulatory Authority of India is set up
1998
Annual foreign investment in telecom stands at Rs 17,756.4
million.
1999
FDI inflow into telecom sector falls by almost 90% to Rs.
2126.7 million
1999
Tariff rebalancing exercise gets initiated
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Page 3
1999(March) National Telecom Policy is announced.
2000(June) FDI inflow drops further down to Rs 918 million coming
2000 Amendment of TRAI Act.
(January)
2001(January)
Global Telecom Scenario
The global telecom scenario presents the overview of number of telephone connect
ions
all over the world. Telecom sector has been growing at the tremendous rate . The
major area contributing to this growth is telephone connections. The data here
represents the number of telephone connections all over the world and highest nu
mber
of connections are from Asia.
TELEPHONE CONNECTIONS IN THE WORLD
AFRICA : 220.743
AMERICA : 837.195
ASIA : 1744.815
EUROPE : 1090.504
OEANIA : 35.997
CMS-IILM GROU 4 T
Overview of Telecom Industry inIndia
Telecommunication Sector have grown phenomenally in the past 3 years as has
been surveyed by Indian Ministry of Communications and Information Technology in
New Delhi very recently. The telecom sector is one of the leading contributors t
o India's
flourishing economy.
According to the report presented by taking into account the statement of Indian
Ministry of Communications and Information Technology, the telecom opportunities
in
India has been growing by 20 to 40 percent every year since past 3 years. The
telecom services in India have been recognized as a world-class tool for the soc
ioeconomic development in India. India is known to rank fourth in the telecom in
dustry in
Asia after China, Japan, and South Korea and the telecom network in India is kno
wn to
stand in the eighth position across the globe and second among the emerging
economies.
The tele-density has grown leaps and bounds in the past few years from 2.3 perce
nt in
1999 to 4.8 percent in 2002. The world average percentage for the telecom indust
ry as
against the Indian average is 7.5 times while the Asian average against the same
was
4.5 times. The current market range of the telecommunication industry in India h
as
been estimated to USD 8 billion and this is expected to undergo an accretion by
the
end of 2012.
The growth witnessed by the telecom market in India has increased the number of
opportunities for the industry and this has been fueled by the growing mobile se
ctor,
which has attained the consumer level of 10 million by the end of December 2002
that
was almost 100 percent in the year. This outstanding growth in the mobile sector
explains the advent of digital cellular technology and reduced tariffs as a cons
equence
of competitive pressures. The growth in the cellular subscribers has surpassed t
he
benchmark of subscriber base. The telecom market has increased dramatically with
the
advent of Wireless in Local Loop Technology.
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Telecommunication Sector Opportunities in India assures a transparent, safe, and
secured ambiance for the telecom market. Around 300 million population of highly
consumable middle-class status that is advantageous for the industry surrounds t
he
telecom sector in India. This is because, in some of the Indian that possess lan
d line
telephones can be substituted by mobile phones that is very unlike the developed
countries. Therefore, it adds up to the growth in mobile sector in Indian teleco
m
industry.
Few more Telecommunication Sector Opportunities in India include introduction of
Internet telephony services, privatization of VSNL, and introduction of a number
of
international long distance services sector. The opportunities in the Indian tel
ecom
sector is increasing at a massive pace with the introduction of newer and innova
tive
schemes in various sectors and at present the telecom sector in India is claimed
to be
one of the major contributors in India's flourishing economy.
Graph showing lowest tariff in INDIA
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6
INVESTMENT AND GROWTH
In 2005-2006, the telecom industry witnessed a growth of 21% with a total revenu
e of
Rs. 86,720 crores, and the total investment rising to Rs. 2,00,660 crores. It is
projected
that the telecom industry will be enjoying over 150% growth in the next 4-6 year
s. The
growth also requires a huge investment by the players in the sector. Bharti Airt
el is
planning to invest about $8 billion by the year 2010.
Liberalization policy and some socio-economic factors are mainly responsible for
the
immense growth in the sales volumes. The lifestyle of the people has changed. Th
ey
need to be connected to the other people all the time. With the lowering down of
the
tariffs the affordability of the mobile phones has increased. The finance sector
has also
come up with loans for handsets on 0% interest. Mobile services providers are al
so
expanding their coverage area by installing more and more antennas and other
equipments.
The telecom sector in the country has already adopted the latest technological
advancements to cater to the demands of the growing market. Telecom Expo India,
Convergence India, VAS India and IPTV India being organized year to year are all
efforts in this direction.
Budget 2007 has brought disappointment to the telecom sector. Mobile service
providers have been asked to cut down their roaming rentals as well as their lon
g
distance and international call tariffs. This has led to discontent on the part
of the
service providers. However, Telecom Regulatory Authority of India (TRAI) is of t
he
opinion that this will lead to increased use of roaming, which will ultimately l
ead to more
revenue generation. Moreover, with cheaper handsets and lesser tariffs, it is ex
pected
that by the year 2010 there will be over 500 million subscribers in the Indian t
elecom
market.
Also, the telecom industry this year will be focusing more on rural areas to con
nect
them with the urban areas so that the farmers and the small-scale industries can
have
faster access to information related to weather and market conditions
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7
Teledensity
60.04
23.21
According to Gartner, a global information technology research and advisory firm
, the
revenue from India s telecom Sector will cross $30 billion by 2013.
The total mobile services revenue is projected to grow at a compound annual grow
th
rate (CAGR) of 12.5 percent during 2009-2013 to exceed $30 billion. At the same
time
the telecom subscriber base is expected to cross 770 million connections by 2013
,
growing at a CAGR of 14.3 percent from 452 million in 2009.
The factors supporting this increase are:
2007(Nov)
Gr
FIXED VS MOBILE
The graph shows the comparative study between the mobile and fixed line
subscription.
Wireline
tions (inns)
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9
Fixed vs. Mobile
Fixed line Telephony
Fixed Line Telephony can be further categorized as fixed wireline telephony and
fixed wireless telephony (known as WLL (F)). Fixed Line Telephony provides
services such as local calls and long distance calls-national and international.
The
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Government of India is now taking actions to convert all national long distance
calls
to local calls. In this regard, Public Players have already started their 1Rs. c
all
service. In India at present, fixed line telephone numbers are of 8 digits, (ini
tially 5
and 7 digits). The sector is in the process of converting all fixed line numbers
to 10
digits. Both Public Players and Private Players are competing hard to capture mo
re
and more market share. MTNL and BSNL are the leading public sector players,
whereas Reliance Infocomm, Tata Teleservices and Touchtel are the leading privat
e
sector players.
Market shares of public and Private Players
Private Players
Private Players are providing services to the whole of India. The companies are
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serving both urban and rural areas. Tata Teleservices, HFCL, Shyam, Reliance,
Touchtel are the leading Private Players in fixed line segment.
With more than 80% share with Public Players, Private Players are now striving h
ard
to capture more and more customers. Since 1997, the year they entered Fixed Line
Telephony, they have been increasing their market share every year.
Mobile telephony was introduced in Indian markets in mid-1990s. In the last few
years, the sector has witnessed tremendous growth. The subscriber base is adding
more and more customers every year. Mobile telephony recorded more than 52.2
million users in FY 2004-05, exceeding fixed line telephone subscriber base. Als
o,
mobile segment has welcomed more and more players every year. Liberalized
policies have ensured lower tariffs and reduced roaming rentals. This will lead
to
increased usage of mobile phones. Mobile telephony can be further categorized in
to
WLL, CDMA and GSM. The much-awaited 3G mobile technology is going to enter
soon in Indian telecom sector.
Mobile telephony provides services such as messaging- text and multimedia- mobil
e
commerce through GPRS enabled mobile Internet, with local calls and long distanc
e
calls- national and international.
Not only service providers but also equipment manufacturers are contributing tow
ards
the growth of the sector. Mobile telephony started up with bulky handsets and ha
s
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now reached to smart phones with cameras, radio facility and lots of other multi
media
applications. Also, PDAs have entered Indian markets with operating systems that
make it a pocket PC.
Both Public Players and Private Players are competing hard to capture more and
more market share. Leaders in Fixed Line Telephonyhave now started providing
mobile services, such as MTNL's Garuda and Dolphin. Private Players capture most
of the market share in Indian mobile segment.
Market shares of public and private players
The two Public Players, Mahanagar Telephone Nigam Limited (MTNL) and Bharat
Sanchar Nigam Limited (BSNL), are providing mobile services in India. MTNL's
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Garuda, Trump and Dolphin and BSNL's Cellone and Excel are running successfully
on CDMA, WLL and GSM technologies.
Market shares of Public Players in Indian mobile telephony
Since, Private Players entered Indian Fixed Line Telephony, market shares of Pub
lic
Players started declining. This can be easily seen by the trend of number of
subscribers (increasing or decreasing) of Public Players. MTNL has showed a
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declining trend in the last three years. BSNL is adding new customers but with a
declining growth rate.
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Subscriber trend of MTNL in mobile telephony
Corporate Overview:
Vodafone Group Plc is one of the worlds leading mobile telecommunications compan
y,
offering an extensive range of services, including voice and data communications
.
Corporate History
The Vodafone network was launched on January 1, 1985, which was the first cellul
ar
network to be launched in the UK.
In 2005, Vodafone launched of PC-to-mobile instant messaging.
Key Facts
Sales (FY05) US$62.9 billion, Assets (FY05) US$252.8 billion.
SWOT Analysis
1. Strengths
.
Dominance in Cellular Market.
.
Wide Geographical Presence.
2 Weaknesses
.
Declining Market Share in Japanese Market.
.
Limited Exposure to Emerging Markets.
.
Dispute over Corporate Tax Bill in Europe.
3 Opportunities
.
Expanding Geographic Presence.
.
Growth through 3G.
4 Threats
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.
Emergence of Low-Cost Brands.
.
Market Saturation in Europe.
.
Increased Competition in Core Markets.
Competitive Positioning
On the basis of parameters such as:
.
Number of customers
.
Total revenue
.
Voice revenue
BSNL
.
Company Profile (as on 31.12.2007)
.
Corporatized on 1st October 2000
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.
Connects length and breadth of INDIA except Delhi & Mumbai
.
37516 Digital Exchanges with 29051 exchanges in rural areas on reliable
media.
SWOT ANALYSIS
STRENTHS
WEAKNESSES
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. . . . . .
Pan-India reach
Experienced telecom service provider
Total telecom service provider
Huge Resources (financial & technical pool)
Huge customer base
Most trusted telecom brand
. . . . .
Non-optimization of network capabilities
Poor marketing strategy
Bureaucratic organizational set up
Inflexibility in mindset (DOT period
legacies)
Limited number of value added services
. . . .
Transparency in billing
Easy deployment of new services
Copper in last mile can be used for easy
broadband deployment
Huge Optical Fibre network and associated
bandwidth
. . . . . .
Poor franchisee network
Legacy of poor service image
Huge and aged manpower
Procedural delays
Lack of strategic alliances
Problems associated with incumbency like
outdated technologies, unproductive rural
assets, social obligations, political
interference,
. .
Poor IT penetration within organization
Poor knowledge Management
OPPORTUNITIES
THREATS
.
Tremendous market growing at 20 lac
customers per month
.
Untapped broadband services
.
Untouched international market
.
Can capitalize on public sector image to
grab government s ICT initiatives
.
ITEB service markets
.
Diversification of business to turn-key
projects
.
Leveraging the brand image to source
funds
.
Almost un-invaded VSAT market
.
Fuller utilization of slack resources
.
Can make a kill through deep penetration
and low cost advantage
.
Broaden market expected from
.
Competition from private operators
.
Keeping pace with fast technological
changes
.
Market maturity in basic telephone
segment
.
Manpower churning
.
Multinational eyeing Indian telecom
market
.
Private operators demand for sharing last
mile
.
Decreasing per line revenues due to
competitive pricing
.
Private operators demand to do away
with ADC can seriously effect revenues
.
Populist policies of government like
OneIndia rates
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convergence of broadcasting, telecom and
entertainment industry
Having analysed the external environment and assessed the internal strengths and
weaknesses of BSNL, the key issues can be summarized as follows:
BSNL The key issue
.
To provide high speed Internet connectivity (upto 8 Mbps)
.
To provide Virtual Private Network (VPN) service to the broadband customers
.
To provide dial VPN service to MPLS VPN customers.
.
To provide multicast video services, video-on-demand, etc. through the Broadband
Remote
Access Server (BRAS).
.
To provide a means to bill for the aforesaid services by either time-based or vo
lume-based
billing. It shall provide the customer with the option to select the services th
rough web server
.
To provide both pre-paid and post paid broadband services.
private telecom services provider with a footprint in all the 23 telecom circles
. Bharti
80
Te
Bharti Air
Airtel comes to you fro
Airtel since its inception has been at the forefront of technology and has steer
ed the
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course of the telecom sector in the country with its world class products and se
rvices.
The businesses at Bharti Airtel have been structured into three individual strat
egic
business units (SBU s) - Mobile Services, Airtel Telemedia Services & Enterprise
Services. The mobile business provides mobile & fixed wireless services using GS
M
technology across 23 telecom circles while the Airtel Telemedia Services busines
s
offers broadband & telephone services in 95 cities and has recently launched Ind
ia's
best Direct-to-Home (DTH) service, Airtel digital TV. The Enterprise services pr
ovide
end-to-end telecom solutions to corporate customers and national & international
long
distance services to carriers. All these services are provided under the Airtel
brand.
SWOT ANALYSIS
Strengths:
.
Bharti Airtel has more than 65 million customers (July 2008). It is the largest
cellular provider in India, and also supplies broadband and telephone services
as well as many other telecommunications services to both domestic and
corporate
customers.
.
Other stakeholders in Bharti Airtel include Sony-Ericsson, Nokia -and Sing Tel,
with whom they hold a strategic alliance. This means that the business has
access to knowledge and technology from other parts of the telecommunications
world
.
.The company has covered the entire Indian nation with its network. This has
underpinned its large and rising customer base.
Weaknesses:
.
An often cited original weakness is that when the business was started by Sunil
Bharti Mittal over 15 years ago, the business has little knowledge and experienc
eof
how a cellular telephone system actually worked. So the start-up business had to
outsource to industry experts in the field.
.
Until recently Airtel did not own its own towers, which was a particular strengt
h of
some of its competitors such as Hutchison Essar. Towers are important if your
company wishes to provide wide coverage nationally
.
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.
The fact that the Airtel has not pulled off a deal with South Africa's MTN could
signal
the lack of any real emerging market investment opportunity for the business onc
e
the Indian market has become mature.
Opportunities:
.
The company possesses a customized version of the Google search engine which
will enhance broadband services to customers. The tie-up with Google can only
enhance the Airtel brand, and also provides advertising opportunities in Indian
for
Google.
.
.
Global telecommunications and new technology brands see Airtel as a key
strategic player in the Indian market. The new iPhone will be launched in India
via an Airtel distributorship. Another strategic partnership is held with
BlackBerry Wireless Solutions.
.
Despite being forced to outsource much of its technical operations in the early
days, this allowed Airtel to work from its own blank sheet of paper, and to
question industry approaches and practices,for example replacing the
Revenue-Per-Customer model with a Revenue-Per-Minute model which is better
suited toIndia, as the company moved into small and remote villages and towns.
.
The company is investing in its operation in 120,000 to 160,000 small villages
every year. It sees that less well-off consumers may only be able to afford a fe
w
tens of Rupees per call, and also so that the business benefits are scalable -us
ing
its 'Matchbox' strategy.
.
Bharti Airtel is embarking on another joint venture with Vodafone Essar and Idea
Cellular to create a new independent tower company called Indus Towers. This new
business will control more than 60% of India's network towers. IPTV is another
potential new service that could underpin the company's long-term strategy.
Threats
.
Airtel and Vodafone seem to be having an on/off relationship. Vodafone which
owned a 5.6% stake in the Airtel business sold it back to Airtel, and instead in
vested
in its rival Hutchison Essar. Knowledge and technology previously available to A
irtel
now moves into the hands of one of its competitors.
.
The quickly changing pace of the global telecommunications industry could tempt
Airtel to go along the acquisition trail which may make it vulnerable if the wor
ld goes
into recession. Perhaps this was an impact upon the decision not to proceed with
talks about the potential purchase of South Africa's MTN in May
2008.This opened the door for talks between Reliance
Communication's Anil Ambani and MTN, allowing a competing
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Inidan industrialist to invest in the new emerging African
telecommunications market.
.
Bharti Airtel could also be the target for the takeover vision of
other global
telecommunications players that wish to move into the Indian market.
RELIANCE COMMUNICATION
Background
Idea Cellular is one of the leading mobile operators in India. It was originally
incorporated as Birla Communications Limited, with the license to operate in
Maharashtra and Gujarat. The name was changed to Birla Tata AT&T Limited,
consequent to stake acquisition by AT&T Corporation and Tata Group. In 2002, the
company's name was changed to Idea Cellular Limited. Due to stake sale by AT&T
Corporation and Tata Group, Aditya Birla Group is now the sole promoter of Idea
Cellular.
SWOT Analysis
Strength
.
Attractive existing footprint.
.
Original licensee in seven of the Established Circles, providing
incumbency advantages;
.
Market leader in two of, and established positions in the remainder of, the
Established Circle
.
Strong distribution channels;
.
High quality network structure;
.
A national brand;
.
Part of the Aditya Birla Group
.
Attractive growth
Weaknesses
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.
High Debt-Equity Ratio: The Company's Debt-Equity ratio is high as
compared to its peers. Moreover, the Company needs the approval of the
lenders under its financing arrangements before undertaking certain
significant corporate actions
.
Concentration: The Company revenues are derived solely from providing
mobile services and it is dependent on four of the Established Circles for
a significant proportion of its revenues.
.
The Company had accumulated losses amounting to Rs. 19.23 billion and
Rs. 17.23 billion for financial years 2005 and 2006 respectively. The
Company may not be in a position to pay dividends until it clears its
accumulated losses
Opportunities
.
The Indian telecommunication industry is expected to continue to enjoy
growth due to its low-teledensity and increasing affordability of mobile
telephone and services.
.
The contribution of service sector to the GDP has improved significantly from
29% in 1950 to 54% in 2005. This is primarily due to growth of information-
technology and information technology enables services. This will further
stimulate the demand for mobile telecommunication services.
.
The regulatory environment is improving and there is greater clarity in
existing rules and procedures. This would enable operators in improving
network quality. Also raising of funds will become easier due to greater
predictability of operational environment.
Threats
.
There is intense competition in the Indian telecommunication industry. Idea
Cellular faces significant competition from private companies that have a
pan-India footprint such as Bharti Airtel, Tata Teleservices and Reliance
Communication Ventures. Also it faces competition from government owned
companies such as BSNL and MTNL.
.
Alternative technology is evolving very rapidly in the telecommunications
industry. For instance, "Wi-Fi" and Wi-Max" which allows for voice data
transfer have been tested and handsets with such technology may soon be
available in the Indian market. Moreover, satellite communication voice data
transport medium like "Skype" may become a serious competitor in the long
distance voice data transfer business.
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