The 2G spectrum controversy notwithstanding, the Indian telecom sector achieved some significant milestones during 2011. The subscriber base crossed the 900 million mark and the sector continued to chart growth, although the monthly subscriber addition decreased significantly from 20 million in 2010 to about 8 million in end-December 2011.
Operators rolled out 3G services in early 2011, covering most of their licensed circles. While service uptake was below expectations, growth in this segment can be expected once awareness levels about next-generation services increase.
A year after the launch of mobile number portability (MNP), which allows users to retain their phone number while switching service providers, the total number of MNP users stood at 25.83 million as of November 2011.
In terms of performance, the wireless segment continued to be the key growth driver for the telecom sector. Despite hypercompetition, the segment reported 889.41 million users as of December 2011, as compared to 6.68 million in 2001.
The wireline segment, on the other hand, was on a continuous decline with the subscriber base decreasing from 48.47 million in November 2005 to 32.96 million in November 2011.
Internet and broadband services, meanwhile, gained momentum in 2011 with the user base reaching 20.99 million in September 2011 (though this was still short of the target). Of these, around 13 million were broadband users.
Overall, the past year witnessed a mixed performance by the industry. The enthusiasm of 3G service delivery waned by mid-2011, with the 2G spectrum scam impacting operators? business strategies and expansion plans. Moreover, the launch of broadband wireless access and long term evolution-based services was postponed. Also, policy and regulatory ambiguity resulted in low investor confidence in the sector.
The government stepped in and promised significant revisions in the existing National Telecom Policy. The draft of the new policy was released in October 2011, which outlined the way forward towards a single licence regime, provided an impetus to broadband and manufacturing, relaxed the norms for spectrum allocation, and mergers and acquisitions, etc.
The final version of the policy is likely to be released in 2012. This is expected to provide an impetus to the industry.
In the current scenario, the mobile segment continues to offer several opportunities to service providers, vendors and associated players. 4G technology is also expected to be launched in mid-2012. tele.net takes stock of the performance of various industry segments during 2011?
Wireless services
The wireless segment, which has been one of the key drivers of telecom growth in the country, witnessed a huge increase in subscribers, from 80 million in 2005 to 889.41 million in December 2011.
Attracting over 154 million subscribers between January and November 2011, the mobile sector continued on its growth trajectory. However, with wireless voice telephony nearing saturation point, the net additions took a hit. The year saw a significant drop in monthly mobile additions, from 20 million in 2010 to 7-8 million in 2011. November 2011 recorded the lowest net addition of mobile subscribers in the past four years at 2.9 million.
Nonetheless, the segment witnessed substantial year-on-year growth. The total wireless (GSM+CDMA) subscriber base increased from 729.57 million in November 2010 to 884.37 million in November 2011. Wireless teledensity also increased from 61.38 per cent (November 2010) to 73.44 per cent in November 2011.
Of the total subscriber base, 635.39 million users were active on the date of peak visitor location register (VLR) for the month of November 2011. The proportion of VLR subscribers is approximately 71.85 per cent of the total wireless subscriber base reported by the service providers.
Both the rural and urban wireless subscriber bases increased on a year-on-year basis. In rural areas, the user base increased from 227.08 million in September 2010 to 297.49 million in September 2011. Similarly, the urban user base increased from 460.63 million in September 2010 to 576.12 million in September 2011.
GSM continued to dominate the wireless segment. At the end of December 2011, the GSM user base stood at 639.64 million as against 525.88 million at the end of November 2010.
As of December 2011, Bharti Airtel with 175.65 million subscribers continued to be the largest GSM mobile operator, followed by Vodafone with 147.75 million, Idea Cellular with 106.38 million, Bharat Sanchar Nigam Limited (BSNL) with 92.57 million, Aircel with 61.64 and Uninor with 36.31 million.
In contrast, the CDMA subscriber base increased to 256 million at the end of December 2011 from 110.46 million at the end of December 2010. Reliance Communications (RCOM) was the largest CDMA mobile operator with 150.07 million subscribers as of December 2011, followed by Tata Teleservices Limited (TTSL) with 83.49 million subscribers.
The six new players ? Uninor, Sistema Shyam TeleServices Limited (SSTL), S Tel, Videocon Telecommunications Limited , Etisalat DB and Loop Telecom ? which were awarded 2G licences in 2007, have yet to make a mark in the wireless space. Of these, Uninor and SSTL were the only ones to break some ground and capture a reasonable subscriber base. Still, they are all way behind the incumbents. As per the Telecom Regulatory Authority of India (TRAI), the seven major operators had a collective share of 92.15 per cent while the six new players had a consolidated share of just 7.07 per cent as of November 2011.
The year 2011 was pegged as the year of 3G rollouts. By mid-2011, 3G services were available in all the circles where the operators held licences. However, service uptake was slow and did not meet the high expectations and hype around 3G. According to industry estimates, of the country?s total user base, only 17 million users currently avail of these services.
As of end-December 2011, Bharti Airtel had about 7 million 3G users while Idea Cellular had 2.5 million and Vodafone had about 850,000 3G users.
As no single operator had obtained pan-Indian 3G licences, the operators signed roaming agreements to ensure seamless 3G connectivity. However, in the last few months of the year, these arrangements came under the Department of Telecommunications? (DoT) scrutiny and were deemed a violation of licence conditions. Consequently, DoT issued a notice to these operators to terminate such agreements or face a penalty. The matter is currently with the Telecom Disputes Settlement and Appellate Tribunal.
Hypercompetitive market conditions prevailed in the wireless space throughout the year. Overcrowding of the market led to cut-throat competition in the form of fierce price wars. Battling low ARPUs and falling margins, operators bucked the trend of frequent tariff cuts and instead hiked tariffs by about 20 per cent. While Bharti Airtel increased its STD tariffs for certain circles, Vodafone, RCOM and Idea Cellular hiked prepaid tariffs in certain circles by about 10 per cent. Mahanagar Telephone Nigam Limited (MTNL) was the only operator that stated it did not plan to increase its tariffs.
This trend was visible in the pricing of 3G services as well. As a result, the market was flooded with a wide range of competitively priced plans, with rentals starting from Rs 250 per month to as high as Rs 2,000 per month.
Among the notable achievements during the year, was the countrywide launch of MNP. As of November, about 25.83 subscribers had submitted requests to switch their service provider. Of these, the maximum number of requests, 2.48 million, were received in Gujarat, followed by 2.1 million in Maharashtra.
According to TRAI reports, the two telecom public sector undertakings (PSUs) ? BSNL and MTNL ? faced the highest churn with mobile users opting for private operators. While BSNL lost over 960,000 million subscribers, MTNL lost about 70,000 subscribers in the 11-month period between December 2010 and November 2011.
Among the private players, Vodafone emerged as the biggest beneficiary of MNP, gaining over 1 million customers. About 0.87 million customers shifted to Idea Cellular, around 0.63 million customers to Bharti Airtel and around 73,000 to Aircel.
RCOM and TTSL were badly hit by MNP. In the case of RCOM, more than 0.6 million of its CDMA customers and 0.45 million of its GSM users reportedly requested to exit its network. In TTSL?s case, close to 0.45 million CDMA customers requested to move to another network; however, its GSM network gained over 0.15 million users through MNP.
In a significant move, in September 2011, TRAI recommended guidelines to curb unsolicited calls and text messages. The regulation is expected to curb unwanted telemarketing calls and messages. Defaulting telemarketers would have to pay up to Rs 250,000 as fine for disturbing people registered in the ?do not disturb? category. Moreover, as per the new regulations, telemarketers would have to register with TRAI under a distinct number series beginning with 140 to enable consumers to easily identify between marketing calls.
Following the implementation of these regulations, TRAI stated that it had penalised about 15 telemarketers to date and issued notices to 900 individuals for violating the norms. While the guidelines helped to somewhat mitigate unwarranted communications, crafty telemarketers have found a way to circumvent the regulations. In November 2011, Rajan S. Mathews, director-general, Cellular Operators Association of India, said telemarketers had started sending messages from servers located outside the country. While these servers do not fall under its purview, TRAI is looking to plug the gaps.
Another notable development in the year was the Reserve Bank of India (RBI) removing the cap on mobile-based transactions. The RBI has permitted banks to allow customers to make transactions of over Rs 50,000 via their handsets. It stated that this was owing to the upward trend in the volume and value of mobile banking transactions. However, it asked banks to fix per-transaction limits based on their own risk perception and with the prior approval of their board members.
Going forward, according to a PricewaterhouseCoopers report, the mobile segment is expected to show robust growth for the next three to five years, driven by high subscriber additions in mostly non-urban areas. The mobile subscriber base is projected to cross 1 billion in 2014, growing at a compound annual growth rate of more than 9 per cent from 2010.
Urban mobile teledensity, which had already crossed the 100 per cent mark in 2009, will reach 125 per cent by 2015, while rural mobile teledensity will increase more than three times the current level of 20 per cent to reach about 63 per cent by 2015.
The industry is betting on the uptake of 3G services and the launch of broadband wireless access (BWA) services to drive future growth. Also, with ARPUs from voice services diminishing, data-driven 3G and BWA services are expected to generate higher user revenues and improve operator margins.
Wireline services
The wireline segment continued to witness a fall in subscriber numbers in 2011. The user base declined from 33.19 million at the end of November 2010 to 32.96 million at the end of November 2011. The share of urban subscribers increased marginally from 76.18 per cent to 76.27 per cent in the same period, while the share of rural subscribers declined marginally from 23.82 per cent to 23.73 per cent.
The overall wireline teledensity declined to 2.74 per cent, with urban and rural teledensity at 6.92 per cent and 0.93 per cent respectively.
There are seven players operational in this segment, with the PSUs ? BSNL and MTNL ? accounting for the lion?s share. In November 2011, the two state-owned operators together accounted for 81.18 per cent share of the wireline market, followed by Bharti Airtel (10.05 per cent), TTSL (4.19 per cent), RCOM (3.83 per cent), Himachal Futuristic Communications Limited (0.6 per cent) and SSTL (0.14 per cent).
The wireline subscriber base in the country has been declining since 2006. The highest decline, of 9.43 million wireline subscribers, was recorded in 2006-07. Inadequate wireline coverage coupled with lower mobile tariffs, cheaper handsets, and improved mobile coverage are the main reasons for the continuous decline in the wireline segment. Besides, the capital cost to the operator for providing mobile services is in the range of $50-$90 per subscriber, as compared to $200-$350 per subscriber for wireline. Lower costs and the additional benefit of mobility associated with wireless services have led to stagnation in the wireline subscriber base.
While the wireline segment is not high on the priority list of private operators, state-owned MTNL and BSNL have taken several initiatives to revive the business. BSNL slashed national long distance (NLD) call charges on fixed line phones across the country. Also, local and STD calls are priced the same.
In fact, BSNL recently launched the ?Pyari Jodi? offer, wherein users can avail of a free mobile SIM with its wired connection. Further, calls to BSNL landline numbers are also free.
In a bid to attract corporate India to use landline services, operators like BSNL, MTNL and Bharti Airtel have bundled broadband and IPTV services along with a fixed line connection.
At present, there are many issues like right-of-way and absence of local loop unbundling that hinder the growth of the wireline segment. Consequently, most operators in the telecom space have focused on providing wireless telephony. However, the potential for wireline services remains large due to the low penetration and the ability of wireline to deliver broadband at lower operating costs than wireless broadband. Also, the quality and speed of broadband through wireline are much superior as compared to wireless broadband. With the combined offer of internet and broadband, the wireline sector has the potential to spring back in the future.
Internet and broadband services
The year 2011 saw the country?s internet and broadband services pick up pace. It is expected that once the sector gains momentum, it will follow a similar growth path as that of wireless, in terms of subscribers and penetration. At present, however, the sector is lagging behind in subscriber targets as well as internet access.
Between September 2007 and September 2011, internet subscribers increased from 9.63 million to 20.99 million. During the same period, broadband users increased from 2.67 million to 12.83 million. Internet service provider (ISP) revenues stood at Rs 23.5 billion in September 2011.
Despite growing at a slow pace, the proportion of broadband users in the internet subscriber base is increasing. Initially, broadband subscribers comprised only around 3 per cent of the internet subscriber base. This figure increased to over 61.1 per cent in June 2011.
The top 10 ISPs accounted for 94.57 per cent of the total internet and broadband service users as of June 2011. The main players in the industry are BSNL, MTNL, RCOM, Bharti Airtel, Hathway Cable and Datacom Limited, YOU Broadband and Cable, Tikona Digital Networks, Tata Communications, Beam Telecom and Asianet Satellite Communications.
BSNL and MTNL accounted for the major share of the total internet and broadband subscriber base, at 68.74 per cent, as of June 2011. This is a marked increase from the March 2005 figures, when the two companies together accounted for 51 per cent of the total internet and broadband market.
Digital subscriber line is the most preferred technology used by operators to provide broadband services. Over 85.44 per cent of the total broadband subscribers use this technology to access the internet, followed by cable modem technology (5.77 per cent) and Ethernet LAN (5.36 per cent). Concerned with the performance of this segment, increasing the penetration of internet and broadband services is a key highlight of NTP 2011.
The draft policy continues to show confidence in broadband as an enabler of economic growth and aims to provide affordable and reliable broadband services to the masses by 2015. It aims to provide high speed, high quality broadband access to village panchayats through optic fibre within the next three years.
The target is to have 175 million broadband connections within six years and reach 600 million by 2020, a huge jump from the current 12.5 million. The NTP 2011 also aims to reclassify broadband as a service with a minimum downstream speed of 512 kbps (from the current 256 kbps) and subsequently to 2 Mbps by 2015.
In 2011, an ambitious initiative ? the National Optic Fibre Network ? was mooted. The network will be used to provide broadband connectivity to village panchayats. According to R. Chandrashekhar, secretary, DoT, the project cost is expected to be about Rs 200 billion and the scheme will be executed via a special purpose vehicle (SPV).
Further, it is believed that BSNL, RailTel, Power Grid Corporation of India Limited and GAIL are likely to be brought in as equity partners. The project will be funded by the Universal Service Obligation Fund.
The government plans to complete the rollout in two years. The SPV will obtain revenues by levying access charges on its customers, according to TRAI guidelines.
Long distance services
The long distance segment witnessed a fair amount of activity in 2011. At present, the segment has 21 players ? Vodafone Essar South, Videocon, Verizon, Tulip Telecom, Tata Communications, TTSL, SingTel, Sify, RCOM, RailTel, MTNL, Idea/Spice, HCL Infinet, Etisalat, Equant, Cable & Wireless, BT Global, BSNL, Bharti Airtel, AT&T and Aircel.
Bharti Airtel had the maximum gross revenue in the NLD segment, at Rs 20.47 billion as of September 2011, followed by BSNL at Rs 17.82 billion and Vodafone Essar South at Rs 11.1 billion. The lowest gross revenues for September 2011 were recorded by Cable & Wireless at Rs 1 million, followed by Etisalat with Rs 7.5 million and MTNL with Rs 12.9 million.
In the international long distance segment, the biggest gainers in terms of gross revenue for September 2011 were Bharti Airtel with Rs 5.88 billion, BSNL with Rs 4.87 billion and Tata Communications with Rs 3.78 billion.
The companies with the lowest gross revenues in September included Tulip with Rs 12.1 million, SingTel with Rs 121.1 million and Equant with Rs 284.3 million.
Several players undertook various initiatives in this space. For example, Reliance Globalcom recently established a high speed data link that provides companies in the US and Europe seamless connectivity to Asia. Connectivity between the diverse geographic regions is facilitated through the integration of Reliance Globalcom?s Hawk submarine cable system with the gateway and hub set up at Cyprus, enabling data transfers at a speed of 16 terabytes per second.
In the first quarter of 2012, this network will be integrated into Reliance Globalcom?s Egyptian hub, thereby extending connectivity to its pan-Asian network, linking more than 30 countries.
The gateway and hub at Yeroskipos, where the Hawk submarine cable system will land, was established under an agreement between Reliance and Cyprus-based fixed line and TV services firm PrimeTel for hubbing and gateway of the Mediterranean region. As per the agreement, both companies will also cooperate in connecting customers to Reliance?s global network.
Further, Reliance Globalcom plans to set up four more landing stations in the Mediterranean region. The Mediterranean gateway has been integrated into Reliance Globalcom?s European network, which covers Italy, France, Germany, Spain, Amsterdam and the UK, amongst other countries. This gateway is also connected to Reliance Globalcom?s US gateway in New York and Virginia.
Further, Tata Communications launched the Oman-India undersea cable system network for voice and data traffic, in collaboration with Oman-based Nawras. In a statement, Tata Communications said, ?The cable will connect with Mumbai and then onwards to the rest of the world, through the Tata Global Network (TGN).? The link offers enormous capacity for broadband and high quality voice services, enabling Nawras to meet the growing demand for international voice and data services. The development is a part of the TGN-Gulf cable project, which will connect the Gulf region to the rest of the world via TGN, providing reliable high speed bandwidth to all the key cities in the world. The capacity will also help support the continued expansion of broadband penetration, internet usage and enterprise applications in each market. The TGN-Gulf project also includes Etisalat (United Arab Emirates), Qatar Telecom (Qatar), Bahrain Internet Exchange (Kingdom of Bahrain), and Mobily (Kingdom of Saudi Arabia).
The NTP 2011 is expected to give a fillip to the segment. The policy talks about the concept of ?one nation, one licence?, which implies a single licence for service providers to operate in the Indian market, and the abolition of domestic roaming charges. Roaming charges account for almost 8 per cent of the revenue of an operator. Having the same tariff across the country will impact revenues of the incumbents more than that of the new operators, as most of the high-ARPU customers or the users of roaming services are part of the incumbent operators? network
