Orascom Telecom has been in the news ever since it picked up a stake in Hutchison Whampoa, the holding company for Hutch’s operations in India. Since Orascom has a presence in neighbouring countries as well, including Pakistan, its entry into India through Hutchison Essar has become a sensitive issue, with sceptics pointing to the possible security implications. While these concerns are being sorted out, tele.net spoke to Naguib Sawiris, chairman and CEO of Orascom Telecom, about his perception of the Indian telecom market and the opportunities it presents. Excerpts…
What, according to you, are the current telecom trends worldwide?
The worldwide trends vary. In developed, saturated markets, telecom growth is mainly derived from the growth in valueadded services. In emerging markets, the growth is derived from the growth in teledensity. It is true that many developing markets begin moving towards maturity and the estimated net effect is that overall growth starts to decline. However, more than half the net additions in the coming years are expected to be in the Asia-Pacific region, with India and China accounting for 65 per cent of the region’s total. It would also be wrong to suggest that there is no longer any growth potential in the developed markets ?? many operators have been able to target new niche segments.
How does India compare with other South Asian countries?
India is a widely Anglophone democracy operating under the rule of law. It is highly entrepreneurial and serious about protecting property and intellectual rights. China might have taken a long lead over India in telecom, but Indians are more liberal in their usage of mobile phones. According to a comparative study, Indians use their GSM mobile phones for 330 minutes per month against 295 minutes in China. This is due to its much lower tariffs, which are a result of fierce competition. The Indian cellular services market had recorded the highest growth across the Asia-Pacific and Japan region. Despite the low level of penetration, India is the third largest mobile market in Asia after China and Japan. A comparison with countries in the Asian region indicates that India still has some way to go to reach the teledensity levels in these countries. The Indian mobile market has evolved from a class service to a mass service market, fuelled by continuously falling tariffs, increased coverage and customised service offerings as market competition intensifies.
How do you perceive the Indian telecom industry in terms of growth opportunities?
The mobile sector in India has shown exponential growth and is expected to become the third largest mobile market worldwide by 2007. More so because India is considered to have the largest middle-class segment in the world. The cost of entry for new subscribers in developing regions such as the Asia-Pacific will be lowered by the lower cost of telecom infrastructure. This, coupled with the GSM Association’s ultra-low-cost handset initiative, will result in expanding the size of the addressable market. India will not only be a major contributor to GSM’s next billion subscribers but will also serve as a model for similar growth in otheremerging markets. The growth of the Indian market is mainly driven by the following factors:
How would you rate international interest in the Indian telecom sector?
The Indian telecom market has been displaying sustained high growth rates. It offers an unprecedented opportunity for foreign investment, riding on expectations of overall high economic growth and rising income levels. India has raised the limit for foreign direct investment (FDI) in telecom companies from 49 per cent to 74 per cent. This is a positive development for the investment community, which can take a longer-term view of the huge growth in the Indian telecom market. In all, the FDI relaxation coupled with rapid local market growth makes India an encouraging business prospect.
With India going through a consolidation phase, do you see more mergers and acquisitions in the future?
With the increasing competition in India and low tariff rates ?? one of the lowest in the world ?? further operator consolidation might be expected in order to benefit from the economies of scale, which, in turn, will benefit network rollout and reduce capital expenditure. It will also stabilise the market and reduce frequent price wars.
Which segments, according to you, will do better in the coming years?
Mobile owners are becoming younger as a result of subsidised handsets, cheaper calls and widespread availability of prepaid connections, lowering the barriers to ownership. In relatively low-GDP countries, the popularity of prepaid still exerts a downward pressure on ARPUs, with younger subscribers spending the most. The rising use of data services, particularly SMS, has stemmed the decline in ARPUs in this age group, which is not the case among older users. Another segment that might show good indicators in the near future is the business segment, which is expected to grow rapidly in India with increasing foreign investment and expected economic reforms and growth.
When can developing countries like India be expected to adopt 3G?
So far, only Europe has adopted 3G in a big way. I don’t expect 3G to have any potential in the emerging markets, at least in the near future, especially with the current level of 3G handsets. I strongly believe that EDGE can be a good substitute for 3G as it can be used for almost all the applications except video streaming, which I personally don’t see as essential for mobile users. Even this application is currently being technically developed to work over GPRS/EDGE networks. Being built on the top of GSM/GPRS networks, EDGE provides a smooth and low-cost upgrade of existing networks with a flexible rollout scenario. EDGE also allows services to be quickly provided over wide areas, with high quality, thanks to its higher throughputs. The investment in EDGE is affordable for many operators. EDGecompatible handsets are cheaper than 3G and would be affordable for customers in developing countries.
What is the scope after 3G?
Despite the slower-than-expected uptake of 3G, operators are already interested in 3.5G with NTT DoCoMo planning on launching HSDPA services in 2006 and several Chinese operators looking at using UMTS TDD in 2007.
In the run-up to 4G, which is not expected before 2010 at the earliest, operators will look for ways to enhance network performance through evolutionary upgrades. HSDPA is expected to become the most popular of 3.5G technologies due to its support from major vendors like Nokia. The so-called access pyramid model, where multiple networks coexist, allowing users to seamlessly switch between the most appropriate networks, will not substitute the need for a 4G network.
What are the future telecom technology trends worldwide?
Orascom Telecom has developed a technical roadmap for different technologies regarding specific applications and customer needs. On the mobile front, we are focusing on deploying data services, including video streaming using GPRS/ EDGE. However, we have an evolution plan directly to HSDPA, depending on our marketing strategy. On the hot zones and limited mobility front, we are using CDMA2000 for narrowband and evolving to Wi-Max for broadband and VoIP applications. Of course, whenever possible, we use DSL2+ in the fixed environment for high speed applications like triple play, IPTV and video on demand (depending on the regulatory condition in terms of unbundling of the local loop). We are also evolving with our core network technology, from the legacy switching technology to R4 softswitch and then IMS, to cater to all types of access technologies and provide our customers with a wide range of features and services.
What, according to you, are the concerns facing the telecom industry?
ARPU levels are expected to decline further and operators will struggle to find a balance between margins and growth. Non-voicevalue-added services such as, ringtones, ringback tones, games and music downloads will play a significant role as service differentiators and as an important revenue stream that will help cushion the pressure on overall service revenues.
The total cost of mobile ownership still remains high in most of the emerging markets, thus limiting the full growth potential. Last mile access also needs to be addressed and aligned with the cost to serve.
