As compared to 2012, which presented several challenges for the Indian telecom sector, 2013 was marked by a move towards resolving them. After two years of controversies, the telecom ministry spent a large part of 2013 expediting key policy decisions. During the year, it implemented a new regime of unified licences, delinked spectrum from telecom licences, and opened up the sector for foreign investment by raising the foreign direct investment (FDI) limit from 74 per cent to 100 per cent.
FDI in telecom, which has been one of the top three sectors in terms of attracting such investment since April 2000, fell drastically in April-October 2013, pushing the sector to the bottom of the FDI inflow list. The telecom sector received Rs 1.97 billion of FDI equity during April-October 2013, which was only 0.26 per cent of the total FDI inflow of Rs 749.72 billion in the country during the period. However, the scenario is likely to change with greater policy clarity leading to improved investor sentiment. It should be noted that within three months of the decision on FDI, UK-based telecom major the Vodafone Group approached the Foreign Investment Promotion Board to increase its holding in Vodafone India from 64.38 per cent to 100 per cent with an investment of Rs 101.41 billion. The investment proposal is yet to be approved by the government.
Meanwhile, the government has completed consultations on the merger and acquisition policy and expects to announce the final guidelines by end-January 2014, just before the upcoming spectrum auctions. A new policy on machine-to-machine communications is also likely to be announced in the first quarter of 2014.
Several trends have been witnessed in various segments with an improvement in the policy and regulatory scenario. Key among these is the growing uptake of data services, while the voice market has saturated in urban areas. Other key trends include stabilisation of 2G tariffs, and the decline in 3G and long distance rates.
tele.net takes a look at the performance of the various industry segments in 2013?
Saturation in the wireless segment
In May 2013, the Indian telecom subscriber base crossed the 900 million mark. This is the second time the subscriber base crossed this milestone (after September 2011). The subscriber base peaked in June 2012 to reach 965.5 billion, and since then, it had been shrinking steadily for several months. As of October 2013, the total subscriber base stood at 904.56 million, while the overall teledensity was 73.32 per cent.
The stagnation in subscriber growth can be largely attributed to the saturation in the wireless telephony space. The total wireless subscriber base increased from 864.72 million in December 2012 to 875.48 million at end-October 2013 and the overall wireless teledensity increased from 70.82 per cent to 70.96 per cent during the same period.
The growth of urban subscribers has been largely negative, while rural subscribers continue to register positive growth. The share of urban wireless subscribers in the total user base decreased from 61.65 per cent in December 2012 to 59.64 per cent in October 2013, while that of rural wireless subscribers increased from 38.35 per cent to 40.36 per cent. Urban wireless teledensity reached 138.23 per cent in October 2013 while rural wireless teledensity stood at 41.27 per cent.
In a positive development, there has been a significant improvement in the proportion of visitor location register (VLR) subscribers in the user base during this period. The share of VLR subscribers, which stood at 81.14 per cent in December 2012, crossed 85 per cent of the total wireless subscriber base in October 2013. Among the service providers, Idea Cellular leads with 97.5 per cent VLR users, followed by Vodafone India (95.7 per cent) and Bharti Airtel (95.3 per cent). Circle-wise, West Bengal had the highest proportion of VLR subscribers at 90.14 per cent in October 2013, followed by Maharashtra (89.98 per cent) and Madhya Pradesh (89.12 per cent). Tamil Nadu (including Chennai) had the lowest share at 74.37 per cent.
The three major players, Bharti Airtel, Vodafone India and Idea Cellular, continue to lead in the market with shares of 22.26 per cent, 17.9 per cent and 14.66 per cent respectively. Bharti leads in terms of subscriber additions followed by Vodafone India and Idea Cellular. As compared to this, the share of the two telecom PSUs ? Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) ? continued to decline. As of October 2013, their combined share stood at 11.59 per cent as compared to 12.17 per cent in December 2012.
Increased uptake of wireless data services
In its latest performance indicator report, TRAI has divided the parameters for the internet and broadband segment into two parts ? internet subscribers excluding those accessing services through mobile devices, and internet subscribers accessing the service through mobile devices.
As per the report, as of June 2013, there were 21.89 million internet subscribers, excluding those accessing these services through mobile handsets. This stood at 21.61 million in December 2012. The share of broadband in the internet subscriber base during April-June 2013 was 69.44 per cent, while that of narrowband subscribers was 30.56 per cent. The broadband user base grew from 15.05 million in the quarter ended March 2013 to 15.2 million in the quarter ended June 2013. The segment witnessed a quarterly growth of 0.98 per cent and a year-on-year growth of 4.32 per cent. The number of narrowband subscribers increased by 1.99 per cent from 6.56 million in end-March 2013 to 6.69 million in end-June 2013. DSL was the preferred broadband technology, which was used by over 84.38 per cent of subscribers during April-June 2013. It was followed by the Ethernet local area network (6.54 per cent) and cable modem (5.28 per cent).
Meanwhile, internet and broadband access through mobile devices has been growing at a rapid pace. As of June 2013, the country had 198.39 million internet subscribers, including customers who accessed the internet through their mobile handsets.
The initial growth in wireless data services is being driven by 3G subscribers. As compared to 3G uptake in 2012, service usage increased significantly in 2013, primarily due to network expansion in semi-urban areas and a decline in service rates.
As far as 4G services are concerned, broadband wireless access (BWA) spectrum was auctioned over three years ago, but most of the licensees are yet to launch services. So far, only Bharti Airtel has launched these services in select cities. The biggest 4G service launch is expected to come from Reliance Jio Infocomm Limited in 2014. However, this will involve challenges as offering premium services, with a superior experience, and monetising these services at a mass-market level will not be an easy task for carriers.
Moreover, existing network resources including spectrum, last mile infrastructure, backhaul, and active equipment or core infrastructure cannot offer full-fledged data services at the mass-market level. At the industry level, the currently allocated four 5 MHz blocks of 2100 MHz cannot offer 3G services to only 10-12 per cent of the existing mobile subscriber base. And the 20 MHz block of contiguous 2300 MHz spectrum used for offering long term evolution- time division duplex services has inherent issues such as lack of coverage and in-building penetration. Also, of the existing 42 million copper lines currently laid in the country, only 20-22 million are capable of offering DSL services.
That said, large investments are being made by operators to build and strengthen their 3G and 4G networks. This has created a major business opportunity for vendors and original equipment manufacturers in this space.
Negative growth in the wireline segment
Unlike the wireless segment, which continues to chart growth in terms of subscriber additions, the wireline segment has been facing several challenges. The availability of affordable handsets, ubiquitous access to the mobile network and low voice tariffs have resulted in a shift in customer preference from fixed line services to mobile services in the past few years.
The wireline segment witnessed a decline in subscriber base from 30.52 million in January 2013 to 29.08 million in October 2013. As compared to this, the wireline subscriber base stood at 29.28 million as of September 2013. Of the total wireline users as of October 2013, the urban market constituted 78.66 per cent, which increased from 78.44 per cent in September 2013. The declining share of the rural market in the total subscriber base can be attributed to rapid network roll-out and low tariffs. In contrast, tariffs for voice calls over the fixed line network have remained relatively unchanged.
Negative growth in the wireline subscriber base has had the biggest impact on BSNL. The operator has witnessed massive disconnection of users from its network with 223,589 subscribers unsubscribing to its fixed line services in October 2013 alone. In contrast, private operators continue to remain bullish about fixed line services. Bharti Airtel, which has the highest share (11.53 per cent) in the wireline segment among private operators, is reportedly planning to acquire the remaining stake in Alcatel-Lucent Managed Network Service India, its joint venture with Alcatel- Lucent, for the provision of fixed line services. After securing total ownership, Airtel intends to hive off the fixed line division and operate it as a separate entity based on Indus Towers? business model.
Similarly, Vodafone India is targeting the small and medium enterprise segment for fixed line services. The operator is offering these services to enterprises in 150 cities across the country and expects the business to grow by 20 per annum going forward.
Revival of the long distance segment
In terms of usage, as per Telecom Regulatory Authority of India?s (TRAI) performance indicator report for the April-June 2013 quarter, 14.7 per cent of wireless subscribers availed of roaming services (both national and international long distance [NLD and ILD]). Minutes of usage (MoUs) during this period can be classified as outgoing NLD (39.3 per cent), incoming (33.4 per cent), outgoing local (26.4 per cent) and outgoing ILD (0.9 per cent). The overall MoUs per subscriber per month stood at 26 for intercircle NLD services and 0.24 for ILD services for the quarter ended June 2013.
Meanwhile, several major developments took place on the long distance policy front. TRAI released its recommendations on the terms and conditions of unified licence (access services). The regulator recommended that the licensee ought to be allowed to carry intra-circle long distance traffic without applying for an additional licence. Subscribers availing of this service will be given two options. They may use another operator?s network in the same circle (subject to the licensor?s or TRAI?s regulations/directions/orders) or sign 14 mutual agreements with the national long distance operators for carrying intra-circle long distance traffic.
Also, in June 2013, TRAI announced the 55th amendment to the Telecommunication Tariff Order, instituting a new system for roaming charges, which came into effect from July 1, 2013. Through this amendment, TRAI not only lowered the ceiling for national roaming calls and SMSs, but also made it mandatory for telecom operators to offer at least two types of free national roaming plans to their subscribers. As per the amendment, the ceiling for local outgoing calls has been reduced from Rs 1.40 per minute to Re 1 per minute, while for outgoing-NLD, calls it has been lowered from Rs 2.40 per minute to Rs 1.50 per minute. For incoming calls during roaming, the ceiling has been reduced from Re 1 per minute to Re 0.75 per minute. The charge for outgoing SMSs, which was in the Rs 1.50 to Rs 3.50 range, has been fixed at Rs 1.50 for an NLD SMS and Re 1 for a local SMS. Further, TRAI has made it mandatory for telecom operators to offer special plans, under which heavy roamers can avail of free national roaming for an additional fixed charge. However, the impact of the amendment on telecom companies has not been significant as most operators such as Bharti Airtel, Vodafone India, Idea Cellular, Tata Teleservices Limited and Aircel were offering roaming services at the new ceiling prices (outgoing NLD calls at Rs 1.50 per minute and outgoing local calls at Re 1 per minute).
Meanwhile, tariff cuts in the long distance services space (both domestic and international) were triggered by increased competition. The tariff war began with messaging application provider Nimbuzz?s partnership with Spectranet to offer international calls from India to the US at Re 0.60 per minute. Following this, most operators revised their international call rates. For example, Vodafone India launched two international roaming packs which offer a 95 per cent discount on data and 78 per cent discount on outgoing international calls as compared to current rates.
In sum, 2013 was marked by policy and regulatory changes which have improved investor sentiment. With greater clarity, the telecom sector is set to witness higher growth and stronger financials in 2014.
