The Indian telecom sector witnessed several key developments during 2012. In February, the Supreme Court delivered its landmark judgment on the 2G case and cancelled 122 telecom licences issued in 2008. The verdict impacted both new and incumbent players alike. Among the new players, Uninor, Sistema Shyam TeleServices Limited (SSTL), S Tel, Etisalat DB, Videocon Telecommunications and Loop Telecom collectively lost 106 licences, while 13 and three of Idea Cellular?s and Tata Teleservices Limited?s (TTSL) licences were cancelled respectively. Consequently, S Tel, Etisalat DB and Loop Telecom exited the sector, while SSTL and Telenor, which opted to stay on, are struggling to gain ground.
During July-August 2012, the sector witnessed the first ever decline in the wireless subscriber base, from 965.52 million to 939.57 million. The user base stood at 921.47 million as of November 2012. Moreover, the sector?s financial situation has been weak as operators have been struggling to cope with mounting losses and a huge debt burden. Bharti Airtel registered a decline in net profits for 11 consecutive quarters till the quarter ended September 2012. Reliance Communications (RCOM) also registered a 59.5 per cent year-on-year decline in net profits during the same period.
Besides poor finances, the industry witnessed changes in the subscriber market share of various players. While Airtel maintained its lead in the pecking order, with a total market share of 20.62 per cent (as of November 2012), Vodafone India replaced RCOM as the second largest operator in the country. As of November 2012, Vodafone?s subscriber market share stood at 16.93 per cent while that of RCOM was 15.06 per cent. Also, Bharat Sanchar Nigam Limited (BSNL) made way for Idea Cellular as the fourth largest operator with a subscriber market share of 12.82 per cent.
On the positive side, operators continued to show commitment towards improving 3G uptake. For instance, 3G tariffs were slashed by around 70 per cent to encourage service adoption. Moreover, the sector witnessed the launch of 4G services. Currently, Bharti Airtel is the only 4G player, having launched services in Kolkata, Bengaluru and Pune.
The government?s efforts to auction freed-up spectrum (as a result of 2G licence cancellations) in November 2012 did not generate much interest from the industry, primarily on account of the high base price (set at Rs 140 billion for 5 MHz of pan-Indian 2G spectrum). While there were no takers for pan-Indian spectrum, Vodafone India won airwaves in 14 circles, the highest among all bidders. Idea Cellular won spectrum in eight circles while Videocon Telecommunications and Uninor acquired spectrum in six circles each. Bharti Airtel acquired a 2G licence in only one circle.
A key development during the year was the release of the National Telecom Policy, 2012, which provided a road map for the sector. Going forward, the policy aims to introduce free roaming from March 2013, which may impact operator profits and service providers may resort to a tariff hike to cover their losses. Besides, the spectrum auction slated for March 2013 may see active participation on account of a lower base price. In the future, positives for the sector will also include the large-scale launch of 4G services and the growing uptake of 3G services.
tele.net takes a look at the key telecom players and major initiatives taken by them over the past year?
Bharti Airtel
Bharti Airtel continues to lead the Indian wireless telecom space. As of November 2012, the operator had a subscriber base of 183.61 million and a market share of 20.62 per cent.
Given the policy and regulatory uncertainties, Bharti Airtel preferred to maintain a low profile through 2012. In the recently concluded 2G spectrum auction, the operator made a token bid and won spectrum in only one circle ? Assam.
Like its peers, the operator has been struggling to deliver a strong financial performance over the past two years. Its profits for the quarter ended September 2012 plummeted to Rs 7.21 billion from Rs 10.27 billion for the corresponding quarter in 2011. The company attributed this 29.8 per cent decline to a significant tax outgo during the quarter under review. The operating margin for Bharti?s Indian operations also declined from 36.1 per cent to 32.7 per cent during the period under consideration. As on September 30, 2012, its net debt stood at Rs 667.6 billion.
Rising sales and marketing expenses have also contributed to the erosion of Bharti?s profitability. The venture involving the acquisition of Zain Telecom?s networks in 15 African countries is yet to generate profits. The Zain deal added $9 billion to Bharti?s balance sheet as net debt. This is by far the largest part of the company?s total net debt.
Through 2012, Bharti maintained its focus on operations. It became the first (and so far the only) operator to launch 4G services in the country. Currently, its 4G services are available in Bengaluru, Kolkata and Pune. The operator has also launched India?s first long term evolution time division duplex (LTE-TDD) smartphone ? Huawei?s Ascend P1 LTE ? to drive service uptake.
In 2012, Bharti Airtel acquired 49 per cent of Qualcomm?s broadband wireless entities for around Rs 9.24 billion, which will allow the company to offer data services in four circles, where Qualcomm has licences.
Meanwhile, in mid-2012, the operator reduced 3G tariffs by 70 per cent to drive 3G service growth. This helped it realise a marginal increase in the 3G subscriber base. In September 2012, Bharti Airtel reported 4.04 million 3G users as compared to 3.71 million as of June 2012.
In a key move, Bharti Infratel, the mobile tower arm of the operator, launched its initial public offering (IPO) in December 2012. It offered 188.9 million shares of Rs 10 each at Rs 210-Rs 240 per share. The shares were listed subsequently on the Bombay Stock Exchange and the National Stock Exchange. It was the largest IPO in the country in the last two years.
Though the offer received limited response from the retail segment and high net worth individuals, the issue was subscribed majorly by qualified institutional investors. Bharti Infratel raised Rs 41 billion through the IPO.
Bharti Airtel launched several new services in 2012. In February, it launched the Airtel Money service across the country through its wholly owned subsidiary Airtel M Commerce Services Limited. It is the country?s first mobile wallet service provided by an operator. It allows customers in 300 cities to load cash on their mobile devices and use it to pay utility bills and recharges, shop at over 7,000 merchant outlets, etc.
Focusing on rural customers, Bharti Airtel tied up with Axis Bank to provide banking and payment services to the country?s unbanked population through the mobile platform. The company also entered the mobile advertising space
during 2012. Its advertising platform enables advertisers to connect with their potential customers in a targeted and personalised manner.
However, Bharti Airtel is currently facing various challenges and the company?s future depends on its ability to address these challenges. To differentiate its services, the operator plans to focus on customer experience. Airtel recently inaugurated its network experience centre, which merges network monitoring and customer experience management. The facility has a 3,600 square foot video wall, which monitors and analyses the company?s network operations and presents them in a unified video view.
The operator is also focused on promoting the Airtel B2B segment to increase its revenues. Currently, this segment provides innovative business solutions to large and small enterprises, government customers and carriers across the globe. In the coming years, the business division will focus on delivering efficient cloud-based solutions, data centre services, managed video offerings, storage and data security, among others.
The operator is also looking to leverage its first-mover advantage in the 4G space. Bharti Airtel plans to launch 4G services in the Karnataka, Maharashtra (including Mumbai), Punjab, Delhi, Haryana and Kerala circles in 2013.
Vodafone India
Vodafone India closed its financial year (March 31, 2012) on a positive note. The operator registered 19.5 per cent growth in service revenues, from Rs 269.37 billion in 2010-11 to Rs 321.84 billion in 2011-12. The company witnessed strong cash flows, with the operating free cash flow standing at Rs 42.41 billion in 2011-12 in comparison to Rs 32.56 billion in the previous year.
The operator managed this growth despite tax issues and an uncertain regulatory environment. In June 2012, Vodafone became the second largest operator in the country by subscribers, surpassing RCOM.
Its subscriber base stood at 150.76 million as of November 2012, as compared to 153.15 million on October 31, 2012. Vodafone India had a high share of active subscribers at 93.39 per cent in November 2012. Currently, it has the second largest proportion of rural customers in its subscriber base and consequently, these subscribers are expected to drive revenue growth in the future.
To augment the quality of 2G services, Vodafone acquired spectrum in 14 circles at a cost of Rs 11.28 billion in the recently concluded 2G spectrum auction. These circles are Assam, Bihar, Haryana, Himachal Pradesh, Jammu & Kashmir, Kerala, Madhya Pradesh, Maharashtra, the Northeast, Odisha, Punjab, Uttar Pradesh (East), Uttar Pradesh (West) and West Bengal.
In India, Vodafone?s business strategy includes adding high-value users, a strong enterprise service portfolio and strong branding and marketing initiatives. The operator has the highest number of post-paid subscribers at 7.9 million, resulting in higher ARPUs.
On the enterprise front, the operator is focused on voice. As of now, it does not have major offerings in the enterprise data space. The operator, however, has high-ARPU customers. At present, the company provides 3G services in 683 towns and cities across 20 circles. As of June 2012, Vodafone India?s data service subscriber base stood at 71.37 million. However, only 32 million data users were active and 2.1 million were using 3G services as of September 2012.
In mid-2012, Vodafone postponed its plans for an IPO in India due to uncertainty about issues such as tax claims by the Income Tax Department and spectrum refarming.
A key challenge for the operator has been its inability to record profits since it commenced operations in India, despite strong cash flows. In fact, the company registered a loss of about Rs 22 billion in 2011-12 on account of the high finance cost as well as investments.
The recent government move to charge a one-time fee for excess spectrum could hurt the operator as it would result in a significant cash outflow. Vodafone will have to pay spectrum charges for using airwaves above 4.4 MHz on a prospective basis and for airwaves above 6.2 MHz on a retrospective basis from 2008. Further, the issue of spectrum refarming in the 900 MHz band could also result in cost implications for the operator. Vodafone has 68.4 MHz of spectrum in the 900 MHz band in 10 circles, for which its licences will be up for renewal in 2014-16. Shifting operations to the 1800 MHz band and/or participating in the 900 MHz spectrum auction could further impact the operator?s financial health.
Vodafone has proved to be an intelligent strategist and marketer. The operator?s popular Zoo Zoo advertisement campaign has helped it establish a strong brand presence in the Indian market.
Over the next year, Vodafone India will continue to focus on building core businesses in the consumer and enterprise segments, and increasing the uptake of mobile data and m-finance services.
RCOM
Over 2012, RCOM has struggled to push for revenue growth. While its ARPUs remained sluggish at Rs 100 per month, operating costs escalated. This resulted in revenue margins taking a hit. For the quarter ended December 2012, RCOM?s net profits declined by 43.54 per cent to Rs 1.05 billion as compared to Rs 1.86 billion in the corresponding quarter in 2011. This was attributed to the high interest outgo on loans for buying 3G spectrum in 2010.
In 2012, RCOM also faced issues in raising capital from banks and financial markets due to its high debt and the uncertain regulatory environment. The company?s initiatives to reduce its debt, which stood at about Rs 373 billion as of December 2012, through a stake sale in the tower business, did not materialise. Moreover, RCOM had to postpone the listing of its undersea cable unit, Flag Telecom, on the Singapore Stock Exchange due to adverse market conditions.
The operator?s financial health is likely to worsen with the government imposing a one-time fee on excess spectrum held by operators. However, RCOM?s pay-out will be less as compared to that of other companies as it holds excess spectrum (over 4.4 MHz) in only a few circles.
To address its financial concerns, RCOM increased prepaid 2G tariffs by 25 per cent. This segment accounts for 97 per cent of its subscribers. The company expects the tariff hike to improve its ARPUs. Prior to this, it redeemed foreign currency convertible bonds worth $1.18 billion and signed an agreement with three Chinese banks to refinance its outstanding debt. RCOM also approached the State Bank of India for a loan of Rs 30 billion to restructure its short-term debt and meet its capex requirements.
Over the year, the company made efforts to improve its network coverage. According to the Telecom Regulatory Authority of India?s (TRAI) quality of service report, RCOM was adjudged the best operator in 18 circles for the lowest number of call drops in September 2012.
In July 2012, RCOM disconnected about 20 million inactive customers. The initiative helped in reducing pressure on the network, thereby improving the quality of services for existing users.
With a focus on 3G and data services, RCOM launched its Android-based 3G tablet at a reasonable price in 2012. Currently, the operator has 4 million 3G subscribers. In mid-2012, RCOM tied up with Google, which helped it increase the number of subscribers using Android smartphones. This resulted in a surge in data usage on RCOM?s network. Moreover, the company launched the Mera Pack and My Best Plan offers on GSM and CDMA networks across circles.
Following its competitors, the company decreased 3G tariffs by 70 per cent to encourage service uptake. It intends to deploy multiple-input, multiple-output technology in select circles to provide speeds of up to 42 Mbps, thereby allowing its wireless subscribers to access data-intensive services. RCOM is also likely to partner with CDMA smartphone manufacturers to provide upgrades to existing CDMA subscribers. Going forward, the operator intends to focus on high-ARPU customers. It is targeting Rs 90 billion of data revenues by 2017.
BSNL
BSNL?s operations continued on the downward trajectory in 2012. Over the past few years, the operator has been under pressure across business segments (excluding internet and broadband, and rural telephony). In 2012, frequent tariff cuts and stiff competition resulted in a significant drop in BSNL?s market share. As of November 2012, the company, along with MTNL, had a mobile market share of only 11.81 per cent.
The operator was ranked fifth in the wireless market, with a subscriber base of 99.9 million, behind Bharti Airtel, Vodafone India, RCOM and Idea Cellular.
The wireline segment, which is BSNL?s key business area, also reported a declining user base. Between November 2011 and November 2012, the company?s wireline user base decreased by 2.17 million users. Nevertheless, it continues to be the dominant player in this market, with a 68.47 per cent market share as of November 2012.
In 2012, two major developments impacted the company. A Supreme Court judgment required BSNL to pay about Rs 15 billion to the Department of Telecommunications (DoT) as spectrum charges and licence fee for 3G services. Also, BSNL stopped receiving Rs 20 billion every year as viability gap funding to support its rural operations after July 2011.
The company has been in the red for some time now, owing to increasing operational costs. Its losses grew from Rs 63.84 billion in 2010-11 to about Rs 88.5 billion in 2011-12. The losses were on account of regulatory expenses and non-receipt of funds for rural landline operations. BSNL also registered a decline in its total revenues from Rs 296.87 billion in 2010-11 to Rs 279.33 billion in 2011-12.
The operator is pulling out all the stops to arrest this decline. During 2012-13, the company is aiming to retain and increase its market share in the broadband, mobile and VAS segments, and augment its wireline customer base. It also plans to install 15 million GSM lines, leverage 3G services and launch new VAS offers and tariff plans.
Currently, BSNL offers 3G services in 963 cities. To increase uptake, it intends to offer applications such as movie and game downloads, and video-on-demand, and is scouting for a strategic partner for launching innovative 3G services.
Moreover, the company plans to leverage its CDMA network and increase the uptake of its data cards, which are expected to generate significant revenues for this network.
On the wireline front, the company is looking to expand its coverage to new towns, cities and townships by expanding its copper and fibre networks. The enterprise segment is another key focus area for the company. In 2012, BSNL registered 30 per cent growth in this segment over the previous year, which it plans to replicate in 2012-13. To this end, the company has undertaken an enterprise resource planning project, which is aimed at centralising countrywide operations.
The company is also looking for long-term project financing from various banks and financial institutions.
BSNL plans to invest significantly in all service segments. The company has earmarked about Rs 40 billion for mobile network expansion. It is looking to convert its landline telephone exchanges, which are digital electronic exchanges, into next-generation networks (NGNs), in collaboration with the Centre for Development of Telematics. It currently operates 27,000 digital telephone exchanges across the country, of which 26,000 are located in rural areas. The operator has floated a tender to convert them into IP multimedia subsystems-based NGNs.
Net, net, the company has identified a strong action plan to regain lost ground. BSNL is betting big on broadband services and the enterprise segment as well as focusing on network expansion, capacity addition and strategic moves to improve its financial position.
Idea Cellular
The year 2012 was a testing one for Idea Cellular, the country?s third largest GSM operator. Its disagreement with DoT on intercircle roaming agreements was yet to be settled when the Supreme Court cancelled its nine (including two held by Spice Telecom) 2G licences in February 2012.
Despite its disagreements with the authorities, it was business as usual for the company in 2012. As of November 2012, the company had a user base of around 114.14 million and it held a 12.82 per cent subscriber market share. It continued with its stronghold on rural markets, which accounted for over 55 per cent of its total user base, the highest amongst GSM players.
3G continued to be a key focus area for the operator and Idea Cellular spent the better part of the year in strengthening its 3G footprint across the country. Its 3G services are now available in 20 circles, through a combination of home networks and roaming agreements. In a bid to increase service adoption, Idea slashed 3G tariffs and entered the 3G smartphone space in 2012. As of September 2012, data services contributed about 5.4 per cent of the operator?s service revenues and its 3G user base stood at over 3.7 million.
Idea is on a strong financial wicket with steady year-on-year growth in revenues. It registered a 14.87 per cent increase in revenues from Rs 46.55 billion for the quarter ended September 2011 to Rs 53.48 billion during the same period in 2012. Moreover, its earnings before interest, taxes, depreciation and amortisation margin stood at 23.58 per cent for the quarter ended September 2012 as against 22.45 per cent during July-September 2011. This was attributed to optimisation of business promotion expenses and subscriber acquisition.
Notably, in an attempt to win back spectrum, the company participated in the recent auction and won 5 MHz of spectrum each in the Assam, Jammu & Kashmir, Kolkata, the Northeast, Odisha and Tamil Nadu circles; 6.25 MHz in the West Bengal circle; and another 1.25 MHz in the Bihar service area. The collective cost of spectrum was Rs 20.31 billion.
Over the next year, Idea Cellular plans to continue focusing on building its brand equity, strengthening its presence in rural and semi-urban areas and increasing 3G service uptake in urban markets. However, the government?s move to charge a one-time fee for excess spectrum is likely to result in declining margins in the coming quarters. Moreover, the decision to refarm spectrum in the 900 MHz band is likely to adversely impact the company, as seven of the operator?s nine licences in the 900 MHz band are to be renewed in 2014-16. Therefore, a new strategy to ensure continued services in this band may be required.
TTSL
After taking the market by storm in 2009-10 with a series of aggressively priced offerings, TTSL slowed down in 2012.
The most visible evidence of this was its subscriber numbers ? last year, the operator lost over 10 million users.
According to TRAI, TTSL lost 4.23 million users between October and November 2012. Today, it is the sixth largest operator with a wireless user base of 72.51 million.
Company officials have attributed this to the major exercise the operator undertook to weed out inactive subscribers. Also, with the change in leadership the company?s operational focus shifted from voice to high-ARPU data users.
In early 2012, the Supreme Court cancelled three of the operator?s 2G licences. Also, in spite of having 2G licences, it did not hold any spectrum in about 39 commercially important districts in nine telecom circles. Further, TTSL did not participate in the recent 2G spectrum auction due to the high base price.
In a major development, the government provided TTSL 4.4 MHz of 2G spectrum in the 1800 MHz band for the Delhi circle in the latter half of 2012. The operator is expected to launch GSM services in Delhi in the first half of 2013.
For the next one year, the company?s agenda will focus on improving its profitability by optimising costs and revenues through various initiatives such as consolidating the management structure. In the past few years, TTSL?s main investments have been directed at expanding networks and increasing its 2G and 3G service capability. Going forward, the company intends to focus on better customer segmentation, offering the best mix of services, reducing the cost-to-market, improving services, investing only in profitable areas and controlling its capex.
Broadband, 3G and VAS will continue to be the company?s key focus areas. TTSL is looking to build the TATA DOCOMO brand and consolidate its GSM arm to become one of the top three wireless operators in the country.
3G and broadband will be other important service segments. The company is optimistic about emerging as one of the major 3G players, given that it was the first private player to launch these services and completed network roll-out within two months of receiving spectrum. In the broadband space, TTSL has an edge over its peers given its access to Tata Communications? extensive network. Going forward, the company will look to increase its broadband market share and expand its product portfolio, which includes devices and modems offering internet connectivity of 3.1 Mbps.
The company has also been active on the VAS front to remain competitive and to improve its ARPUs. To this end, it has not only launched several innovative services, but also formed strategic tie-ups.
To sum up, TTSL is a long-term player in the Indian telecom space and though it has been going through a rough patch of late, it is leveraging its resources and is working on a strategic plan to ensure future growth.
Aircel
Aircel, the Indian arm of Malaysia?s leading telecom operator Maxis Berhad, has also been maintaining a low profile since the 2G controversy rocked the industry. It did not participate in the recent 2G spectrum auction.
Prior to 2010, Aircel had taken some strong initiatives. The one-time regional player had expanded operations across the country and embarked on an aggressive branding exercise.
In 2011, however, Aircel began to lose steam as the company came under the Central Bureau of Investigation?s scanner for alleged involvement in the 2G spectrum controversy.
With over 65.32 million subscribers (November 2012), the company has, however, maintained its momentum in terms of operations. It rolled out 3G services in all 13 circles where it won licences.
Aircel has broadband wireless access (BWA) spectrum in eight circles. The company has maintained its focus on data services. It has rolled out 50,000 Wi-Fi hotspots across the country, which it intends to leverage once 3G service uptake picks up and BWA services are rolled out.
For Aircel, the focus has always been on establishing itself as a mobile internet company, which enables affordable access to voice and data services. Recently, reinforcing its emphasis on youth, the operator launched Aircel PocketBuddies ? Srf n Txt ? which offers unlimited internet surfing and messaging at low prices.
To leverage the growing demand for cloud services, Aircel tied up with the NEC Corporation to power its cloud computing initiative, Business Unplugged, in October 2012. These services target large and medium enterprises, small and medium enterprises/small office, home office and PSUs across industry verticals.
Meanwhile, given the severe margin pressure and a maturing voice market, Aircel started scaling down operations in Madhya Pradesh, Punjab, Haryana, Rajasthan and Gujarat in October 2012. This was aimed at reallocating resources to more profitable zones. Going forward, Aircel plans to focus on increasing its customer base by delivering improved voice and data services. It proposes to increase its subscriber base to 100 million. Also, in 2013, it plans to launch 4G services.
MTNL
The year 2012 was a challenging one for MTNL on account of the fast declining ARPUs, stiff competition from private players and a huge outgo on account of 3G spectrum charges.
As of November 2012, MTNL, which operates in the Delhi and Mumbai circles, had 5.3 million wireless users and a market share of 0.6 per cent. In the wireline segment, it held a 79.66 per cent market share, along with BSNL.
In terms of revenues, MTNL reported a net loss of Rs 10.93 billion for the quarter ended September 2012 as compared to Rs 8.64 billion in the corresponding quarter in 2011. As of September 2012, the operator?s net sales stood at Rs 8.37 billion, registering a decline of 2 per cent as compared to September 2011. The operator?s administrative and operational expenditure increased from Rs 1.77 billion in the quarter ended September 2011 to Rs 2 billion in the corresponding period in 2012. Further, the company paid Rs 110 billion for acquiring 3G and BWA spectrum in the Mumbai and Delhi circles. The operator raised short-term loans of about Rs 75.63 billion to pay for its 3G and BWA licences, while the remaining amount was paid through internal resources.
MTNL spent the better part of 2012 in damage-control mode. The company approached DoT to surrender its BWA spectrum in the Delhi and Mumbai circles. It is currently awaiting DoT?s response in this regard.
MTNL also sought a bailout package from DoT, following the empowered group of ministers? decision to charge a one-time fee of Rs 100 billion from operators holding over 4.4 MHz of GSM spectrum and 2.5 MHz of CDMA spectrum.
The operator is trying to maximise its revenues by optimising its existing assets. To this end, it has started sharing its passive and active infrastructure such as towers and core capacity, and developing and sharing its real estate. MTNL has significant land and building assets, and has rented out space in its various offices and exchanges in Delhi and Mumbai. In addition, the company has a large pool of assets in the form of spare capacity in installed equipment. It intends to rent out this capacity to generate additional revenues.
Moreover, MTNL has been looking to increase its existing user base by providing quality services and improved customer care, and by introducing new services, schemes and innovative marketing strategies. It has been upgrading its telephone exchanges and external plants as well.
Going forward, increasing revenues is a top priority for the operator. It is also planning to expand services based on latest technologies like IP-MPLS, fibre-to-the-home (FTTH) based on gigabit passive optical network and access networks. Another priority is improving its after-sales service to add subscribers.
It is also planning to strengthen its GSM network and will add sites to increase network coverage. It would float a tender in this regard in the near future. The company does not have any plans to roll out 4G services with the spectrum it currently holds. Instead, it is focusing on technologies like FTTH and is looking to form partnerships in this segment. The operator is looking to increase the penetration of its broadband services through fibre or 3G data cards.
