P.E.S.T Analysis of the Indian Telecom Industry

Table of Content


The Indian telecommunications has been zooming up the growth curve at a feverish pace, emerging as one of the key sectors responsible for India’s resurgent economic growth. It is the fastest growing telecommunication market in the world, and with 281. 62 million telephone connections (at the end of January 2008) is the third largest telecom market. In fact, India has achieved its target of reaching 250 million telephone subscribers by 2007, two months before target. Simultaneously, overall tele-density has increased to 24. 63 percent.

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The year 2007 saw India achieving significant distinctions: having the world’s lowest call rates (2-3 US cents), the fastest growth in the number of subscribers (15. 1 million in 4 months), the fastest sale of million mobile phones (in a week), the world’s cheapest mobile handset (US$ 17. 2) and the world’s most affordable colour phone (US$ 27. 42) and largest sale of mobile handsets (in the third quarter). Go-ahead to the CDMA technology INDIA Private players were allowed in Value Added Services National Telecom Policy (NTP) was formulated 1992 1994 1997 Independent regulator, TRAI, was established NTP-99 led to migration from high-cost fixed license fee to low-cost revenue sharing regime 1999 2000 2002 BSNL was established by DoT ILD services was opened to competition.


Wireless segment has emerged as the preferred mode of telephone service by the consumers, reflected in the rising share of mobile phone connections to total connections. The share of mobile phones has increased from 71. 69 per cent at the end of March 2006 to 86. 07 per cent at the end of January 2008. While total mobile subscriber base was 242. 4 million, wire line subscriber base was 39. 22 million.

In fact, since 1999, mobile subscriber base has been growing at a CAGR of around 85 per cent. And, while about 8 million new subscribers are being added every month in mobile segment, there has been a decline in the total number of wire line subscribers. Also, the net addition of 8. 77 million subscribers added in January 2008 has been the highest ever increase in a single month. Also, private sector has become the dominant player in the industry. While public sector companies added 53. 6 million subscribers during 1998-2007, private companies have added a whopping 133. 58 million subscribers during the same period.

The dominance has been much more pronounced in the mobile market, where private operators have added 124. 68 million subscribers, while public sector operators added only 31. 79 million subscribers. 1. 2 THE ROAD AHEAD According to a report by Boston Consulting Group, while only one in 20 of the world’s first two billion mobile subscribers live in India, as many as one in every four of the next billion subscribers will be an Indian. The department of telecommunication estimates the total subscriber base to total 500 million by 2010, out of which 80 million are expected to be from rural areas.

The Indian telecom industry’s revenue, , is estimated to increase, which according to Ernst & Young is expected to total US$ 43 billion, accounting for 4. 2 per cent of the total GDP. With such growth projection, this industry is likely to see increased investments. In fact, total investment is projected at US$ 76. 6 billion during the eleventh plan period (2007-12). Private sector is estimated to continue its dominant share, accounting for 67 per cent of the total projected investment while public sector accounts for the rest. Figure 1. 1: Expected Growth of the Industry.


In analyzing the macro-environment, it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the organization’s supply and demand levels and its costs. The radical and ongoing changes occurring in society create an uncertain environment and have an impact on the function of the whole organization. A number of checklists have been developed as ways of cataloguing the vast number of possible issues that might affect an industry. A P. E. S. T. nalysis is one of them that is merely a framework that categorizes environmental influences as political, economic, social and technological forces.


The Political scenario of the Indian Telecommunication Industry is rather complicated. It has a blend of both government as well as independent authorities working in tandem with each other. The Indian telecommunication ystem is governed by the Indian Telegraph Act, 1885 (ITA 1885) and the Indian Wireless Act, 1933. The Department of Telecommunications (DoT) governs the Indian telecom industry. DoT, in coordination with its arm, Telecom Commission, looks after licencing, policy making, and frequency management. A prime ministerial council, the Group on Telecom and IT (GoT-IT), handles important ad-hoc issues if any. To streamline policy reforms and safeguard consumer interests, DoT established the Telecom Regulatory Authority of India (TRAI) in 1997. The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) was also established at the same time.

Another regulatory body is the Wireless Planning Commission (WPC) under the aegis of the Ministry of Communications. Indian Telecom Industry Framework Indian Government Bodies Independent Bodies Wireless Planning and Coordination (WPC) Department of Telecommunications Telecom Commission Group on Telecom and IT (GoT-IT) Telecom Regulatory Authority of India (TRAI) Telecom Disputes Settlement and Appellate Tribunal (TDSAT) Handles spectrum allocation and management DoT – Licensee and frequency management for telecom Exclusive policy making body of DoT Handles ad hoc issues of the telecom industry Independent regulatory body

Telecom disputes settlement body They formulate various policies and pass laws to regulate the telecom industry in India. They undertake various research activities and monitor the quality of service provided in the Indian telecom industry. They also provide various recommendations to improve the status of telecom operations in India. Time and again, the Indian government has devised various regulations aimed at augmenting the industry competitiveness. While some of these regulations have been instrumental in ending the licence regime, others have paved the way for industry growth. Unified Access Licencing Regime (UALR)

The establishment of the UALR (2003) eliminated the need for separate licences for different services. Players are now allowed to offer both mobile and fixed-line services under a single licence after paying an additional entry fee. Access Deficit Charge (ADC) ADC makes it essential for the service provider at the caller’s end to share a certain percentage of the revenue earned with the service provider at the receiver’s end in long distance telephony. ADC is charged from all service providers as a certain per cent of their adjusted Gross Revenue (AGR).

More than 95 per cent of the ADC fund is dedicated to developing the rural infrastructure and services of BSNL. ADC has now been reduced to 0. 75 per cent from 1. 50 per cent of AGR for all service providers. Per minute ADC on incoming international calls has also been reduced. Universal Service Obligation (USO) In order to widen the reach of telephony services in rural India, the USO policy was laid along with NTP ’99. All telecom operators are bound to contribute 5 per cent of their revenues to this fund. The Government enforced USO from 1 April 2002. This is a non lapsable fund and also absorbs any grants and loans from the central government. Although it increases the cost burden for the telecom companies, USO helps in building telecommunication infrastructure in the rural areas.


The Indian government has continuously laid strong focus on the development of world-class telecom infrastructure and the industry has witnessed synchronous policy changes 1999 onwards. Buoyed by this, the entry of numerous private players has triggered an improvement in the quality of services; a reduction in the tariff level across all segments and the evelopment of infrastructure. Currently, private participation is permitted in all segments of the telecom industry, including international long distance, domestic long distance, basic cellular, internet, radio paging, etc.


The Indian Telecom Industry is currently India’s fastest growing sector. With our government aiming to achieve a target of 500 million telephone connections, 40 million Internet connections and 20 million broadband connections in the following years, investments needed run into billions of dollars. The government has thus opened up to FDIs and the private sector which has resulted in an impressive forward momentum. In order to understand the economic environment of the telecom industry, the following topics will be covered:

  • Current Economic Scenario
  • Mergers and Acquisitions
  • Foreign Direct Investments


Stable Economic Outlook A decade of reforms has opened the country to greater competition and spurred industries to become more efficient. India is currently the fourth-largest economy on PPP basis and is well positioned on a continuously increasing growth curve. India’s emergence as a leading destination for foreign investment is a result of positive indicators such as a stable 8 per cent annual growth, rising foreign exchange reserves of over US$ 212 billion, a decent capital market, and Foreign Direct Investment (FDI) of US$ 15 billion.

Goldman Sachs had earlier predicted that India will become the third-largest economy in the world. However, it has now revised its previous estimates and claims that by 2050, India will even surpass the US and become the second-largest economy after China. The country’s economic growth has become more attractive due to the rising share of the services sector in the GDP. Large Market Potential Around 30-40 million people in India join the middle class every year. The country’s upper middle class spends 6 percent of its earnings on telecom services.

Low Labour Cost India has one of the lowest labour costs among the developing countries, which is the foremost factor for attracting multinational giants in every sector. An apt example is Nokia, which has set up its manufacturing operations in India considering the long-term sustainable demand for mobile telephony. The company believes that this initiative will help the company in reducing time to market and respond better to customer requirements. It has pumped in US$ 150 million into its Chennai facility.

Recent Deals in Telecom Sector Reliance Communications Limited has sold a five percent equity share capital of its subsidiary Reliance Telecom Infrastructure Limited to international investors across the US, Europe and Asia. The deal was worth USD 337. 5 million. Vodafone purchased stake in Hutch from Hong Kong’s Hutchison Telecom International for USD 11. 08 billion. Telekom Malaysia acquired a 49 percent stake in Spice Communications for USD 179 million. Maxis Communications acquired a 74 percent stake in Aircel for USD 1. 08 billion.

Ericsson to design, plan, deploy and manage Bharti Airtel network and facilitate their expansion in the rural areas, under a USD 2 billion contract. The fast growing Indian telecom industry has seen mergers and acquisitions valued at over $9 billion this fiscal, unfazed by the global slowdown that resulted in lesser number of global M deals. In fact, consolidation in telecom industry accounted for one-third of the total M in the country. The largest of around 20 deals this year was the buyout of 26% stake in Tata Teleservices by Japanese major NTT DoCoMo Inc, an Assocham EcoPulse study said.

The 2. 7-billion dollar deal enabled the Japanese giant’s entry into the world’s fastest growing telecom market, which has over three times the number of subscribers in Japan. In another deal, Dubai-based Emirates Telecommunications Corp (Etisalat) bought out 45% stake in Swan Telecom for cash up to $900 million. Idea Cellular acquiring 40. 8% stake in Spice Communications for $679 million dollar was among the major domestic deals in the last eight months of this fiscal. The study revealed that most of the telecom deals were inbound with foreign companies infused about $8. 06 billion. The valuations of deals between domestic players, however, remained relatively less. The largest acquisition however remains the Vodafone-Hutch deal which was valued at $11. 08 billion.

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P.E.S.T Analysis of the Indian Telecom Industry. (2018, Apr 28). Retrieved from


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