P. E. S. T. Analysis of the Indian Telecom Industry 2009 This is an analysis of the Political, Economic, Social and Technological environment surrounding the Indian Telecommunication Industry. By- Akshar Mehta 02 2nd January 2009 Particulars| Page| 1. Introduction 2. 1 Panoramic Scene of Indian Telecom Industry 2. 2 The Road Ahead| 2-323| 2. P. E. S. T. Analysis – What is it? 3. 3 Meaning 3. 4 Main Aspects of P. E. S. T. Analysis| 444| 3. Political Environment3. 1 Policies Framed By the Government for the Telecom Industry3. 2 Impact of Policies on the Industry| 5-767| 4. Economic Environment 5. Current Economic Scenario4. 2 Mergers and Acquisitions4. 3 Foreign Direct Investment (FDI)| 8-9899| 5. Social Environment| 10| 6. Technology Environment 7. 6 Technology Available in India Today6. 2 Technology which will be implemented later| 11-1311,1213| 7. Conclusion| 14| 8. Bibliography 9. 7 Articles 9. 8 Books 9. 9 Internet| 15151515| ————————————————- Table of Contents 1. THE TELECOM INDIAN INDUSTRY 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. 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
Internet telephony initiated Reduction of licence fees 2003 Calling Party Pays (CPP) was implemented Unified Access Licensing (UASL) regime was introduced Reference Interconnect order was issued 2004 Intra-circle merger guidelines were established Broadband policy 2004 was formulated—targeting 20 million subscribers by 2010 2005 FDI limit was increased from 49 to 74 percent Attempted to boost Rural telephony 2006 Number portability was proposed (pending) Decision on 3G services (awaited) 2007 Department of Telecommunication (DoT) is the main body formulating laws and various regulations for the Indian telecom industry. 008 3G services launched by MTNL Fig 1. 0: The Gradual Growth of the Telecommunication Industry 1. 1 PANORAMIC SCENE OF THE INDUSTRY TILL 2008 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 . PEST ANALYSIS – WHAT IS IT? 2. 1 MEANING 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. 2. 2 Main Aspects of P. E. S. T. Analysis Political Analysis * Political stability * Trade regulations & tariffs * Favored trading partners * Pricing regulations * Taxation – tax rates and incentives * Environmental Laws Economic Analysis * Type of economic system in countries of operation * Exchange rates & stability of host country currency * Efficiency of financial markets * Business cycle stage (e. g. rosperity, recession, recovery) * Growth, Inflation and Inflation rates Social Analysis * Demographics * Education * Culture (gender roles, etc. ) * Attitudes (health, environmental consciousness, etc. ) Technological Analysis * Recent technological developments * Technology’s impact on product offering * Impact on cost structure * Rate of technological diffusion 3. POLITICAL ENVIRONMENT 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. Fig 3. 0: The Government Framework of the Telecom Industry 3. 1 Policies Framed By the Government for the Telecom Sector MAJOR EVENTS OVER THE YEARS • National Telecom Policy 1994 was formulated • The industry witnessed a movement from monopoly to duopoly, as the Govt. andated two fixed and two mobile operators in each circle (1995) • Independent regulator, TRAI, established (1997) • NTP 1999 signaled the migration from high-cost fixed licence fee to a low-cost revenue sharing regime • TRAI amendment act was unleashed to streamline its intervention 2001 • Additional licences in basic and cellular services • Initiation of 3rd and 4th GSM operator networks 2002 • ILD services unlocked to competition • Go-ahead to CDMA technology • Initiation of internet telephony in India • Reduction of licence fees 2003 • Calling Party Pays (CPP) implemented Unified Access Licensing (UAL) regime established • Reference interconnect order issued 2004 • Intra-circle merger guidelines were established • Broadband Policy 2004 was formulated to target 20 million internet users by 2010 2007 • Decision on 3G services is awaited 2008 • 3G services launched by MTNL The unprecedented growth of the Indian telecom industry has been well supported by the policy reforms in the post liberalization era. Telecom sector reforms can be traced to the 1980s, when the Department of Posts and Telegraph was disintegrated to form Department of Telecommunications.
Further, DoT was split into Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL). However, the real thrust began with the National Telecom policy in 1994, which aimed at creating the right platform for the industry. ————————————————- 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. 3. 2 IMPACT OF POLICIES ON INDUSTRY 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. Policy Impact * One of the fastest growing cellular markets in the world in terms of number of subscriber additions – 19. 35 million in 3 months (April to June 2007) * Expected to reach total subscriber base of about 500 million by 2010 (i. e. , more than onephone for every household) * Annual growth rate of the telecom subscribers – 47 percent (2006–07) * More GSM subscribers than fixed-line subscribers Total telecom subscribers – 225. 21 million (June 2007) * Tele density – 19. 86 percent (June 2007) * Number of new mobile subscribers added every month – 7. 34 million (June 2007) * Telecom equipment market – USD 17,100 million (2006–07) * Handset market – USD 4,750 million (2006–07) * India achieved the distinction of having the world’s lowest call rates (2–3 US cents), the fastest sale of million mobile phones (1 week), the world’s cheapest mobile handset (USD 19) and the world’s most affordable colour phone (USD 31). Fig 3. 1: Impact of Policy Change on Indian Telecom Industry 4.
ECONOMIC ENVIRONMENT 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: a) Current Economic Scenario b) Mergers and Acquisitions ) Foreign Direct Investments 4. 1 CURRENT ECONOMIC SCENARIO 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. 4. 2 Mergers and Acquisitions (M&A)
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. 4. 3 FOREIGN DIRECT INVESMENT (fdi) The Indian telecom industry has a 74 percent FDI limit in the telecom services segment. The GoI has permitted 100 percent FDI in manufacturing of telecom equipment in India. FDI INVESTMENT The Indian telecom industry has always attracted foreign investors. In fact, the cumulative FDI inflow, during the August 1991 to March 2008 period, in the telecommunication sector amounted to USD 4,508 million.
It is the third largest sector to attract FDI in India in the post-liberalisation era. 5. SOCIAL ENVIRONMENT Demographic Profile (as on 31st July, 2008) Population 1,147,995,898 (July 2008 EST. ) Age structure 0-14 years: 31. 5% (male 189,238,487/female 172,168,306) 15-64 years: 63. 3% (male 374,157,581/female 352,868,003) 65 years and over: 5. 2% (male 28,285,796/female 31,277,725) (2008 EST. ) Religions Hindu 80. 5%, Muslim 13. 4%, Christian 2. 3%, Sikh 1. 9%, other 1. 8%, unspecified 0. 1% (2001 census) Literacy Total population: 61% male: 73. 4% emale: 47. 8% (2001 census) Large Talent Pool India has over 380 universities and about 1,500 research institutes, which churn out approximately 200,000 engineers, 300,000 post graduates, 2,100,000 other graduates and around 9,000 PhDs. This large base of skilled manpower offers unparalleled advantages to the companies operating in India. As a result, many multinational companies have either established operation hubs in India to leverage this sizeable talent pool, or they have outsourced their work to a third party in India. Religious Sentiments
India is a country with a wide variety of religions, castes and creeds and it is important to ensure that none of the communities are hurt while framing policies for the company. The Indian telecom industry is no exception and all companies of the telecom sector ensure that issues such as leaves on major religious occasions are equally distributed. 6. TECHNOLOGY ENVIRONMENT India has more than 250 million telephone connections but the services and the quality of these services leaves a lot to be desired. Connection errors, dropping of lines and dead phones, you name it and we have it.
It’s also visible in the mobile handset manufacturing industry. Cell phones available to the Indian public are of a sub standard quality as compared to the cell phones available in the European Union and the United States. However, even with all these drawbacks the Indian telecom industry has greatly improved from what it started out with. 6. 1 The Technology Available In India Today 3G Services – The New Buzz Word After years of auctions and spectrum allocation controversies, MTNL finally launched 3G in Mumbai and Delhi, taking India to a completely new league in the telecom industry. It offers voice capacity that is four to five times higher than that of 2G services. Therefore, it is an ideal platform for low-cost cellular services. • It will fulfill the need of fast developing mobile penetration in rural areas. • It will meet the demand for high-speed data and content rich services like video calling in the urban landscape. • It is slated play a vital role in augmenting the competitiveness of the country’s large BPO segment. • It will now be a way forward to achieve the Government’s broadband objectives. In addition, it will be a good solution for education, telemedicine, etc.
Worldwide Interoperability for Microwave Access (WiMAX) WiMAX has been one of the most significant developments in wireless communication in the recent past. Since this mode of communication provides network access in inaccessible terrains at a speed of more than 4 Mbps, it is expected to be a major factor in driving telecom services in India, especially the wireless services. Thus, it will lead to the increased use of telecom services, internet, value added services and enterprise services. Installing WiMAX will facilitate broadband accessibility within a radius of 25 kilometres. The IT industry can expand to other cities as well. • It can support the nation-wide literacy programme with videoconferencing playing a vital role in the education of rural students. • Voice over Internet Protocol (VoIP) will make it possible to telecast entertainment programmes in remote areas. • Improved communication could integrate remote villages with the world economy. • It can enhance labour productivity through rapid communication, e. g. easy and frequent interactions between producers and suppliers could increase the demand for Indian products. • It is estimated that India will have 13 million WiMAX subscribers by 2012.
Virtual Private Network (VPN) Virtual Private Network is a private data network that provides connectivity within closed user groups via public telecommunication infrastructure. It is similar to leasing/owning lines and yet getting exclusive access. Sharing of public infrastructure makes it a less expensive option and it is also known as Closed User Group (CUG). It is usually used by corporate to connect their branch offices. Value Added Service (VAS) The VAS industry was worth US$ 632 million in 2006. The industry swelled by 60 per cent in 2007 and become an US$ 1,011 million opportunity.
Though value added services are currently focusing more on the entertainment sector, such as the Mumbai film industry and cricket, there is scope for growth in other avenues as well. Therefore, there is a possibility of the spotlight shifting to utility-based services such as location information and mobile transactions. BREAK UP OF VAS SECTOR AS ON 6/08/2008 The value added services in India available today vary from cell circle to cell circle. However, the common value added services available to the Indian masses are: * Short Message Service (SMS) & Multimedia Message Service (MMS) * Caller tunes Voice Mail & Voice SMS * Call Forwarding, Conferencing, Waiting etc * GPRS and EDGE 6. 2 TECHNOLOGY WHICH WILL BE IMPLEMENTED LATER As mentioned earlier the Indian telecom industry has many more targets to achieve before it can become the largest and the most advanced telecom industry in the world. A few of the technologies available or slated to be available soon have been listed below. Fourth Generation (4G) 4G (also known as Beyond 3G), an abbreviation for Fourth-Generation, is a term used to describe the next complete evolution in wireless communications.
A 4G system will be able to provide a comprehensive IP solution where voice, data and streamed multimedia can be given to users on an “Anytime, Anywhere” basis, and at higher data rates than previous generations. There is no formal definition for what 4G is; however, there are certain objectives that are projected for 4G. These objectives include: that 4G will be a fully IP-based integrated system. 4G will be capable of providing between 100 Mbit/s and 1 Gbit/s speeds both indoors and outdoors, with premium quality and high security.
Mobile Number Portability (MNP) Mobile Number Portability (MNP) enables mobile telephone users to retain their mobile telephone numbers when changing from one network operator to another. A survey conducted by IDC reveals that 30% of the Indian mobile users will change their service providers if they can keep their original cell phone numbers. Mobile Purchasing Mobile purchasing will revolutionize the way people shop and buy things. Mobile purchasing essentially eliminates the need for currency notes as well as credit cards.
Amounts can be credited or debited directly from a person’s account by sending a simple message or by flashing a particular barcode that is displayed on the screen of the buyers mobile. Mobile purchasing is implemented in the conceptual stage for employees of the Reliance ADA Groups RCom at their Business Centre at Koperkherne. 7. CONCLUSION The fast track growth of the Indian telecom industry has made it a key contributor to India’s progress. India adopted a phased approach for reforming the telecom sector right from the beginning. Privatization was gradually introduced, first in value-added services, followed by cellular and basic services.
An independent regulatory body, Telecom Regulatory Authority of India (TRAI), was established to deal with competition in a balanced manner. This gradual and thoughtful reform process in India has favoured industry growth. Today, there are more than 225 million telecom subscribers in India. Every month, 6-7 million new subscribers are added. Upcoming services such as 3G and WiMAX will help to further augment the growth rate. The political stability combined with a sound economic and financial situation in India has paved the way for the Indian telecom industry to reach so far.
What also must be noted is the business potential our country has considering the extremely poor tele-density in the rural areas which is barely 19% currently. The Indian telecom industry is growing at the fastest pace in the world and India is projected to be the second largest telecom market globally by 2010. Today, the ITI (Indian Telecom Industry) is witnessing rapid change as more and more services have been introduced. December 2008 saw a spectacular launch of the 3G services, a service which some experts say will change what Indians will expect from their mobiles.
However, there is a need to also create an ecosystem for the rapid growth of manufacturing for telecommunication products. We need to build on our well- recognized capabilities in software and IT to establish a large-scale presence in manufacturing as well. It is important both from an economic and a strategic point of view that India is present in the entire telecom value chain. The Government has given an assurance that it will develop a forward-looking policy regime that will encourage investment in manufacturing in this sector.
In the end, it is important to add that as India stands on a brink of becoming an economic super power, the ITI has contributed tremendously in enabling India to achieve what it has set out to achieve at the end of the five year plan. 8. BIBLIOGRAPHY 9. 10 ARTICLES * Indian Prime Minister Manmohan Singh at the India Telecom 2007 conference: New Delhi December 2007 8. 2 BOOKS * IBEF Journal 2007 8. 3 INTERNET * Wikipedia Website * IBEF Website * Google Website (Images) * Wiki Answers ————————————————- PROFESSOR’S REMARKS: