Telecommunications in India


Telecommunications in India











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Telecommunications in India

by Faulkner Staff

Copyright 2018, Faulkner Information Services. All Rights Reserved.

Docid: 00016872

Publication Date: 1806

Report Type: MARKET

Preview

The Indian telecom market is one of the largest – and fastest growing – in
the world. Previously the domain of heavy-handed regulations and
government-backed carriers, today’s segment is more open than ever to
international investors, especially as the state looks to expand voice and
Internet services throughout the country. This report takes a more detailed look
at India’s telecommunications market, its top vendors, and other items related
to this segment.

Report Contents:

Executive Summary

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Historically, India has had one of the least-advanced telecom infrastructures
in the world. In more recent times, its market has begun to grow much more
quickly. A large portion of India’s computer and communications industry now
consists of call center outsourcing (for overseas firms) that uses private
telephone lines. In other sectors, India has emerged as a source of engineering
talent and software development with an educated, often English-speaking
workforce. The country has also attracted a number of contracts from other
nations, at least in part due to lower working wages.

Figure
1 shows a map of India.

Figure 1. India

Figure 1. India

Source: CIA World Fact Book

Despite a strong IT market in urban hubs such as Bangalore and Hyderabad,
there is disparity in infrastructure between rural, urban, and between-region
areas.

While the aforementioned metro areas boast a number of landline, wireless,
and Internet connectivity deployments, India remains home to
thousands of villages that tend to rely on shared tele-centers through the
country’s Village Public Telephone program, which was initiated decades ago by
the Department of Telecommunications.

Key Statistics

It has recently been projected1 that India’s mobile industry will
create an economic value of nearly $217.4 billion by 2020, with three million
job opportunities and an additional two million indirect jobs created in that
time. India’s smartphone market, alone, grew by 14%, year to year, to 124
million shipments (2017). In addition, mobile penetration – paired with dropping
data costs – is expected to add 500 million new Indian Internet users over the
next five-year period. These statistics alone have carried with them the
potential to balloon India’s mobile data use rate, per smartphone, from 3.9GB
(2017) to 18GB (2023).

Overall, India has the second-highest rate for Internet users, worldwide,
with nearly 446 million subscribers. Seven out of eight users access the Web
from a mobile device, and, since 2012, the amount of time spent watching videos
on mobile devices has grown by about 200 hours per year.2

Figure 2 shows the current distribution of India’s telephone subscribers
across the aforementioned urban and rural settings.3

Figure 2. India’s Telephone Subscriber Base

Figure 2. India's Telephone Subscriber Base

Source: Telecom Regulatory Authority of India

It should also be noted that India’s growing tel subscriber base
has led to investments of $30.08 billion between 2000 and 2017.4

History

India
has a history of industrial protectionism. Most of the country’s
telecommunications services, including its long distance and
international long distance markets, were not deregulated until relatively
recently. The nation’s desire to help its IT
sector meet the huge demand for high-speed, high-capacity networks has prompted
the government to deregulate and liberalize its telecommunications laws and
structure. The hope is that new technology will provide a
cheaper path to extend telecommunications infrastructure to
remote areas over time.

In-fighting
between parties in the telecommunications sector has proven a stumbling
block to lower tariffs and higher quality of service as fixed-line,
wireless, and wireless local loop service providers have positioned
themselves to benefit most from the still partly untapped Indian
telecom market. Although this contentiousness has sometimes been
detrimental to the development of services, it also illustrates the
robust competition that now exists in the country. Of primary significance to
competition has been the creation of single (unified) telecommunications
licensees that have replaced limited licenses for each sector.

Other specific government reform efforts for the telecom sector have been
launched in recent years, among them:

  • a new National Telecom Policy 2018.
  • a new tariff structure governing digital connections in more far-flung
    areas.
  • Internet telephony developments by Bharat Sanchar Nigam Limited (BSNL).
  • new international and national long-distance services made available to
    private operators.
  • the commissioning of a new national Internet backbone in India.
  • The adoption of mobile number portability services.
  • An amended FDI (foreign direct investment) cap for its cable TV
    industry.5

Liberalization
was initiated as early as 1981 but
started to gain momentum with the 1994 National Telecommunications
Policy that allowed private operations and foreign investment in
India’s communications infrastructure. However, private organizations
have geared their operations and investments largely to the emerging
wireless and broadband sectors, leaving the wireline infrastructure
largely to the incumbent, state-run entities such as BSNL,
Mahanagar Telephone Nigam Limited (MTNL), Telecommunications
Consultants India Limited, and ITI Limited. The deregulation of the
national and international long distance sectors, as well as the
introduction and adoption of wireless and satellite services, has
helped to rapidly increase teledensity, or the number of phone subscriptions
versus the number of citizens in a given area. With heavy investment from
Indian conglomerates, including
Bharti Group, Tata Group, and Reliance Industries, the industry has
gotten a push from businesses that have not traditionally been associated
with
telecommunications.

Market Dynamics

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As illustrated above, India’s telecom sector continues to make strides, with
even rural portions of the country gaining improved telephone coverage thanks to
wireless technology growth and legislation. Still, a gap exists between the
services in urban markets and those in less densely populated areas. This
teledensity was 168.29% (urban) and 56.66% (rural) as of early 2018.6

Network
Infrastructure

Although
the potential long distance players are expected to provide
connectivity to consumers, many other
organizations propose to build a backbone fiber-optic infrastructure
across the country and lease it to service providers. Recent high-profile
broadband projects have included:

  • Broadband for All – Rural – Includes 2.5 million village
    Panchayats covered under the Optical Fiber Network by early 2017.
  • Broadband for All – Urban – Mandates that virtual network
    operators be leveraged for service delivery and communications
    infrastructure in new urban developments and buildings.
  • National Information Infrastructure – Provides high-speed
    connectivity and cloud-based platforms to various government departments,
    and includes a provision for horizontal connectivity to select government
    offices, service outlets, and district, block, and Panchayat levels.7
  • Narendra Modi – Plans for local government to lay down one
    million kilometers of optical fiber network by 2020.8
  • Reliance Infocomm Network – Added
    190,000 kilometers of fiber backbone – covering more than 24,000 towns
    and 600,000 villages – providing network access that integrates voice, data, and
    video, nationwide.

Wireless

While the fixed-line market has been in gradual decline, the wireless market
has exploded to become one of the largest in the world in terms of subscribers.
This growth can be attributed to recent government regulations, the addition of
4G services into the market, and state approval of plans to conduct a 5G
spectrum block auction.9

As of December 2017, India has just shy of 1.2 billion mobile wireless
subscribers, meaning that about 70% of its estimated population – or 14% of the
global population – is an Indian mobile telecom customer.10 Figure 3 looks at this breakdown by major carrier.

Figure 3. India’s Wireless Customers (in millions) by provider.

Figure 3. India's Wireless Customers (in millions) by provider.

Source: Statistica

Data and the Internet

India has more than 460 million Internet customers, the second largest market
worldwide. Despite this fact, recent statistics have pointed to only 26% of
India’s population being Internet connected.11

Market Leaders

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Because
of the regulatory structure of the Indian
telecommunications market, government-owned companies still retain a
strong hold on most segments of the telecom sector. Rapid deregulation
of the industry, however, has prompted investment by several private
Indian and international firms to capitalize on the vast opportunity
available in the market.

The
Indian government has dominated telecommunications since
India’s independence in 1947. Under the aegis of the Ministry of
Communications (which was born out of the Ministry of Communications and
Information Technology) and its sub-entity the Department of Telecommunications,
India’s government plays an active role in executive and legislative decisions
regarding telco. This includes policy; performance reviews; licensing; and
coordinating communications areas such as landline and wireless, data, Internet,
telegraph, facsimile, and telematics services. The Department of
Telecommunications also provides oversight for wireless regulations enforcement
and frequency management.

Government-Controlled
Telecommunication Companies

Top service providers that are state-run are listed in Table 1.

Table 1. Government-Controlled Operators
Provider Description / History
BSNL India spun off DTS’ long-distance and communications businesses in 2000,
creating Bharat Sanchar Nigam (BSNL).

This move was made to cut red tape, improve
fundraising, and prepare for the government divestment of shares in
the organization. BSNL is 100% owned by the government, and provides telephone, Internet,
and other telecom services in all areas of India except New Delhi and
Mumbai. BSNL has expanded into Internet, cellular, wireless
local loop, and VoIP services.
MTNL MTNL was established by India’s government in 1986 to expand the
country’s telecommunications network, introduce new services, and raise
revenue for telecom development in New Delhi and Mumbai.

MTNL provides fixed-line, cellular, and Internet access services in
both cities.

The service provider was also India’s first 3G operator, and offers
triple-play, broadband, and other network services.

Rumors of a merger between BSNL and MTNL have abounded for years, but seem no
closer to fruition than ever. Some attribute the notion to the fact that they
cover different areas of the country and are both state-run, in addition to 2016
rumors that MTNL’s mobile services operation might be transferred to BSNL.12
More recently, however, Telecom Minister Manoj Sinha shot down the rumor,
noting that "there is no thinking in government on merging the two," but adding
that the Indian government is actively "taking steps" toward collaboration
between them in a manner that "strengthens and benefits both organizations."13

Private
Telecommunications Firms

A combination of de-regulation within the Indian telecommunications market
and the consolidation of several of its top firms have led to rapid changes in
the marketplace the last few years. First, the country’s government opened
telcos up to foreign investment with a series of regulatory moves, thus helping
to open the door for more competition in the mobile sector as well as the
fixed-line, ISP (Internet service provider), and broadband services industries.

At the same time, some established competitors from as recently as 2017 are
now gone. Among those losses are Aircel, which shut down most of its operations
in February 2018. This company functioned as a top mobile service provider with
an overall subscriber base of 87.7 million. Telenor Communications – which
acquired Telewings in 2014 – also ceased operations last year. This wholly owned
subsidiary of Norway’s Telenor Group merged its Indian operations with those of
Bharti Airtel. As of December 2017, this consolidation affected nearly 42
million customers.

Table 2 looks at some of the remaining top non government-backed firms for
telecommunications and Internet services.

Table 2. Other Providers
Provider Description / History
Bharti Airtel Bharti Airtel is a top mobile carrier in the world and India’s largest,
with more than 372 million customers (2017).

The company also provides basic telephony
services, long distance services, and broadband offerings, and was the first mobile provider
in India to offer 4G services
using TD-LTE technology.
Vodafone India Vodafone India has 212 million wireless customers. The company was
founded in 2007 and is regarded for its nationwide network and brand.
Idea Cellular Idea is part of the Aditya Birla Group, and regards itself as "India’s
first multinational corporation." A pan-India GSM operator, Idea offers
4G, 3G, and 2G services backed by its own NLD and ILD operations and ISP
licenses.
Reliance Jio Infocomm Jio is a mobile network operator that is owned by Reliance Industries.
It operates a national LTE network with VoLTE (Voice-over-LTE) services.
Reliance Reliance is a conglomerate holding company, founded in 1977, that owns
Jio Infocomm. Although many of its telco-related operations tie in with
Jio, Reliance does offer 4G digital services.
Tata Communications Tata is an international provider that invests heavily in building a
worldwide fiber network across five continents.

The company was
founded as Videsh Sanchar Nigam Limited (VSNL) in 1986. Tata Group
acquired a 45% stake in the company following the Indian government’s
partial divestiture in 2002, then purchased the remainder of the company
six years later.

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Moving forward, a number of trends are expected to affect India’s
telecommunications industry. Among these elements are new technology
development, which has led wireless and long distance providers to fear the
future cannibalization of their businesses. For example, India plans to host a
series of 5G wireless spectrum auctions to promote technology such as IoT
(Internet of Things), M2M (machine-to-machine), HD (high-def) video transfers,
and other "Smart Cities"-related deployments.14

Aside from new and older technology, India’s regulatory process has played –
and should continue to play – a part in the country’s telecommunications future,
especially following the establishment of India’s National Telecom Policy 2018.

5G Development

In recent years, India has been active in its support for 5G technology
development that The Economic Times called "at par with China and the European
Union" as part of its ongoing bid to "identify future spectrum needs for newer
technology."15 "India," said Indian Union Minister Ravi Shankar
Prasad, "must become the leader in
research and development of 5G technology."16 The widespread use of 5G,
however, is likely to still be a few years off.17

National Telecom
Policy 2018

Of note, India released the draft version of its National Telecom Policy
2018. This legislation is designed to address some of the nation’s more pressing
technology advancement initiatives from recent years. Areas of focus will
include:

  • Transitioning to a digital infrastructure.
  • Pushing broadband service availability.
  • Establishing a National Broadband Mission (NBM) to "put India at par
    with developed nation [sic] in ICT development index."18

Wireless Local Loop

The introduction of wireless local loop has wreaked havoc between
cellular and fixed-line carriers, stirred primarily by the low cost and
high efficiency of limited mobility services when put beside comparable
wireless services. Partly because of a disparity in licensing costs and
network roll-out efficiency, carriers that jumped at the opportunity to
provide cellular service in the 1990s are now crying foul because
wireless local loop
providers can offer similar service much more cheaply. Limited mobility
providers, mostly fixed-line carriers with extensive existing networks,
need not pay license fees to offer wireless local loop service, whereas
cellular
carriers paid extensive amounts to provide service
in one of India’s major metropolitan areas. At the same time, those
wireless providers were forced to provide service based on the GSM
standard, which is not as efficient in network buildout as wireless
local loop services that depend on the CDMA standard. Finally,
interconnection agreements have become a point of contention among
wireless providers that are unhappy paying fees to competition that
need not pay as much to connect to wireless networks.

Wireless
local loop does not currently provide true wireless
connectivity. Calls can only be made within a limited range of a
subscriber’s home market, hence the “limited mobility” label. However,
because approximately 75% of all wireless calls are made within
a user’s home market, wireless carriers see wireless local loop
providers as formidable
adversaries, especially because they can offer services at rates that
would force traditional cellular carriers to operate at a loss.
Furthermore, with the spread of wireless local loop services to more
sections of the
country, the possible expansion of the roaming range for limited
mobility services could hamper further adoption of traditional wireless
services.

VoIP

In 2009, the Telecom Regulatory Authority of India (TRAI) recommended the liberalization of VoIP, with
the aim of drastically improving the industry by increasing business
connections, opening opportunities for businesses, and reducing the
cost of various goods because of low telecom prices.

In 2014, Bharti Airtel made a controversial decision – to begin
charging customers for making voice calls over the carrier’s data
networks via services like Skype or Google Hangouts, a move that was met with
much criticism.

Strategic Planning
Implications

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Even with the great expansion of Indian telecommunication services over the
past few years, there is still significant room for more
investment. Opportunities exist in all of India’s
telecommunications sectors, but each area has had issues over the years that
have defined how / where investment is more likely to be profitable.

Wireless

Over the years, mobile services have shown decent growth rate, due to low
infrastructure and installation costs, as well as relatively fast consumer setup
times. Another factor that has been friendly to investment in India has been the
growing forum for competition; larger entities have supplanted a small number of
carriers, and continue to grow as a result of foreign investment and mergers,
such as the acquisition of Telenor’s Indian operations by Bharti Airtel. As a
result of competition, India’s consumer cellular rates have continued to drop
alongside the cost of many low-end mobile handsets.

Wireless loop services have also become an important means to extending
India’s telephone services, with both the government-backed carriers and the
former VSNL serving as pioneers.

Data and Internet

With no cap on the number of ISPs allowed to provide services – paired with
India’s growing reliance on telecom infrastructure – this area can only continue
to grow.

Mobile Satellite

Satellite
communications could greatly improve broadband penetration in India,
especially in rural areas, as India’s vast and varied geography and sparse terrestrial
telecommunication links make some of its more far-flung areas an ideal candidate
for VSAT (very small aperture terminal) and other types of satellite-based
services. Nearly a dozen companies are licensed to
provide VSAT services.19

Local Fixed-Line Services

In
urban areas, local fixed-line telephone traffic is slowly being
transferred from outdated analog equipment to digital switching gear
first introduced in the 1980s. Although in the past, long distance
traffic has been carried mostly by coaxial cable and low-capacity
microwave radio relay, significant trunk capacity has been added with
the installation of fiber-optic cable and a domestic satellite system.
Rural areas still lag far behind urban areas when it comes to
telecommunications systems and services.

International Long Distance

In 2002, India deregulated its international long distance market to match the demand
that was largely spurred by growth in other
deregulated sectors of the country’s telecom industry. In the same
year, the TRAI began offering international long distance licenses
to companies based in India. Reliance Industries immediately obtained all four
licenses on offer.

References

  • 1 "Telecom Industry in India." IBEF.org. June 2018.
  • 2 Ibid.
  • 3 "Composition of Telephone Subscribers (FY’18)." Telecom
    Regulatory Authority of India.     January 2018.
  • 4 Statistics generated by India’s Department of Industrial
    Policy & Promotion    . 2018.
  • 5 "Govt Mulls Raising FDI Cap to 100% in DTH, Cable Networks.”
    The Times of India. September 20, 2015.
  • 6 Rathee, Kiran. "At 56%, rural teledensity and broadband target lag way
    behind Urban India." Business-Standard.com, via Telecom Regulatory
    Authority of India    . March 19, 2018.
  • 7 "Broadband Highways." Ministry of Electronics & Information
    Technology."     2018.
  • 8 Balachandran, Manu. "India’s plan to connect thousands of its villages to
    the internet is finally moving up a gear." Digital India. November 14,
    2017.
  • 9 "Telecom Industry in India." IBEF.org. June 2018.
    10 "Number of mobile telecom subscribers in India as of December
    2017, by company (in millions)." Statistica. 2018.
    11 "Internet usage in India – Statistics & Facts." Statistica.
    2018.
    12 Abbas, Muntazir. “BSNL CMD: Likely to
    Get Nod Soon to Run MTNL’s Mobile Services.” The Economic Times. June
    8, 2016.
  • 13 "No proposal to merge BSNL, MTNL: Manoj Sinha."
    Times of India    . February 22, 2018.
  • 14 "Telecom Industry in India." IBEF.org. June 2018.
  • 15 Abbas, Muntazir. "India to seek 26 GHz
    spectrum band for 5G rollout." ET Telecom. April 5, 2018.
  • 16 “Minister Asks IITP to Work on 5G Tech.”
    The Times of India. March 30, 2016.
  • 17 “Nokia in Talks with Indian Telecom Operators over 5G Networks.”
    Press Trust of India. May 24, 2016.
  • 18 "National Telecom Policy to focus on transition from physical to digital infra." The Economic Times. April 29, 2018.
    19 "VSAT Service Providers." Telecom Regulatory Authority of India.
    2018.

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