Analysis of the Indian telecom industry

THE Indian Telecom industry is one of the fastest growing in the world with an average of 18 million subscribers added every month. The launch of newer services and the introduction of smart phones in the last few years. Contrary to other industries,the Indian Telecom industry has shows no signs of recession and has created job opportunities like never before. The total wireless subscriber base was 670.60 million and the broadband subscriber base reached 10.08 million by the end of August 2010(growing at 3 percent every month)

.Teledensity has reached 128 percent in the urban markets and 26 percent in the rural markets ,which shows a rapidly increasing trend .Indeed ,telecom is helping to unite India to next level. However ,India ,with the second largest population in the world ,has just 6 percent of its cities are connected via Internet so far.

Although, India has seen a telecom revolution in the last two decades in terms of technology and connectivity, much still needs to be achieved to provide infrastructure connectivity in rural areas..Approximately 72.2 percent of the population of India lives in about 638,000 villages..Around 41.8 percent of the total rural population survives on a meager Rs.447 monthly per-capita consumption expenditure.

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History of Telecommunication Industry

The history of telecommunication industry started with the first public demonstration of Morse’s electric telegraph, Baltimore to Washington in 1844. In 1876 Alexander Graham Bell filed his patent application and the first telephone patent was issued to him on 7th of March.

In 1913, telegraph was popular way of communication. AT&T commits to dispose its telegraph stocks and agreed to provide long distance connection to independence telephone system.

In 1956, the final judgment limited the Bell System to Common Carrier Communications and Government projects but preserving the long-standing relationships between the manufacturing, researches and operating arms of the Bell System. In this judgment AT&T retained bell laboratories and Western Electric Company. This final judgment brought to a close the justice departments seven -year-old antitrust suit against AT&T and Western Electric which sought separation of the Bell Systems Manufacturing from its operating and research functions. AT&T was still controlling the telecommunication industry.

OBJECTIVE OF THE STUDY

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RESEARCH DESIGN

The research design is Descriptive studies. Descriptive studies are well structured, they tend to be rigid and its approach cannot be changed every now and then.

SOURCES OF DATA COLLECTION

Sources of secondary data were primarily the Internet , journals , newspaper, annual report.

Global Scenario

World telecom industry is an uprising industry, proceeding towards a goal of achieving two third of the world’s telecom connections. Over the past few years information and communications technology has changed in a dramatic manner and as a result of that world telecom industry is going to be a booming industry. Substantial economic growth and mounting population enable the rapid growth of this industry.

The world telecommunications market is expected to rise at an 11 percent compound annual growth rate at the end of year 2011. The leading telecom companies like AT&T, Vodafone, Verizon, SBC Communications, Bell South, Qwest Communications are trying to take the advantage of this growth. These companies are working on telecommunication fields like broadband technologies, EDGE(Enhanced Data rates for Global Evolution) technologies, LAN-WAN inter networking, optical networking, voice over Internet protocol, wireless data service etc.

Economical aspect of telecommunication industry: World telecom industry is taking a crucial part of world economy. The total revenue earned from this industry is 3 percent of the gross world products and is aiming at attaining more revenues. One statistical report reveals that approximately 16.9% of the world population has access to the Internet.

Worldwide telecom statistics at a glance – mid-2010

Telecom Statistics of the world

Population

6.7 billion

Fixed lines

1.3 billion

Mobile subscribers

3.5 billion

Mobile text messages sent

2.3 trillion

Internet users

1.2 billion

Fixed broadband subscribers

380 million

(Source: BuddeComm estimates)

Indian Overview

India is the world’s fastest growing Wireless market, with 752 Million mobile phone subscribers as of February, 2011. It is also the second largest telecommunication network in the world in terms of number of wireless connections after China. The Indian Mobile subscriber base has increased in size by a factor of more than one hundred since 2001 when the number of subscribers in the country was approximately 5 million to 752 Million by Feb 2011.

As the fastest growing telecommunications industry in the world, it is projected that India will have 1.159 billion mobile subscribers by 2013. Furthermore, projections by several leading global consultancies indicate that the total number of subscribers in India will exceed the total subscriber count in the China by 2013. The industry is expected to reach a size of 344,921 Crore (US$76.57 billion) by 2012 at a growth rate of over 26 per cent, and generate employment opportunities for about 10 million people during the same period.[12] According to analysts, the sector would create direct employment for 2.8 million people and for 7 million indirectly. In 2008-09 the overall telecom equipments revenue in India stood at 136,833 crore (US$30.38 billion) during the fiscal, as against 115,382 crore (US$25.61 billion) a year before.

Beginning of telecommunication in India

1851: First operational land lines were laid by the government near Calcutta

1881: Telephone services introduced in India

1883: Merger with postal system

1923: Formation of Indian radio Telegraph Company

1932: Merger of ETC and IRT into Indian Radio and Cable Communication Company

1947: Nationalization of all foreign telecommunication companies to form the posts, telephone and telegraph, a monopoly run by the government’s ministry of communications

1985: Department of telecommunication established, an exclusive provider of domestic and long-distance services that would be its own regulator

1986: Conversion of dot into two wholly government – owned companies the VSNL for international telecommunication and MTNL for services in metropolitan areas

1997: Telecom regulatory authority created

Telecommunication is important not only because of its role in bringing the benefits of communication to every corner of India but also in serving the new policy objectives of improving the global competitiveness of the Indian economy and stimulating and attracting foreign direct investment.

Revenue and growth

The total revenue in the telecom service sector was 86,720 crore (US$19.3 billion) in 2005-06 as against 71,674 crore (US$15.9 billion) in 2004-2005, registering a growth of 21%.estimted revenue of FY’2011 is Rs.835 Bn (US$ 19 Bn Approx).The total investment in the telecom services sector reached 200,660 crore (US$44.5 billion) in 2005-06, up from 178,831 crore (US$39.7 billion) in the previous fiscal.[28]

Telecommunication is the lifeline of the rapidly growing Information Technology industry. Internet subscriber base has risen to 100 million in 2010.[29] Out of this 10.52 million were broadband connections.[5] More than a billion people use the internet globally.

Under the Bharat Nirman Programme, the Government of India will ensure that 66,822 revenue villages in the country, which have not yet been provided with a Village Public Telephone (VPT), will be connected. However doubts have been raised about what it would mean for the poor in the country.[30]

It is difficult to ascertain fully the employment potential of the telecom sector but the enormity of the opportunities can be gauged from the fact that there were 3.7 million Public Call Offices in December 2005[31] up from 2.3 million in December 2004.

The value added services (VAS) market within the mobile industry in India has the potential to grow from US$500 million in 2006 to a whopping US$10 billion by 2009.

Telephone

On landlines, intra-circle calls are considered local calls while inter-circle are considered long distance calls. Currently Government is working to integrate the whole country in one telecom circle. For long distance calls, the area code prefixed with a zero is dialed first which is then followed by the number (i.e. To call Delhi, 011 would be dialed first followed by the phone number). For international calls, “00” must be dialed first followed by the country code, area code and local phone number. The country code for India is 91.

Telephone Subscribers (Wireless and Landline): 787.28 million (Oct 2010)

Land Lines: 35.09 million (Oct 2010)

Cell phones: 752.19 million (Oct 2010)

Monthly Cell phone Addition: 22.62 million (Dec 2010)

Teledensity: 66.16% (Dec 2010)

Projected Teledensity: 1 billion, 84% of population by 2012.

Mobile telephones

With a subscriber base of more than 680 million, the Mobile telecommunications system in India is the second largest in the world and it was thrown open to private players in the 1990s. The country is divided into multiple zones, called circles (roughly along state boundaries). Government and several private players run local and long distance telephone services. Competition has caused prices to drop and calls across India are one of the cheapest in the world. The rates are supposed to go down further with new measures to be taken by the Information Ministry. In September 2004, the number of mobile phone connections crossed the number of fixed-line connections and presently dwarfs the wire line segment by a ratio of around 20:1. The mobile subscriber base has grown by a factor of over a hundred and thirty, from 5 million subscribers in 2001 to over 680 million subscribers as of Sep 2010 (a period of less than 9 years) . India primarily follows the GSM mobile system, in the 900 MHz band. Recent operators also operate in the 1800 MHz band. The dominant players are Airtel, Reliance Infocomm, Vodafone, Idea cellular and BSNL/MTNL. There are many smaller players, with operations in only a few states. International roaming agreements exist between most operators and many foreign carriers.

The following table gives details regarding the subscriber base of each Mobile Service Provider in India as of 31 December 2010.

Operator

Subscriber base.

Market Share

Bharti Airtel

152,495,219

20.27%

Reliance Communications

125,652,127

16.7%

Vodafone

124,255,120

16.52%

BSNL

86,709,537

11.53%

Tata Teleservices

84,233,398

11.20%

Idea Cellular

81,778,655

10.87%

Aircel

50,168,811

6.67%

Unitech

18,510,049

2.46%

Sistema

8,433,667

1.12%

Videocon

7,319,603

0.97%

MTNL

5,342,039

0.71%

All India

752,190,678

100%

A list of ten states (including the metros Mumbai, Kolkata and Chennai in their respective states) with the largest subscriber base as of DEC, 31st 2010[update] is given below.

State

Subscriber base

Population (01/08/2010)

Mobile phones per 1000 population

Uttar Pradesh

92,867,835

199,415,992

465

Maharashtra

84,543,727

110,351,688

763

Tamil Nadu

63,671,528

67,773,611

939

Andhra Pradesh

54,000,379

84,241,069

641

West Bengal

51,901,967

90,524,849

573

Bihar

46,311,291

97,560,027

472

Karnataka

43,802,688

58,969,294

742

Gujarat

40,158,662

58,388,625

689

Rajasthan

40,049,784

67,449,102

593

Madhya Pradesh

38,295,896

72,362,313

529

India

706,654,164

1,188,783,351

594

Landlines

Until the New Telecom Policy was announced in 1999, only the Government-owned BSNL and MTNL were allowed to provide landline phone services through copper wire in India with MTNL operating in Delhi and Mumbai and BSNL servicing all other areas of the country. Due to the rapid growth of the cellular phone industry in India, landlines are facing stiff competition from cellular operators. This has forced landline service providers to become more efficient and improve their quality of service. Landline connections are now also available on demand, even in high density urban areas. The breakup of wire line subscriber base in India as of September 2009[update] is given below.

Operator

Subscriber base

BSNL

28,446,969

MTNL

3,514,454

Bharti Airtel

2,928,254

Reliance Communications

1,152,237

Tata Teleservices

1,003,261

HFCL Infotel

165,978

Teleservices Ltd

95,181

All India

37,306,334

KEY OPERATORS AND COMPETITOR’S ANALYSIS:

GSM OPERATORS & CDMA OPERATORS:

INFERENCE: The above table reflects clearly the result of consolidation in the private GSM market in India. Bharti emerged undisputed king of GSM operations in India. Hutch, Idea cellular have also emerged as champions of the game. BSNL was also given the license to operate as the 3rd GSM operator in India and has emerged successful dark horse of the game. Small GSM operators will vanish soon. Shortly we may see that Spice, BPL, Aircell to be acquired by some big GSM player. Market forces will not let more than 4 GSM mobile operators survive.

Inference: Reliance is the undisputed leader in CDMA mobile services. However, some how Tata has not been able to kick-start their Indicom venture on a significant scale so far. It will be Herculean effort for Tata to survive against tough competition from Reliance. Looks like Tata will remain an also-ran; but will not quit the race.

FIXED LINE OPERATORS:

Inference: BSNL / MTNL (incumbent government operators) account for 98% of the landlines in the country. Growth in additions in the landline phones is reducing day-by-day. Operators have realized that for basic telephony connection, it is much more economical to reach via mobile and wireless telephony compared with wired infrastructure. BSNL / MTNL will remain dominant players in the landline market; will add value to their copper network via broadband.

Bharti is focusing on providing landline mainly for only Corporate & SME subscribers in five telecom circles. Residential subscribers will piggy back if their premises lie in the vicinity of the landline network.

SWOT Analysis of Indian Telecom Industry

A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm’s resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection.

Strengths

Here we will analyze the strengths of the telecom industry as a whole. The most important factors are:

Technology is advanced and easy to implement: For telecom industry the technology is really advanced and more and more investment is done on technology to get world.

Weakness

The weaknesses of the Indian telecom sector are as follows.

High Cost of Infrastructure: The infrastructure cost of telecom industry is very high.

Low customer retention power: The customer retention power for telecom industry is really low and the customer changes their service provider company very soon.

Opportunity

Population: The population of India is really an opportunity of telecom service providers, as the number of population without telecom service is also very high. The industry has to target India’s huge population to grow.

Changing Population psychograph: Population psychograph is also changing. Previously telecom service was thought as an emergency service, now it has become an essential part of life in our country.

Increased Penetration Level: All the organizations of the industry are trying to increase their penetration level, in other word to increase the tele-density of the country. The urban Indian population gives a real growth prospect to the industry.

FDI: The foreign direct investment in telecom has been hiked up from 49% to 74%. This move is positive for the sector, as it requires investments of Rs 700 – 900 million over the next 5 years. FDI inflow by 2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and Japan telecom are likely to enter India, as India is seen as fastest growing telecom market in world.

Threats

The treats to the industry are the following:

Government Policies – Government may provide licenses to many foreign operators, which may already have pose a threat for the existing players in the industry.

New Technology can change the market dynamics: A lot of new technologies are coming. Then even have the potential of changing the entire industry dynamics or even create substitute of the telecom services existing.

Major Players in Indian Telecom Industry

The Top five companies, on the basis of ‘Market Share’ as on 31st January, 2010are:

1. Bharti Airtel Ltd.

2. Reliance Communications Ltd.

3. Vodafone Essar Ltd.

4. BSNL

5. Idea Cellular + Spice

ADVERTISING TRENDS IN INDIAN TELECOM INDUSTRY

The way telecom firms advertise, gives an approximate idea about the telecom trends. I would try to uncover some of them, which come to my mind. At the initial launch of the mobile services, they were advertised as lifestyle products. The message that sought to be conveyed was that if you have a mobile phone, you have arrived in life. A few well-healed people could afford the high call rates at that time. It was in no way for the masses. I am sure that the mobile companies made a large profit out of it. Perhaps for the first time, Indians were exposed to concepts alien to them: Customer Care Support. It saw a booming of the ancillary services and fresh graduates, stunted in mental development though, came out in droves for the well-paid jobs.

Airtel then sought the services of Sachin Tendulkar. He was the brand ambassador and saw his earnings sharply increasing. I saw his picture everywhere exhorting me buy the mobile prepaid card. After the initial publicity passed away, A.R. Rahman gave his now famous tune. All the other companies have variously tried other gimmicks to sell their connections.

However, the landscape changed after Reliance came in the mobile services. Mukesh Ambani was seen telling people about his father’s dream. The initial launch was lackluster. With the launch of the prepaid services, the punch line was “mujhme hai who baat” or “I have that thing!” I wonder how many people actually signed up after those ads. I believe that it was solely because of the Monsoon Hungama that Reliance was able to ramp up its numbers. Then came the ad line “Kar lo duniya muthi mein”. (Have the world in your fist). I remember that this became the butt of dirty jokes on the GSM networks! So much for imagination of creative heads of the ad agency.

The icing on the cake goes to Hutch. They designed the simple ad with the kid and cute Chinese Pug. It was a hit of all sorts. It conveyed the effectiveness of the message succinctly. I believe that it drove Hutch connections across the places where it offered its services. However, it was considered too elitist for the masses. The advertisement should be able to convey the message effectively; one with which people could identify with. In this regard, BSNL could claim something. BSNL advertisements depicted typically government mentality for awarding the contract to lowest in the tender process. The quality clearly shows. Is there anyway people could identify themselves with that advertisements? What of those places where BSNL is the sole service provider?

As the title goes, advertising trends are reflective of the current scenario in telecom. Airtel has been advertising its group card labeled as Friends. In fact, until now, the market was treated as homogenous. Over the period, classification has been sought to target the specific customers with specific needs. Airtel took the lead in announcing Senior citizen cards targeted at those above 60. The Friends card is for those who wish to restrict themselves to their group with low calling rates and some free messages.

Reliance has realized early on about targeting the businesses. Its offer of flat rate for making STD calls to anyone across its network is unparalleled. This way it can ensure that there would be higher converts towards it services. R-Connect is its portal that differentiated Reliance early on from other operators. It knows that future revenues are going to come from value added services. This way it has foreseen the development in the industry.

Following this, Airtel introduced its Airtel Live! I guess so have the other operators across board. The voice calls would not yield much as much as revenue as would the value added services. Hence, for the same reason they have introduced value added cards, which would help to download ring tones and other fancy stuff.

This is the reason I have always insisted that Telecom operators should get bullish on data services. 3G mobile services look good as technology demonstrators. Until the time, the prices for the 3G enabled handsets fall down to manageable levels, it would not take off. I believe that it takes up a large chunk of the scarce spectrum, which does not make any sense to introduce. WAP and GPRS were heavily promoted but have been more or less non-starters. The real differentiator would be the quality of services, cheap offering if these companies have to venture in the rural areas and the reach of the network.

In this regard, the division of India in circles is not in the right spirit. It should be taken as a homogenous land mass. The day is not far when it would be local call to call anywhere across the nation. Reliance has made this possible to some extent.

Top five advertisers under the Telecom segments

‘Bharti Airtel Ltd’, ‘Vodafone Essar Ltd’ and ‘Bharat Sanchar Nigam Ltd’ the top three key players of ‘telecommunication services’ together accounted for 65 per cent share on TV during Q1 ‘2010.

During Q1 ‘2010, top three advertiser together contributed for 83 per cent of overall ‘telecommunication equipment’ TV advertising share viz. ‘Sony Ericsson (India)’, ‘Nokia Corporation’ and ‘LG Electronics India Ltd’.

New Brands advertised in Telecom Equipments and Services

2010

TOP TEN NEW BRANDS OF TELECOMSERVICES AND EQUIPMENTS ON TV DURING 2010

Top three ‘telecom services’ advertised on TV were ‘Virgin vGlide Phones (slider)’, ‘Vodafone Blackberry Storm’ and ‘Apple Music Caller Tunes’ during Q1 ‘2010.

Three brands of ‘BSNL’ and two of ‘Etisalat’ made to the top 10 list of new brands of ‘telecom services’.

‘Sony Ericsson W595 ‘, ‘Sony Ericsson F305’ and ‘Samsung Guru 1410’ were the top three new ‘telecommunication equipments’ advertised on TV during Q1 ‘2010.

Top 10 list of new brands of ‘telecommunication equipments’ advertised on TV, comprised of three brands of ‘Sony Ericsson’ and two were of ‘HTC Corporation’ during Q1 ‘2010.

Top advertisers with Celebrity endorsement ad volumes

2010

Top three celebrities endorsing telecom products on TV during the first quarter of 2010 were ‘Deepika Padukone’, ‘Saif Ali Khan’ and ‘Kareena Kapoor’

Data Analysis and Interpretations

The main area of the study is the Advertising in Telecom Industry in India and its Impact on Customers.

Research Design:

The research design is Descriptive studies. Descriptive studies are well structured, they tend to be rigid and its approach cannot be changed every now and then.

Gender: (a) Male (b) Female

Data

GENDER

VALUE

PERCENTAGE

MALE

59

59%

FEMALE

41

41%

Out of 200 respondents, 118 were male and 82 were female.

Age: (a) 15-25 (b) 26-35 (c) 36-45 (d) Above 45

AGE

VALUE

PERCENTAGE

15-25

64

32%

26-35

60

30%

36-45

56

28%

Above 45

20

10%

Out of 200 respondents, 64 were between the ages of 15-25, 60 were between the ages of 26-35, 56 were between the age of 36-45 and 40 were above 45.

Education: (a) Matriculate (b) Intermediate (C) Graduation (d) Postgraduate

EDUCATION

VALUE

PERCENTAGE

MATRICULATE

28

14%

INTERMEDIATE

40

20%

GRADUATE

72

36%

POSTGRADUATE

60

30%

Out of 200 respondents 28 were matriculate, 40 were intermediate, 72 were graduate and 60 were postgraduate.

Who is your current service provider?

(a) Airtel (b) Vodafone (c) Reliance (d) BSNL (e) Idea (f) other

CURRENT SERVICE PROVIDER

VALUE

PERCENTAGE

AIRTEL

50

25%

VODAFONE

34

17%

RELIANCE

36

18%

BSNL

26

13%

IDEA

22

11%

OTHER

32

16%

Out of 200 respondents 50 were using Airtel, 34 were using Vodafone, 36 were using Reliance, 26 were using BSNL, 22 were using Idea and 32 were using others.

For how long you are using this mobile connection?

(a) Less than 6 months. (b) 6 to 12 months. (c) Above 12 months.

TIME PERIOD

VALUE

PERCENTAGE

LESS THAN 6 MONTHS

22

11%

6 TO 12 MONTHS

56

28%

ABOVE 12 MONTHS

120

61%

Out of 200 respondents 22 were using the current connection for less than 6 months, 56 were using it from 6-12 months and 120 were using it from more than 1 year.

What were the reasons for choosing this mobile connection?

(a) Recommended by friends or relatives. (b) Recommended by retailers.

(C) Brand image (d) Advertisement

BUYING FORCE

VALUE

PERCENTAGE

FRIENDS / RELATIVES

76

38%

RETAILERS

24

12%

BRAND IMAGE

16

8%

ADVERTISEMENT

84

42%

Out of 200 respondents 76 were influenced by friends and relatives, 24 were influenced by retailers, 16 were influenced by brand image and 84 were influenced by advertisements.

While purchasing a connection advertising plays any role? (a) Yes (b) No

ADVERTISING IN PURCHASE

VALUE

PERCENTAGE

YES

168

84%

NO

32

16%

Out of 200 respondents 168 agreed that advertisements play a role in making purchase decision and 32 did not agree on that.

From where do you watch advertisements the most?

(a) Television (b) Radio (c) Newspaper (d) Magazines (e) Other

SOURCE OF ADVERTISEMENT

VALUE

PERCENTAGE

TELEVISION

110

55%

RADIO

6

3%

NEWSPAPER

50

25%

MAGAZINE

14

7%

OTHER

20

10%

Out of 200 respondents 110 replied Television, 6 replied Radio, 50 replied Newspapers, 14 replied Magazines and 20 replied others.

Which telecommunication company has good advertising?

(a) Airtel (b) Vodafone (c) Reliance (d) BSNL (e) Idea (f) other

GOOD ADVERTISING

VALUE

PERCENTAGE

AIRTEL

50

25%

VODAFONE

64

32%

RELIANCE

30

15%

BSNL

16

8%

IDEA

40

20%

OTHER

0

0%

Out of 200 respondents 50 liked the advertisements of Airtel, 64 liked advertisements of Vodafone, 30 liked the advertisements of Reliance, 16 liked the advertisements of BSNL and 40 liked the advertisements of IDEA.

Do you think that advertisement made by company informs you about their products?

(a) Yes (b) No (c) Undecided

INFORMATION IN ADS

VALUE

PERCENTAGE

YES

140

70%

NO

48

24%

UNDECIDED

12

6%

Out of 200 respondents 140 were in favor of that advertisements provides information about the products, 48 were not in favor of that and 12 were not able to decide.

Based on advertisements made by company, would you like to go for more connections for you or your family in future?

(a) Yes. (b) No. (C) Undecided.

ADS FOR REFERENCE

VALUE

PERCENTAGE

YES

148

74%

NO

44

22%

UNDECIDED

8

4%

Out of 200 respondents 148 agreed that they would buy connection on the basis of advertisement made by companies, 44 did not agree and 8 were not able to decide.

Findings AND SUGGESTIONS

A majority (84%) believes that