Telecom growth lifts Indian market

Market expansion and reforms in telecommunication sector help boost India's economy and employment rate.

Telecom reforms in India, focused on privatization, deregulation and competition, have helped boost telecommunication adoption and increase participation from the private sector.

Matt Walker, senior analyst at research firm Ovum, said India's telecommunications landscape saw rapid growth over the last few years, as the regulatory climate has improved and private carriers have invested aggressively in nationwide network deployments.

"Most of the effort has been on mobile networks because these roll out faster, fill a gap in connectivity left by poor fixed-line networks, and allow for very low-priced entry points for end users," Walker told ZDNet Asia in an e-mail interview.

Long-haul fiber transport networks have also spread in the country, he said, adding that this market has become more competitive.

Kamlesh Kalwar, a Frost & Sullivan industry analyst, said the expansion of India's telecom industry has led to an "all-inclusive growth" of the Indian economy in terms of GDP (gross domestic product) growth, employment and government revenues, among others.

He added that telecommunications, together with the IT sector, have created jobs for India's knowledge professionals and skilled workforce. High growth in the IT and ITES (IT-enabled services) sectors is dependent on the sound connectivity infrastructure in India's metro areas, Kalwar told ZDNet Asia in an e-mail interview.

During the fiscal years of 2003/2004 and 2006/2007, the Indian economy enjoyed an average growth rate of 8.8 percent. In the 2006/07 period, the analyst said, the country saw the growth rate hit 9.6 percent--India's highest economic expansion in 18 years.

The advent of the digital age, coupled with India's large number of young and educated people who are fluent in English, are transforming India into an important global outsourcing destination for customer services and technical support.

"This would not have been possible without the growth of the telecom sector," Kalwar said.

Walker agreed: "Clearly, India's business process outsourcing (BPO), software, design and financial industry segments rely heavily on the good network connectivity, especially international [connectivity]."

This year, he said, Ovum estimates that fixed line and mobile revenues in India will hit US$10.5 billion and US$23.4 billion, respectively. Fixed line capital expenditure (capex) is estimated at US$2.2 billion, while mobile capex will ring in at US$6.5 billion.

Strong Indian investments

Encouraged by the rapid surge in subscribers, India's telecom players have been making huge investments, said Kamlesh Kalwar, an industry analyst at Frost & Sullivan.
Bharat Sanchar Nigam (BSNL), India's leading telecom company (in revenue terms), will place some US$1.2 billion in its WiMax deployment. The project entails establishing WiMax wireless broadband connectivity, mostly in urban areas, by this year, and there are also plans to develop 50,000 IT-enabled kiosks--dubbed common service centers (CSC)--nationwide, which will run on WiMax. BSNL will also invest
US$125.6 million over the next year to build up its rural telecom infrastructure in West Bengal
Reliance Communication has also committed US$5.7 billion as capital investment for the fiscal year, ending March 2009, while Idea Cellular will spend some US$2.4 billion in the same period.
Maxis Communications-owned mobile service provider Aircel is planning to invest close to
US$5 billion in India over the next four years, on network enhancement and expansion.
Srei Group's Quippo Telecom Infrastructure (QTIL) plans to invest US$3 billion over 2008 and 2009 to ramp up its telecom infrastructure business.
Vodafone Essar will invest US$6 billion over the next three years in a bid to increase its mobile subscriber base from its current 40 million to over 100 million.
Central public sector enterprises have also lined up investments totaling US$35.1 billion in infrastructure sectors such as telecom, energy and power, over 2008 and 2009.

By 2012, fixed line revenues will reach US$12.2 billion and mobile revenues will hit US$39.8 billion. Fixed line capex is expected to be US$3.2 billion, while mobile capex will be US$9.4 billion.

Kalwar noted that India's mobile sector continued its growth momentum throughout 2007, achieving net additions of over 84 million users, ending the year with a total mobile subscriber base of 233.6 million.

Between 2006 and 2007, mobile telephony grew at an annual rate of over 90 percent. On average, the market saw over 8 million new subscribers every month.

Kalwar said: "Apart from the basic telephone services, there is an enormous potential for various value-added services (VAS). In fact, the real potential for growth in telecom services is still largely untapped."

India's mobile subscriber base is expected to grow at a compound annual growth rate (CAGR) of 18.3 percent, from 2007 to 2013, reaching a penetration rate of 53.4 percent by end-2013.

"While subscriber growth would gradually slow down as the market saturates, we expect a combination of factors such as acceleration of fixed-to-mobile substitution, expansion of rural market coverage, increasing competition resulting in the introduction of innovative cellular service packages, and the cheaper entry-level handsets to stimulate future growth," Kalwar said.

Achieving over 500 million telephone connections by 2011 appears very attainable, he added, with total investments in the sector projected at a whopping US$76.6 billion throughout the period of India's Eleventh Five Year Plan, stretching from 2007 to 2012.

Reaching all of India
Under its Bharat Nirman Program, the government has also set a target to connect all villages with a village public telephone (VPT) by 2008. Connectivity with remote and far-flung villages, which number over 14,000 in the country, will be provided through digital satellite phone terminals.

The government will also invest US$2 billion, from 2008 to 2009, to set up some 100,000 community service centers in rural India to provide broadband connectivity.

Kalwar believes India's rural market is going to be the next big thing for wireless service providers.

"With the tele-density in rural areas at less than 10 percent against the national average of about 21 percent, there seems to be huge untapped potential for mobile phone penetration in rural India," he said.

In India, GSM and CDMA are currently the key mobile technologies. According to the Telecom Regulatory Authority of India (TRAI), there were 68.4 million CDMA subscribers--26.2 percent of overall market--and 192.7 million GSM subscribers (73.8 percent) as of end-March 2008.

Kalwar said xDSL and ISDN are the most common means of Internet access in the country. "New technologies like WiMax for the Internet, and 3G for mobile and the Internet are on the anvil," he added.

In the realm of broadband wireless access, companies such as Tata, Reliance and Bharti, have committed huge investments on WiMax and are conducting trials. By mid-2009, this would help connect rural areas, thus providing connectivity to the masses and fueling further economic growth, Kalwar said.

Regulator TRAI, recently also made policy recommendations on VoIP (voice over Internet Protocol) and mobile number portability (MNP), and will be holding the 3G spectrum auction due later this year.

Ovum analyst Charice Wang, wrote in a recent research note that these policies will encourage the development of India's telecoms industry and strengthen competition in the fixed and mobile markets.

Helped by market reforms
The TRAI also lifted a ban that prevented Internet service providers (ISPs) to provide VoIP services to and from telephones connected to voice-oriented public switched telephone networks (PSTN). Removal of these restrictions means IP calls can now be connected to traditional PSTN phones, and not just to PCs, Wang explained.

"We expect the new measures to encourage VoIP take-up," she wrote. "In fact, we think VoIP will experience strong growth over the next few years, with the combined effects of deregulation and growing broadband penetration.

There are currently 4.4 million broadband subscribers in India, she added, noting that the government is targeting to increase this base to 20 million broadband users by 2010.

The TRAI also announced that MNP will be available in four metropolitan areas within the next two months, and will be implemented country-wide by June 2009.

Kalwar said MNP, which lets customers switch telcos without changing their numbers, will also help consumers achieve significant savings through operators' bundled offerings including VAS at lower charges and cheaper voice and broadband services.

"MNP also attracts business users as it helps them retain contact numbers and change service providers with no extra time, effort and cost required to communicate these changes," he noted.

According to Wang, India's government will finalize a 3G spectrum auction process by the end of this month. "Depending on the spectrum available, the number of licenses could grow to 12," she said.

Kalwar said, 3G would increase the availability and affordability of VAS on offer and is also expected to significantly improve the call quality in India.

"Newer business models for voice and data are expected," he said. "Industries like mobile content and advertising will flourish over the next five to six years."