India: Telecom 2009 – Saga of Growth

INDIA:TELECOMMUNICATION

The telecom services have been recognized the world-over as an important tool for socio-economic development of a nation. The Telecom Sector, which has the multiplier effect on the economy, has a vital role to play in economy by way of contributing to the increased efficiency. The available studies suggest that income of business entities and households increases in the range of 5 to 10 per cent by the use of telecom services and there is direct relationship between tele density and GDP. The Government of India reorganizes that provision of world class telecommunications infrastructure and information is key to rapid economic and social development of the Country.



Present status of the Sector

Telecommunications is one of the few sectors in India that witnessed the most fundamental structural and institutional reforms since 1991. Emerging as one of the fastest growing telecom markets in the world, Indian telecom still continues to register a significant growth. Indian telecom network has about 526 million connections as on 31st October 2009. With 488 million wireless connections, Indian telecom has become the second largest wireless network in the world after China. The current addition of about 14 million connections per month puts the telecom sector on strong footing. The target of 500 million connections by 2010 has been achieved in September 2009 itself. Approximately 85% of the eleventh plan target of 600 million connections has already been achieved at the half-way point.



Growth of Telecom Sector

The opening of the sector has not only led to rapid growth but also maximized consumer benefits as tariff have been falling as a result of unrestricted competition. From meagre 22.8 million telephone subscribers in 1999, it has grown to 54.6 million in 2003 and to 429.72 million at the end of March 09 with further addition of 96 million during the period from March to October of 2009. Wireless Telephone connections have contributed to this growth as the number of wireless connections rose from 3.57 million in March 2001 to 13.29 million in 2003, 101.86 million in March 2006, 391.76 million in March 09 and 488.41 million as on 31st October 09. The wireline has shown increase from 32.70 million in 2001 to 41.42 million in March 2005 but then started declining to 40.22 million in March 2006, 37.96 million in March 2009 and 37.25 million in October’09.

(Table I)

Table I: Growth of telephones over the years (in Million)

Mar 06
Mar 07
Mar 08
Mar 09
Apr 09
Oct. 09

Fixed lines 40.23
40.77
39.41
37.96
37.81
37.25

Wireless
101.86
165.09
261.08
391.76
403.66
488.41

Gross Total
142.09
205.86
300.49
429.72
441.47
525.66

Annual growth (%)*
44
45
46
43
NA
NA




Wireline Vs. wireless

Changes taking place in structure of composition of Telecom Sector are obvious. The growth of wireless services has been substantial, with wireless subscribers growing at a compound annual growth rate (CAGR) of 60 per cent per annum since 2004. The share of wireless phones has increased from 5.26 per cent in 1999 to 92.91 per cent in October 2009. On the contrary, the share of fixed wire line has steadily declined.



Private vs. Public

The liberalization efforts of the Government are evident in the growing share of the private sector which is playing an important role in the expansion of telecom sector. The share of this in total telephone connections is now 81.73 per cent as per the latest statistics available for October 2009 as against a meagre 5% in 1999.



Trend in Teledensity

Teledensity is an important indicator of telecom penetration in the country. The Teledensity which was 2.32% in March 1999 increased to 12.7% in March 06 and further to 36.98% March 09 and 44.87% in Oct, 09. Thus there has been continuous improvement in the overall teledensity of the country.

The rural teledensity which was above 1.21% in March 2002 has increased to 9.46% in March08 and further to 15.11% in March 09 and 19.69% at the end of Oct.’09.

The urban teledensity has increased from 66.39 in March 08 to 88.84% in March 09 and stands at 104.23% at the end of Oct.’09.

Wide gap between urban and rural teledensitites indicate need for rapid increase in teledensity of rural areas. Introduction of wireless phones in rural areas and various measures of Government under USOF for expansion of mobile network in remote rural areas, will enhance rural teledensity. Private Service Providers are also looking for opportunities in rural areas due to saturation in urban areas.


Shifting focus on Rural Telephones

While rural subscribers have not grown like urban sector, with introduction of mobile services in rural areas, the rural subscribers recently are increasing.

The rural Telephone connections have gone up from 3.6 million in 1999 to 12.3 million in March 2004 and further 123.51 million in March 09.

Their share in the total telephones has constantly increased from around 14% in 2005 to 31% as on 30.9.09.

The rural subscribers have grown at 161.91 million as on October’09.

During 2008-09, the growth rate of rural telephone was 61.48% as against the growth of 36.71% of urban telephones. The private sector has also contributed to the growth of rural telephones as it provided about 80% of rural telephones as on 30.9.09.



Internet / Broadband

Several policies have been announced and implemented to promote broadband in the country. As a result of these measures the broadband subscribers grew from 0.18 million in 2005 to 6.2 million as on 30th April 2009 and about 7.2 million, at the end of the October 2009.

To achieve the stipulated target, the government has issued guidelines for Broadband Wireless Access (BWA) Services. Introduction of BWA services will enhance the penetration as well as growth of broadband subscribers. Wi-Max has also been making headway for penetration of wireless broadband connectivity across all the sectors.

New Horizons for further Growth

3G Telecom services

The explosive growth of the telecom industry in India is being followed by the urge to move towards better technology and the next level of service delivery. One of the key frontiers is the launch of 3G technology. The government has recently announced guidelines for penetration of 3G telecom services.



Mobile Number Portability (MNP)

MNP allows any subscriber to change his sevice provider without changing his mobile phone number. With the announcement of guidelines for MNP, telecom service provider will be forced to improve quality of their service to avoid losing subscribers. This can be seen as maturing element of the Indian telecom industry and a natural step for the industry to go forwards.



Value added Services (VAS)

The mobile value added service include, text or SMS, menu based services, downloading of music or ringtones, mobile TV, videos, streaming, sophisticated m-commerce applications etc. Prior to 2008, a majority of VAS revenues were attributable to SMS’s. However, recent trends indicate that this mix is evolving with consumer awareness and other factors.

Manufacturing

Indian telecom industry manufactures a compete range of telecom equipment using state of art technology and exist excellent opportunities for investors in this sector. The production of telecom equipments in value terms is expected to increase from Rs, 412700 million (2007-08) to Rs.488000 million during 2008-09. India has potential to emerge as a global hub for telecom manufacturing. Favourable factors such as policy moves of the government, incentive offered, large talent pool in R&D and low labour cost can provide an impetus to the industry. Exports increased from INR 4020 million in 2002-03 to INR 1,10,000 million in 2008-09 accounting for 21 per cent of the total equipment produced in the country.



Foreign Direct Investment

The liberalisation in financial sector have beneficial results as that in telecom sector. Today, telecom is the third major sector attracting FDI inflows after services and computer software sector. At present 74% to 100% FDI is permitted for various telecom services. This investment has helped telecom sector to grow. The total FDI equity inflows in telecom sector have been US$ 2010 million during April-September 2009- 10.



Vision:

While celebrating the success in the telecom sector, the government recognizes the fact that there is no room for complacency. The government is now looking forward to achieve the target of 600 million telephone subscribers by the end of Eleventh Plan and 1 billion by the end of 2015.

Rural telephony continues to be the thrust area of the government. It is recognized that provision of affordable telecom services in rural areas enhances the ability of people to participate in market economy, which, in turn improves their productivity and contributes to their earnings. It is therefore, proposed to achieve rural teledensity of 25% by means of 200 million rural connections at the end of 11th Plan. In view of the present growth, 40% rural teledensity is expected by 2014.

Recognizing the potential of Broadband services in the growth process, it has been proposed in the Eleventh Plan targets to provide the broadband for all secondary and higher secondary schools; all Public Health Care Centers and Gram Panchayats. It is also envisaged that internet and broad-band subscribers

will increase to 40 million and 20 million, respectively, by 2010.



Conclusion- Truly Inclusive Telecom Growth

Telecom connects people across the length and breadth of the country irrespective of income bracket and it provides many benefit to all in the society. It contributes significantly to India’s GDP and particularly benefits the poor people in the country. The mobile phone has revolutionalised Indian economy in that it has become more inclusive in terms of enabling greater participation of the poorer section of society. Now, people in these regions can conduct their business in a more economical manner; they do not have to move from place to place in order to do business. Small businessmen and small traders are able to do their business over telephone, and that is a very important contribution to the growth of the country. And broadband will only improve matters.



GG/AT