Industry Profile

Introduction

India is the world’s second-largest telecommunications market. The telecom

infrastructure in India is expected to increase at a compound annual growth rate
(CAGR) of 20 per cent during the period 2008–2015 to reach 571,000 towers in
2015.

The mobile phone industry in India is likely to contribute US$ 400 billion to the
country’s gross domestic product (GDP) and has the potential to generate about 4.1
million additional jobs by 2020, as per Ms Anne Bouverot, Director General, Groupe
Speciale Mobile Association (GSMA). The mobile ecosystem generated
approximately 5.3 per cent of the GDP for India, and directly supported 730,000 jobs
in 2012, according to the report titled ‘Mobile Economy India 2013’ released by
GSMA in association with the Boston Consulting Group (BCG).

“India is a place for investment and innovation for Vodafone. India is one of the two
biggest markets for us along with Germany. The company is investing nearly US$ 3
billion over the next two years in India in expanding its network infrastructure and
distribution channel in the country,” according to Mr Vittorio Colao, CEO, Vodafone
Plc.

Key Statistics

The telecommunications industry attracted foreign direct investments (FDI) worth

US$ 12,889 million in the period April 2000–September 2013, according to data
published by Department of Industrial Policy and Promotion (DIPP).

The country’s GSM operators added 1.66 million rural subscribers in October, taking
their overall user base to 274.32 million, according to data released by the Cellular
Operators’ Association of India (COAI). The telecom companies are looking at rural
India to add users and revenues.

Market Dynamics
India could emerge as a low-cost hub for testing security-sensitive IT products used
in telephone and other critical infrastructure networks, with the country being recently
given the 'authorising member nation' status in the Common Criteria Recognition
Arrangement (CCRA). Laboratories in India could offer testing services at much
lower costs compared to other CCRA labs in Western markets, highlighted Mr Rajan
Mathews, Director General, COAI – the industry body representing GSM operators.

India has over 50 per cent mobile-only internet users, possibly the world’s highest
compared to 20–25 per cent across developed countries, according to Avendus
Capital. More so, gaining impetus from the increasing penetration of smartphones
and a whole host of mobile-only content, the Indian mobile advertising market is
estimated to reach Rs 2,800 crore (US$ 457.52 million) by 2016 from the current Rs
180 crore (US$ 29.41 million).

Increasing demand for smart phones and availability of high speed networks, such
as 3G and 4G services, has resulted in the rapid growth of the Indian market,
besides offering immense opportunities to players involved in the business. The
RNCOS’ research study, ‘Indian Mobile Gaming Market Forecast to 2017’ estimated
the market to reach Rs 18.5 billion (US$ 302.28 million) in 2017 and grow at a CAGR
of nearly 24 per cent during the period 2013–2017.

Key Developments & Investments

 Vodafone India, the local arm of UK's Vodafone Group Plc, plans to spend
around Rs 7,000 crore (US$ 1.14 billion) in the country, in addition to its
annual capex of Rs 5,000 crore (US$ 817 million) over the next few years, to
expand its data network and coverage, said Mr Marten Pieters, CEO,
Managing Director, Vodafone India.
 ZTE Corp is targeting US$ 800 million revenue from India next year. The
company expects a significant portion of the revenue growth to come from its
handset business. In addition, ZTE has bagged a deal to manage Airtel’s 4G
network in Kolkata and Punjab.
 The Chennai-based mobile phone retailers, UniverCell will double its retail
footprint to 1,000 outlets by the end of March 2015 from the present 500.
  Viom Networks is looking to add between 1,500 and 2,000 mobile towers by
this fiscal end. The company is expected to invest approximately Rs 150 crore
(US$ 24.51 million).
 Micromax will start assembling phones at its Rudrapur plant by the first
quarter of 2014. The facility employs over 400 people.

Government Initiatives

An empowered group of ministers (EGoM) has cleared the mergers and acquisitions
(M&A) guidelines for the telecommunication sector, in order to encourage
consolidation in the sector.

The Telecom Commission has ratified the Rs 5,000 crore (US$ 817 million)
government proposal to give away 2.5 crore mobile handsets at subsidised prices.

The telecom tower provider industry has been granted the 'infrastructure' status, a
move that will make tower providers eligible for viability gap funding, higher limit on
external commercial borrowings (ECBs), lower import duties and exemptions on
excise duty on telecom infrastructure equipment.

The Government of India's decision to allow 100 per cent foreign direct investment
(FDI) in telecommunication sector will enable foreign telecommunication companies
to buy out their Indian partners. At present, India permits up to 74 per cent FDI in the
sector – 49 per cent through the automatic route and the rest after Foreign
Investment Promotion Board (FIPB) approval.

The Government intends to make India a teleport hub, enabling it to become an up-
linking/down-linking centre. The initiative is expected to facilitate foreign investments,
better technology and sustainable employment opportunities in the country. The
Government has recently given its nod to 74 per cent of FDI in DTH, IPTV, and
mobile TV.

According to the new guidelines issued by the DoT, foreign entities can participate in
the 2G auctions directly and obtain a licence. The initiative is expected to make the
upcoming auctions more attractive to certain foreign players such as Telenor, which
wanted to bid directly without an Indian partner in the auctions. There will be a lock-
in period of three years.

Road Ahead

The DoT will encourage telecom service providers to share their infrastructure,
according to Mr M F Farooqui, Telcom Secretary, Government of India. The telecom
industry and the Government need to work together to attract investments and
exploit advances in technology. With the success in voice-connectivity being carried
forward to data and emerging technologies including cloud computing, the
government is targeting broadband connectivity from 15 million currently to over 600
million in 2020.

On the back of the ongoing investments into infrastructure, the country is projected
to witness high penetration of internet, broadband, and mobile subscribers in the
near future. Various policy initiatives by the Indian government have led to a
complete transformation of the industry in the last decade. It has achieved a
phenomenal growth during the last few years and is poised to grow further.

Exchange Rate Used: INR 1 = US$ 0.01634 as on December 6, 2013