TELECOMMUNICATIONS

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PricewaterhouseCoopers is one of the largest and most
reputed professional services network in the country.
The Telecom Group of PricewaterhouseCoopers in India
works with telecom service operators, lenders, policy making
authorities, infrastructure vendors, manufacturers and
associated services companies to provide industry focused
solutions. PricewaterhouseCoopers specialists from the tax
and advisory teams connect their thinking, experience and
solutions to build public trust and enhance value for clients
and their stakeholders.
For information, please contact:
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TELECOMMUNICATIONS

TELECOM IN INDIA
High on Opportunity 2

POLICY INITIATIVES 4

MARKET
Size, Players and Trends 8

OPPORTUNITIES 13

CONTACT FOR INFORMATION 16

 TELECOM IN INDIA

High on Opportunity The Indian telecom market has been displaying sustained high
growth rates. Riding on expectations of overall high economic
growth and consequent rising income levels, it offers
an unprecedented opportunity for foreign investment.
A combination of factors is driving growth in the telecom
market, promising rich returns on investments.

Macro-economic impetus
India is currently Over the past 10 years, India has registered the fastest growth
the fourth largest economy among major democracies, having grown at over 7 per cent
in terms of Purchasing in four years during the 1990s. It represents the fourth largest
Power Parity economy in terms of “Purchasing Power Parity”.

India to emerge as According to a recent Goldman Sachs report, over the next
the third largest economy fifty years, Brazil, Russia, India and China - the BRIC economies
in the world by 2050 - could become a much larger force in the world economy.
“India could emerge as the world’s third largest economy
and of these four countries; India has the potential to show
the fastest growth over the next 30 to 50 years”. The report
also states that, “Rising incomes may also see these economies
move through the ‘sweet spot’ of growth for different kinds
of products, as local spending patterns change. This could be
an important determinant of demand and pricing patterns
for a range of commodities”.

Shift of focus to services The share of the services sector as a percentage of total GDP
sector with its share is also predicted to rise from the current 46 per cent to
to increase to 60 per cent about 60 per cent by 2020. The boom in the services sector
of GDP by 2020; fuelled is slated to come from India, emerging as a chosen destination
by India becoming for software and other IT enabled services, tourism etc.
the chosen destination According to a Nasscom- McKinsey & Co. Study, by 2008,
the Indian IT software and services sector will account for
for BPO-ITES services
US$ 70-80 billion in revenues; employ 4 million people, and
account for 7 per cent of India’s GDP and 30 per cent
of India’s foreign exchange inflows.
 T E L E C O M M U N I C A T I O N S PAGE 3

Demographic impetus
Population projections from the Planning Commission Working age population
of India suggest that the share of the working age population of India set to increase
(15-64 years) in total population will grow from the current to 882 million by 2020
59 per cent to about 65 per cent, translating into 882 million
by year 2020.

According to the Vision 2020 document of the Planning India’s urban population
Commission of India, the country will witness continued expected to rise
urbanisation. The urban population is expected to rise to 40 per cent from
from 28 per cent to 40 per cent of total population by 2020. the current 28 per cent
Future growth is likely to be concentrated in and around 60 by 2020
to 70 large cities having a population of one million or more.
This profile of concentrated urban population will facilitate
customised telecom offerings from operators.

Over the years, spending power has steadily increased in India. 30-40 million people joining
Between 1995 and 2002, nearly 100 million people became the middle class every year
part of the consuming and rich classes. Over the next five with consumption spendings
years, 180 million people are expected to move into the associated with rising
consuming and very rich classes. On an average, 30-40 million incomes
people are joining the middle class every year, representing
huge consumption spending in terms of the demand for
mobile phones, televisions, scooters, cars, credit goods and
a consumption pattern associated with rising incomes.

Landmark National
Telecom Policy 1999
followed with concrete
steps to achieve
the stated objectives
“In our view,
the Government of India has
virtually deregulated every
segment of the Indian
Telecom industry over
the past two years”
- Morgan Stanley,
December 2003
POLICY INITIATIVES
In 1999, the Government of India authored a very forward
looking National Telecom Policy 1999 (NTP-1999), which
acknowledged that access to telecommunications is of utmost
importance for the achievement of the country’s social
and economic goals. Availability of affordable and effective
communication for the citizens was the core vision and goal
of this telecom policy. Since the announcement of the Policy,
the Government has undertaken various concrete steps to
achieve the policy objectives.
Impact of NTP-99 on mobile subscriber uptake
in million
Source: COAI, PwC Analysis
The migration from a fixed to a revenue share licence regime
provided the desired relief to the private operators - earlier
burdened by huge debts that they had to service owing
to their licence fee commitments. This was the starting point
of the cellular revolution being witnessed in the country today,
wherein almost 2 million lines are getting added to the
network every month.
 T E L E C O M M U N I C A T I O N S PAGE 5

Liberalisation of the national and international long distance

sector by the Government led to the setting up of private
companies in both service segments, and the consequent
competition that has emerged has led to reduction in tariffs,
which are lower than 80 per cent of the pre-liberalisation
days. The reduced tariffs are now almost at par with
world benchmarks.

Recognising the convergence of markets and technologies, In 2003, the Government

the Government, in December 2003, came out with the announced two significant
Unified Access Licence allowing both basic and cellular initiatives
service providers to provide access, using any technology
in a specified service area. The Government also announced
the Interconnection Usage Charge (IUC) regime in January
2003, implemented from May 2003, to facilitate cost-oriented
interconnection in the Indian telecom market with multiple
operators - both public and private, with multiple
service offerings.

In tax related announcements made in January 2004, In 2004, specified imports

the Government has further rationalised the customs related to telecom
duty structure on imports related to telecom and specified infrastructure were
infrastructure equipment for basic/cellular/Internet, V-SAT, exempted from basic
radio paging and public mobile radio trunk services. Parts of customs duty and
such equipment are being exempted from basic customs duty. performance bank
Later in the year, the Government announced reduction in guarantees for certain
performance bank guarantees for Internet service providers, service providers
national long distance providers and domestic call centres; were reduced
thus, reducing their cost of operations to enable them
to offer more affordable pricing.

Regulatory structure

* TDSAT: Telecom Disputes Settlement Appellate Tribunal

Foreign Direct Investment (FDI) policy
in the telecom sector
Foreign Direct Investment (FDI) was permitted in the telecom
sector beginning with the telecom manufacturing segment in
1991 - when India embarked on economic liberalisation. FDI
is defined as investment made by non-residents in the equity
capital of a company. For the telecom sector, FDI includes
investment made by Non-Resident Indians (NRIs), Overseas
Corporate Bodies (OCBs), foreign entities, Foreign Institutional
Investors (FIIs), American Depository Receipts (ADRs)/Global
Depository Receipts (GDRs) etc.
Present FDI Policy for the Telecom sector:
• In Basic, Cellular Mobile, National Long Distance,
International Long Distance, Value Added Services and
Global Mobile Personal Communications by Satellite, FDI
is limited to 49 per cent (under automatic route) subject
to grant of licence from the Department of
Telecommunications and adherence by the companies
(who are investing and the companies in which investment
is being made) to the licence conditions for foreign equity
cap and lock-in period for transfer and addition of equity
and other licence provisions.
• Foreign Direct Investment up to 74 per cent permitted,
subject to licensing and security requirements for the
following:
- Internet Service (with gateways)
- Infrastructure Providers (Category II)
- Radio Paging Service
• FDI up to 100 per cent permitted in respect to
the following telecom services:
- ISPs not providing gateways
(both for satellite and submarine cables)
 T E L E C O M M U N I C A T I O N S PAGE 7

- Infrastructure Providers providing dark fibre

(IP Category I)
- Electronic Mail
- Voice Mail
The above is subject to the following conditions:
- FDI up to 100 per cent is allowed subject to
the condition that such companies would divest
26 per cent of their equity in favour of Indian public
within 5 years, if these companies are listed
in other parts of the world.
- The above services would be subject to licensing and
security requirements, wherever required.
- Proposals for FDI beyond 49 per cent shall be
considered by Foreign Investment Promotion Board
(FIPB) on a case-to-case basis.
• In the manufacturing sector 100 per cent FDI is permitted
under the automatic route.
 MARKET
Size, Players and Trends
India currently has Today, India has the eighth largest telecom network in the
43 million fixed lines world, which is growing at an overall rate of over 20 per cent.
and 36 million wireless As of May 2004, India had about 43 million fixed lines and
connections 36 million wireless subscribers contributing to the total
tele-density of about 7 per cent.

Tele-density & telephone subscribers in India

Source: Indian Telecommunications Statistics 2002, Ministry of Communications, Government of India

The Indian Telecommunication Industry Performance Indicators 2002-03, TRAI;
Statistics on Cellular Subscriber Numbers from COAI website

According to Morgan Stanley, the total revenue from

the Indian telecom market in financial year 2003 was estimated
to be about US$ 9.2 billion. Presently, wireline services
contribute about half of the total service revenues. Over
the next 5-8 years, however, their contribution is expected to
fall to about 30 per cent and wireless services are expected to
contribute half the industry revenue. Data revenue is expected
to increase from 2 per cent to 8 per cent of total revenues.

Telecom in India : way forward

Estimates for total wireless market in India
in million

*E: Estimates for year ending March; Source: Cellular Operators Association of India
(COAI)
 T E L E C O M M U N I C A T I O N S PAGE 9

% Contribution to telecom service revenue, fiscal year 2003

Source: Morgan Stanley estimates

Equipped switching capacity

Source: TRAI Indian Telecom Service Performance Indicators, November 2003

*
BSNL: Bharat Sanchar Nigam Limited; MTNL: Mahanagar Telephone Nigam Limited.
Both BSNL & MTNL are government controlled operators.

Most of the telecom infrastructure till now has been deployed With urban tele-density
in the urban areas, raising urban tele-density to about 18.2 at 18.2 and rural tele-density
per cent compared to a rural tele-density of about 1.5 at less than 2, there is
per cent. According to the latest Telecommunication Industry enormous scope for addition
Performance Indicators issued by the Telecom Regulatory to telecom infrastructure
Authority of India (TRAI), the equipped switching capacity
of the fixed network is about 60 million with the ownership
distribution as provided in the diagram above. There also
exists about 0.5 million route kms of optical fibre-based
and 0.15 million of microwave-based transmission network
infrastructure. The ownership pattern of the transmission
network infrastructure is as provided in the diagram, on
the following page.
 OFC (in RKms)

Source: TRAI Indian Telecom Service Performance Indicators, November 2003

M/W Link (in RKms)

Source: TRAI Indian Telecom Service Performance Indicators, November 2003

GSM in India - The GSM subscriber base in India is expected to reach

a burgeoning market about 35 million by the end of 2004. Indian GSM service
providers are presently operating in over 70 networks
covering almost 2000 cities and towns and thousands
of villages, serving over 26 million subscribers.
GSM service providers
No. Name of Total Sub % Market
Company Figures Share Players and Trends

1 Bharti 7,343,763 26.10 Integrated telco, with presence in all sectors - Cellular, Basic, National Long Distance (NLD) & International
Long Distance (ILD). Currently offering only GSM based cellular services. No CDMA based cellular services
being offered.
2 BSNL 5,549,285 19.70 Incumbent operator, virtual monopoly in the basic services. Very strong NLD operator; and, has been able
to quickly ramp up GSM subscribers due to nationwide network reach. Pan country presence in both basic
(except Mumbai and Delhi) and cellular services.
3 HUTCH 5,591,892 19.80 Pure play GSM mobility player offering cellular services in 11 circles. Has been working on a model of being
associated with the high ARPU subscribers.
4 IDEA 3,961,442 14.10 A 3 way GSM mobility joint venture between Tatas, Birlas and AT&T Wireless offering cellular services
in 8 circles. IDEA has recently taken over Escotel that was operating in 3 circles.
5 BPL 2,087,740 7.4 Pure play cellular operator along with Spice, Escotel and Aircel.
6 SPICE 1,270,904 4.5 Pure play GSM based mobility player offering services in 2 circles – Punjab and Karnataka.
7 AIRCEL 1,123,314 4.0 Recently acquired the contiguous metro circle of Chennai, while already operating
in the state circle of Tamil Nadu.
8 RELIANCE 850,831 3.0 Operating GSM wireless services in 6 circles and subsequently acquired Madhya Pradesh circle from RPG.
Reliance is currently focusing on rollout of CDMA based wireless services.
9 MTNL 396,281 1.4 Integrated incumbent operator also offering GSM based mobility in Delhi and Mumbai.

ALL INDIA 28,175,452

Source: Cellular Operator Association of India, May 2004
 T E L E C O M M U N I C A T I O N S P A G E 11

Fixed service providers

Wireline WLL Total

BSNL 34,862,000 800,000 35,662,000
MTNL 4,475,000 130,000 4,605,000
Private Operators 1,113,197 1,109,986 2,223,183
Source: isourceupdates.com (as per media & other sources), March 2004

CDMA mobile has a subscriber base of 7 million in the

country. It is expected that the mobile-fixed crossover
in India will take place in 2004 itself. The global mobile
subscriber base is expected to cross 1.5 billion in 2004
and reach 2.3 billion by 2010, with India expected to
contribute significantly to the above growth.

CDMA service providers

Tatas 652,735
Reliance 7,010,258
HFCL 34,114
Shyam 27,141
Total 7,724,248
Source: isourceupdates.com (as per media & other sources), May 2004

Trends
The Indian telecom market was liberalised in the 1990s
With multiplying
and the service licences were given on the basis
opportunities, the number
of services to be offered in specified areas of operation.
of regional players
The country was demarcated into “circles” - categories
is growing
based on their economic potential, and these
demarcations were mostly contiguous with the states
of India. As a result, the Indian telecom market today
is characterised by the existence of various regional
players in the fixed and cellular segments.
Consolidation is underway Over the past few years, consolidation has been happening
in the industry in the industry, which has created about four large integrated
players who have a presence in all the segments like wireline,
wireless, national and international long distance and data
services. These four players are BSNL (incumbent), Bharti
Televentures, Reliance Infocomm and Tatas. Hutchison, another
significant player with more than five million subscribers, has
restricted itself to the mobile services space. The industry is
expecting to see more consolidation following issuance
of the Unified Access Licence by the Government
in December 2003 and clarity in intra-circle merger
and acquisition norms relating to both spectrum
and dominance issues.
 T E L E C O M M U N I C A T I O N S P A G E 13

OPPORTUNITIES

India offers an unprecedented opportunity for telecom service Dynamism in the services
operators, infrastructure vendors, manufacturers and associated sector and changing
services companies. A host of factors are contributing to consumer profile
enlarged opportunities for growth and investment in telecom: is enhancing growth
• an expanding Indian economy with increased focus in telecom
on the services sector
• population mix moving favourably towards a younger
age profile
• urbanisation with increasing incomes

Investors can look to capture the gains of the Indian telecom

boom and diversify their operations outside developed
economies that are marked by saturated telecom markets
and lower GDP growth rates.

Till recently, the industry believed that while the hike in

Foreign Direct Investment (FDI) limits was necessary, it was
not a sufficient condition for growth of the telecom sector.
With most of the regulatory uncertainty getting over, there
is heightened interest in Indian telecom.

Further, at a time when global telecom majors are struggling India represents vast
to cope with their losses and the rollout of 3G networks, untapped potential
which has been a non-starter for close to a year now; India, for global telecom majors
with its telecom success story, represents an attractive and
lucrative destination for investment.

Inflow of FDI into India’s telecom sector between 1991 and

2003 was about US$ 2 billion. Also, 20 per cent of the
approved FDI in the country is related to the telecom sector.
 Sectorwise inflow of telecom FDI (1991-2003)

Source: investindiatelecom.com

Lower prevailing A comparison with countries in the Asian region indicates

tele-density levels that India still has some way to go, to reach the levels of
compared to Asian tele-density in these countries (data 2002), which brings
economies indicate in its wake a host of opportunities for investment in
a huge demand potential the Indian market.

India and select markets 2002

Country/Market Total Tele-density %
India (Total) 5.2
India (Urban) 15
China 32
Malaysia 57
South Korea 116
Source: Industry estimates

Government initiatives Concrete steps taken by the Government of India are key
facilitating… drivers facilitating investment in the sector. It is reported that
Department of Telecommunications is considering proposals
for reduction in Licence Fee (currently between 6 per cent
 T E L E C O M M U N I C A T I O N S P A G E 15

and 10 per cent) and Spectrum Charges (currently between …expanding bouquet
2 per cent and 4 per cent) for Basic and Cellular Operators of services to extended
to make the services more affordable. to consumers…
With the introduction of the Unified Access Licensing Regime,
operators can offer telecom access services to consumers
in a technology neutral manner, subject to fulfilling certain
conditions. Introduction of this regime has also broken
the legal/regulatory impasse between the cellular and basic
service providers.

Issuance of Intra-Circle Merger and Acquisition Guidelines ...increasing opportunities

provide investors an opportunity to take stakes in existing for investor stakes
telecom operations.

Bharti Tele-Ventures, a large private telecom player offering

varied telecom services and the largest GSM cellular operator,
currently has foreign partners holding a combined stake of
47.3 per cent in the company; these include SingTel (with 28.5
per cent), Warburg Pincus, International Finance Corporation,
Asian Infrastructure Fund Group and New York Life Insurance.

Hutchison Whampoa has a 49 per cent stake in Hutchison

Telecom, the second largest GSM cellular operator in India.

Distacom has a 42 per cent stake in Spice Communications.

AT&T Wireless has a 33.3 per cent stake in Idea Cellular

while France Telecom holds a 26 per cent stake in BPL Mobile.
 The inevitable comparison
India outshining China

Unanimous view: In nine years of existence in China, wireless services, were

Wireless is expected able to garner about 6.8 million subscribers by 1996.
to lead the Indian In comparison, India starting late - in 1995, had managed
telecom boom to enroll 28 million wireless subscribers by the end of 2003.

India Vs China - in comparable years of service

“The Elephant
is on the dance floor…
…and the Band
is playing a Mobile Tune…
…Get on that dance floor
with the Indian Elephant”!!!
NEIL GALLOWAY
Head of Asian Telecom
ABN AMRO BANK, December 2003

Source: Cellular Operators Association of India (COAI)

CONTACT FOR INFORMATION

Explore, invest and partner The telecom market is regulated by the Telecom
with India to profit and Regulatory Authority of India, and the Department
advantage of Telecommunications is the licensor. They can be
contacted at the following addresses:

Telecom Regulatory Authority of India

A-2/14 Safdarjung Enclave
New Delhi 110 029
India
Tel: + 91 11 2610 1934
Fax: + 91 11 2610 3294
Email: trai@del2.vsnl.net.in
Website: www.trai.gov.in

Department of Telecommunications
Ministry of Communications
Sanchar Bhawan
20 Ashoka Road
New Delhi 110 001
India
Tel: + 91 11 2371 6666
Fax: + 91 11 2337 2323
Website: www.dotindia.com
T E L E C O M M U N I C A T I O N S

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