Indian Telecom Sector India's Tele-density has improved from under 4% in March 2001 to around 76% by the end

of March 2012. Cellular telephony continues to be the fastest growing segment in the Indian telecom industry. The mobile subscriber base (GSM and CDMA combined) has grown from under 2 m at the end of FY00 to touch 919 m at the end of March 2012 (average annual growth of nearly 64% during this 12 year period). Tariff reduction and decline in handset costs has helped the segment to gain in scale. The cellular segment is playing an important role in the industry by making itself available in the rural and semi urban areas where Tele-density is the lowest.

The fixed line segment continues to decline in terms of the subscriber base. It has declined to 32.17 m subscribers in March 2012 from 34.73 m in March 2011. The decline was mainly due to substitution of landlines with mobile phones.

As far as broadband connections (>=256 kbps) are concerned, India currently has a subscriber base of 13.8 m. Broadband penetration received a boost from the auction of broadband spectrum. The network providers have stated that they would be looking at boosting the contribution of data to their revenues. This bodes well for the future of broadband services.

Key points : Industry Analysis

Supply: Intense competition has resulted in prompt service to the subscribers. Demand: Given the low tariff environment and relatively low rural and semi urban penetration levels, demand will continue to remain higher in the foreseeable future across all the segments. Barriers to entry: High capital investments, well-established players who have a nationwide network, license fee, continuously evolving technology and lowest tariffs in the world. Bargaining power of suppliers: Improved competitive scenario and commoditisation of telecom services has led to reduced bargaining power for services providers. Bargaining power of customers: A wide variety of choices available to customers both in fixed as well as mobile telephony has resulted in increased bargaining power for the customers. Competition: Competition has intensified with the entry of new cellular players in circles. Reduced tariffs have hurt all operators.

Financial Year '12

Y12 saw the continuance of growth for the Indian telecom market, which witnessed a 12% YoY increase in its subscriber base during the 12-month period. At the end of March 2012, the countrys total telecom subscriber base (fixed plus mobile) stood at about 951 m. The Tele-density level stood at about 76% by the end of the fiscal.

Growth remained robust in the GSM mobile space. GSM added 115 m subscribers during the year. After a robust 46% YoY increase in subscriptions during FY11, the growth in GSM industry has slowed down to 17% YoY in FY12. The year saw the apex court of the country cancelling the disputed 2G licenses that were issued in 2008. The cancellation caused the exit of Etisalat and Batelco from the sector.

During FY12, India's mobile subscriber base grew by 13% YoY, from 812 m to 919 m, while the fixed subscriber base declined by about 7%, from 34.73 m to about 32.71 m.

Overall Tele-density

The number of telephone subscribers in India decreased to 895.51 Million at the end of December 2012 as compared with 921.47 million in November 2012, thereby registering a negative growth rate of -2.82%. The overall Tele-density in India has declined to 73.34. The urban teledensity is 149.9 and rural Tele-density is 39.85 Wireless Tele-density (GSM, CDMA & FWP): Wireless subscriber base decreased from 890.60 million in November 2012 to 864.72 million at the end of December 2012, registering a negative growth of -2.91%. Wireless tele-density stands at 70.82 Wire line tele-density: Wire line subscriber base declined from 30.87 million in November 2012 to 30.79 million at the end of December 2012. BSNL/MTNL, two PSU operators, hold 79.57% of the wire line market share. Overall wire line tele-density is 2.52. Total broadband subscriber base has increased from 14.88 million in November 2012 to 14.98 million in December 2012, a growth of 0.67%. Mobile Number portability requests: By the end of December 2012, about 80.06 million subscribers have submitted their requests to different service providers for porting their mobile numbers. Active Wireless Subscribers: Active wireless subscribers in VLR in December 2012 are 701.60 million. The proportion of VLR subscribers is approximately 81.14% of the total wireless subscriber base reported by the service providers.

Growth Drivers in the Telecom Sector

Key factors, which will fuel the growth of the sector include increased access to services owing to launch of newer telecom technologies like 3G and BWA, better devices, changing consumer behaviour and the emergence of cloud technologies. A majority of the investments will go into the capital expenditure for setting up newer networks like 3G and developing the backhaul, among other things.

Subscriber Base The mobile subscriber base in India is estimated rise by 9% to 696 million connections this year, according to technology researcher Gartner. The mobile service penetration in the country is currently at 51% and is expected to grow to 72% by 2016.

Mobile Value Added Services (MVAS)

India's current MVAS industry has an estimated size of US$ 2.7 billion. The industry derives its revenues majorly from the top five to six products such as game based applications, music downloads, etc., which continue to form close to 80% of VAS revenues. The Indian MVAS industry estimated to grow to US$ 10.8 billion by 2015, with the next wave of growth in subscriptions expected to come from semi-urban and rural areas.

Mobile Number Portability (MNP) Mobile Number Portability requests increased from 41.88 million subscribers at the end of March 2012 to 45.89 million at the end of April 2012. In the month of April 2012 alone, 4.01 million requests have been made for MNP.

Handsets The mobile handset market's revenues in India will grow from US$ 5.7 billion in 2010 to US$ 7.8 billion in 2016, according to the study. India is the second largest mobile handset market in the world and is set to become an even larger market with unit shipment of 208.4 million in 2016 at a CAGR of 11.8% from 2010 to 2016.

The Indian handset market witnessed a 14.1% growth in 2011 to touch a total volume of 182 million handsets. The market continues to be dominated by Nokia with a share of 37.2%, followed by Samsung with 14.9%, G'Five with 7.5%, and Micromax with 5.8%. Domestic and Chinese handset makers such as Micromax, G'Five, Karbonn, Spice, Maxx and Lava, have garnered a strong presence in the Indian market due to their feature-rich, localised products and low price points.

Market Players

Key Players With new players coming in, the intensity of competition in the industry has increased, especially over the last four years. The market share of telecom operators of the telecom companies reflects the fragmented nature of the industry, with as many as 15 players. As of April 30, 2012, Bharti telecom led the market with 19.94% share, Reliance (16.58%), Vodafone (16.41%), Idea (12.4%), BSNL (10.51%), Tata (8.77%), Aircel (6.93%), with the remaining share being held by other smaller operators. Telecom Operator Wise Market Share

Bharti is far ahead with close 20% market share in India, Reliance (16.58%) and Vodafone (16.41) are having a close battle. Reliance currently has 154 million subscribers as compared to 152.5 million of Vodafone. Uninor, who is one of the late entrants in Indian Telecom market now has over 45 million subscribers and accounts for close to 5% of Indian mobile market share.