Date March 2014

India: Telecommunication Sector Our ref. NK

Prepared by Trade Council India, New Delhi

Keywords: Telecommunication, 3G, 4G, BWA, TD-LTE network,

Mobile, Broadband, Wireless, Network, Fiber Technology.

Abstract:

The Indian telecom sector has emerged as a strong growth engine for
the Indian economy in the last decade, with the country witnessing a
voice revolution. This decade will usher in an information era through
Mobile Value-Added Services (MVAS), Data Services and Internet
Services. The mobile phone has transformed into a persuasive
medium to deliver information services spanning various usage areas
such as governance, commerce, agriculture, education and health.
This, coupled with the sheer pervasiveness of mobile telephony is
contributing to a more inclusive and better empowered nation.
1. Introduction ................................................................................................................. 3

2. Industry ......................................................................................................................... 3

3. Key drivers ................................................................................................................... 4

4. Opportunities for Danish companies ...................................................................... 4

5. Challenges for Danish companies ............................................................................ 5

6. Conclusion and Recommendations .......................................................................... 6

7. Contact.......................................................................................................................... 7

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India’s incredible growth story is manifested in the country’s sustained
performance to become the third-largest economy in the world by Purchasing
Power Parity (PPP), after the US and China. A strong domestic demand and inflow
of investments have been the driving factors behind this phenomenal economic
growth. Also, while growth in most of the Asian economies, such as China,
Thailand and Malaysia, has been driven by the manufacturing sector, growth in
India has been driven by the services sector. The vitality of the telecom sector to
the country is implicit from its ever-increasing contribution to India’s GDP
(increased to three percent in 2013 from 1.6 percent in 2006). Together IT and
telecommunications has provided the steppingstones for India’s accelerated
growth.

India's telecommunications market continues to expand and is now the second

biggest telecommunications market in the world. However, the growth rate has
declined due to saturation in the urban cities. The year 2013 served as a transition
year for the sector recovering from a rough 2012. In the mobile market market
saturation, the regulatory and legal turmoil, as well as the launch of 3G services
(where operators turn their attention to up selling more expansive products), have
caused mobile subscription growth to take a backseat. Nevertheless, India
continues to expect the number of subscribers to increase over the forecasted
period to 2016, given that there is significant growth potential in rural regions.
However, the pace will be slower due to the cost of network expansion and lower
return on investment. It is envisaged that there will be 1.128 billion mobile
subscribers in India by end-2016, a penetration rate of 85%.

The dominance of the mobile sector continues to be to the detriment of the

traditional fixed-line industry. However, the declining growth rate in the former
should mean that the contraction in the fixed-line sector would also experience a
slowdown. By end-2016, it is forecasted that there is 26.617 million subscribers of
the traditional fixed-line, down from 30.4 million in 2013.

We largely expect a similar scenario in the broadband market, although we

continue to expect the number of fixed broadband subscribers in India to increase
in light of government-led initiatives such as the National Optical Fibre Network
and rural expansion projects funded by the Universal Service Obligation Fund.
However, the main growth driver remains mobile alternatives such as 3G and the
impending TD-LTE network.

The Indian telecoms industry is experiencing a major shake-up after the Supreme
Court cancelled all 122 2G licenses in early February 2012. The licenses were
issued by former telecoms minister. While the decision is a clear sign that the
government is trying to eradicate the problem of corruption and improve policy
transparency, it also has wide ranging implications on foreign investor confidence
in the telecoms sector and related industries in the short term.

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The scandal-tainted 2008 2G license auction has reportedly cost the Indian
government USD 40 billion in revenue, according to the Comptroller and Auditor
General in December 2010, as the allocation process was said to be wholly
arbitrary and failed to adequately value the spectrum. The subsequent
investigations have brought a prolonged period of uncertainty to India's telecoms
industry, which has in turn hampered foreign investment and jeopardized the
decision-making process of existing operators. We do not expect an easy resolution
to these challenges in the short to medium term.

The key drivers for the telecom sector in India are as:

 Strong mobile subscriber growth is continuing, with the market benefiting

from a healthy degree of competition.

 The mobile market plays host to a large number of strategic investors

including Singapore Telecommunications, Vodafone, Malaysia's Maxis,
Norway's Telenor, Japan's NTT DoCoMo and Russia's Sistema.

 Demand for mobile value-added services is strong and expected to grow.

 Healthy competition exists in the broadband sector, where state-owned

operators Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone
Nigam (MTNL) compete against a number of privately owned operators,
including Bharti Airtel, Hathway Cable and Tata Communications.

 Fixed internet broadband subscription growth is strong, with the market

registering an estimated 15 million subscriptors in 2013, hence a
penetration just above 1% of the population.

 In total 25 million internet supsciptions makes India the 3rd biggest market
in the world and rapid growth is expected. By 2014, the number is expected
to reach 243 million with a penetration rate of 16,2%.

Danish companises can explore the potential business opportunities in the sector
as mentioned below:

 The government is currently considering recommendations made by the

country's telecoms regulator to allow the operation of MVNOs in the
mobile market.

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  MNP allow operators that deliver better value to grab market share and
also benfit the stakeholders.

 Deployment of NGN infrastructure and the launch of new multimedia

mobile handsets will have a positive impact on data service usage.

 All of the leading operators have been actively deploying multimedia

content services, providing opportunities for content providers.

 The proportion of prepaid users relative to postpaid subscribers remains

high; this provides the operators with opportunities to migrate prepaid
users to contract tariffs.

 Several operators have announced plans to use broadband wireless access

(BWA) spectrum to deploy 4G mobile services based on LTE technology.

 The issuance of several international long-distance and national long-

distance licences has created opportunities for new companies to develop a
market presence.

 Strong demand exists among businesses for fixed voice and data services.

 Significant opportunities exist to develop a wide range of alternative

broadband technologies, including WiMAX and fibre.

 Launch of IP-based television services by several operators has the

potential to stimulate demand for broadband services.

 With only 12 % internet users there is still a large unpenetrated market in

India nand the market is forecasted to grow to 243 million users in 2014.

 Other avaenues of opportunities are as m-Banking, m-Education, m-

Governance, m-Health and Location-based services (LBS)

There are many challenges for the companies as:-

 Uncertainty as to whether spectrum allocations for 3G services will be

sufficient; severe lack of spectrum in nine of the 22 calling circles.

 Network capacity, particularly in the mobile market, could struggle to keep

up with demand.

 MNP will make migration between operators easier, thus adding pressure
on operators to retain existing customers.

 Although operators have started to increase tariff rates, it would be some

time before a significant improvement in profitability could be seen.

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  Mobile market is still highly skewed towards prepaid users, with around
30% of total subscriptions calculated to be inactive.

 The dominance of prepaid services has contributed to declining mobile

ARPU levels.

 Disagreements between the Telecom Regulatory Authority of India and

government ministries have led to delayed policy implementation in a
number of areas.

 The country's regulatory framework has been under intense spotlight amid
corruption and mismanagement scandals, which could affect investor
confidence in the long term.

 Despite major ongoing investments, mobile network infrastructures in rural

areas remain limited.

 Fixed-line sector may decline at a more rapid rate than envisaged, with
potentially negative consequences for ADSL growth.

 Danger that the development of IPTV services will be hampered by high

costs, low broadband usage and slow speeds.

 Potential of VoIP services to be banned due to security threat posed, as

India's Intelligence Bureau remains unable to track calls as of yet.

Some challenges for Danish companies include:

 Complicated rules and regulations

 Local presence in terms of personnel/office desirable

 Bureaucracy

 Decision making process slow

 Hierarchical organization

 Tender based process and lowers price a criteria

Though the telecom sector at present is going through the difficlut phase of
policies reenactment and clarity but has immense growth opporuntites. There is big
market to address telephony, data and internet services. The demography due to
large young population is promising and internet services are bound to increase. It
is still an attractive market for new entrants. Opportuties in allied sector related to

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telecommunication opens many potential areas for the companies to enter and
sustain in growting Indian market.

New international players are today entering the Indian market and while they may
have not seen immediate success, their strategy seems to be one of providing better
quality which will definitely find takers especially after the coming in of mobile
number portability, introduction of 3G and expected roll out of BWA and 4G
technology in India.

The Trade Council, India

11 Golf Links
New Delhi 110 003
Tel:+911142090700
Fax: +91 11 2460 2019

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Ministry of Foreign Affairs of Denmark

Ministry of Foreign Affairs of Denmark

11 Golf Links
New Delhi 110 003
Tel:+911142090700
Fax: +91 11 2460 2019http:///tradecouncil.india.um.dk/en/