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GROUP 9 Aanchal Daryani (B001) Aarushi Mathur (B002) Arjun Jayaram (B008) Harsh Kothari (B019) Pratiyush Kumar Rai (B037) Tanvi Nakra (B052)
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GROUP 9 Aanchal Daryani (B001) Aarushi Mathur (B002) Arjun Jayaram (B008) Harsh Kothari (B019) Pratiyush Kumar Rai (B037) Tanvi Nakra (B052)
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CONTENTS 1. EXECUTIVE SUMMARY .............................................................. ................................................................................................................................. ................................................................... 5 2. INDIAN TELECOM SECTOR: AN OVERVIEW ................................................................ ................................................................................................. ................................. 6 3. EVOLUTION OF TELECOM INDUSTRY ........................................................................................................... .......................................................................................................... 8 4. TELECOMMUNICATIONS - INFRASTRUCTURE ............................................................ ............................................................................................. ................................. 8 5. REGULATORY FRAMEWORK TIMELINE ........................................................................................................ ....................................................................................................... 9 6. PESTEL ANALYSIS ............................................................ ............................................................................................................................... ............................................................................ ......... 10 1. POLITICAL FACTORS ..................................................................................................................... a. 1.POLITICAL .................................................................................................................... 10 2. ECONOMIC FACTORS ............................................................................................................. b. 2.ECONOMIC .................................................................................................................. ...... 11
c.
3.SOCIAL 3. SOCIAL FACTORS .......................................................................................................................... ......................................................................................................................... 11
4. TECHNOLOGICAL FACTORS .............................................................. d. 4.TECHNOLOGICAL ......................................................................................................... ........................................... 11 5. ENVIRONMENTAL FACTORS ........................................................................................................12 e. 5.ENVIRONMENTAL
f.
6.LEGAL 6. LEGAL FACTORS ...................................................................... ........................................................................................................................... ..................................................... 13
7. 5 POINT AGENDA ......................................................................................................... ....................................................................................................................................... ............................... 13 8. PORTER’S ANALYSIS ................................................................... ................................................................................................................................... ................................................................ 14 g. THE THREAT OF THE ENTRY OF NEW COMPETITORS ............................................................ ..................................................................... ......... 14 h. INTENSITY OF RIVALRY ............................................................. ................................................................................................................... ...................................................... 16 i.
THREAT OF SUBSTITUTE PRODUCTS ............................................................... .............................................................................................. ............................... 17
j.
BARGAINING POWER OF BUYERS ................................................................... .................................................................................................. ............................... 18
k. BARGAINING POWER OF SUPPLIER ................................................................................................ ............................................................................................... 18 9. SWOT ANALYSIS ............................................................. ................................................................................................................................... ............................................................................ ...... 20 l.
STRENGTHS ..................................................................... ..................................................................................................................................... ................................................................ 20
m. WEAKNESSES ................................................................................................................................... .................................................................................................................................. 20 n. OPPORTUNITIES ............................................................. .............................................................................................................................. ................................................................. 21 o. THREATS .............................................................. .................................................................................................................................... ............................................................................ ...... 21 10. FINANCIAL ANALYSIS .................................................................................................................................. ................................................................................................................................. 22 11. HUMAN RESOURCES ANALYSIS ........................................................... ................................................................................................................. ...................................................... 26 12. OPERATIONAL ANALYSIS. ........................................................................................................................... ........................................................................................................................... 28 13. MARKETING ANALYSIS .............................................................. ............................................................................................................................... ................................................................. 33 14. RESEARCH AND DEVELOPMENT ANALYSIS ................................................................................................ ............................................................................................... 36 15. ECONOMIC SIZE OF THE PLAN.............................................................. .................................................................................................................... ...................................................... 39 16. VALUE CHAIN ANALYSIS ............................................................ ............................................................................................................................. .................................................................41 17. PROFIT POOL ANALYSIS ............................................................ ............................................................................................................................. ................................................................. 46 18. UNION BUDGET 2016 IMPACT ON TELECOM INDUSTRY .................................................................... .......................................................................... ...... 47 19. CONCLUSION .................................................................. ........................................................................................................................................ ............................................................................ ...... 48 20. BIBLIOGRAPHY. ........................................................................................................................................... ........................................................................................................................................... 49
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ACKNOWLEDGEMENT We take this opportunity to express our heartfelt thanks and gratitude to thank NMIMS University and our director, Prof. Suresh Mony for thinking of such a program as part of the PGDM curriculum. This novel idea gives us a means to go beyond the usual curriculum and get a deeper look into an industry of our choice. Also, we would like to express our heartfelt gratitude to Prof. Narayani, Prof. Kanti and Prof. Madhavan for their conscientious guidance and encouragement to accomplish the task. We owe a special thanks to Mr. Anup Jayaram, Associate Editor - The Financial Express for his thorough assistance and insightful contribution in the successful completion of the project. We’ve managed to successfully complete the analysis of the Telecommunications Industry in India with the support of everyone mentioned above. Our heartfelt gratitude for the time and effort invested in our endeavor.
Aanchal Daryani Aarushi Mathur Mathur Arjun Jayaram Harsh Kothari Pratiyush Kumar Rai Tanvi Nakra
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EXECUTIVE SUMMARY In today’s technological driven times, the telecommunication industry has a very crucial role to play. Considered as the backbone of industrial and economic development, the industry has been assisting delivery of voice and data services at rapidly increasing speeds, thereby revolutionizing human communication. The Global telecom firms are growing from strength to strength in 2015. Positive market trends in mobile broadband, cloud computing, and big data management have ensured the steady growth of firms even while the telecom operators struggle hard to ensure profits. India’s telecommunication sector has witnessed tremendous growth in the past few years and today accounts of being the second largest telephone network in the world, next to China. A number of reform measures by the government, innovations in wireless technology and active participation by the private sector has played an important role in the growth. Restricting our study to the Indian players in the industry, what comes to surface is the fact that despite the rapid advancements in the sector, the players still have a lot of obstacles to overcome. Bridging the rural urban digital divide is critical for India’s inclusive growth agenda; approximately 85% of the rural population forms the untapped potential for these players. Apart from the usual voice services, data services have turned out to be the prime revenue centers for the operators. India shall continue to be one of the largest markets for telecom equipment, having an operator cap of 10-15% of the revenues earned. India has a long way to go when it comes to thriving in the manufacturing and R&D ecosystem. Although the industry faces a number of challenges to drive revenue growth while sustaining profitability, the future scenario seems bright. Ensuring continued success of the industry requires the availability of affordable voice and data access to consumers across the nation. The requisite regulatory and fiscal inducement, along with innovation in the industry and competitive dynamics shall enable this. We’ve analyzed the industry through various frameworks and models to ascertain the attractiveness of entering the sector either as a new entrant or as an investor. The industry is moderately attractive, owing to its oligopolistic nature and heavy investment requirement.
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INDIAN TELECOM SECTOR: AN OVERVIEW In India, telecommunications commenced in 1851 when the first land lines were laid by the British government near Calcutta. Telephone services were introduced in 1881 and were merged with the postal system in 1883. The Indian Radio Telegraph Company (IRT) was established in 1923. Post 1947, all the foreign telecommunication companies were nationalized to form the Department of Posts and Telegraph, a monopoly run by the government's Ministry of Communications. The private sector was allowed to manufacture telecommunications equipment in 1980, post the first set of reforms. ” In 1986, the government converted the Overseas Communication Services (OCS) into Videsh Sanchar Nigam Limited (VSNL) for overseas calling and the Department of Telecommunications (DoT) was established for local and longdistance service within the country. Mahanagar Telephone Nigam Limited (MTNL) was set up to provide telecom services in Delhi and Mumbai. Post liberalization in 1991, the National Telecom Policy (NTP) was formulated in 1994. It was the first attempt to give a comprehensive roadmap for the Indian telecommunications sector. The Telecom Regulatory Authority of India (TRAI) was created in 1997, to act as a regulator to facilitate the growth of the telecom sector. On 1 October 2000, Bharat Sanchar Nigam Limited (BSNL) provides telecom services across India barring Delhi and Mumbai was formed. INDIAN TELECOM SECTOR
FIXED LINE TELEPHONY
MOBILE TELEPHONY
INTERNET
TELECOM MANUFACTURERS
The Indian Telecom Sector has grown manifold and has become the second largest network in the world, next only to China due to the sustainable measures undertaken by the Government over the years.
1. Fixed line telephony
. A Fixed line refers to a phone that uses a metal wire telephone line or optic fiber cable for transmission as distinguished from a mobile cellular line, which uses radio waves for transmission .Major players are: BSNL, MNTL, Airtel, Reliance Infocomm, Tata Teleservices, Shyam Telelink Ltd (Rajasthan), HFCL Infotel Ltd. (Punjab), etc. 2. Mobile-Telephony Mobile telephony is the provision of phone services to telephones that move around freely rather than the ones fixed at a particular place. Satellite phones connect to orbiting satellites, while the mobile ones connect to a terrestrial cellular network of base stations (cell sites). (Refer Figure1 & 2 from Annexure) 3. Internet: The broadband services came into forefront post the implementation of the Broadband Policy, 2004. It laid down that the minimum speed for a broadband connection has to be 256 kilobits per second. As per the National Telecom Policy, 2012 the speed has been revised to 512 kilobits. In India, 59.6 per cent internet subscription is broadband subscription .The main technology used for broadband access is digital subscriber line (DSL). About 85.1 per cent of the broadband subscriptions are through DSL technology. The other technologies such as fibre, leased line, wireless, Ethernet, cable modem covers only 14.9 per cent of the market. The main internet service provider (ISP) in the market is BSNL which has a share of 54.97 per cent. 4. Telecom Manufacturers: The hardware used mainly for telecommunications such as transmission lines, multiplexers and base transceiver stations is called the Telecommunications equipment. It includes various types of communication technologies such as telephones, radios and even computers. In the early 1990s, the line between telecommunications equipment and IT equipment started to blur as the growth of the Internet resulted in the increasing importance of telecommunications infrastructure for data transfer. This includes mobile devices and base stations, PBX equipment for contact centers and even IP telephony, as well as 6|Page
traditional and enterprise networking equipment for LAN and WAN. The major telecom equipment manufacturers globally include Ericsson, Nokia Siemens networks, Huawei and ZTE.” Major manufacturers for router - Cisco, iball, Huawei, Major manufacturers for handset - Samsung, Nokia, Apple, Ericsson, Micromax, Lava, Xiaomi, Gionee Overall Telecom Services Revenue FY 2014-15 Rs. 253, 915 Crore Enterprise Services – 23% Consumer Services – 77%
ZTE .
Other services ( 8.96% )
Data services ( 26.98% )
Voice services( 64.06% )
http://cis-india.org/telecom/resources/market-structure-in-telecom-industry (cis-india.org, n.d.)
MARKET SIZE Telecommunications is one of the prime support services needed for rapid growth and modernization of various sectors of the economy. Driven by strong adoption of data consumption on handheld devices, the total mobile services market revenue in India will reach US$ 29.8 billion in 2014 and is expected to touch US$ 37 billion in 2017, registering a compound annual growth rate (CAGR) of 5.2 per cent, according to research firm IDC. According to a study by GSMA, it has been expected that smartphones will account for two out of every three mobile connections globally by 2020 and India is all set to become the fourth largest smartphone market. India is projected to have 213 million mobile internet users by June 2015, a 23 per cent rise over a six month period, according to Mobile Internet in India 2014 report. The broadband services user-base in India is expected to grow to 250 million connections by 2017, according to the UK-based GSM Association (GSMA). India saw the fastest growth in new mobile-phone connections with 18 million net additions in the third quarter of 2014, followed by China with 12 million new additions, according to a report by Swedish mobile network equipment maker Ericsson. The Indian telecom sector is expected to create four million direct and indirect jobs over the next 5 years on the back of the government’s efforts to increase penetration in rural areas along with the growth in the smartphone numbers and internet usage, according to estimates by Randstad India. “The telecom sector has been growing aggressive at an average for 35 per cent a year for close to two decades,” said Mr. K. Upaluri, CEO, and Randstad India. . (Refer table 1&2 from Annexure) (http://www.ibef.org/industry/telecommunications.aspx) ) (Source: Voice& Data CMR Telecom Survey 2014-15
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EVOLUTION OF TELECOM INDUSTRY
PHASE - III PHASE - II PHASE - I 1. Liberalisation of Indian Economy - 1990's
1. Bharat Sanchar Nigam limited (BSNL ) established in 2000. 2. National Long Distance and International Long Distance services opened in 2000.
1. Entry of Private Sector in telecommunications equipment manufacturing 1984
2. Private sector participation in provision of VAS such as cellular and paging services - 1992
3. CDMA tecnology launched - 2000
2. Formation of Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL) - 1986
3.Mobile services was started in Kolkata-1995
6. VSNL privatised - 2002
3. Telecom commision was set up - 1989
4. Telecom Regulatoey Authority of India (TRAI) was established in 1997
4. Internet Telephony Initiated - 2000 5. Reduction of License Fee - 2000 7. Launch of mobile service by BSNL 2002. 8. Unified Access Licensing Regime was initiated - ( UASL ) - 2003.
5. National Telecom Policy announced - 1999
9. Calling party pays ( CPP ) was initiated - 2003.
6. New Telecom Policy (NTP) announced - 1999
10. Broadband Policy was formulated - 2004. 11. Intra circle merger guidelines established - 2004. 12. FDI limits increased from 49 % to 74 % - 2005. 13. Number Portability was proposed - 2005. 14. National telecomm policy-2012 15.. FDI limits increased from 74 % to 100 % - 2013 15. Mobile Number portability 2015.
TELECOMMUNICATIONS - INFRASTRUCTURE Current Status: Telecommunications has developed as a fast-growing sector. Most modern communication systems are telecommunication-based and the strong point of this Segment is important for the progress of the economy. This sector has also seen the presence of various private players as well as public sector players and this will pose difficulties of data compilation. Although the Department of Telecommunications (DoT) has been reorganized and the functions of the Department of Telecom Services (DTS) and the Department of Telecom Operations (DTO) have been transferred with effect from 1 October, 2000 to a newly-formed corporate unit named Bharat Sanchar Nigam Limited, there is still a spread out system of collection of data for both DOT and DTS. Collection of data for the compilation and publication of statistics in the statistical cell is carried out through the collections of returns received monthly and annually from the various telecom circles, telecom districts and other entities of the departments. The database of these branches includes equipped capacity, working connections, revenue statistics, telephone traffic, telegraph traffic, staff statistics, etc . Current Investment: The telecom sector attracted over 4-fold growth in foreign investments at USD 1.3 b illion during the fy 2013-14.The sector appealed investment worth USD 304 million in 2012-13 - about 84 % lower compared to
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2011-12. India's telecom sector has registered phenomenal growth during the past few years and has become the 2nd largest telephone network in the world, next only to China. A series of reform measures by the government, inventions in wireless technology and dynamic participation by the private sector played an important role in the growth of the telecom sector in the country. The total telephone connections in the country increased to 933.02 million at the end of March 31, 2014. However, the entire connections at the end of March 2012 were 951.35 million. During 2013-14, government also obtained Rs 61,162 crore from auction of spectrum. The final price were 27.6 % more than the minimum price of telecom radio waves fixed by government at that time. The government’s previous fiscal had introduced new telecommunication licencing regime, Unified Licences, under which firms interested in providing mobile or any wireless services are required to buy spectrum independently. To improve fixed line broadband connection in rural areas, the government assigned state-run BSNL to run broadband connection with minimum speed of five hundred and twelve kbps in rural and remote areas under the Rural Wire line Broadband Scheme. (Source: Business Standard) Data Requirements: This sub-sector is challenged with the non-availability of dependable data concerning household subscribers of telephone, their economic status, spending on telecom services by them, PC or Internet users, cellular mobile phone users and other subscribers of value-added services. Also there is dearth of a well-recognized system for collection of data relating to the private sector entering into telecom segment such as: their activities, performance; areas, villages, and users reached by them; investment made; tariff structure; manpower employed;
Given the swift changes that are taking place in telecommunications, it is to be anticipated that the data requirements will continue to advance over time. The subsequent data requirement list is projected with the usual stipulation that it is only suggestive:
Length of phone lines, number of phone connections, electronic mail connections; Density of phone and Electronic mail. Pointers of financial and physical efficiency of all telecom providers across all zones & States. Penetration of computers including personal computers, cyber cafes, number of users of computers at cyber cafes. Data about Internet Service Providers, such as No. of subscribers, subscription prices. Data on Mobile phone Service providers, such as total No. of subscribers, price for calls. Information of long distance and local (including international) calls, and revenue generation from every category.
Recommendations: The Commission suggests that:
It should be made compulsory for the telecommunication services to present the needed data to the Department of telecommunications regularly after it has opened up to the private service providers.. Department of Telecommunications is responsible for the publishing of the telecom services data of both the private and public sectors. (http://www.cci.in/pdfs/surveys-reports/Telecom-Sector-in-India.pdf)
REGULATORY FRAMEWORK TIMELINE 1) THE INDIAN TELEGRAPH ACT, 1885: This Act is one of the oldest legislations that are still in effect in India and is an Act to amend the law relating to telegraphs in India. 2) THE INDIAN WIRELESS TELEGRAPHY ACT, 1933: This Act was enacted to regulate the possession of wireless telegraphy. According to this Act, the possession of wireless telegraphy apparatus by any person can only be allowed in accordance with a license issued by the telecom authority. Further, the Act also levies penalties if any wireless telegraphy apparatus is held without a valid license. .
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3) THE TELECOM REGULATORY AUTHORITY OF INDIA ACT, 1997: The Telecom Regulatory Authority of India Act, 1997 enabled the establishment of the TRAI.TRAI's mission is to create and nurture conditions for growth of telecommunications in India to enable the country to have a leading role in the emerging global information society. One of its main objectives is to provide a fair and transparent environment that promotes a level playing field and facilitates fair competition in the market. TRAI regularly issues orders and directions on various subjects such as tariffs, interconnections, quality of service, Direct to Home (DTH) services and mobile number portability. 4) THE INFORMATION TECHNOLOGY ACT, 2000 : In 2000, the Indian Parliament passed the Information Technology Act, 2000 (“ITA”) mainly to promote e-commerce and give legal recognition to electronic documents and digital signatures as means to authenticate electronic documents. Later, the Information Technology (Amendment) Act, 2008 (“ITAA 2008”) was passed which provided additional focus on information security as well as added several new sections on offences including cyber terrorism and data protection. 5) COMMUNICATION CONVERGENCE BILL: In the year 2000, the Government of India introduced a proposed Communication Convergence Bill (the “Convergence Bill”). As its name indicates, the objective of the Convergence Bill is to establish a new “converged” regulatory framework to promote and develop the communications sector (including broadcasting, telecommunications and “multimedia”) in an environment of increasing convergence of technologies, services and service providers. 6) NATIONAL TELECOM POLICIES: Driven by various policy initiatives from NTP’94 and NTP’99, the Indian telecom sector witnessed a complete transformation in the last decade. But, since then there has been a rapid advancement of technology, and many changes have arisen in the telecom scenario in the world. National Telecom Policy-2012 is designed to ensure that India effectively transforms the socio-economic scenario through accelerated equitable and inclusive economic growth by laying special emphasis on providing affordable and quality telecommunication services in rural and remote areas. Thrust of this policy is to underscore the imperative that sustained adoption of technology would offer viable options in overcoming developmental challenges in education, health, employment generation, financial inclusion and much else.
PESTEL ANALYSIS 1. POLITICAL FACTORS Telecommunications has been among the fastest growing sectors in India ever since the country opened up its economy in 1991. Today with over 1 billion telecom subscribers—975 million mobile users and 26 million fixed lines— India has the most telecom subscribers globally after China. However, its telecom revenues are still much lower than the rest of the world. The sector grew due to three policy initiatives—the National Telecom Policy 1994, the New Telecom Policy 1999 (NTP’99) and the National Telecom Policy 2012. The telecom landscape changed with the entry of private mobile service providers in 1995 using the European GSM technology approved by the government. Today, India is among the most competitive telecom markets globally with 12 operators offering services across 22 telecom circles (largely contiguous with state boundaries). The telecom industry has seen foreign direct investment (FDI) inflow of $ 17 billion during 2000-’15. That makes it the third largest sector to attract FDI after services and construction development. As demand for mobile connections rose, so did the demand for devices. Now, the $ 132 billion, Taiwan-based Foxconn—the world’s largest original equipment manufacturer (OEM)—has agreed to invest $ 5 billion over the next five years in manufacturing facilities in Maharashtra. What must be remembered is that telecom is a highly regulated industry across the world.
Stability of the government: The biggest problem that the industry has faced is ad hoc policy making. As a result, operators have not had a clear roadmap for growth like in other markets. The sector has been plagued by scandals. Tax policies: Mobile operators pay a license fee of 8% of their adjusted gross revenues (AGR) which includes a USOF (Universal Service Obligation Fund) of 5%, in addition to that a 3% spectrum usage charge and a 14% service charge. Add on state-level excise duties. As if all that was not enough, municipalities and states seek funds for
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right of way (RoW) for laying optic fiber cables (OFC) to link towers and buildings. In essence a telecom operator shells out 30-35% of his AGR as taxes to the government. Entry mode: The Indian telecom market is divided into 22 telecom circles comprising of three Metros (Delhi, Mumbai and Kolkata), five A circles (Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra and Gujarat), eight B circles (Kerala, Punjab, Haryana, UP (West), UP East, Rajasthan, Madhya Pradesh and West Bengal) and six C circles (Bihar, Orissa, Assam, North-East, Jammu & Kashmir and Himachal Pradesh). These circles have been classified on their economic value at that point. Social policies: While the initial focus of mobile operators was to provide services to the high-usage urban and metropolitan users, there has been a gradual shift towards rural subscribers. After all there are 419 million mobile subscribers in rural India compared to 556 million in urban areas. Today, internet usage by rural mobile subscribers has also increased sharply. However, rural tele-density is still just 48.37% compared to the urban 148.61%. While all along, the focus was on voice services, now data has started becoming important. That is also evident in the recent Digital India initiative of the Narendra Modi government that looks to provide all major government services online. That can be fathomed from the fact India has 100 million Facebook users and 80 million Twitter users. The latest debate in telecom relates to Net Neutrality , which means anyone should be able to access any site on the internet at the same speed.
2. ECONOMIC FACTORS Economic factors are metrics that measure the health of any economy. The telecom sector has been growing at a time when the Indian economy has been growing by leaps and bounds. Bird of Gold: The Rise of India’s Consumer Market, the 2007 report by global consultancy McKinsey, states that telecom accounts for 3% of the Indian consumer’s wallet in 2015. That is expected to double to 6% by 2025. Obviously, there’s a huge potential for the telecom industry in this area. The other factor that helps is the rising income of the Indian consumer. India’s GDP has exceeded $2 trillion in 2014, doubling its size in seven years. The gross national income per person has risen to $ 1,610 (approx Rs 1 lakh). As national income levels rise, the mobile phone tops among the devices that people seek to possess. One indicator for India is that mobile telephony is today available almost all over the country, unlike power supply, which is still not available in at least 20,000-odd villages.
3. SOCIAL FACTORS Demographic factors are a crucial item for growth of telecom services. The youth population of over 600 million is a huge case for doing business. More importantly, the youth is better educated and is wealthier than the previous generation. . As the demand from the youth increases there will be a greater demand for data services. Already data services including SMS account for 25% of operator revenues. Voice revenues that make up for 75% of revenues are expected to slide as voice becomes a commodity. That is already evident in the plans that Bharti Airtel has for its 4G subscribers.
4. TECHNOLOGICAL FACTORS All the major service providers in India have adopted GSM. Tata Teleservices, Reliance Communications and stateowned BSNL and MTNL are dual technology operators offering services on both GSM and CDMA technologies. The big telecom vendors in GSM include Ericsson, Nokia, Siemens Networks, Motorola, and Samsung while there is Qualcomm, Huawei and ZTE under CDMA. Currently services are being offered on multiple bands—800MHz (megahertz), 900MHz, 1800MHz, 2100MHz, 2300MHz and 2500MHz. Till recently, CDMA services were provided exclusively on 800MHz; while 2G services were on 900/1800MHz and 3G services on 2100MHz. And 4G services are being offered on the 2300MHz band. Now with technology developing, the government has allowed operators with liberalized spectrum (that obtained via an auction) to offer any service they want on the band. It was only in 2010 that the government auctioned what was then called 3G spectrum along with the 2300MHz broadband wireless access (BWA) spectrum that is now being used for 4G services. Later it auctioned spectrum in the 900/1800MHz bands too. While the entire 2100/2300/2500MHz
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band was auctioned, in the other bands some bit has been auctioned while some is still on what is called administered pricing. The telecom industry has been a key element for digitization across sectors. From retailers to financial services, companies depend on telecommunication networks to provide consumers with online and mobile experiences aimed to capture their attention and keep them coming back. Yet the industry’s own pains to change the way it interacts with customers to market, sell, and support its products and services, have lagged. It is time for that to change. Customers are promptly learning the value of digital through their experiences in other, more technologically innovative industries, and they are coming to imagine the same from their telecommunication operators. To meet this objective, operators must offer an integrated, Omni channel user experience: on the desktop, on mobile devices, on the phone, and in stores. That will allow them to build a portfolio of new products and services designed to match the expectations of each consumer. Together, these 2 elements — an Omni channel experience and advanced products and services — will enable operators to boost value. If operators are to make the digital transformation, however, they must first define just how determined they want to be in taking advantage of digitization, creating a really Omni channel experience, and developing the digital products and services that consumers want, and then build the operating model and information technology needed to support these ambitions. THE DIGITAL TELECOM TRANSFORMATION FRAMEWORK
5. ENVIRONMENTAL FACTORS Both consumers and governments penalize firms for having adverse effects on the environment. Governments levy huge fines upon companies for polluting. The problem for mobile telecom companies is quite complex. The biggest problem they face comes from the radiation at telecom towers. As of now, India has over 450,000 telecom towers. But, in many places these towers are being removed as residents fear health problems from radiation. A classic example is the Lutyen’s Delhi home to most politicians and senior bureaucrats. As opposed to the requirement of 217 towers, Bharti Airtel has just 110. The removal of towers has led to call drops across major cities. The government has gone on record to state that it follows stringent norms for mobile radiation and ensures compliance across the country. The scientific community too has found no direct linkage of these low frequency emissions to human health, thus suggesting that EMF (electromagnetic fields) radiation is safe. That apart, the radiation levels prescribed the government are a tenth of that allowed in Europe. 12 | P a g e
The other issue relates to the lack of power supply for towers in many areas. As a result, telecom towers are powered by diesel, which is polluting. Today, telecom towers are the second largest consumers of diesel in the country after the Indian Railways.
6. LEGAL FACTORS The Indian telecom sector has been a legal maze thanks to the ad hoc policy making by the Department of Telecommunications (DoT). Telecommunications falls under the legislative competence of the Union and not the States. Consequently, the legal framework governing the sector is within the control of the Union government and the Parliament. 1. The first set of problems rose soon after sector was opened up. In order to get telecom licenses, companies agreed to bid high. However, with tariffs at Rs 16.80 per minute, there were hardly any subscribers. Initially both the caller and the receiver had to pay Rs 33.60 per minute. Soon, operators realized that there was no business case. 2. The government opted for a calling party pays (CPP) regime which provided a lot of succor to the user. Then the BJP government led by Atal Bihari Vajpayee came up with the New Telecom Policy 1999 (NTP’99) which allowed operators to migrate to a revenue share regime in place of the earlier license fee regime for a fee. That helped the operators survive. 3. Around 2000, Reliance Infocomm that had a fixed line license started limited mobility services—that allowed the user to carry his fixed phone within a radius. The GSM operators went to court over it. The government later imposed a penalty on Reliance and Tata Teleservices for moving to full mobility services. 4. In 2007, then communications minister A Raja invited anyone who wanted to start mobile services to go in for a license. The Department of Telecommunications (DoT) got 575 applications from 46 companies by 1 October. On 10 January 2008, the last date was advanced unilaterally to 25 September. The same day DoT issued licenses on a first come-first served basis. 5. Within months, some companies sold their stake at high valuations. In November 2010, the Comptroller & Auditor General (CAG) filed a report that the notional loss to the government from the licenses was Rs 1.76 lakh crore. In February 2012, the Supreme Court cancelled 212 licenses. This is what is called the 2G scam.
5 POINT AGENDA The telecom operators had put out a five-point action plan for the new Government primarily aimed at reducing levies and enhancing the financial health. While the fallout of the 2G spectrum scam under the UPA government pulled down the telecom sector, the Communication Ministry tried to bring some stability through transparent spectrum auctions and favorable unified license policy. But the new Government faced a lot of challenges especially with the industry sharply divided over key issues. The 5 point agenda, 2014 included the following wish list parameters:
Make more spectrum available for data usage Rationalize the taxes and levies in the sector Facilitate the introduction of new and efficient technologies like M2M and cloud computing Implement the benefits of the status for the industry in sync with other i nfrastructure sectors in the country Figure out a revenue sharing arrangement between the top Internet players and telecom companies
The telecom industry in India was floundering under heavy financial and operational pressure and operators were finding business sustainability a challenging task. In terms of telecom infrastructure investments too, India accounted for just 11 per cent of the total investments in the Asia-Pacific region while compared to China that was nearly 50% of the investments in the region in 2012-13. According to Rajan Mathews - Director General, Cellular Operators Association of India, the profit margins for Indian telecom operators was bleak. The key challenge faced by operators was that while the revenue growth remained challenged, data consumption was expected to grow at a higher rate due to over-the-top services, accelerating the
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demand for network investments. Thus, the operators needed to earn greater revenues to meet the enhanced network requirement .
PORTER’S ANALYSIS THE THREAT OF THE ENTRY OF NEW COMPETITORS ECONOMIES OF SCALE
The incumbent operators enjoy economies of scale that makes it possible for them to offer lower unit pricing to customers. An important part of the investments are one-time and are stated to as “sunk costs” i.e. operator can only exit this particular market at considerable costs. Investments in telecom networks can be divided for the following functional elements:
Terminal equipment Access Network Switching Transmission/Long line Other (buildings etc.)
.
The biggest barrier is the availability for credit financing which is highly dependent on many external factors. However, with the licensor (department of telecommunications) and the regulator (TRAI) approving the sharing of resources both passive and active - operators have begun to lower capex. First operators were allowed to share the tower infrastructure. That led to operators hiving off their tower assets into separate companies and even listing them (Bharti Infratel). Some operators joined hands to form tower companies (Indus towers is owned by Bharti, Vodafone and idea). Now that active sharing has been allowed, operators will look to share their node band spectrum. CAPITAL REQUIREMENT
On an average, while a roof-top tower involves a capital expenditure of Rs. 1.5 to 2 million; a ground-based tower requires a capital expenditure of Rs. 2.4 to 2.8 million. Given the high capital investments required in the business, tower companies are generally highly leveraged. Thus the high capital requirements makes the entry and exit barrier quite high. Cost of maintaining one tower (active + passive) is estimated at Rs. 60,00065,000 per month. If tower is rented then monthly rent of Rs. 40,000-45,000 for active network. The monthly outflow of a TSP would be close to Rs. 80,000-85,000 per tower per month. Bharti has invested close to Rs. 230 billion to create the cellular infrastructure with 45,000 towers across the country.
PRODUCT DIFFERENTIATION
Considering that India is a value for money market, it all finally depends on the price of the product/service that is on offer. Already Telco’s have seen voice tariffs fall sharply with increased competition. The same is happening in data too. Bharti airtel is offering 4G at the price of 3G. Sine it has an early mover advantage, it can leverage the volumes it has with over 235 million subscribers. It did that to ensure that it is not caught on the back foot when Reliance Jio launches services in the second half of 2016. That apart, it can put pressure on other operators that are looking to launch 4G services. The increased usage of 4G will also help monetize some of its investment in spectrum and equipment before the real competition start. Most of the Indian Telecoms are claiming the product differentiation in terms of Predatory pricing & Airtel is offering the 4G services at the rate of 3G but rivals too can match up & hence not a good policy While price and affordability will definitely be the key in 4G adoptions, unfaltering network coverage will play a very big role in deciding which operator gets picked or ported to once multiple 4G services are available in 14 | P a g e
the market and the initial euphoria of new 4G launch has died down. If price is the initial appeal, Quality of Service (QoS) will act as the anchor for the 4G services. FEW SWITCHING COSTS
The buyers have negligible switching cost because of the introduction of Mobile Network Portability (MNP). Also, the cost for a new connection is very low. The low costs result in higher buyer power. The switching costs being low, the Indian market is highly value-driven and price sensitive, resulting in tremendous pressure on telecom companies to deliver new services while improving customer experience and loyalty. Their priority is to add maximum number of subscribers per month and also retain the existing user base. The preferred strategy among all major competitors is to offer lower prices coupled with greater value. This, however has a tarnishing effect on the bottom line for the industry as whole, leading to commoditization of the market with decreasing individual market capitalization, making the industry unattractive for the entrant. VOICE IS A LREADY A COMMODITY AND SO WILL DATA IN SOME TIME TO COME. ACCESS OF DISTRIBUTION CHANNEL
It is Easily Accessible , most of the B2B sales takes place through Corporate Services, Employers & B2C through own outlets, retail outlets & Paan-Bidi shops in Rural Areas. COSTS INDEPENDENT OF SCALE
Generally Spectrum is the scarcest & Costly resource in the Telecom industry & Experience Curve yields result good result after 7 to 10 years & works under following domains i.e. Core N/w & Mobile Testing, Technical Account Management, Product Management & Go-To-Market and Strategy Consulting. GOVERNMENT POLICIES, LICENSING, ACCESS TO RAW MATERIAL
Licensing also acts as a major barrier to entry as sometimes it becomes very difficult for the new entrants to obtain license. Existing players pay huge revenues to obtain licensing and new entrants face retaliation from incumbents regarding licensing. This increases the industry attractiveness. •
•
•
Private operators will have to enter into an arrangement with fixed-service providers within a circle for traffic between long-distance and short-distance charging centers. Seven years’ time frame set for rollout of network, spread over four phases. Any shortfall in network coverage would result in encashment and forfeiture of bank guarantee of that phase. Private operators allowed to set up landing facilities that access submarine cables and use excess bandwidth available.
100% Foreign Direct Investment (FDI) is allowed through automatic route for manufacturing of telecom equipment. BRANDS
There are 10 major established players in the industry namely Vodafone - Essar, Airtel, Aircel, Idea Cellular, Tata Teleservices, Reliance Communications, Videocon, Uninor, BSNL, MTNL with cumulative market share of 96.98%. Whereas Reliance Jio led by Mukesh Ambani is yet to enter into the market, speculations are that it can turn around the whole market scenario over the next couple of years. There is no considerable difference between the offerings by service providers. Considering that Bharti offers 2/3/4g while many others offer only 2/3g there is differentiation. Thus, high mobility exists among customers in migrating between service providers. Also, the government regulations like MPN (mobile number portability) have provided more flexibility to users. There are certain specific cases where users prefer a provider because of better network coverage, easy accessibility or better Value-Added Services, but such a trend is short-lived. ACCESS TO OPTICAL FIBER NETWORK •
The largest optical fibre has been built by the incumbent operator BSNL who is also the long distance operator. 15 | P a g e
The private sector players such as Bharti and Reliance have also constructed optical fibre cable network connecting mainly cities and towns but their presence is very limited in the rural areas. It is fairly difficult and cost- ineffective for new entrants to lay down optical fibre connecting remote places as well. SPECTRUM AVAILABILITY Despite technological changes that reduce the demand for spectrum, availability of spectrum continues to be a constraint. In order to allocate spectrum amongst competing service providers, THE GOVERNMENT AUCTIONS SPECTRUM. It is here that the government’s regulatory powers come into play. Moreover, there are always issues of interoperability with changing bandwidth and thus seamless integration of various services becomes a major issue. Thus, spectrum availability poses a huge barrier to entry, increasing the industry attractiveness. •
•
•
TECHNOLOGY RETALIATION: •
Wireless technology is based on two competing platforms GSM and CDMA. Accordingly, players have united themselves in lobbying with GSM service providers represented by Cellular Operators Association of India (COAI) and CDMAs by Association of Unified Telecom Service Providers of India (AUSPI). With each technology possessing inherent advantages as well as disadvantages, it presents a difficult proposition for a new entrant to decide on its offering. India is largely a country quite like Europe. While Tata teleservices and reliance communications offer both GSM and CDMA, only MTS (Sistema shyam teleservices) is the only CDMA operator. As of end-September 2015 there were just 48.11 million CDMA subs in India as opposed to 948.55 million GSM subs. (page 4 Indian telecom services performance indicators, July - Sep 2015, TRAI)
INTENSITY OF RIVALRY The Big 4 in Telecomm namely Bharti Airtel, Idea Cellular, Vodafone India & Reliance Comm. are having intense rivalry in 3G. & 4G segments though Airtel has some lead on this front, as the scope is more in Data ,hence all operators are trying to provide Equally balanced & customized data plans to Urban users & Voice Plans in Rural Areas. INDUSTRY GROWTH
India ADDED 60-70 MILLION NOT 80 million users IN THE YEAR ENDING SEPT 2015. NOW THE GROWTH IS IN SMART PHONE USERS. every year in telecom sector, however there will be exponentially rise in Smart phone users in the coming 5 years up to the extent of 700 Million, hence scope for business is very high, however the success lies on Handset manufacturers & their capability to bring more and more apps to reduce the traffic from PC broadband & shift it to the m-Services,.1 HIGH FIXED COST
Initial investment is very high, Airtel has invested another Rs. 60,000 crore over the next three years under project leap. ($9 Billion) for the roll out & up gradation of its network for 4G Services & now their subsidiary Bharti Infratel is going to invest around 100 Million2 LARGE CAPACITY ADDITION
TRAI – Trends in Indian Telecom Sector, Deloitte-Future of Indian Tower Industry
TRAI Report
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There is growing demand for Quality of Service (QoS) & Tower Infrastructure companies are adding around 10,000 towers NOT annually & also improving on Co Sharing the existing Infra, Most of these players are trying to provide single window services to its customers through better CLOUD facilities. DIVERSE COMPETITION
There are basically 4-5 vendors globally (ERICSSON, NOKIA SIEMENS NETWOORKS, ZTE, HUAWEI) what Bharti has done is tied up with vendors and it service providers like IBM as part of managed services. This model has been replicated buy other operators. The Competition that we see among operators is just the front end but actual competition is going between their equipment providers, Software Suppliers, Networking Companies & their cloud Partners, it’s the Joint effort of these four entities which decide the winner & at present Bharti Airtel has a Lead. HIGH STRATEGIC STAKES
There has been always a uncertainty over the involvement of Chinese Equipment providers like ZTE corporation regarding the Security issues, though there has never been any such instant , but still there is some social resistant towards Chinese companies in Democratic countries. LOW EXIT BARRIER:
The cost invested in obtaining spectrum rights is very high & Big 4 along with new entry of Reliance Jio may force regional players like Sistema to either remain confined to particular region or exit. (Sistema has already merged with reliance communications. The combined entity is looking to merge with Aircel.) WON’T BE SURPRISED IF THAT ENTITY JOINS HANDS WIH JIO IN 2017. SHIFTING RIVALRY:
As of now the competition is between Airtel, Idea & Vodafone and there is some possibility that Reliance Comm. can sell its Pan India 800 MHz spectrum to Reliance Jio, where Reliance Jio is highly likely to take on Airtel & Vodafone through Spectrum Route.
THREAT OF SUBSTITUTE PRODUCTS The potential major substitutes for the telecom industry are as follows: VOIP (Skype, Messenger etc.) Online Chat Whatsapp has more or less killed the SMS service. Now it is getting into voice posing a bigger threat to TELCOS. Email Additionally, products and services from non-traditional telecom industries such as Cable TV and satellite operators are laying their own direct lines into homes, offering broadband internet services. Railways and energy utility companies are utilizing their vast infrastructural installations to support high-capacity telecom network alongside railtracks, pipeline networks, and electricity transmission lines. Many ISPs (Internet Service Providers) are offering "internet telephony" at low prices. For service providers skilfully managing their transition from voice to data services, internet messengers such as Skype, Google Voice and Chat pose a threat.
BUYER PROPENSITY TO SUBSTITUTE
Internet subscriber base increasing in India by 18.06%, compared to 10.60% for GSM/CDMA services. It is on a low base. That’s like saying that India is the fastest growing economy. Even at 7.6% we cannot match a 1% increase in the $ 15 trillion us economy. We are just 2 trillion.
Representations from the industry and from within the DoT to open up Net telephony. Dot also contemplating allowing operators without a unified access license, which includes broadband and Internet companies such as Google and Skype to offer telephony services for international calling and PC-to-PC domestic calls
RELATIVE PRICES
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Internet Telephony eating into the revenue of GSM/CDMA telephony.
Flat/ fixed rate revenues from internet services - cannibalization of revenues from GSM/CDMA services.
PERFORMANCE OF SUBSTITUTE
Voice quality is an issue with internet telephony.
Internet voice services also currently limited due to regulatory road blocks
BARGAINING POWER OF BUYERS BUYERS PURCHASES RELATIVE TO SELLER’S SALE
The individual buyers are usually not the main focus area of competition but enterprise customers like IT or Banks are. Such big customer clients generate major portion of revenue for the telecom companies like Reliance, Idea or Airtel; resulting in higher buyer power. However, for providers not targeting these big clients, it isn’t very significant. PRODUCTS PURCHASED BY BUYERS CONSTITUTE A SIGNIFICANT PORTION OF THEIR TOTAL OPERATING COSTS
The telecom service providers bid for spectrum and pay for tower installation only to transmit it to the ultimate users as this is their only business so it constitutes a major chunk of their total operating cost. The telecom products like voice calls, 3G data services, etc. comprise 100% of the total cost of the service and the buyers are thus, more sensitive to pricing. PRODUCTS ARE STANDARD AND UNDIFFERENTIATED
The end product i.e. telecommunication service being provided are similar in nature and it is highly unlikely for the provider to maintain product differentiation. The prices of the services provided are also therefore competitive and lie in the same slot. . Owing to less product differentiation, the buyers have the option to select the operators and have a high bargaining power EARN LOW PROFIT:
The bargaining power rests with the buyers, leaving the telecom service providers fully dependent on their consumer base. This results in low profits for the companies. POSSIBILITY OF BACKWARD INTEGRATION
There are not many intermediaries between the service providers and the ultimate consumers. High levels of investment is needed for backward integration, due to which the industry is less likely to have backward integration. INDUSTRY’S PRODUCT DOES NOT AFFECT QUALITY OF PRODUCT OR SERVICE OF BUYER
With increase in advertisements, usage of social networking sites, and other media, the knowledge of buyers regarding the operators and other technology substitutes has increased. This provides them with high bargaining power.
BARGAINING POWER OF SUPPLIER SUPPLY DOMINATED BY FEW COMPANIES:
At first glance, it comes across as the telecom equipment suppliers having considerable bargaining power over telecom operators. Without high-tech broadband switching equipment, fibre-optic cables, mobile handsets and billing software telecom operators would not be able to transmit voice and data from place to place. But there are e a large number of equipment makers around. The price war between the suppliers is tremendous, resulting in low bargaining power. NO COMPETITION FROM SUBSTITUTES
The number of suppliers is few, substitutes are uncommon, and contribution of these supplies to the overall cost and quality are huge. The dearth of talented and skilled manpower also adds pressure on the suppliers, curtailing the capabilities to bring about changes and enhance the bargaining power for suppliers. 18 | P a g e
PRODUCT SUPPLIED IS AN IMPORTANT INPUT TO INDUSTRY
The products supplied are important inputs for the companies as a whole because they lay the base for the service providers to deliver their final product. SUPPLY PRODUCTS ARE DIFFERENTIATED
The product supplied are not differentiated and are homogeneous in nature, however the number of suppliers are enough to dilute the bargaining power. SUPPLIERS CAN FORWARD INTEGRATE
The number of suppliers is few, substitutes are rare, and contribution of these supplies to cost and quality are huge. Although the suppliers do not have any scope of forward integration, the high switching cost for the industry provide a great bargaining power to suppliers. However the shared tower infrastructure brought forth a transformation. Silicon chip manufacturers, sub-contractors and employees also act as suppliers to the industry. Due to heavy competition among chip manufacturers, their bargaining power is essentially low.
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“LOWER THE INDEX VALUE GREATER THE INDUSTRY ATTRACTIVENESS”
SWOT ANALYSIS 1. India's base of telephone subscribers expanded at a CAGR of 19.22 to 1,002 million over FY07 –15. 2. Wireless subscriber is expected to grow at 2.5 million new subscribers. The ‘Indian Telecom Industry‘ services is not restricted to basic phone but it also extends to internet, broadband, cable TV, SMS, IPTV, soft switches etc. The wireless technology currently in use in Indian Telecom Industry are Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). There are majorly 5 GSM- Bharti, Vodafone, Idea, Aircel and Telewings and 3 dual technology operators that are Reliance communication, Tata teleservices, BSNL, MTNL and 1 pure CDMA operator-Sistema shyam providing mobile services in 22 telecommunication circles (19 circles and 3 metros) 3. Other than mobile telephony services, other value-added services are also becoming important. The Indian telecom industry has always attracted foreign investors. In fact, Government allowed 100 percent foreign direct investment –Aug, 2013 in the telecom sector, meeting a key demand of the fund-starved industry. 4. The introduction of Mobile Number Portability (MNP) in India has made the Indian Telecom market more competitive, in terms of service offerings and quality. 5. Introduction of Calling Party Pays (CPP) which is a billing option whereby the person making call is charged for its full cost. 6. The top 3 operators, Bharti Airtel, Vodafone and Idea account for 70% of the revenues of the industry. 7. Bharti Airtel, Vodafone and Idea account for 59% of the total subscriber base, of 975 million subscribers.
1. Ad hoc policy making performed by the government has led to hindrance in the growth of industry 2. Slow pace of the reform process as it is difficult to make in-roads into the semi-rural and rural regions due to the lack of infrastructure. The service providers have to incur a huge initial fixed cost to make inroads into this market. Achieving break-even in such a scenario may be difficult. 3. The sector needs players with large financial resources because of the above stated constraint. Upfront entry fees and bank guarantees represent a major share of initial investments. While these criteria are important, it tends to support the current big and old players. Financing such requirements needs a more liberal approach from the policy side. 4. The limited availability of spectrum and the issue of inter-connection charges between the state and private operators. 5. Indian Telecom sector has 1 of the highest duties and levies imposed on it. The total regulatory charge is between 17 –26% exclusive of goods & service tax. This increased incidence of duty and levies means a decreased return on capital, therefore adversely effecting availability of funds for expansion of network. 6. Hiked spectrum charges should be avoided by the government, so that operators get encouraged to invest more.
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Rural Telephony: With the urban markets reaching their saturation level for telecom services, especially the voice telephony services, the large rural market has a huge potential to drive future growth of the telecom industry. In fact, the teledensity in rural regions is 15%, which shows the extent of opportunity left to be t apped for telecom companies. 1. 4G Services : 4G in addition to the regular voice and other services of 3G, provides mobile broadband Internet access, to laptops with wireless modems, and to other mobile devices. Future and current applications include amended mobile web access, IP telephony, gaming services, video conferencing, 3D television, cloud computing. 2. Infrastructure Sharing: The fast expansion in subscriber base has brought the challenge of upgrading and increasing the telecom infrastructure in order to maintain quality of services. In recent years, infrastructure sharing has come out as a profitable proposition for all parties involved, as for the tenant it lowers capex and opex, and for the owners, it is an extra source to earn revenue. It would lead to reduction in initial set-up costs for new service providers and current service providers planning to enter new service areas. Although passive infra sharing has happened few years ago. Indus towers is owned jointly by Bharti Airtel, Vodafone and Idea. 3. Virtual Private Network (VPN): Virtual Private Network, also known as closed user group (CUG), is a private data network that provides connectivity within closed user groups via public telecommunication infrastructure. The option is less expensive as it relies on sharing of public infrastructure. This service was first availed in India by corporate units that required VPN services to connect to their branch offices. 4. IPTV: Internet protocol television (IPTV) offers internet, telephone and television services on a single platform. IPTV allows the telecom service providers an opportunity to widen the gamut of existing services and is likely to be advantageous for large players in the telecom sector. 5. Spectrum sharing: Mobile telephony works on radio waves, called spectrum. Today mobile services are offered on multiple bands―800/900/1800/2100/2300MHz bands. The spectral efficiency is better in the lower bands. It is with the entry of 3G that data services started in the country. In the early days, the spectrum was provided administratively, i.e., an operator got spectrum based on the number of subscribers he had. It was in 2010, post the 2G scam that India went in for a formal electronic auction of spectrum. Since 2010, the government has raked in big money from spectrum auctions―Rs 1.02 lakh crore (the 2010 auction of 2100MHz band for 3G services and 2300MHz for broadband wireless access―BWA services or 4G), Rs 61,000 crore in 2014 and Rs 1.1 lakh crore in 2015. But for services to take place, you need telecom towers. Currently, there are around 500,000 telecom towers in India. It is from these towers that signals are transmitted to the user via an optic fiber backbone.
1. ARPM (Average Revenue per Minute) : It is computed as total net revenue divided by the total number of time (in terms of minutes) of traffic over network for the particular period of time. ARPM is a key telecommunications industry financial measurement basically a telecom company want that its network is being used at all times. Like in electricity, every minute the user does not use the phone, the telecom company is losing money. 2. The Lack of Telecom Infrastructure: The inadequacy of telecom infrastructure in semi-rural and rural areas could be one of the major obstacle in tapping the huge rural potential market. The service providers have to invest a lot of Plant &Machinery in order to enter into rural market. Further, major setback for many rural areas in India is of lack basic infrastructure such as road and power, developing telecom infrastructure in these areas involve greater logistical risks and also extend the time taken to provide telecom services 3. Excessive Competition: Post liberalization, the economy opened up giving way to new entrants in the industry, leading to intense competition between the players .The Indian wireless market becameone of the world’s most competitive markets. The auction of new 3G licenses and the introduction of mobile number portability (MNP) also heated up competition in the industry . 4. Price War between the Service Providers Putting Pressure on Margins: According to McKinsey report, increasing competition in the sector, with licenses and spectrum in several circles allocated to newer operators, is also a matter of concern and could possibly lead to unrealistic pricing levels to grab subscribers. The strategy of pricing for every second billing already has taken the price war between telecom operators to the next level. The escalating price war could put serious downward pressure on the industry revenue growth. Further, the ongoing price war and the associative decline in the telecom traffic could raise the entry barrier for new
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companies.
.
5. Spectrum Allocation: The availability of 3G spectrum is one of the major concerns for the industry. Lack of adequate spectrum which is the most important part of the mobile telephone sector could hamper its growth severely. However, the spectrum allotment has been one of the most contentious issues in the Indian telecomsector. 6. Regulatory Charges: The governing charges in the telecom sector have a difficult structure because multiple levies impede the smooth implementation of telecom projects in India. The continuously-falling ARPUs, and the extremely-low tariffs, sustaining the current growth rates of the industry needs immediate attention towards rationalizing the convoluted tax structure in the sector. Regulatory Changes
Service Tax
License Fee
Spectrum Charges
USO
% age of revenue
14%
6% to 10%
2% to 6%
5% included in license fees
Figure: Structure of Regulatory Charges
7. Lower Broadband Penetration: The Indian economy remains largely underpenetrated with respect to broadband connections. High cost of devices (PC and laptop), high internet charges and the lower wire line connections have been some of the important factors inhibiting broadband penetration. Broadband is one of the key wave maker for the economic development and dominant initiatives by both the government and service providers are needed to increase its penetration. This is included in the above . .
FINANCIAL ANALYSIS LIQUIDITY ANALYSIS CURRENT RATIO: The current ratios of Reliance communications, Idea Cellular and Bharti Airtel have been calculated from 2011 to 2015 respectively. As per our analysis, the current ratios of these three companies is well below the ideal ratio, i.e., 2:1.This can be attributed to the fact that because of the long credit period enjoyed by them their trade payables are quite high as compared to their trade receivables. Comparing all the three players we conclude that, Reliance Communications is in a better position in 2015 as compared to the others. (Refer Graph 1.1 from Annexure)
WORKING CAPITAL:. Airtel and Idea had negative working capital in 2015 which means that the liabilities that need to be paid within one year exceed the current assets that are monetizable over the same period. In comparison, Reliance has had a positive working capital throughout the five years used for analysis. (Refer Graph 1.2 from Annexure)
QUICK RATIO: Amongst the three companies, Reliance communications has a high quick ratio around 2 in all the five years which means that it is investing a lot of resources in the working capital which may be more profitably used elsewhere. Idea and Bharti Airtel have low quick ratios and are taking too much risk by not maintaining an appropriate buffer of liquid resources. Another reason could be that these companies have better credit terms. (Refer Graph 1.3 from Annexure)
CASH RATIO: All the three companies have cash ratios way below 1 which means that the companies need more than just its cash reserves to pay off its current debt. (Refer Graph 1.4 from Annexure)
PROFITABILITY ANALYSIS OPERATING MARGIN: For all the 3 companies in the industry, the operating margin has increased over the last years, indicating a higher level of efficiency by the firms and also greater revenue levels. This also shows a functional pricing strategy of the firm. (Refer Graph 1.5 from Annexure) 22 | P a g e
GROSS MARGIN: The three companies have sufficient level of operating margin, i.e. companies are able charge quite high for the services provided in order to cover various expenses like License fees, Access charge etc. (Refer Graph 1.6)
EPS: Amongst three companies, it can be said that Bharti Airtel’s profitability of the firm on the per share basis is quite good because of the company’s ability of providing services effectively and efficiently. Whereas profitability of Idea cellular has shown some improvement over the period but Reliance communication has shown a decline in terms of profitability due the increase in Access charge, License charge and network Expense. (Refer Graph 1.7 from Annexure)
BOOK VALUE: Looking at the book value of the share of all the three companies. Bharti Airtel’s Book value has increased overtime which indicates that the level of safety is more as there would be more amount left after paying the debt the reason behind this increase in revenue from services against the cost of providing service Whereas compared to Airtel, Idea’s book value is quite less but comparing its owns value over the period of five years, book value of the share has increased by two folds which is a positive indicator for the shareholders of the company. While the Book value of Reliance has been decreasing year by year because inappropriate allocation of resources and increase in various cost like access charge, Network expenses etc. (Refer Graph 1.8 from Annexure)
LEVERAGE RATIO ANALYSIS DEBT EQUITY: The debt equity ratios have been calculated for Reliance Communications, Bharti Airtel and Idea Cellular from the year 2011 to 2015.The ratio gives an idea about the debt a company is in and the equity it has at its disposal. Reliance Communications, saw a steady increase in their equity ratio from 2011 to 2014, however in the current year, it has witnessed a fall indicating a more financially stable company. The firm raised a huge amount through unsecured loans in the year 2014, which was repaid in the last financial year. Thereby, causing a fall in the ratio. Bharti Airtel has always had a low debt equity ratio through the years. The company raised the scale of operations to match the corresponding rise in the sales level. They took to raising funds through unsecured loans in the years 2012 and 2013, which were however repaid in the next year. The funds were then raised through issue of equity, leading to a consistent increase over the years, indicating stability in their capital structure policy with regards to increasing debt and equity. (Refer Graph 1.9 from Annexure)
INTEREST COVERAGE RATIO: In the initial years, only Bharti Airtel had a very high interest coverage ratio; indicating a low debt expense burden on the company. In that year, Reliance Communications faced a negative interest coverage ratio showing the inability of the company to meet their fixed obligations. The EBIT of the three companies fluctuated variably with corresponding changes in the interest obligations. This was due to increase in borrowings via secured and unsecured loans and also due to their repayments. (Refer Graph 1.10 from Annexure)
P/E RATIO: The P/E ratio of Idea Cellular is very high, for instance in 2015 market price of every rupee of earning is 23 times. In general, a high P/E suggests that investors are expecting higher earnings growth in the future. Reliance in 2015 has P/E ratio as 0 as compared to 2012 in which it has the highest ratio which was not a good indicator at that point of time as it can be perceived as being overvalued. Bharti Airtel has had moderate P/E ratios which is a positive factor. (Refer Graph 1.11 from Annexure)
DPS: Reliance communications has 0 DPS in 2015 which could be because it had loss in this year. Compared to Idea Cellular, Bharti Airtel have high profits and high reserves, therefore they have declared dividends. Airtel has paid dividends in all the 5 years used for analysis. Idea Cellular trend of declaring dividends would be because of low profits since their total expenditure in all the years have been high, maximum being the cost of providing services. (Refer Graph 1.12 from Annexure)
RETURN ON CAPITAL EMPLOYED: among the three companies, Reliance Communication has been incurring losses and has not been able to employ capital funds effectively in order to generate profits. Airtel, on the other hand is an example of effective capital employment, resulting in generation of higher returns.
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TURNOVER RATIOS DEBTORS TURNOVER: Among the three companies, Idea Cellular has the highest ratios for all the years which implies either that the company operates on a cash basis or that its extension of credit and collection of accounts receivable are efficient. Also, a high ratio reflects a short lapse of time between sales and the collection of cash, while a low number means collection takes longer. (Refer Graph 1.13 from Annexure)
CREDITORS TURNOVER: amongst the three companies in 2015 idea had the highest creditor turnover ratio i.e. 5.306 which implies that idea pays its creditors back on average of 5 times a year .But as observed, Reliance Communication had the highest creditor paying back capacity in the year 2012 TOTAL ASSETS TURNOVER: Reliance communications has the highest amongst the three. Lower ratios mean that the company isn't using its assets efficiently and most likely have management or production problems. Idea Cellular and Bharti Airtel have low ratios indicating that they are generating less revenue compared to the investments made. FIXED ASSETS TURNOVER: After computing the ratio, it can be said that Airtel and Idea has been consisting generating sales from amount invested in fixed asset which means that they have utilized there assets. Optimally for providing services to consumers, whereas Reliance is not able to utilized its fixed assets to generate sale of service to consumer as its fixed asset turnover is half of other two companies (Refer Graph 1.14 from Annexure)
DUPONT ANALYSIS RETURN ON EQUITY: On computing the ratios we can infer that shareholders who have invested in Bharti Airtel are getting a good rate of return consistently on their investment throughout five years, whereas rate of return on the investment of the shareholders of Idea Cellular has increased over years because of proper allocation and utilization of funds and carrying out all operating activities effectively and efficiently , on the other hand shareholders of Reliance are not able to earn a reasonable rate of return due to company’s incapability of using equity for the operation and they were not able to cut or maintain same level of access charge ,Network expense etc. due to which they had to suffer loss in accounting period 2014-15.( (Refer Graphs 1.15 to 1.20 from Annexure)
COMMON SIZE STATEMENT BALANCE SHEET: Telecommunication industry is one of the most volatile sectors in our economy, with so many technological advances happening across the sector. Companies operating insist on maintaining a huge amount of their funds as reserves. The companies require the amount for various purposes, like setting up of towers; spectrum costs; upgrading services; etc. The non-current investments by all the companies have been into their own privately owned subsidiaries, because these companies are the major resource suppliers for them. Also, withdrawing their investments from these companies is an easier task for them. The major sources of fund applications are freehold land, leasehold land and plant-machinery, because of setting up of towers and other infrastructural requirements.
PROFIT & LOSS: The proportion of expenses for providing services to customers has been consistently constant across the years and also across the industry players. The major chunk of the expenses are incurred on power fuel charges and access charges for all the players in the industry. . (Refer Graph 2.9 to 2.14 from Annexure)
COST ANALYSIS Telecom is a capital-intensive industry. It requires an extensive network infrastructure to provide fixed line and wireless services. 1. Idea Cellular: Over the years there has been an increase in the percentage of variable costs and decrease in the
fixed costs in proportion to the total costs. The variable costs which includes the power and fuel costs, 24 | P a g e
miscellaneous expenses etc. have all had an increase because the scale of sales of the company must have increased in order to grow. In terms of the fixed cost, the selling and distribution costs have decreased because as time passes a Company as big as Idea has established selling channels in place whereas the employee cost has increased as the Company needs more labor in order to grow. (Refer Graph 1.23 & 1.24 from Annexure) 2. Bharti Airtel: Both the fixed costs as well as the variable costs are in equal proportion in terms of the total cost in all the years used for analysis. In variable cost, there has been a significant rise in all the constituent costs associated with it. Although there has been a minimal rise in the employee costs for Airtel which indicates that they have not increased their employee base as such but there has been a rise in the selling and administration expenses unlike Idea. This could be due to the fact that Airtel wants to expand and touch more areas in order to outplay its competitors. (Refer Graph 1.25 & 1.26 from Annexure) 3. Reliance Communications In this case, the proportion of variable costs is much higher as compared to the fixed costs. In the variable costs, there has been a sharp decline in the manufacturing expenses which could be due to the fact that vertical FDI decreases manufacturing costs. (Refer Graph 1.21 & 1.22 from Annexure)
TREND ANALYSIS Idea cellular: As we can see from the graph that there has been a compounded annual growth rate of 124 % in the number of assets from 2011-2015.But this is a good sign for the company since the cash flow from operations has always been positive and available to fund the investment activities. The company had negative free cash flow because the company won 17.2 MHz of 1800 MHz spectrum in 4 services areas and 5 MHz of 2100 MHz spectrum in Kolkata service area in the auction held in March, 2015. The total amount committed by the company for spectrum won in March, 2015 auctions is ` 301,375 Mn out of which 19,350 mn has been paid before March 31, 2015 and included in Capital Advances. (Refer Graph 1.27 from Annexure) Bharti Airtel: Airtel with a huge investment of 2 billion dollars in the 4g auction has led to a negative free cash flow and currently there has been an increase of 11.27% in the net sales which is indicative of the fact that may be the investment turned out to be profitable in the long run. But the company has to take care of the increasing debt rate which is approximately 108 % more than last year. So whether the investment turns out to be fruitful depends upon the technology involved and how they are able to maintain their customer base in the coming years. (Refer Graph 1.28 from Annexure) Reliance Communications: The lesser sales of the company over the last two years has been the result of negative cash flow from investments. Last year, due to the introduction of the MNP (Mobile Number Portability), over 1.4 crore subscribers left the network. Anil Ambani's Reliance Communications was the biggest loser in mobile number portability, thereby causing massive decline in their sales. However, their share prices have been consistently increasing, the reason for the same can be attributed to their brand value. (Refer Graph 1.29 from Annexure)
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HUMAN RESOURCES ANALYSIS
Recruitment Compensation
Retention
Leadership
Indian Telecom Majors have general 40 to 50 % of the employee strength on their Payroll & rest on Contract Basis. Major Telecoms are known for best HR Practices in India & Recently Bharti Airtel & Idea Cellular has won the Award for best “HR Practices” & the reason being they follow Top Down approach but feedback Mechanism works on Bottom up Approach. These Companies Generally recruit best talent from the well-known institutions Put through rigorous learning curve to become a future Leader, the Leadership trend used by some important telecoms has been given below. COMPENSATION: According to various studies in recent times, the telecom sector offers the best salary packages at the entry level i.e. an average of 20k. The average hike in salaries across the various levels in the telecom sector ranges from 15 to 20 percent. Incentives also form a part of the compensation till the middle levels . ATTRITION & RETENTION:
Although the sector faces the moderate attrition rates of 20 to 25 percent, the HR’s prime strategic function in the sector is retaining the talent and employee engagement. The only functional area which faces the high attrition rate is the sales people in the telecom industry .
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Vodafone
Airtel - Leap Architecture
-Class & Online Training
- Competency Development
-OnJob Training
- Continuing Leadership
-Special Projects
development(Harvard)
-Online Library Coaching
Entry Level Idea Reliance -Leadership Institute at Vashi. -Vestibule Training -Conferences & Role level Playing -Employee Engagement Module
-Rotational Training -Gyanodaya -Continuing Education -E-Learning -Leadership Programs
Bharti Airtel – Role Model in HR Practices
The Company’s culture is focused on customer-centricity collaborative team work, result orientation, entrepreneurial mind-set and developing people. At the end of March 2015, Bharti Airtel, along with its subsidiaries, associates and JVs, had 24,694 employees, of which, 9,202 were employed directly by the Company. Efforts towards developing functional capabilities across the organisation continued, with the review of the Company’s current skill levels and development of functional academies to build next-generation functional and domain capabilities. These academies make learning an ongoing process through tools like e-learning, on-the-job learning, elibraries and so on. In the year gone by, significant investments have been made in developing Network, Marketing, Mobile Money, Data, Finance, SCM and IT capabilities within the organisation. Ensuring that all employees across levels are aware of what is expected of them from both business and people perspectives, through an initiative titled ‘Talent First’. This also provides a holistic ‘One View of Talent’ across the organisation and helps channel the Company’s Talent Management initiatives effectively. To build a holistic leadership pipeline within the organisation, some of its key leadership development initiatives included i-RISE, i-LEAD and Bharti Global Leadership Programme. In addition, the Company partnered with the prestigious Harvard Business School to customize leadership development intervention for its Top 50 leaders across its global operations.3
3
Ref: Naukri.com
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OPERATIONAL ANALYSIS The Operational Planning for a telecom operator starts when it acquires a license to offer services. That will be subsequent to acquiring radio spectrum for the services it wants to launch. Since 2010, the Government of India has been auctioning radio spectrum. It had then auctioned spectrum in the 2100MHz band for 3G services and in the 2300MHz band for broadband wireless access (BWA) services. Since then, it has auctioned spectrum in the 800MHz/900MHz/1800MHz bands. The base price for the auctions is determined by the Department of Telecommunications (DoT) based on the recommendations made by the Telecom Regulatory Authority of India (TRAI). Once the auction is over, the telecom operator is aware of the circles where he has to launch services. Today, an operator can offer any service—2G/3G/4G--on the spectrum he acquires via an auction
THE INITIAL PROCESS OF SELECTION OF OPERATORS FOR THE ALLOCATION OF SPECTRUM. India started early in the field of auctioning of spectrum. Under the policy of 1994, spectrum was included within the telecom license. The Department of Telecommunication auctioned the licenses which is an incumbent regulator, policy maker and enforcer. The National Telecom Policy, 1994, realized the fact that it was not possible for the Government alone to achieve targets under this Policy and there was also a need for private participation. Therefore in 1995, bids were invited by the government for private investment by the way of a competitive process in the field of basic telecom services sector. For the implementation of this service the country has been divided into 22 circles. It was further categorized in A, B and C on the basis of the possibility of the region to generate revenue. The Department of Telecom awarded licences to two operators for every service area for cellular mobile telephone services and in case of basic telephone services. The potential service providers in order to be desirable for bidding for licences had to partner up with a foreign company. It was considered that an autonomous Indian company will not have the financial capability and technical know-how to provide basic cellular telecom services on a large scale. Bidding was a two stage process for all the licences. The first stage was to fulfil the criteria, which was based on the financial net worth of the company and its experience in providing such telecom services. The second stage was the valuation of bids. The licence was granted to the provider of telecom service, which has fulfilled the pre-conditions and is the highest level bidder for the licence. Single stage bidding process happened in circles. Separate licences were issued for the four metropolitan cities (Kolkata, Chennai, Mumbai, and New Delhi). Later, the Government entered the market as the third cellular operator in the 2001. A bandwidth of 2*4.4 was allotted to the cellular operators of the start-up government free of charge in the 900 MHz band. The fourth cellular operator got into the market in the year 2001 and a start-up spectrum of bandwidth 2*4.4 MHz was allocated to the operators in the frequency band of 1710-1785 MHz along with 1805-1880 MHz. The Department of Telecom also allowed further allocation of spectrum other than the start-up spectrum allocations. This was based on the availability and explanation provided by the operator for allotment of greater bandwidth. In 2002, the Department of Telecom instituted the subscriber based criterion for the allocation of spectrum. As per this criterion, surplus spectrum would be allocated to the operator, with some amount of subscriber base which was followed by the allocation of 2*12.5 MHz bandwidth to each operator within each circle. THE START-UP ALLOCATION OF SPECTRUM (1995- 2001)
Before the liberalization of the telecom sector, the bandwidth considered for the commercial exploitation was being controlled of the Defense forces in India. This contained frequency bands of ranges 800 MHz, 1800 MHz and 1900 MHz. The commercial exploitation of the spectrum began with the grant of the Cellular Mobile Telephone services in the metro cities. The first round of auction of spectrum was for two CMTS licences in each circles. The DoT auctioned 2*4.4 MHz for GSM technology in the frequency band of 890-915 MHz paired with 935-960 MHz in each circle. 28 | P a g e
Eventually, the Government entered the market as the third cellular operator in 2001. A bandwidth of 2*4.4 was allotted to the start-up government cellular operators which was free of charge in the 900 MHz band. Then the fourth cellular operator entered the market in 2001 and a start-up spectrum of bandwidth 2*4.4 MHz was allotted to the operators in the frequency band 1710-1785 MHz paired with 1805-1880 MHz The DoT also permitted the further allotment of spectrum apart from the start up spectrum allocations. This was based on the availability and rationalization as mentioned by the operator for allocation of more bandwidth. In 2002, the Department of Telecom began the Subscriber based criterion for the allotment of spectrum. As per this criterion, excess spectrum would be allocated to the operator, with a certain amount of subscriber base. This was followed by the allotment of 2*12.5 MHz of bandwidth to every operator within each circle. However, this method of allocation of spectrum was completely different from the allocation of spectrum in other countries. A substantial bandwidth of 2*15 MHz was allocated as start-up spectrum in a lot of countries. This was not the case in India and the Department of Telecom adduced that due to non-availability and hoarding of the spectrum by defence such a policy had to be adopted.
THE POST UASL REGIME (2003-2005) Post implementation of the Unified Access Service Licence, the basic telecom service operators had been allowed to provide full mobility service for a payment of an entry fee which was equivalent to the fee paid by the fourth cellular operator. Such operators migrating to UASL regime were not promised any start up spectrum but it would allocate as and when available. TRAI analyzed the process of spectrum allocation in 2005 with the intention to account for the unemployed spectrum and optimal and efficient utilization of sparse resource such as spectrum. The TRAI found that the maximum spectrum allotted to any operator is 2*10 MHz whereas the international average is close to 2*20 MHz. The TRAI also mentioned that in the 800 MHz band a maximum of 2*5 MHz only had been allocated to the CDMA operators, on the other hand the world average standards are at 2*15 MHz for CDMA operations. The TRAI while scrutinizing that the allotment of the spectrum for the two operators, namely, GSM and CDMA was way below the international average spectrum allotment standards advocated that the current service operators should be provided with more spectrum than before, hence, allowing new players to enter the market as there was already a fair amount of competition in the market. The TRAI Recommendations in 2006, on the implementation of 3G, noted that the Ministry of Defence will leave 2*20 MHz frequency band in the 1800 MHz band with the 25 MHz in the 2.1 GHz UMTS band. In its recommendation TRAI suggested that the extra spectrum left by the defence forces in the 1800 MHz band should be allocated to the operators providing 2G services and it clearly suggested that the Department of Telecom should not treat the 3G spectrum allocation as an extension of 2G spectrum allocation. TRAI recommendations in 2007 suggested that there should not be any limitation on the number of competitors in the telecom sector. The new licenses being granted resulted in a list of license holders who were to be assigned the spectrum as and when it was available. TRAI in its 2007 recommendation noted that the spectrum allocation criteria should be expressed in such a manner so that maximum and efficient utilization of the spectrum can be achieved.
THE ALLOCATION OF 3G SPECTRUM (2010-CURRENT) The Department of Telecom in the year 2008 announced its policy on 3G mobile services. Following the 2006 TRAI Recommendations on the allocation and pricing of spectrum for Broadband wireless access and 3G, the Department of Telecom decided on a concurrent increasing auction for allotment of spectrum. As per the recommendation of the Department of Telecom, it would allocate 2*5 MHz bandwidth in the 2.1 GHz band. . There are three basic aspects here:
.
1.NETWORK PLANNING : 29 | P a g e
This involves building a network where the radio signals talk to each other and are connected by telecom towers that are connected through an optic fiber backbone. The operator needs to decide on how many towers he needs in an area. That will be determined by the traffic in the region. The towers are usually at a distance of 500 to 800 meters and have line of sight. In a city like Delhi that means the towers are installed on building that have a ground floor and three storey on top of that. In rural areas one can operated with ground based towers. Modern mobile networks use cell system because radio frequencies are shared and thus limited. Cell-sites and handset frequencies are changed using a computer and low power transmitters are used so that limited number of radio frequencies can be used simultaneously by many callers with minimal interference. A cellular network is used by mobile operators to attain coverage and capacity for their subscribers. Large geographic regions are broken into smaller cells in order to avoid line-of-sight loss of signal and to support maximum active phones of that region. All cell sites are connected to telephone exchanges (or switches), which then connect to the public telephone network. Each cell site in cities may have a range of approximately 1 ⁄ 2 mile (0.80 km), whereas in rural areas, the range is around 5 miles (8.0 km). There is a possibility that in clear open regions, users may catch signals from a base station 25 miles (40 km) away. Different digital cellular technologies are: Global System for Mobile Communications [GSM], CDMA2000, General Packet Radio Service (GPRS), cdmaOne, Enhanced Data Rates for Evolution [EDGE], Universal Mobile Telecommunications System [UMTS]. Mobile Cellular Network Structure
Cellular mobile-radio network comprises of: 1. A base station subsystem comprising of a network of radio cell sites. 2. The core circuit switched network for handling text and voice calls. 3. A packet switched network for handling cellular data. 4. The public switched telephone network in order connect subscribers to a wider telephony network This network is the foundation of the [GSM] network. There are several functions that are performed by this network to make sure that customers get the desired service including registration, mobility management, call set up, and handover. A phone connects to the network through an RBS [Radio Base Station] present at a corner of the corresponding cell which then connects to a Mobile switching center (MSC). The Mobile Switching Center provides a connection to the public switched telephone network (PSTN). The link of a phone to a RBS is called an Uplink and the other way is termed Downlink. Radio channels effectively use a transmission medium by using the following multiplexing and access schemes: Space Division Multiple Access (SDMA), Frequency Division Multiple Access [FDMA], and Time Division Multiple access (TDMA),Code Division Multiple Access (CDMA), Small Cells
Small cells are those which have a smaller coverage area compared to base stations. 1. Microcell, < 2 kilometers 2. Picocell, < 200 meters 3. Femtocell, around 10 meters Cellular Handover in Mobile Networks
As the mobile user moves from one cell region to another cell region while a call is in progress, the mobile station will look for a new channel to catch on to in order to prevent a call drop. On finding a new channel, the network will request the mobile unit to switch to the new channel while switch the call onto the new channel. In CDMA, several CDMA handsets tends to share a specific radio channel. The signals are kept apart by using a Pseudo noise code (PN code) unique to each mobile. When the user moves from one cell to another, the handset sets radio links with several cell sites simultaneously. This is a "Soft Handoff ", as there is no one defined point where the mobile switches to the new cell. If there is no ongoing communication or the communication can be interrupted, it is possible for the 30 | P a g e
phone unit to spontaneously move from 1 cell to another and then notify the base station with the signal which is the strongest. Cellular Frequency Choice in Mobile Phone Networks
The effect of frequency on mobile coverage means that different frequencies have different uses. Low frequencies, such as 450 MHz NMT, are very good for countryside coverage. GSM 900 (900 MHz) is suitable for light urban coverage. GSM 1800 (1.8 GHz) is limited by structural walls. UMTS, at 2.1 GHz is quite similar to GSM 1800. High frequencies have a disadvantage when it comes to coverage, but it is an advantage when it comes to capacity. Pico cells, scoping e.g. one floor of a building, become possible, and the same frequency can be used for cells which are technically neighbors. Cell service area may also differ with intrusion from transmitting systems, within and around that cell. This is true in CDMA systems. The receiver needs a certain signal-to-noise ratio, and the transmitter must not send with too high transmission power so that it does not cause interference with various other transmitters. When the receiver moves away from the transmitter, the power received diminishes, so the power control algorithm the transmitter works by increases the power it transmits to restore the level of received power. When the noise rises above the received power from the transmitter, and the power of the transmitter cannot be amplified any more, the signal becomes corrupted and thus unusable. In CDMA systems, the affect of interference of other phone transmitters in the same cell on coverage area is very marked and is called, Cell Breathing. Keeping in consideration the technology behind cellular networks, the advantage that operators have today is that there are independent tower companies—Indus Towers, American Tower Corporation, Viom Towers—from whom new operators can lease space and capacity. The more networks there are on a tower, the more viable is the business case for the tower company. What operators do is conduct a drive test in the busy areas. In Gurgaon's Udyog Vihar, the operators monitor signal quality while driving a vehicle through dense traffic. It keeps track of the health of a signal. After the drive, it can be monitored to check if a site is down or it has been de-commissioned. The site KPIs are monitored on a daily basis. At times, like when a sporting event or a music show happens there are much more people at a location than what the site can handle normally. That is when it is checked whether the area needs more sites. Similarly, we know what kind of services that people in different parts of the country use. In Darbhanga in Bihar, there is no demand for 3G services. Voice is the key services and people are happy to be on an Rs 98 per month plan. Even now, the demand for voice is highest in Bihar and people only buy 2G packs. Such a knowledge helps the operator when he is looking to offer additional services. There are basically three type of towers: 1) Ground-based or roof-top site 2) Pole site 3) Small cell. The first is the regular site. The second are those that are commissioned when traffic starts to suddenly rise in an area. The third is the latest which are strapped onto the rooftop of buildings which are connected to a high speed broadband pipe. While network planning is done before services are commissioned, it is a continuous process as the network needs to be beefed up as more people start using the services.
2.CORE OPERATIONS: The core operations include the drive test, site monitoring, infrastructure management, battery bank and gen sets management. Every day there are people monitoring various towers in many places in Uttar Pradesh, Airtel is offering services in areas which are not connected to the national power grid. To keep the towers operational, we generate power with diesel generators. There is a need to check on the towers on a daily basis. At the Rashtrapati Bhawan it was recently discovered that services were getting hit because monkeys there had tampered with the tower.
3.NETWORK OPERATIONS CENTER: A network operations center (NOC), also referred to as " Network Management Center", is a location from which network control and monitoring, or network management, is conducted over, telecommunication or a 31 | P a g e
satellite network. The NOC is the heart of the telecom network. It is from here that calls get routed from one device to another. While you may not realize it, an ISD call from Delhi to say Dubai may be routed through two other countries before it connects with your friend there. We have to build in redundancy in the network. That means that if in case there is a snap in the optic fiber link in one region, the call will be routed through a switch that avoids that region. These things happen in real time so that the user is not aware that there has been a breach in the network. The NOC has agreements with hundreds of vendors who have links with global telecom operators. These agreements help calls to materialize. Key responsibilities of NOC includes: 3. Incident response Communications management 2. Network monitoring 4. Reporting problems NOCs raises issues in a hierarchic manner, thus if an issue is not solved in a fixed time frame, the upper level is informed to speed up problem fixing. NOCs have multiple tiers of workforce, which define how skilled or experienced a NOC technician is. Newly hired NOC technician may be considered a "tier 1", whereas a technician having couple of years of experience may be considered "tier 4" or "tier 3". Some problems are escalated within a NOC before a technician or other network engineers are contacted. 1.
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MARKETING ANALYSIS Idea Cellular Ltd., Bharti Airtel & Reliance Communications together accounts for 53% of total telecom subscribers in India(1 Billion approx. as of June 2015), & 52% in total Market Share, all three companies represent highest level of Standards in Corporate Strategies, Business Ethics ,Corporate Social responsibility , Operations Strategy or CRM, for example Airtel is credited with pioneering the business outsourcing strategy for all of its business operations except Sales-Marketing and finance and building its “Minutes factory” model of high revenue & less expense. The strategy has since been adopted by several operators, the total traffic in terms of voice was around 5.3 billion/day with a net increase of 15.5% as compared to 2014, which can be attributed to better network coverage with an 350,000 2G & 3G Cell sites in a total by these three operators spreading across 55,000 towns in India supported by 18,000 Outlets & 19,500 Call Centre Seats, As of now India stands second in total no. of subscribers, hence it’s natural that the telecom operators are under tremendous pressure to optimize their operations as efficient as possible & Reliance communication took the lead with the announcement of Global Cloud exchange facility, the recent launch of its New corporate theme aligns with the Company’s strategic plan to deliver the world’s first true cloud ecosystem globally ,Since we are living in an era where mobile applications, social media, key technical attributes and applications will exponentially increase volume of digital information being shared every instant. All three operators offers 22 Services in 2G & between 11 to 13 services in 3G, Bharti Airtel has recently launched 4G in India & R-COMM is already laying optic fiber cable for around 50,000 km in addition to its existing 280,000 km intercity Network with a pursuit to improve Video & Browsing Services at higher speeds thanks to the revolution in Smart Phone Technology. Most of the operators has kept a base tariff of 2p/sec for On Net Local/STD calls, 2.5p/sec for Video Calls whereas (Refer Annexure, Table X.X for more details on Tariff Rates), however Termination & Roaming rates are decided by TRAI. The tariff rates in India is one of the lowest in the world & one of the major reasons behind a substantial increase in mobile users (270 million in past 5 years) added with Co-branding activities by most of the operators like Airtel offers free 4G enabled SIM with any purchase of 4G enabled cell phone, Reliance tied up with Lenovo & Idea launched its own 3G phones in GSM Category. In the last 5 years a substantial performance durability has been by most of the operators however it’s the allocation of spectrum i.e. spectrum retention holds the key to succeed in fiercely competitive industry, for example Idea cellular Ltd has a smaller Infrastructure & Man power as Compared to Reliance Communications but it holds a market share of 16.5% as compared to latter with 11.2% & reason behind this is that former holds the crucial 900 MHz spectrum from where it generates 73 % of the total revenues, However R-COMM has implemented a long term strategy i.e. “Go to Market” strategy to maximize revenue growth, The Company has a different strategy for customer reach and enhancing channel efficiency, for 3G States- 900 MHz Circles, 3G Metro- 1800 MHz circles, and especially 3G Dark circles. The R-comm has adopted a new “Circle as a Country” strategy instead India “Fit for everyone”.
The Idea Cellular Ltd. has been awarded with best Promotional Campaign “No Ullu Banawing” & Online Study Campaign “IIN” which has led to substantial impact on Rural India & hence these campaigns have succeeded to a larger extent in their Intention & well received by Masses. RCOM offers the IT, Enterprises infrastructure, National & Global long distance voice, video and data network services on an integrated and highly scalable platform. Its business segments comprise Carrier, Enterprise and Consumer business units. 33 | P a g e
These Indian operators are always known for their equal focus on Product length & width and that is why Airtel has launched customized Voice & data plans in different variants targeting different segments, R-Comm has launched “One India One Plan”, Idea cellular has launched Combo & Plan vouchers especially for Youth & College Students. When it comes to connectivity, R-Comm has an upper hand & is termed as best operator in terms of Coverage area, with the increase in Urban Telecom density at 143.05%(143 subscriptions for 100 consumers) the connectivity becomes important to retain the Market share, however Indian consumer has been marred by call drop these days & TRAI has planned to levy penalty for such issues & even allowed the operators to increase their signal strength but met with strong protest from activists, on the other side Airtel has introduced a new Music device mobile application “Wynk Music” which has been designed to introduce music lovers with over 1.8 million songs ,With this launch, Airtel is the only operator to introduce O.T.T (Over the Top) mobile application in the Indian market. The application is not restricted to any specific mobile operator, enabling customers to buffer & stream, download and buy songs at reasonable rates and experience an ad-free user experience, while this move is a good example of Positioning Strategy. Price
Product
1. 2p/sec for On Net Local/STD Calls & 5p/sec for Video calls. 2. Termination & Roaming Charges decided by TRAI.
1. Prepaid, Postpaid data & Voice Plans. 2. DTH, Blackberry & Video Calling.
Promotion Place:
Available in 55,000 Towns of India & 400,000 Villages.
7P’s
Idea used IIN, Reliance sponsored ICC World-Cup 2015, Airtel Signature Tune by A.R Rehman has highest download hits till date
Process People
r
All three Telecoms together have 50,000 Employees, with 20,000 retailers for B2C & 150 for B2B.
Physical Environment-All three Operators have OHSAS Certified Work-Culture & IDEA recently won the Employer Image award by Nielsen.
Reliance has Dedicated Cloud system for Seam Less Integration of all Services, & all three operators have ISO certified Services
(Refer Annexure 2.1 to 2.7)
Overall these Indian telecoms have tried to improve on every aspect, be it new platform, technology, pricing mechanism or Network Coverage, in fact in a perfectly competitive market where it is an assumption that profits are general negligible, the Indian telecom industry is Paradox as most of the operators are making substantial Profits, the reason can be attributed Low threat of new entrants because of huge capital & Infrastructure requirements in telecomm industry , Vodafone is only example where a foreign entity has succeeded in Indian Market. The Area of Operation of R-Comm & Airtel has been given below.
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(Refer Annexure 2.8) Consumer Cost
Consumer are more focusing on Speed hence Airtel has implemented 4G services.
1. Cut throat competition has forced operators like Airtel to give 4G Services at 3G Rate.
Communication Convenience
For Urban Customers Online & App based services has brought things at fingertip & for rural areas they are forging contacts with maximum grocery, kirana & Paan Stores.
7C s ’
Wall –Painting, Print advertisement are still predominant in rural areas, however ad & Promotional campaigns are more focused on youth & better plans
Co-ordination Channel
Community
In Urban areas online medium is Predominant, in rural areas its Service stores or Outlets are preferred destination for Customers.
Urban customers are more focused on Data Usage whereas Rural on Voice Services, hence customer segmentation is done Demography & Geography wise to achieve Quarterly & Annual Targets
Every Service center, store send its predicted sales business to main center in that zone from where it receive consumer forms,SIM Cards & other value added services
with a toll free no. , email for resolve
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RESEARCH AND DEVELOPMENT ANALYSIS BHARTI AIRTEL JOINT VENTURES
Bharti group’s wholly owned subsidiaries Jersey Airtel and Guernsey Airtel, in 2007 launched mobile services in the British Crown Dependency islands under the brand name Airtel-Vodafone after signing an agreement with Vodafone. Vodafone Airtel- work a 3G network in Guernsey and Jersey.
In 2009,Bharti Airtel and Alcatel-Lucent (Euronext Paris and NYSE: ALU) formed a Joint Venture to manage Bharti Airtel’s pan-India Broadband and Telephone services and to help Airtel’s transition to GenX Networks. Under the Joint Venture, Alcatel-Lucent is supposed to design, plan, deploy, optimize and manage Bharti Airtel’s Telephone and Broadband network through India.
In July 2011, Bharti signed a five-year agreement with Ericsson, which will run and optimize Airtel's mobile networks in Africa. Airtel's mobile networks will be modernized and upgraded by Ericsson in Africa with the latest technology including its multi standard RBS 6000 base station. As part of the upgrading, Ericsson will also provide technology consulting, network planning & design and network distribution. Ericsson has been the managed services and network technology partner in the Asian processes.
MERGERS AND ACQUISITIONS
Bharti Airtel signed a deal with Kuwait-based Zain Telecom to buy its African business for approximately ten billion (approx. Rs. 48,000 crore). It was the 2nd largest acquisition by an Indian entity after Tata’s Corus deal. It made Airtel the world's 5th largest wireless carrier by subscriber base.
Bharti Airtel Limited in 2009 acquired 70% stake in Bangladesh’s Warid Telecom, currently a fully owned subsidiary of the Dhabi Group. Warid Telecom offers mobile facilities across all the sixty four districts of Bangladesh and has a total customer base of above 2.9 million. Bharti Airtel Limited took over control of the company and its board, and rebranded the company's services under its own brand.
In 2010, Bharti Airtel acquired 100% stake in Telecom Seychelles for US$62 million taking its global presence to nineteen countries. On 24 May 2012, Airtel acquired a 49% stake in Wireless Business Services Private Limited (WBSPL) at an investment of nine billion (US$165 million). WBSPL was a joint venture founded by QUALCOMM, held BWA spectrum in the telecom circles of Kerala, Mumbai, Delhi and Haryana. Qualcomm had spent US$1 billion to acquire BWA spectrum in those four circles. The deal gave Airtel a 4G presence in eighteen circles. On 4 July 2013, Airtel announced that it had acquired an additional two percent equity share capital (making its stake fifty one percent) in all the 4 BWA entities of Qualcomm, thereby making them its subsidiaries. Airtel, on 18 October 2013 declared that it had acquired hundred percent equity shares of WBSPL for an undisclosed sum, making it a fully owned subsidiary.
RELIANCE COMMUNICATIONS
Reliance Communications and Alcatel-Lucent signed a global joint venture in May 2008. Combining the exclusive strengths of Alcatel-Lucent and Reliance Communications, the Joint Venture Company would venture in the fast growing USD sixteen billion Managed Network Services industry and will cater to telecom operators across the globe.
Reliance Communications and KRIBHCO, a premier co-operative society with an unparalleled marketing network in rural India signed of a Joint Venture. KRIBHCO Reliance Kisan Limited, the Joint Venture Company, synergized the respective fortes of KRIBHCO and Reliance ADA Group to catalyze Tele-density growth and provision of state-of-the-art products and services to the rural people in India. 36 | P a g e
Recently Reliance Communications is in talks on a possible purchase of Sistema Shyam Teleservices (SSTL). That could give the Russian-owned telecompany's shareholders a stake of less than ten percent in the merged unit to start with.
IDEA CELLULAR
Idea merged with Tata Cellular Limited, therefore getting original license for the Andhra Pradesh Circle in 2000. Took over RPG Cellular Limited and subsequently the license for the Madhya Pradesh Circle. In 2004, Idea Cellular acquired Escotel, cellular service provider in Haryana, Uttar Pradesh (W) & Kerala and new licensee in Himachal Pradesh.
In 2009, Idea took over Spice Communications with the operating circles of Punjab and Karnataka.
KEY PERFORMANCE INDICATORS
A. Subscribers (Subs) Total Subs Subs Segmentation: Prepaid , Post Paid Churn per month Subscriber per Employee
B. Usage
Minutes of Usage (MOU) MOU Segmentation: Prepaid , Postpaid , Aggregate MOU Segmentation: Incoming , Outgoing, Aggregate Number of Outgoing SMS Per Sub Per Month Minutes Per Site Number of Calls Number of Calls per Subscriber Average Call Duration Roaming Minutes International Roaming Minutes International Roaming Minutes Segmentation: Incoming & Outgoing
C. Revenue ARPU ( Average Revenue Per User) o ARPU Segmentation: Voice , Data , Aggregate o ARPU Segmentation: Prepaid , Postpaid , Blended ARPM (Average Revenue Per Minute) o ARPM Segmentation: Prepaid ,Postpaid, Blended Average Revenue Per Call Average Revenue Per Cell Site Average Revenue Per Employee
D. Coverage and Spread Key Towns Covered Population Covered
Area Covered Globalization: Number of Countries Operating Entity % Traffic Within Own Mobile Top fifty percent Users Revenue Top fifty percent Sites Revenue
E. Market Share Subscriber Share Revenue Market Share Minutes Market Share
F. Incremental Performance Share of Increased Revenue Quarterly Sites Added MRPU ( Marginal Revenue Per User) Growth Share of Net Adds Subs
G. Operational Efficiency Average Margin Per User (AMPU) o AMPU Segmentation: Prepaid (More),Postpaid (Less), Blended Employee Cost / Town Covered Labour Cost (% Revenue)
H. Quality Service Performance Network Crowding Connection Establishing (Accessibility) o Call Setup Success Rate (CSSR) I. Connection Maintenance (Retain ability) Call Drop Rate (CDR) Worst Affected Cells for Call Drop Rate Connection with Decent voice quality J. Service Quality Prepaid – Prepaid Service Success Rate No. Portability – Drop Rate Handover Success Rate K. Network Availability
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KEY ISSUE FACING THE INDUSTRY Making data services an important part – Customers nowadays put more importance to data than they do to voice. Even though service suppliers may not possess OTT services, they are still anticipated to provide better user involvement and performance during their subscriber usage. In the second quarter (Jul-Sep 2015) Bharti has seen data accounting for 21.5% of revenues. As data needs rise by the day, operators would need to beef up the network. While voice calling is limited and falls at night, that need not be the case for data. That would mean additional capex in the years ahead. Monetizing new services – Since the users have an ever-increasing demand for data, telecom providers should not ignore OTT services. Thereby, telecom players should begin by providing high-quality, value-added services such as HD video conferencing etc. Telecom providers must supply these services speedily— new technology roll-out should take less time. This will allow players to remain at the head of innovation in the minds of subscribers. Building a brand – A key to success in developing these new services is building a brand that’s known for innovation. To remain major, telecom providers have to differentiate their offerings from every other player. They may do so by investing in the business intelligence essential to understand user’s expectations before their rivals and then use that knowledge to form applications and delivery models that consumers would like to purchase. Leveraging the correct infrastructure – With an increased demand for data usage, telecom operators have to evaluate their present framework and make adaptations to have better flexibility and reliability. Going for controlled and scalable carrier-grade servers can help as can capitalizing on new ideas. Controlling costs – With all the new service innovations coming up and changes taking place, providers must be able to control the costs of the present solutions so they can invest in what’s going to happen in the future. Rising scalable services now can support manage future costs, since operators will be able to respond quickly to market changes. Net neutrality - The latest issue that has become a cause of worry is net neutrality. A few months back Bharti Airtel launched Airtel Zero (a zero rating product). What that did was offer Zero users free data access to some sites. However, it was objected to by people who argued that access to all sites on the internet should be at the same speed. This issue has yet to be resolved. Call drops - Over the past few months, there has been sustained call drops in major cities. Some bit is because of the 900MHz spectrum. While the big operators acquired 900MHz spectrum in the metros, they did not get the same frequency back. The networks take time to be tuned to the new frequency. Second, in many cities, residents have got towers removed fearing radiation. Now the TRAI has come up with a plan that operators need to reimburse people for at most three dropped calls a day. That could seriously impinge operator revenues. Considering that the ARPU is Rs 120, if the operator returns Rs 90 (Rs 3 each for 30 days) then he earns only Rs 30 per customer. Big data and Telecom : Aspects like progress in technology, increase of mobile devices and the necessity of the users to stay connected all the time, have led to unparalleled climb in scale, speed and scope of services by telecom operators across the globe. Today, telecommunication providers face burden in reducing costs, maximizing average revenue per user (ARPU) and improving customer experience. Big data helps and supports telecommunication companies in using the vast data available to lessen customer churn, decrease operating costs and increase revenues.
• Customer campaigning: Finding the prospect market, based on the users having the higher risk of leaving, who can be taken and offer customized services to appeal them. • Consumer experience: Getting thorough customer behavioral perceptions, make actionable plans, offer customized services and discover new revenue prospects. • Network maintenance and monitoring: Get the real picture of network, analyze performance, identify and resolve issues and manage other stakeholders involved.
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ECONOMIC SIZE OF THE PLAN It is difficult for a green field operation in India at this stage. The incumbents are well established. They are well known brands with global affiliations --- Bharti Airtel/ Singtel, Vodafone etc. Spectrum prices are too high and all the high paying customers have already been acquired by the incumbents Requirements to enter into this industry: You need at least 5 MHz of spectrum in each of the 22 circles to offer good quality of service. In order to enter into telecom sector (oligopoly market), a new player would require huge capital investment majorly for spectrum auction and license fees; this means that all players in the industry have enough credibility, trust amongst various banks and investors who fund them. The minimum bid for new entrants is 5 MHz spectrum (where available) and 600 MHz in the 900 and 1800 MHz bands. For the 800MHz band, the minimum bid is 5MHz. License fees: Acquired licenses (including spectrum) are initially recognized at cost. Subsequently, licenses are measured at cost less accumulated amortization and accumulated impairment loss, if any. DoT has announced uniform license fees of 8% AGR for all licenses. Spectrum charges: DoT issued a demand of on the company for Rs.51353cr towards levy of one time spectrum charge. The demand includes retrospective charge Rs. 8940 for holding GSM spectrum beyond 6.2MHz and prospective Rs. 42413 for GSM spectrum held beyond 4.4 MHz.
A rough estimation of spectrum charges across different bands and circles required to enter into market is as follows: Particulars
Metro
Circle A
Circle B
800mhz
2878.6
2272.44
1800mhz
298.2
2695.84
260.8
1642.36
501.85
2100mhz
Circle C
Total (in crs)
5151.04 91.16
Spectrum Charges
3346 2144.21
51353 TOTAL
61994.25
Network Cost: Network is required in large so as to provide more economical and better quality liking for the customers. Mostly this demand is created by the location and not by the capacity as network does not exist everywhere where they are needed. And since most of the rural sector is untapped this operation cost is bound to increase for the player who would enter into that market. Network expenses increased in the telecom industry due to aggressive roll out of 2G, 3G, and 4G sites. It’s a fixed cost hence decreasing the profit of the firm. Rent: Telecom industry operators rent the land for the tower on a long term lease, build the tower over there. This creation of tower industry is because of the increasing competition among the telecom companies. The biggest challenge in this case is not the tower building but the maintenance, plus the rising cost of fuel and need of environmentally responsible increases the cost for the telecom companies. Hence more the towers built higher is the cost of installation and then maintenance increasing the cost bear by the company, hence lower profit. Tower Industry structure
Tower companies are three types: 1. Tower companies formed through joint ventures 2. Tower companies formed though de-merger 3. Independent tower companies (pure play operators)
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Market Players of telecom tower are Indus, Bharti Infratel, QTTIL Quippo, Reliance Infratel, BSNL/MTNL, GTL infra, Tower Vision, Aster Infrastructure, KEC International, and India Telkom Infra etc. At present India has around 330,000 towers in India and it is estimated that another 130,000 towers will be required during the next 3 years. However this projection may come down if the anticipated consolidation takes places among the telecom operators. Operations handled by a tower company: The role of a tower infrastructure company is
site planning, site acquisition and obtaining of necessary regulatory approvals, site erection and commissioning of tower and allied equipment Lastly, the site maintenance including provision of support services such as back-up power, air-conditioning and security will be handled by the tower companies.
Types of towers: Telecom towers are of two types Ground based tower (GBT) - are erected on the ground with a height of 40 meters to 80 meters. These ground based towers are mostly installed in rural and semi-urban areas because of the easy availability of land. Roof top tower (RTT) - is placed on the terrace of high-rise buildings particularly in urban areas. •
•
Financials of a Tower Infrastructure Company: Agreement between Tower Company and its tenants are governed by Master Service Agreements. Duration of lease: 10 -15 years to ensure stable and predictable cash flow for company for rent The commercial terms between the tower company and its tenants are governed by Master Service Agreements (MSA). However each tower depending on whether it is GBT or RTT, will require a very high capital investments ranging from Rs 1.5 million to Rs 2.5 million. Tenancy ratios are expressed as a fraction of total number of tenancies / total number of sites present. At present the average tenancy ratio for the industry is 1.55 per tower which is expected to grow to 1.84 by 2015. However for a long term viability tenancy ratio of 2 will be required. The operating expenditure like rent, fuel and energy charges is shared by the tenants on a monthly basis. The monthly rentals charged by tower companies are approximately Rs 30,000 (US $ 667) for GBT and Rs 21,000 (US $ 466) for RTT per operator.
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VALUE CHAIN ANALYSIS PRIMARY ACTIVITIES
TELECOM INFRASTRUCTURE
NETWORK EQUIPMENT
Indus Towers, Reliance Infratel, Airtel Infratel, BSNL, Viom. -----------------------------------------Nokia-Siemens, Huawei, Ericsson, Alcatel-Lucent vities
NETWORK OPERATOR
CONTENT PORTAL, SUBSCRIPTION & DEVICE RESELLERS
SUBSCRIBERS
Bharti Airtel, Vodafone, Idea, Reliance, Tata DoCoMo. Company Outlet, Dealers
Facebook, Rediff, App Stores
Blackberry, Huawei, UTStarcom
Customer Relationship Management(B2B/B2C)/ HRM SUPPORTING ACTIVITIES
Supply Chain & Enterprise Resource Management Data Warehousing/ VAS/BI & OSS/BSS Figure:1(Ref:Porter’sValuechainAnalysis)
TELECOM INFRASTRUCTURE: With the substantial Rise in data usage as given in the graph below with 3G dominating till 2020 & later 4G, the focus is more on the improving operational efficiency & requires an increase in proportional no. of towers, however the tower segment requires lot of efforts from Telco’s hence they are focusing on leasing out the tower Part to other established companies in tower industry & focusing more on their core Marketing activities, the strategy is not to increase the no. of subscribers but to increase the no. of active subscribers , for instance, as of now India has almost 1 billion wireless subscribers but 900 Million are active ones & there is already Price war among Operators & hence it’s the quality of service which will decide the fate of operators in the coming times. The focus is more on Rural areas & Tier-2 cities as they have shown a marked increase in Telecom density in absolute terms & opening a huge customer segment for telecoms, the cost overhead of tower infrastructure in 20-25% of total operation expenditure, & highly sensitive to diesel prices, the reason being most of the towers are supported by diesel generators & in states like Bihar the tower operated on generator supply for 16-20 hrs. Per day leading to substantial increase in cost for telecoms & that is why most of these companies have outsourced this work & even share the same tower to reduce the cost due to economies of scale. in fact as per the research on future prospect of tower industry by Deloitte India, it is clearly said that the long term cash flow management will be a function how well the operators makes effective use of the towers, especially these companies are showing tremendous interest in rural electrification by Govt. as they will be benefited from a direct supply of electricity by govt. which in turn help them in two way one in reduction fuel charges, secondly in maintaining the green norms.
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4
Graph2(Ref:DeloitteanalysisofIndiantelecomTowerIndustryfutureProspect)
This segment is divided into the providers of hardware & software, the hardware mainly consist of three kind of equipment’s i.e. Public switching equipment, Transmission equipment & Customer premises equipment, most of the hardware providers are non-Indian companies like Ericsson, Nokia networks, Huawei , Cisco & ZTE Corporation around 80 % of the telecom equipment is dominated by these 5 companies around the globe & so does in India, however as the focus is shifting towards a better user experience & efficiency in operations , the telecom operators are also adding required software infrastructure to act as one window for all kind of services for subscribers , the table given below shows the operator tie-ups with different technology partners to enhance their cloud services .
5
Table1(Ref:WebsitesofRespectiveOperators)
NETWORK OPERATORS: Although the Indian telecom market is facing a fierce price war but even after that prominent players are making good profits except Reliance comm. for FY 2014-15, these players have shown a net increase in terms of subscribers ranging from 25 MN to 10 MN except the public operator BSNL, the operational efficiency of an operator is gauged on parameters like:
BTSs Accumulated downtime (not available for service) <=2% Worst affected BTSs due to downtime <=2% Traffic Channel (TCH) Congestion <=2% Call Drop Rate <=2% Worst affected cells having more than 3% TCH drop rate <=3% (Ref: TRAI Report for Quarter Ending in March-2015 6 )
4
Deloitte India-Future Prospect of Indian Tower Industry
5
Deloitte India –Future Prospect of Indian Tower Industry.
6
TRAI Quarterly Report March’15.
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However none of these Indian operators has been able to achieve the above said standards, the reason being the less no. of towers as compared to traffic, exponentially rise in smartphone users, delay in spectrum allocation, recently Indian consumers has been marred by call drops to the extent that TRAI has decided to levy penalty, the severity of the problem can be understood from the fact that even International & established Operators like Vodafone was not able to achieve the above said standards. The Overall Average revenue per user (ARPU) in India is at Rs.108, the ARPU for Prepaid service decreased by 5.83% from Rs.62.08 in QE Dec-14 to Rs.58.46 in QE Mar-15, for Post-paid service increased by 3.94% from Rs.481.99 in QE Dec-14 to Rs.501.00 in QE Mar-15, clearly showing that time has come to focus more on post-paid services as it is showing a +ve increase in ARPU
Telecom Financial Data
Gross Revenue(GR) During the Quarter = Rs. 65227 Crores. % Change in GR over Previous Quarter= 1.99 %
(QE Mar-15) --------------------Revenue & Usage Parameters
Monthly ARPU GSM Full Mobility Service = Rs.120 Monthly ARPU CDMA Full Mobility Service =Rs.108
(QE Mar-15) --------------------Data Usage of Mobile Users ( QE Mar-15)
Data Usage per subscriber per month = GSM 89.06 MB Data Usage per subscriber per month = CDMA 278.22 MB Data Usage per subscriber per month = Total(GSM+CDMA) 99.46 MB 7
(Ref: TRAI Report for Quarter Ending in March-2015)
CONTENT PROVIDERS & DEVICE SELLERS: The above said elements act as Left & Right hand for a telecom operators, as the most of the revenue in now on data services, the emphasis in on content providers to boost the usage of data services by subscribers, for e.g. Google owned You-Tube, more the visitors of you-tube higher will be the data usage & hence revenues but the bone of contention is revenue sharing ratio ,for India it is 30:70 in the favour of Content providers , however telecom operators have realised in the coming time they solely cannot depend on the content providers, they need to act on themselves & Airtel has launched Airtel Money , a platform for online fund transfer & bill payment through Airtel Money app, the 5launch Wi-Fi services in India to tap a niche segment from revenue point of view. It intends to start offering Wi-Fi services in Delhi NCR, Mumbai and Bangalore in initial phase. All plans will be on secure wireless broadband internet with unlimited usage and will be session or time based. Users can use the service by finding a hotspot, selecting airtel Wi-Fi Zone', activating the voucher and then login to start browsing. Airtel intends to partner with establishments to set up hotspots which will be termed Wi-Fi Hangout for an establishment owner and Wi-Fi Partner for the cafe and restaurant owners. Airtel Wi-Fi Partners can offer services at zero investments and can earn commission on every WiFi session sold. Device sellers or smartphone manufactures were unable to incorporate the required changes in their handsets with the onset of 3G in India, as a result 3G services were adversely impacted due to high cost of 3G enabled smart phones, however this did not happened with 4G as operators & Device sellers were in tune & 4G enabled handsets are available in a range of Rs.10, 000.
SUBSCRIBERS: Different geographies & different choices, for rural India where literacy is still biggest hindrance for a proper use of mobile handset most of people still use cell phones for voice services , whereas urban & semi-urban 7
TRAI Quarterly Report March’15.
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areas its Data services & that is why telecoms have customized plans taking into consideration the three factors in the given Venn- diagram. Purchasing Power
Geography
Literacy
The outlets (Paan-bidi shops) in rural areas generally provides prepaid recharge vouchers both through top-up or mobile recharge , hence a substantial effort is required in rural area to gain the customer, the advantage in rural areas are that customers generally do not switch subscribers frequently, hence a customer won in rural places act as permanent source of revenue, However the urban population being more informed generally looks for cost effectiveness & uses the number portability in case of a good offer from rival operator, the focus on 4G & in future 5G is to arrest the literate customers who generally uses wireless service for data purposes, the annual & quarterly report by Dept. of telecom gives an indicative figure of Mobile Number Portability(MNP) for each of the operators through which companies can get whose performance is better in terms of Quality, Consistency of signals & data tariffs because a good performer will have less no. of MNP cases from its customer base to rival operators. For E.g. Till June 30, 2014, over 1.51 crore mobile subscribers switched from Idea Cellular to other telecom operators; however, about 2.46 crore subscribers joined the company's network through the MNP, resulting in a net gain of around 95 lakh customers. In case of RComm, over 1.4 crore subscribers left its network and only about 79.4 lakh subscribers joined through the MNP facility, showing a net loss of about 61.5 lakh customers till June 30. As per data, only three companies Idea, Vodafone and Airtel have gained net subscribers from the MNP facility, while other companies have been on the losing side.
SUPPORT PROCESSES
8
TECHNOLOGY: Efforts are being continuously made to develop affordable technology for the masses, as well as comprehensive security infrastructure for telecom network. Pilot projects on the existing and emerging technologies have been undertaken including WiMax, 3G, and 4G etc. Now focus is on technologies that will improve rural connectivity. Also to develop the R&D infrastructure in the telecom sector and bridge the digital divide, cellular 8
Indian Telecom Market Report 2014-15.
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operators, top academic institutes and the Government of India together set up the Telecom Centres of Excellence (COEs).
9
FIRM INFRASTRUCTURE: The firms in the telecom industry are comprised of executive and non-executive directors and independent and non-independent directors at the top management. Besides, there are specialized people to look after the marketing, finance and human resource divisions of the organization.
Human Resource Management:
Airtel has international Presence & they hire the Best Talent from the Top Universities of that Particular country or state where they are supposed to work, the reason being the local employees are more familiar to the local demographics & culture and hence helpful in doing a better organized business & also add Diversity to the Organization TALENT NURTURING: Efforts towards developing functional capabilities across the organisation continued, with the review of the Company’s current skill levels and development of functional academies to build nextgeneration functional and domain capabilities. These academies make learning an ongoing process through tools like e-learning, on-the-job learning, e-libraries and so on. In the year gone by, significant investments have been made in developing Network, Marketing, Mobile Money, Data, Finance, SCM and IT capabilities within the organisation. These learning interventions, coupled with Airtel’s established career paths, are helping employees make seamless transition to their future roles COMPENSATION: Telecom industry offers the best entry level Remuneration to its employees. The average hike in the salaries of the employees is in the range of 15 to 20 percent. Additionally, there are lucrative incentives for the employees. HERFINDAHL INDEX
S.NO.
1. 2. 3. 4.
COMPANY NAME Bharti Airtel
NET SALES (CR.) 55,496.40
Idea Cellular Reliance Communication Others
31,279.47
34.00 24.70
10,801.00
32.80
1,075.84
11,318.5
8.50
72.25
MARKET SHARE (%)
(MARKET SHARE)2 1,156.00
610.09
9
Indian Telecom Market Report 2014-15.
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Market Share
Bharti Airtel
Idea Cellular
Reliance Communication
Others
FORMULA
H=∑N =1 si2 Where si is the market share of firm in the market, and N is the number of firms. An H below 0.01 (or 100) indicates a highly competitive index. An H below 0.15 (or 1,500) indicates an unconcentrated index. An H between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration. An H above 0.25 (above 2,500) indicates high concentration
The Herfindahl Index for the Telecom Industry is 2,914.18. It shows that the Indian Telecom sector is highly concentrated where clearly Bharti Airtel is leading in terms of the market share. There is a strong entry barrier in the telecom industry.
PROFIT POOL ANALYSIS
CONCLUSIONS FROM PROFIT POOL ANALYSIS:
The Above two graphs shows the Profit Pool at the time of 2006 & 2015. The Operators Share of Revenue has declined by 6% points in last one decade & the reason can be attributed to negligible profit from Voice services in Present time. The Content Providers have highest increment in terms of Revenue share over a last decade, as Most of the Smart phones are using app based applications hence without any doubt this change was bound to happen. Tower Industry has a good Prospect in the next ten years as Govt. has installed 20,000 new towers in FY 16 & Indian Smartphone users are going to double fold in next 5 years, , accordingly Indus towers, Reliance Infratel & Bharti Infratel are going to put substantial effort for the above said development Network Equipment can be considered as weak foothold of Indian telecom Sector, even though India has Second largest no. of subscribers , on the other hand country like China has two major players in the above Segment and thus we need to invest in R & D efforts and not just an End User Provider of telecom Services. 46 | P a g e
Sales channel has shown a decrement as people have started using Post-paid services & most of the e-users prefer online recharge hence margin for traditional sales channels has come down over a decade, however the situation is as it is in Rural India. The Total revenue for FY 16 for Indian telecom Sector is Rs.240,000 (Crores) , whereas in FY 6 it was Rs.90,000 (Crores) , the estimated one for FY 16 was around Rs. 350,000(Crores), however technologies such as WhatsApp, Skype has dimmed the prospects in SMS & Voice/Data Segments.10
UNION BUDGET 2016 IMPACT ON TELECOM INDUSTRY 11 The Union Budget 2016 introduced today only reaffirms the importance accorded by the Government to this sector. The telecom industry had many expectations from this budget including solutions to some of its key concern areas, ranging from rationalization and broad-basing of Cen vat credit scheme, clarification on availability of Cen vat credit on passive telecom infrastructure, availability of credit on Swachh Bharat Cess, accumulation of Education Cess credits, etc. to name a few. While the FM has tried to resolve some of the issues currently plaguing the telecom industry, largely the expectations of the industry from the budget have remained unfulfilled. The Union Budget has targeted Rs. 99,000 crore from the 2016 telecom auctions, for which the auction should of about Rs. 2,40,000 crore. However, this is an unlikely situation to happen. The high spectrum prices are largely because the government shall use it as a cash cow to fund its rising bill. The Finance Minister has stuck to the 3.9% fiscal deficit target in the budget. One of the elements that helped reach this was the earnings from the spectrum auction and the license fees.
One of the welcome proposals include clarity over taxability of assignment of right to use spectrum which has now been specifically declared to be a service . On one hand the industry would take a sigh of relief as this would render such transactions outside the purview of VAT however, on the other hand levy of Service tax would result in significant blockage of funds in credits. On the income tax part, it has been clarified that the deduction shall be available over the period of life of spectrum, however, the same will result in huge litigation for spectrum fees paid by telecom operators prior to March 31, 2016 specially where the telecom operator have claimed depreciation under Section 32 on such payments. Also, Customs and Excise Duty [and thus CVD] have been exempted on parts/ components/ accessories for use in manufacture of Routers, broadband Modems, Set-top boxes, digital video recorders (DVR) / network video recorder (NVR) etc. This would help the industry in reduction of input costs which would consequently reflect in the services provided to end users/ subscribers.
Some other changes which would impact the telecom industry include introduction of Krishi Kalyan Cess @0.5% on taxable services, filing of annual return by service providers, extension of default limitation period for issuance of show cause notices from eighteen months to thirty months. On the direct tax front, the other key demands of the Telecom Industry, which are important for growth engines for the economy, have been ignored. Specifically, the issue with respect to discounts offered to telecom distributors, exclusion of standard telecom services from ‘Royalty’, definition of the term “Royalty” in the Income-tax Act, shall continue to exist as there is no clarification brought in the Union Budget on this.
10
Source: TRAI Reports on Indian Telecom Industry for 2006 & 2015.
11
Economic Times(March 1 st , 2016)
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CONCLUSION From one of the most celebrated among emerging market success stories to a case study in corruption and nepotism, the Indian communications industry has seen a dramatic swing in fortunes in recent years. After several decades of stagnancy under a government-owned monopoly, the industry became a classic example of how the right combination of new technology, innovation, and supportive government policies can transform a sector. India remains the fastest growing telecommunications market globally, though the pace of growth has slowed. Intense competition for market share eroded the industry’s profitability. Aggressive bidding for spectrum made it difficult to maintain prices at a sustainable level and the wave of corruption scandals involving senior government officials has dimmed the industry’s luster in recent years. Nevertheless, the Indian communications services market remains one of the fastest growing and the most competitive anywhere in the world. The transformation of the Indian telecom sector and the impact it had on the lives of ordinary Indians have been almost miraculous. In the not too distant past, a telephone connection was a luxury for most Indians. Since government-owned companies had a monopoly, only the affluent and the politically-allied could get a connection on demand. Others had to wait for years and often resorted to bribing telephone company employees to make a call. When they finally had a connection, callers were typically burdened with erratic service and a rate that could rise because there was no competition. With several service providers even in rural markets, Indian consumers are spoilt for choice. Equipment availability and service reliability are comparable to any developed market, while the call rates are the lowest in the world. With rates as low as a penny per minute and free incoming calls, even the lowest income groups in India can afford cellular telephones now. On their mobile phones they now have access to services like banking and real time information on prices of farm produce. After several quarters of bloodletting, the industry has realized that the price wars cannot be sustained indefinitely, as they would hurt both the established players and the challengers. As a result, call rates have gradually started moving up higher. Some of the established carriers have seen an improvement in profitability, though the call volumes continue to trend lower. Though none of the new entrants are as yet profitable, their losses are unlikely to worsen any further. At the same time, it may be difficult for the smaller players to survive in the long-run and it is possible that some may be acquired by the larger carriers. Mergers & Acquisitions started in a big way. The industry is heading to a 5-6 player market, including Bharti Airtel, Vodafone, Idea Cellular, Reliance Jio, Reliance Communications, BSNL/MTNL and Telenor/Tata Telecom. This is unlikely in the short term as the current regulations and licensing conditions restrict mergers and acquisitions in the industry. For instance, current rules do not permit a carrier to have more than a 40% market share in any of the country’s 22 telecom regions. Further, no telecom carrier can hold more than 10% equity stake in another company in the same region. There are restrictions on the amount of spectrum that can be held. India is currently the world’s second-largest telecommunications market by subscriber base and not revenues. The industry has registered strong growth in the past decade and half. The Indian mobile economy is growing rapidly and will contribute substantially to India’s gross domestic product. The liberal and reformist policies of the Government of India have been instrumental along with strong consumer demand in the rapid growth in the Indian telecom sector. The government has enabled easy market access to telecom equipment and a fair and proactive regulatory framework that has ensured availability of telecom services to consumer at affordable prices. The deregulation of foreign direct investment (FDI) norms has made the sector one of the fastest growing and a top five employment opportunity generator in the country. On analyzing the telecommunications industry over a span of approximately 9 months, we come to conclude that the industry in question is moderately attractive. This can be very well supported by our findings from several frameworks and indices for the major players of the industry – Bharti Airtel, Reliance Communications and Idea Cellular.
As an equity / institutional investor in the industry, it is futile expecting any returns in the short run. The investors need to wait for at least 4 – 5 years before they can expect a return on their investment. As a new entrant in the telecommunications industry, the industry might seem quite unattractive and the investment shall yield no result unless the company has cash flow equivalent to Reliance Jio Communication 48 | P a g e
