Russian Telecom

The Indian Telecommunications network with 70 million connections is the fifth largest in the world and the second largest among the emerging economies of Asia. Today, it is the fastest growing market in the world and represents unique opportunities for U.S. companies in the stagnant global scenario. The total subscriber base, which has grown by 38 % in 2003, is expected to reach 203 million in 2007. The wireless subscriber base has jumped from 1.6 million in 1999 to 28.2 million in 2003. In the last 3 years, two out of every three new telephone subscribers were wireless subscribers. Consequently, wireless now accounts for 40% of the total telephone subscriber base, as compared to only 9.5% in 2000. Wireless subscriber growth is expected to accelerate further from 2 million new subscribers per month now to 2.5 million by 2005.

Given the persistent low telephone penetration rate of about 7 per one hundred and high levels of overall economic growth, the telecom sector offers vast potential. The mobile market recently topped 31 million customers. It is therefore not surprising that India is one of the fastest growing telecom markets with an average annual growth of about 22% for basic telephony and over 100% for cellular and Internet services.

Recognizing that the telecom sector is one of the prime movers of economy, the Government's regulatory and policy initiatives have been directed towards establishing a world-class telecommunications infrastructure. Capital requirements are considerable. India requires investments of at least $37 billion by 2005 and $69 billion by 2010.

The technologies currently in use are Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). There are primarily 10 companies providing mobile services in 19 telecom circles and 4 metro cities, covering 2000 towns across the country. Presently there are 4 GSM operators and 2 CDMA operators in each circle. There are 100 state-of-the-art Networks (GSM + CDMA) on air with a total investment of $8 billion. The Wireless Planning and Co-ordination wing of the Department of Telecommunications allocates spectrum in accordance with the National Frequency Allocation Plan (NFAP). The NFAP is revised every two years according to the radio regulations of ITU. According to the frequency plan, the frequency band 824-844 MHz paired with 869-889 MHz has been earmarked for CDMA operators; 890-915 paired with 935-960 MHz has been earmarked for GSM mobile operators; 1710-1785 MHz paired with 1805-1880 MHz is also reserved for GSM and CDMA operators.

MARKET OVERVIEW

The growth trends in Indian telecom mirror those in the global industry. Wireless has been the principal growth engine, accounting for two-thirds of the total telecom subscriber additions during the last three years. The Indian telecom industry is poised to grow exponentially. We expect the wireless sector to become stronger in the unified licensing environment, and wireless will surpass wireline by late 2004 / early 2005. Teledensity will cross 20 percent in the next five years, beating the Government of India’s target by three years, while telecom revenues will almost triple from $9 billion in 2003 to $23-25 billion by 2007.

The wireless revolution will be fuelled by several factors. The affordability of wireless for the masses will be sustained on account of low tariffs, cheap handsets and attractive financing schemes. Wireless operators will continue to focus on prepaid products in order to increase the adoption of wireless among the lower middle income and low-income groups. Wireline users will increasingly migrate to wireless, lured by the benefits of mobility and the attractive bundled plans that are being launched by the wireless operators. Wireless data services will also become a growing revenue steam. Some operators have already deployed 3G technologies on their networks. With further rollout, it will account for a significant portion of the wireless revenue pie.

As of February 2004 the total mobile market has reached 31.67 million, of which 24.65 million subscribers are GSM and 7.02 million are CDMA (excluding Bharat Sanchar Nigam Limied [BSNL] and Mahanagar Telephone Nigam Limited [MTNL]). Of these totals, Reliance Infocomm has 6.822 million subscribers (6.065 CDMA and 0.757 GSM), Bharti has 6.199 million (GSM), BSNL has 4.954 million, (GSM) Hutch has 4.826 million (GSM), and Idea Cellular has 2.584 million (GSM). Mobile connections are expected to reach 56 million by the end of 2004, representing a 96 per cent increase over 2003, according to Gartner. As per the Cellular Operators Association of India, GSM mobiles phone will reach 471 million by 2010. The pace of growth will accelerate with the introduction of “full mobility” CDMA loop services and the adoption of unified licenses.

MARKET TRENDS

The market for telecom services in 2002-03 has been estimated to be $10.7 billion. The equipment market is estimated to have reached a turnover of $6.27 billion in 2002-03, up from $5.71 billion in 2001-02. The telecom industry comprising services and equipment is expected to increase to $24.29 billion by 2006.

Private players are steadily acquiring an increasing share of the telecom services market. Ten years after the sector was opened to private participation, they account for more than a third of the total subscriber base in India. Private operators play the largest role in mobile services, where the 10 companies that own more than 70 licenses are operating in 23 service areas (there are six operators of mobile services in each circle). BSNL’s existing market position -- particularly its dominance in remote and rural areas -- has made it harder for private players to operate. BSNL’s nationwide presence is also allowing it to catch up with private players in the mobile market, where the state operator provides the most comprehensive coverage.

Despite the regular concessions to the private operators and the rapid pace at which the mobile market is growing, foreign investors continue to withdraw from telecom service joint ventures. Vodafone has sold its 20.76% stake in RPG Cellular, one of the two original operators in Chennai, to the Sterling Infotech group, promoted by Chinnakannan Sivasankaran. AT&T decided to exit from its joint venture with BPL Mobile Cellular by selling its 49% stake to its Indian partner BPL. The acquisition of AT&T’s stake will give BPL flexibility in approaching other financially strong investors. Telesystem International Wireless of Canada sold its 27.5% stake in Hexacom, operator of mobile services in Rajasthan, to Hexacom. First Pacific sold its 49% stake in Escotel to Idea Cellular. And Qualcomm dropped plans to invest $200 million for a 4% equity stake in Reliance Infocomm.

COMPETITION

As noted earlier, the government initially only permitted two operators in each circle. But the government has now moved to unrestricted entry and unlimited competition in all types of services. As a result, there are now multiple operators in each service and in each license area. The entry of additional operators (typically BSNL or MTNL) had led to drastic tariff reductions. Indeed, the competition was so intense that the Telecom Regulatory Authority of India (TRAI) stopped setting the price for mobile services and allowed the market to set prices.

The unified access license and the liberal takeover and foreign direct investment norms are expected to catalyze consolidation. In addition, in early 2004, TRAI published norms that would, under certain conditions, allow intra-circle mergers (i.e., at the regional level) between operators. Mergers will be allowed, for example, if the new entity does not have a market share above 50%, or if the top two firms in a given circle do not together account for a market share of 75% or higher. If these conditions are not met, TRAI has asked the DOT to conduct a detailed impact study on the proposed merger before granting its approval.

The competitive nature of the Indian market leads analysts to predict that there will be a spate of takeovers at the national level in 2004 and 2005, and that only the large operators - BSNL/MTNL, Reliance Infocomm, Tata, Hutchison-Essar, Idea and Bharti - will survive. The consolidation has already begun. Aircel, which operates GSM mobile services in the southern state of Tamil Nadu (except Chennai), has in 4Q03 taken 100% stake in RPG Cellular in the city of Chennai. Aircel will now be able to offer services in the capital city also. Aircel had 475,705 customers in Tamil Nadu while RPG Cellular has 212,823 customers in Chennai.

Idea Cellular, the three-way joint venture between the Tata group, the Aditya Birla group and AT&T, has signed a purchase agreement to buy 100% stake in Escotel, which operates in the six states of Kerala, Haryana and UP (west), Uttar Pradesh (east), Rajasthan and Himachal Pradesh. The subscriber base in these states exceeds 800,000. The 100% buyout comprises the 51% stake held by Escotel and the 49% stake held by First Pacific. Hutchison is consolidating all its 11 operating circle licenses into a single holding company, Hutchison- Essar. Post consolidation, Essar is likely to have a 35% stake in the company. The Tata- owned and recently privatized VSNL has purchased Dishnet Internet and DSL business for $65.7 million while Tata Teleservices may buy HFCL Infotel’s Punjab circle operations. Reliance Infocomm has acquired Flag Telecom for $112 million. With this, Reliance Infocomm will become a leading supplier of bandwidth to over 100 telecom players round the globe.

-Foreign invested companies (Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea Cellular, BPL Mobile, Spice Communications)

On October 1, 2000 the Department of Telecom Operations, Government of India became a corporation and was renamed Bharat Sanchar Nigam Limited (BSNL). BSNL is now India’s leading telecommunications company and the largest public sector undertaking. It has a network of over 45 million lines covering 5000 towns with over 35 million telephone connections.

The state-controlled BSNL operates basic, cellular (GSM and CDMA) mobile, Internet and long distance services throughout India (except Delhi and Mumbai). BSNL will be expanding the network in line with the Tenth Five-Year Plan (1992-97). The aim is to provide a telephone density of 9.9 per hundred by March 2007. BSNL, which became the third operator of GSM mobile services in most circles, is now planning to overtake Bharti to become the largest GSM operator in the country. BSNL is also the largest operator in the Internet market, with a share of 21 per cent of the entire subscriber base.

BSNL plans to add 21.8 million GSM phone and 6.76 million CDMA phone between 2002-2007. BSNL will buy GSM and CDMA switches and transmission equipment and SIM cards.

Established in 1985, Bharti has been a pioneering force in the telecom sector with many firsts and innovations to its credit, such as being the first mobile service in Delhi, the first private basic telephone service provider in the country, the first Indian company to provide comprehensive telecom services outside India in the Seychelles, and the first private sector service provider to launch National Long Distance Services in India. Bharti Tele-Ventures Limited was incorporated on July 7, 1995 for promoting investments in telecommunications services. Its subsidiaries operate telecom services across India.

Bharti’s operations are broadly handled by two companies: the Mobility group, which handles mobile services in 16 circles out of a total 23 circles across the country, and the Infotel group, which handles the NLD, ILD, fixed line, broadband, data, and satellite-based services. Together they have so far deployed around 23,000 km of optical fiber cables across the country, coupled with approximately 1,500 nodes, and have presence in around 200 locations. The group has a total customer base of 6.45 million, of which 5.86 million are mobile and 588,000 fixed line customers, as of January 31, 2004. In mobile, Bharti’s footprint extends across 15 circles. The company plans to invest $444 billion in the current financial year. It plans to install 29 mobile switching centers, buy transmission equipment and also roll out new networks in five new circles with an additional investment of $155 million.

Mahanagar Telephone Nigam Limited (MTNL) was set up on 1st April 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development needs of India’s key metros in Delhi, the political capital, and Mumbai, the business capital. In the past 17 years, the company has taken rapid strides to emerge as India’s leading and one of Asia’s largest telecom operating companies.

MTNL operates basic, cellular and internet services in the metro cities of Delhi and Mumbai. These two cities already have a high telephone density compared to the rest of India. MTNL has over 5 million subscribers and 330,000 mobile subscribers.

MTNL plans to add 1.6 million landline/CDMA phones and 1.15 million GSM mobile phones between 2002-2007. The company plans to invest $500 million during 2004-2005 to expand GSM and CDMA services.

Reliance is a $16 billion conglomerate involved in businesses ranging from oil exploration and refinery to power and textiles. It is also an integrated telecom service provider with licenses for mobile, fixed, domestic long distance and international services. Reliance Infocomm offers a complete range of telecom services, covering mobile and fixed line telephony including broadband, national and international long distance services, data services and a wide range of value added services and applications. Reliance IndiaMobile, the first of Infocomm's initiatives was launched on December 28, 2002. Reliance Infocomm plans to extend its efforts beyond the traditional value chain to develop and deploy telecom solutions for India's farmers, businesses, hospitals, government and public sector organizations.

Until recently, Reliance was permitted to provide only “limited mobility” services through its basic services license. However, it has now acquired a unified access license for 18 circles that permits it to provide the full range of mobile services. It has rolled out its CDMA mobile network and enrolled more than 6 million subscribers in one year to become the country’s largest mobile operator. It now wants to increase its market share and has recently launched pre-paid services.

Tata Teleservices is a part of the $12 billion Tata Group, which has 93 companies, over 200,000 employees and more than 2.3 million shareholders. Tata Teleservices provides basic (fixed line services), using CDMA technology in six circles: Maharashtra (including Mumbai), New Delhi, Andhra Pradesh, Tamil Nadu, Gujarat, and Karnataka. It has over 800,000 subscribers. It has now migrated to unified access licenses, by paying a $120 million fee, which enables it to provide fully mobile services as well.

The company is also expanding its footprint, and has paid $90 million to DoT for 11 new licenses under the IUC (interconnect usage charges) regime. The new licenses, coupled with the six circles in which it already operates, virtually gives the CDMA mobile operator a national footprint that is almost on par with BSNL and Reliance Infocomm. The company hopes to start off services in these 11 new circles by August 2004. These circles include Bihar, Haryana, Himachal Pradesh, Kerala, Kolkata, Orissa, Punjab, Rajasthan, Uttar Pradesh (East) & West and West Bengal.

Company	Million Subs (Feb 2004)	% share
Reliance	6.82	21.53
Bharti	6.19	19.58
BSNL	5.16	16.03
Hutchison	4.82	15.03
Idea Cellular	3.52	11.13
BPL	1.76	5.58
Spice	1.18	3.74
Aircel	0.84	2.68
Tata Indicom	0.63	1.99
MTNL	0.40	1.29
Hexacom	0.27	0.87
HFCL	0.02	0.08

SALES PROSPECTS

The total network equipment market is estimated at approximately $6.3 billion in 2003.

India represents a huge opportunity for handset vendors. Gray market accounts for over 60% of the handset market in India. Despite the market for over 10 million handsets, all handsets are imported into India. Nokia, which has a 45% market share, has not ventured to manufacture locally and has instead recently got permission for wholesale trading of imported handsets. Samsung follows with 21% share, Motorola has 8% share. LG, Alcatel, Sagem, Sony-Ericsson, National Panasonic, Siemens, Phillips and Mitsubishi together hold the remaining 26% market share.

The cellular sector is witnessing dynamic technology trends across the globe with the entry of GPRS/EDGE networks and the anticipated entry of 3G networks in the future. With voice revenues projected to shrink in the near future, GSM cellular operators are turning to GPRS to keep their business growing. These technologies would help enhance revenues for telecom operators by allowing data applications such as:

Geographic positioning systems (one’s whereabouts, the nearest hotel, the route to any destination)

According to JP Morgan Stanley, the cellular segment will be a key driver in the growth in telecom services in India. The share of public operators in this market is likely to diminish and competition would establish itself faster and get a bigger chunk of the market. This would be led by further liberalization, increasing customer expectations, convergence of technologies, and the ability of private players to offer it to the market faster than the incumbent operator. The market share of CDMA services would increase considerably, with Reliance deploying it on a national scale and using it as their primary service offering. Telecom service providers are increasingly focusing on corporate telecom services. Though retail contributes more than 95 percent of the market, it is the remaining 4-5 percent of the market, which is getting more important for revenue generation.

Until late 2003, continual litigation between GSM and CDMA operators around the issue of full versus limited-mobility franchise rights had stalled market progress. With the ending of litigation and the adoption of a unified licensing regime, all operators can now concentrate on rolling out networks, attracting subscribers and improving services instead of fighting battles in the press and in court.

India’s telecommunications sector is now among the most deregulated in the world and presents potentially lucrative opportunities for service providers and equipment vendors alike. American companies that have successfully seized the opportunity are Agilent, Cisco, HP, Hughes Network Systems, Lucent Technologies, Motorola, Qualcomm, Tekelec, Sprint, AT&T, MCI, Lightbridge, and UT Starcom.

MARKET ACCESS

In order for U.S. companies to enter the mobile services in India, they have to complete the following formalities:

In addition to license fees, the cellular licensees pay spectrum charges on a revenue share basis of 2% of AGR for spectrum up to 4.4 MHz or 3% of AGR for spectrum up to 6.2 MHz. The charges will be 4% of AGR for spectrum beyond 6.2 Mhz, which shall be given if the subscriber base is more than 500 thousand.

In terms of NTP-99, cellular operators will be free to provide, within their area of operations, all types of mobile services, including voice and non-voice messages, data services and PCOs utilizing any type of network equipment, including circuit and/or package switches that meet the relevant International Telecommunication Union (ITU)/Telecom Engineering Center (TEC) standards.

The telecom sector highly capital-intensive and requires huge investments over a prolonged period of time. Several domestic operators and overseas investors want:

There are a few other market barriers for entry into the Indian mobile services market, such as:

- High import duty on hand sets and infrastructure import ranging between 20-40 percent

Focuses on information technology and telecommunications sectors. It is organized by India-Tech Foundation, Mumbai. For more details visit: www.telecommindia.com.

February 2-4, 2005, Pragati Maidan, New Delhi.
Showcase of telecommunications equipment, services and technologies.

Organized by TIA of the U.S. in association with Interads Limited, New Delhi. Certified by the U.S. Department of Commerce. For more details visit: www.supercommindia2005.com.

March 29-31, 2005, Pragati Maidan, New Delhi.
Showcase of broadcast, telecom, Satellite and Internet sectors.

Organized by Exhibitions India, New Delhi.
This show is certified by the U.S. Department of Commerce.
For more details visit: www.convergenceindia.org.

Sources: Cellular Operators Association of India, Association of Basic Telecom Operators, Department of Telecom, E&Y, NDA Ventures, Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry, Voice & Data, and Personal interviews.

Телеком в Мире

SUMMARY

MARKET OVERVIEW

MARKET TRENDS

COMPETITION

SALES PROSPECTS

MARKET ACCESS